UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
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 0-26686
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0465087
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
675 BERING DRIVE, SUITE 710
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 977-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
SHARES
OUTSTANDING AT
CLASS FEBRUARY 27, 1998
- ---------------------------- -----------------
COMMON STOCK-$.001 PAR VALUE 5,566,669
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
AND SUBSIDIARIES
FORM 10-Q
JANUARY 31, 1998
TABLE OF CONTENTS
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 30, 1997 and
January 31, 1998..................... 3
Consolidated Statements of Operations
for the Three Months
and Nine Months Ended January 31,
1997 and 1998........................ 4
Consolidated Statement of
Shareholders' Equity for the Nine
Months Ended January 31, 1998........ 5
Consolidated Statements of Cash Flows
for the Nine Months Ended
January 31, 1997 and 1998............ 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..... 18
SIGNATURES................................... 18
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- APRIL 30, 1997 AND JANUARY 31, 1998
APRIL 30, JANUARY 31,
1997 1998
--------------- ------------
(UNAUDITED)
ASSETS
- -------------------------------------
Receivables Held for Investment,
net................................ $ 118,299,063 $131,018,927
Cash and Short-Term Investments,
including restricted cash of
$3,550,391 and $2,975,376.......... 5,967,358 3,893,774
Other Receivables:
Due from servicer............... 8,427,565 9,563,519
Accrued interest................ 1,923,360 2,140,363
Assets Held for Sale................. 1,072,463 2,178,734
Other Assets:
Funds held under reinsurance
agreement..................... 2,563,454 2,138,507
Deferred financing costs and
other, net of accumulated
amortization and depreciation
of $553,143 and $758,324...... 1,101,947 1,321,939
Deferred income tax asset,
net........................... 387,876 439,953
--------------- ------------
Total assets............... $ 139,743,086 $152,695,716
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt:
Secured credit facilities....... $ 112,894,131 $125,206,224
Other Liabilities:
Due to dealers.................. 342,697 258,014
Accounts payable and accrued
liabilities................... 2,460,685 1,745,907
Current income taxes payable.... 109,472 183,028
--------------- ------------
Total liabilities.......... 115,806,985 127,393,173
--------------- ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.001 par value,
10,000,000 shares authorized,
5,566,669 and 5,566,669,
shares issued and
outstanding................... 5,567 5,567
Additional paid-in capital...... 18,464,918 18,464,918
Retained earnings............... 5,465,616 6,832,058
--------------- ------------
Total shareholders'
equity................... 23,936,101 25,302,543
--------------- ------------
Total liabilities and
shareholders' equity..... $ 139,743,086 $152,695,716
=============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- ------------------------------
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1997 1998 1997 1998
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Interest Income...................... $ 4,553,835 $ 5,073,243 $ 13,631,492 $ 14,878,206
Interest Expense..................... 1,739,780 2,052,530 4,968,603 5,811,799
------------ ------------ -------------- --------------
Net interest income........ 2,814,055 3,020,713 8,662,889 9,066,407
Provision for Credit Losses.......... 521,000 1,070,000 1,281,974 2,409,276
------------ ------------ -------------- --------------
Net Interest Income After Provision
for Credit Losses.................. 2,293,055 1,950,713 7,380,915 6,657,131
------------ ------------ -------------- --------------
Other Income:
Late fees and other............. 163,292 148,879 480,886 454,918
------------ ------------ -------------- --------------
Operating Expenses:
Servicing fees.................. 389,116 468,906 1,123,641 1,342,598
Salaries and benefits........... 602,618 616,341 1,720,048 1,882,242
Other........................... 631,544 617,959 1,729,591 1,735,332
------------ ------------ -------------- --------------
Total operating expenses... 1,623,278 1,703,206 4,573,280 4,960,172
------------ ------------ -------------- --------------
Income Before Provision for Income
Taxes.............................. 833,069 396,386 3,288,521 2,151,877
------------ ------------ -------------- --------------
Provision for Income Taxes:
Current......................... 834,379 204,724 1,477,759 837,512
Deferred........................ (530,309) (60,043) (277,449) (52,077)
------------ ------------ -------------- --------------
Total provision for income
taxes.................... 304,070 144,681 1,200,310 785,435
------------ ------------ -------------- --------------
Net Income........................... $ 528,999 $ 251,705 $ 2,088,211 $ 1,366,442
============ ============ ============== ==============
Basic and Diluted Net Income per
Common Share....................... $0.10 $0.05 $0.38 $0.25
============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, April 30, 1997.............. $ 5,567 $ 18,464,918 $ 5,465,616 $ 23,936,101
Net income...................... -- -- 1,366,442 1,366,442
------- -------------- ------------ --------------
Balance, January 31, 1998............ $ 5,567 $ 18,464,918 $ 6,832,058 $ 25,302,543
======= ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 1997 AND 1998
(UNAUDITED)
1997 1998
--------------- ---------------
Cash Flows From Operating Activities:
Net income...................... $ 2,088,211 $ 1,366,442
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation and
amortization expense..... 1,296,635 1,725,386
Provision for credit
losses................... 1,281,974 2,409,276
Charge-offs, net of
recoveries............... (1,078,110) (2,275,540)
(Increase) decrease in:
Accrued interest
receivable............... (332,458) (217,003)
Restricted cash............ 602,133 575,015
Deferred financing costs
and other................ (351,911) (349,234)
Funds held under
reinsurance agreement.... 753,289 424,947
Due from servicer.......... (1,893,576) (1,135,954)
Deferred income tax asset,
net...................... (151,977) (52,077)
Federal income tax
receivable............... 295,523 --
Increase (decrease) in:
Due to dealers............. (334,980) (84,683)
Accounts payable and
accrued liabilities...... (475,425) (714,778)
Current income taxes
payable.................. 138,445 73,556
Deferred income tax
liability, net........... (125,472) --
--------------- ---------------
Net cash provided by
operating
activities.......... 1,712,301 1,745,353
--------------- ---------------
Cash Flows From Investing Activities:
Purchase of receivables......... (50,343,166) (53,862,332)
Principal payments from
receivables................... 32,708,055 38,365,894
Purchase of furniture and
equipment..................... (59,308) (59,577)
--------------- ---------------
Net cash used in
investing
activities.......... (17,694,419) (15,556,015)
--------------- ---------------
Cash Flows From Financing Activities:
Proceeds from advances on
secured debt.................. 43,578,774 47,413,736
Principal payments made on
secured debt............... (29,790,744) (35,101,643)
--------------- ---------------
Net cash provided by
financing
activities.......... 13,788,030 12,312,093
--------------- ---------------
Decrease in Cash and Short-Term
Investments........................ (2,194,088) (1,498,569)
Cash and Short-Term Investments at
Beginning of Period................ 3,601,269 2,416,967
--------------- ---------------
Cash and Short-Term Investments at
End of Period...................... $ 1,407,181 $ 918,398
=============== ===============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period
for --
Interest................... $ 4,610,661 $ 5,824,400
Income taxes............... 1,043,793 763,956
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1998
1. THE COMPANY
ORGANIZATION. First Investors Financial Services Group, Inc. (First
Investors) together with its direct and indirect subsidiaries (collectively
referred to as the Company) is principally involved in the business of acquiring
and holding for investment retail installment contracts secured by new and used
automobiles and light trucks (receivables) originated by factory authorized
franchised dealers. As of January 31, 1998, approximately 43 percent of
receivables held for investment were located in Texas. The Company currently
operates in 17 states.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of First Investors and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The results for the interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year. In the opinion
of management, the information furnished reflects all adjustments which are of a
normal recurring nature and are necessary for a fair presentation of the
Company's financial position as of January 31, 1998, and the results of its
operations for the three months and nine months ended January 31, 1997 and 1998,
and its cash flows for the nine months ended January 31, 1997 and 1998.
The consolidated financial statements for the interim periods have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading.
Certain reclassifications have been made to the 1997 amounts to conform
with the 1998 presentation.
EARNINGS PER SHARE. Earnings per share amounts are calculated based on net
income available to common shareholders. The weighted average common shares
outstanding for the three months and nine months ended January 31, 1997 and
1998, were 5,566,669.
3. RECEIVABLES HELD FOR INVESTMENT
Net receivables consisted of the following:
APRIL 30, JANUARY 31,
1997 1998
--------------- ---------------
Receivables.......................... $ 115,742,904 $ 128,250,078
Unamortized premium and deferred
fees............................... 3,738,156 4,084,582
Allowance for credit losses.......... (1,181,997) (1,315,733)
--------------- ---------------
Net receivables................. $ 118,299,063 $ 131,018,927
=============== ===============
7
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CORE PROGRAM. At January 31, 1998, the Company had investments in
receivables pursuant to the core program with an aggregate principal balance of
$126,258,299.
Activity in the allowance for credit losses for the nine months ended
January 31, 1998, was as follows:
Balance, beginning of period......... $ 1,181,997
Provision for credit losses.......... 2,409,276
Charge-offs, net of recoveries....... (2,275,540)
------------
Balance, end of period............... $ 1,315,733
============
PARTICIPATING PROGRAM. At January 31, 1998, the Company had investments in
receivables pursuant to the dealer recourse program with an aggregate principal
balance of $1,991,779. The Company was reimbursed by participating dealers for
$5,180 of expenses incurred during the nine months ended January 31, 1998.
During the nine months ended January 31, 1998, excess interest of $5,188 was
remitted to the dealers pursuant to this program.
The following table summarizes activity in the dealer reserves for the nine
months ended January 31, 1998.
Balance, beginning of period......... $ 339,602
Additions............................ 14,582
Charges to dealer reserve accounts,
net of recoveries.................. (97,966)
----------
Balance, end of period............... $ 256,218
==========
4. DEBT
Borrowings under the warehouse credit facility and commercial paper
facility were $46,265,000 and $78,941,224, respectively, at January 31, 1998,
and had weighted average interest rates, including the effect of facility fees,
program fees, dealer fees, and hedge instruments, as applicable, of 6.35 percent
and 6.19 percent, respectively. The effect of the hedge instrument on the
weighted average interest rate is immaterial.
The Company's credit facilities bear interest at floating interest rates
which are reset on a short-term basis whereas its receivables bear interest at
fixed rates which are generally at the maximum rates allowable by law and do not
generally vary with changes in interest rates. To manage the risk of fluctuation
in the interest rate environment, the Company enters into interest rate swaps
and caps to lock in what management believes to be an acceptable net interest
spread. However, the Company will be exposed to limited rate fluctuation risk to
the extent it cannot perfectly match the timing of net advances from its credit
facilities and acquisitions of additional interest rate protection agreements.
The Company, through its wholly-owned subsidiary, First Investors Financial
Services, Inc. ("FIFS"), also maintains a $6 million working capital facility
with NationsBank of Texas, N.A. as agent for the banks party thereto. The
purpose of the facility is to support the Company's working capital needs and
for other general corporate purposes. Under the terms of the facility, the
Company may borrow, repay and reborrow up to the lesser of $6 million or a
borrowing base. The initial term of the facility expires on July 10, 1998, and
is renewable annually at the option of the lenders. In the event that the
lenders elect not to renew, any borrowings outstanding at maturity will be
converted to a term loan which would amortize quarterly in equal increments to
fully amortize the balance within one year from the maturity date. At January
31, 1998, there were no outstanding borrowings under this facility.
8
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The document governing the working capital facility contains numerous
covenants governing the Company's business, the observance of certain covenants
and other matters. The Company serves as a guarantor of the indebtedness which
is additionally secured by the pledge of the outstanding stock of FIFS and two
of FIFS' primary subsidiaries. Under the terms of the guaranty, the Company is
prohibited from paying dividends to shareholders without the consent of the
banks.
On January 1, 1998, the Company entered into a $25 million commercial paper
conduit financing (the "First Union Facility") through Variable Funding
Capital Corporation, a commercial paper conduit administered by First Union
National Bank. The financing was provided to a special-purpose, wholly-owned
subsidiary of the Company, First Investors Auto Capital Corporation ("FIACC")
to fund the acquisition of additional receivables generated under certain of the
Company's financing programs.
FIACC acquires receivables from the Company and may borrow up to 88% of the
face amount of receivables which are pledged as collateral for the commercial
paper borrowings. In addition, a cash reserve equal to 2% of the outstanding
borrowings under the First Union Facility must be maintained in a reserve
account for the benefit of the creditors.
The initial term of the First Union Facility expires on December 31, 1998.
If the facility was not extended, receivables pledged as collateral would be
allowed to amortize; however, no new receivables could be transferred to the
facility. At January 31, 1998, there were no outstanding borrowings under this
facility.
5. EARNINGS PER SHARE
<TABLE>
<CAPTION>
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- --------- --------- ---------- --------- ---------
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JANUARY 31, 1997 JANUARY 31, 1998
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to common
shareholders....................... $ 528,999 5,566,669 $0.10 $ 251,705 5,566,669 $0.05
===== =====
Options............................... -- -- -- --
---------- --------- ---------- ---------
Diluted Earnings Per Share
Income available to common
shareholders....................... $ 528,999 5,566,669 $0.10 $ 251,705 5,566,669 $0.05
========== ========= ===== ========== ========= =====
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
JANUARY 31, 1997 JANUARY 31, 1998
------------------------------------ ------------------------------------
Basic Earnings Per Share
Income available to common
shareholders....................... $2,088,211 5,566,669 $0.38 $1,366,442 5,566,669 $0.25
===== =====
Options............................... -- -- -- 122
---------- --------- ---------- ---------
Diluted Earnings Per Share
Income available to common
shareholders....................... $2,088,211 5,566,669 $0.38 $1,366,442 5,566,791 $0.25
========== ========= ===== ========== ========= =====
</TABLE>
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
periods. In 1998, the Company adopted SFAS No. 128, "Earnings per Share," for
all periods shown. Options were not dilutive during the 1997 and 1998 periods.
The accounting change had no effect on previously reported earnings per share.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Net income for the three months ended January 31, 1998 was $251,705, a
decrease of 52% from that reported for the comparable period in the preceding
year of $528,999. Net income for the nine months ended January 31, 1998 was
$1,366,442, a decrease of 35% from that reported for the comparable period in
the preceding year of $2,088,211. Earnings per common share was $0.05 for the
three months ended January 31, 1998, compared to $0.10 per common share for the
prior period. Earnings per common share was $0.25 for the nine months ended
January 31, 1998, compared to $0.38 per common share for the prior period.
NET INTEREST INCOME
The continued profitability of the Company during these periods has been
achieved by the growth of the receivables portfolio and effective management of
net interest income. The following table summarizes the Company's growth in
receivables and net interest income (dollars in thousands):
AS OF OR FOR THE
NINE MONTHS ENDED
JANUARY 31,
----------------------
1997 1998
---------- ----------
Investment in receivables:
Number.......................... 10,021 11,840
Principal balance............... $ 109,773 $ 128,250
Average principal balance of
receivables outstanding during
the nine month period.......... 103,577 121,755
Average principal balance of
receivables outstanding during
the three month period......... 108,123 125,546
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
Interest income(1)................. $ 4,554 $ 5,073 $ 13,631 $ 14,878
Interest expense................... 1,740 2,052 4,968 5,812
--------- --------- --------- ---------
Net interest income........... $ 2,814 $ 3,021 $ 8,663 $ 9,066
========= ========= ========= =========
- ------------
(1) Amounts shown are net of amortization of premium and deferred fees.
10
<PAGE>
The following table sets forth information with regard to the Company's net
interest spread, which represents the difference between the effective yield on
receivables and the Company's average cost of debt, and its net interest margin
(averages based on month-end balances):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
ENDED
JANUARY 31, JANUARY 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Effective yield on receivables(1).... 16.9% 16.1% 17.5% 16.3%
Average cost of debt(2).............. 6.7 6.7 6.6 6.5
--------- --------- --------- ---------
Net interest spread(3)............... 10.2% 9.4% 10.9% 9.8%
========= ========= ========= =========
Net interest margin(4)............... 10.4% 9.6% 11.2% 9.9%
========= ========= ========= =========
</TABLE>
- ------------
(1) Represents interest income as a percentage of average receivables
outstanding.
(2) Represents interest expense as a percentage of average debt outstanding.
(3) Represents yield on receivables less average cost of debt.
(4) Represents net interest income as a percentage of average receivables
outstanding.
Net interest income is the difference between interest earned from the
receivables portfolio and interest expense incurred on the credit facilities
used to acquire the receivables. Net interest income increased for the three
months and nine months ended January 31, 1998 to $3.0 million and $9.1 million,
respectively, from $2.8 million and $8.7 million for the comparable periods in
the preceding year. Net interest income in 1998 represents increases of 7% and
5% from the same periods in 1997.
Changes in the principal amount and rate components associated with the
receivables and debt can be segregated to analyze the periodic changes in net
interest income. The following table analyzes the changes attributable to the
principal amount and rate components of net interest income (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1997 TO 1998 1997 TO 1998
--------------------------------- ---------------------------------
INCREASE DUE TO INCREASE DUE TO
CHANGE IN CHANGE IN
-------------------- --------------------
AVERAGE AVERAGE
PRINCIPAL AVERAGE TOTAL NET PRINCIPAL AVERAGE TOTAL NET
AMOUNT RATE INCREASE AMOUNT RATE INCREASE
--------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $ 733 $ (214) $ 519 $ 2,392 $(1,145) $ 1,247
Interest expense..................... 297 15 312 909 (65) 844
--------- ------- --------- --------- ------- ---------
Net interest income.................. $ 436 $ (229) $ 207 $ 1,483 $(1,080) $ 403
========= ======= ========= ========= ======= =========
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED JANUARY 31, 1998 AND 1997 (DOLLARS IN
THOUSANDS)
INTEREST INCOME. Interest income for the 1998 periods increased to $5,073
and $14,878 compared with $4,554 and $13,631 for the comparable periods in 1997
and reflects an increase of 11% and 9% over the respective periods. The increase
in interest income is due to an increase in the average principal balance of
receivables held of 16% and 18% from the 1997 to 1998 comparable periods. The
increase in average principal balance of receivables held for the three and nine
months ended offset a .8% and 1.2% decline in the effective yield realized on
the receivables from the 1997 to 1998 comparable periods. Management attributes
the decrease in yield to a reduction in financing fees paid by dealers and an
increase in the percentage of receivables on which rate participation is paid to
dealers as incentive to utilize the Company's financing programs.
11
<PAGE>
INTEREST EXPENSE. Interest expense in 1998 increased to $2,052 and $5,812
as compared to $1,740 and $4,968 in 1997. The increase of 18% and 17% over the
respective periods was due to an increase in the weighted average borrowings
outstanding of 17% and 18%. The weighted average cost of debt was flat for the
three month period and declined .1% for the nine month period, reflecting a
general decline in market rates and the positive impact of the Company's hedging
programs.
NET INTEREST INCOME. Net interest income increased to $3,021 and $9,066 in
1998, an increase of 7% and 5% over the comparable 1997 periods. The increase
resulted from the growth of the receivables portfolio which offset a decline of
.8% and 1.1% in the net interest spread over the prior year periods.
PROVISION FOR CREDIT LOSSES. The provision for credit losses for 1998
increased to $1,070 and $2,409 as compared to $521 and $1,282 in 1997. The
increase was the result of the growth of the Company's receivables portfolio, an
increase in charge-offs and the continued strategy of maintaining loan loss
reserves as a percentage of total loans.
LATE FEES AND OTHER INCOME. Other income decreased to $149 and $455 in
1998 from $163 and $481 in 1997 primarily as a result of lower yields on cash
investments. Other income primarily represents interest income earned on
short-term marketable securities and money market instruments.
SERVICING FEE EXPENSES. Servicing fee expenses increased to $469 and
$1,343 in 1998 from $389 and $1,124 in 1997. Since these costs vary with the
volume of receivables serviced, this increase was primarily attributable to the
growth in the number of receivables serviced, which increased by 1,819 from 1997
to 1998.
SALARIES AND BENEFIT EXPENSES. Salaries and benefits increased to $616 and
$1,882 in 1998 from $603 and $1,720 in 1997. The increase was due to higher
salary levels per employee and an expansion of the Company's operations.
OTHER EXPENSES. Other expenses decreased to $618 and increased to $1,735
in 1998 from $632 and $1,730 in 1997. The overall increase was primarily due to
an overall expansion of the Company's asset base and an increase in the volume
of applications for credit processed by the Company in the 1998 periods versus
the comparable periods.
INCOME BEFORE PROVISION FOR INCOME TAXES. During 1998, income before
provision for income taxes decreased to $396 and $2,152 or 52% and 35% from the
comparable periods in 1997. This change was a result of the decrease in net
interest income after provision for credit losses of $342 and $724 and an
increase in operating expenses of $80 and $387.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH FLOWS. On October 4, 1995 the Company sold 1.9
million shares of common stock in a public offering and received proceeds of
$19.4 million, net of underwriting discounts and commissions. Approximately $7
million of the proceeds were used to prepay promissory notes plus accrued
interest, to redeem outstanding preferred stock including accrued dividends and
redemption premium, and to pay issuance costs.
The Company's business requires significant cash flow to support its
operating activities. The principal cash requirements include (i) amounts
necessary to acquire receivables from dealers and fund required reserve
accounts, (ii) amounts necessary to fund premiums for credit enhancement
insurance, and (iii) amounts necessary to fund costs to retain receivables,
primarily interest expense and servicing fees. The Company also requires a
significant amount of cash flow for working capital to fund fixed operating
expenses, primarily salaries and benefits.
The Company's most significant cash flow requirement is the acquisition of
receivables from dealers. The Company funds the purchase price of the
receivables through the use of a $55 million warehouse credit facility provided
to F.I.R.C., Inc. ("FIRC") a wholly-owned special
12
<PAGE>
purpose financing subsidiary of the Company. The current warehouse credit
facility generally permits the Company to draw advances up to the outstanding
principal balance of qualified receivables. The Company paid $18.6 million and
$53.9 million for receivables acquired for the three months and nine months
ended January 31, 1998, compared to $15.0 million and $50.3 million paid in the
comparable 1997 periods. Receivables that have accumulated in the warehouse
credit facility may be transferred to a commercial paper conduit facility at the
option of the Company. The commercial paper facility provides additional
liquidity of up to $105 million to fund the Company's investment in the
receivables portfolio. Substantially all of the Company's receivables are
pledged to collateralize these credit facilities.
On October 22, 1996, the Company entered into a $105 million commercial
paper conduit financing through Enterprise Funding Corporation, a commercial
paper conduit administered by NationsBank, N.A.. The financing was provided to a
special-purpose, wholly-owned subsidiary of the Company, First Investors Auto
Receivables Corporation ("FIARC"). It replaced an existing $75 million
commercial paper conduit facility which was provided by Enterprise Funding to
FIRC. Credit enhancement for the new $105 million facility is provided to the
commercial paper investors by a surety bond issued by MBIA Insurance
Corporation. Credit enhancement for the replaced $75 million facility was
provided by an Auto Loan Protection Insurance ("ALPI") policy issued by
National Union Fire Insurance Company of Pittsburgh and reinsured by the
Company's captive insurance subsidiary. The ALPI policy continues to provide
credit enhancement for the $55 million warehouse credit facility.
Receivables originally purchased by the Company are financed with
borrowings under the warehouse credit facility. Once a sufficient amount of
receivables have been accumulated, the receivables are transferred from FIRC to
FIARC with advances under the commercial paper facility used to repay borrowings
under the warehouse credit facility. Once receivables are transferred to the
FIARC subsidiary and pledged as collateral for commercial paper borrowings, the
ALPI policy with respect to the transferred receivables is cancelled with any
unearned premiums returned to FIRC. FIARC may borrow up to 90% of the face
amount of the receivables being transferred. In addition, a cash reserve equal
to 1% of the outstanding borrowings under the commercial paper facility must be
maintained in a reserve account for the benefit of the creditors and surety bond
provider.
The current term of the warehouse credit facility expires on October 15,
1998, at which time the outstanding balance will be payable in full, subject to
certain notification provisions allowing the Company a period of six months in
order to endeavor to refinance the facility in the event of termination. The
term of the facility has been extended on seven occasions since its inception in
October 1992. The commercial paper facility was provided for a term of one year,
expiring October 21, 1997 and has been extended to October 20, 1998. If the
facility was not extended, receivables pledged as collateral would be allowed to
amortize; however, no new receivables would be allowed to be transferred from
the warehouse credit facility. Management considers its relationship with all of
the Company's lenders to be satisfactory and has no reason to believe either the
warehouse credit facility or the commercial paper facility will not be renewed.
On January 1, 1998, the Company entered into a $25 million commercial paper
conduit financing (the "First Union Facility") through Variable Funding
Capital Corporation, a commercial paper conduct administered by First Union
National Bank. The financing was provided to a special-purpose, wholly-owned
subsidiary of the Company, First Investors Auto Capital Corporation ("FIACC")
to fund the acquisition of additional receivables generated under certain of the
Company's financing programs.
FIACC acquires receivables from the Company and may borrow up to 88% of the
face amount of receivables which are pledged as collateral for the commercial
paper borrowings. In
13
<PAGE>
addition, a cash reserve equal to 2% of the outstanding borrowings under the
First Union Facility must be maintained in a reserve account for the benefit of
the creditors.
The initial term of the First Union Facility expires on December 31, 1998.
If the facility was not extended, receivables pledged as collateral would be
allowed to amortize; however, no new receivables could be transferred to the
facility. At January 31, 1998, there were no outstanding borrowings under this
facility.
In addition to the $185 million in currently available debt facilities
utilized to fund the acquisition of receivables, the Company also maintains a $6
million working capital line of credit to be used for working capital and
general corporate purposes. The facility expires on July 10, 1998. If the
lenders elect not to renew, any outstandings will be amortized over a one year
period. There were no outstandings under the facility at January 31, 1998.
The Company's most significant source of cash flow is the principal and
interest payments received from the receivables portfolio. The Company received
such payments in the amount of $53.3 million and $45.1 million for the nine
months ended January 31, 1998 and 1997, respectively. Such cash flow funds
repayment of amounts borrowed under the warehouse credit and commercial paper
facilities and other holding costs, primarily interest expense and servicing and
custodial fees. During the nine months ended, the Company required net cash flow
of $15.5 million in 1998 and $17.6 million in 1997 (cash required to acquire
receivables net of principal payments on receivables) to fund the growth of its
receivables portfolio.
The following table summarizes borrowings under the warehouse credit
facility and the commercial paper facility (dollars in thousands):
AS OF OR FOR THE
NINE MONTHS
ENDED
JANUARY 31,
--------------------
1997 1998
--------- ---------
WAREHOUSE CREDIT FACILITY:
At period-end:
Balance outstanding............. $ 33,450 $ 46,265
Weighted average interest
rate(1)........................ 6.25% 6.35%
During period(2):
Maximum borrowings
outstanding.................... $ 55,000 $ 53,270
Weighted average balance
outstanding.................... 47,335 41,468
Weighted average interest
rate........................... 6.72% 6.29%
COMMERCIAL PAPER FACILITY:
At period-end:
Balance outstanding............. $ 71,387 $ 78,941
Weighted average interest
rate(1)........................ 6.24% 6.19%
During period(2):
Maximum borrowings
outstanding.................... $ 71,387 $ 91,302
Weighted average balance
outstanding.................... 52,808 76,987
Weighted average interest
rate........................... 6.52% 6.68%
- ------------
(1) Based on interest rates, facility fees and hedge instruments applied to
borrowings outstanding at period-end.
(2) Based on month-end balances.
INTEREST RATE MANAGEMENT. The Company's credit facilities bear interest at
floating interest rates which are reset on a short-term basis whereas its
receivables bear interest at fixed rates which are generally at the maximum
rates allowable by law and do not generally vary with changes in interest rates.
To manage the risk of fluctuation in the interest rate environment, the
14
<PAGE>
Company enters into interest rate swaps and caps with notional principal amounts
which approximate the balance of its debt outstanding to lock in what management
believes to be an acceptable net interest spread. However, the Company will be
exposed to limited rate fluctuation risk to the extent it cannot perfectly match
the timing of net advances from its credit facilities and acquisitions of
additional interest rate protection agreements. As of January 31, 1998 the
Company was party to a swap agreement with NationsBank of Texas, N.A. pursuant
to which the Company's interest rate is fixed at 5.565% on a notional amount of
$120 million. The swap agreement expires on January 12, 2000 and may be extended
to January 14, 2002 at the option of NationsBank. This swap was entered into on
January 12, 1998 and replaced three existing swaps having an aggregate notional
amount of $120 million and fixing the Company's weighted average interest rate
at 5.63%. Two of these swap agreements having a notional amount of $90 million
were set to expire in September, 1998; while, the remaining swap, having a
notional amount of $30 million, was scheduled to expire in October, 1998. The
expiration of each swap could have been extended for an additional two years
from the initial expiration date at the option of NationsBank. Upon termination
of the three swaps, NationsBank was due $785,000 which was factored into the
determination of the interest rate on the alternate swap agreement.
DELINQUENCY AND CREDIT LOSS EXPERIENCE
The Company's results of operations, financial condition and liquidity may
be adversely affected by nonperforming receivables. The Company seeks to manage
its risk of credit loss through (i) prudent credit evaluations and effective
collection procedures, (ii) providing recourse to dealers under its
participating program for a period of time and thereafter secured by cash
reserves in the event of losses and (iii) insurance against certain losses from
independent third party insurers. As a result of its recourse programs and third
party insurance, the Company is not exposed to credit losses on its entire
receivables portfolio. The following table summarizes the credit loss exposure
of the Company (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------------------------
1997 1998
--------------------- ---------------------
RECEIVABLES RESERVE RECEIVABLES RESERVE
BALANCE BALANCE BALANCE BALANCE
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Core Program:
Insured by third party
insurer....................... $ 2,720 $ -- $ 980 $ --
Other receivables(1)............ 101,443 834(2) 125,278 1,316(2)
Participating Program................ 5,610 463(3) 1,992 256(3)
----------- -----------
$ 109,773 $ 128,250
=========== ===========
Allowance for credit losses as a
percentage of other
receivables(1)..................... 0.8% 1.1%
Dealer reserves as a percentage of
participating program
receivables........................ 8.3% 12.9%
</TABLE>
- ------------
(1) Represents receivables reinsured by Company's insurance affiliate or
receivables on which no credit loss insurance exists.
(2) Represents the balance of the Company's allowance for credit losses.
(3) Represents the balance of the dealer reserve accounts.
The Company considers a loan to be delinquent when the borrower fails to
make a scheduled payment of principal and interest. Accrual of interest is
suspended when the payment from the borrower is over 60 days past due.
Generally, repossession procedures are initiated 60 to 90 days after the payment
default.
CORE PROGRAM. Under the core program, the Company retains the credit risk
associated with the receivables acquired. The Company purchases credit
enhancement insurance from third
15
<PAGE>
party insurers which covers the risk of loss upon default and certain other
risks. Until March 1994, such insurance absorbed substantially all credit
losses. In April 1994, the Company established a captive insurance subsidiary to
reinsure certain risks under the credit enhancement insurance coverage for all
receivables acquired in March 1994 and thereafter. With the completion of the
$105 million commercial paper conduit financing in October 1996, credit loss
insurance and the Company's reinsurance liability is cancelled upon the transfer
of receivables to FIARC utilizing commercial paper borrowings. Provision for
credit losses of $1,070,000 and $2,409,276 have been recorded for the three
months and nine months ended January 31, 1998, respectively, for losses which
are reinsured by the Company's captive insurance subsidiary and for losses on
receivables pledged as collateral under the commercial paper conduit facility.
The allowance for credit losses represents management's estimate of losses
for receivables that may become uncollectable. In making this estimate,
management analyzes portfolio characteristics in the light of its underwriting
criteria, delinquency and repossession statistics, historical loss experience,
and size, quality and concentration of the receivables, as well as external
factors such as future economic outlooks. The allowance for credit losses is
based on estimates and qualitative evaluations and ultimate losses will vary
from current estimates. These estimates are reviewed periodically and as
adjustments, either positive or negative, become necessary, are reported in
earnings in the period they become known.
PARTICIPATING PROGRAM. Under the Company's participating program, the
dealer retains the credit risk for a period of time, usually twelve to eighteen
months. In the event of payment default, the dealer is obligated to repurchase
the receivable. A specified portion of the purchase price is set aside in a
reserve account to secure performance of the dealer's repurchase obligation.
Receivables purchased from each dealer are aggregated into pools of specified
size for purposes of tracking the dealer's participation. When the dealer's
participation in a pool is terminated, a portion of the reserve account
exceeding a specified percentage is released to the dealer and the balance is
retained in the reserve account to fund credit losses until all receivables in
the pool are paid in full.
As a result of a shift in the preference of dealers to sell receivables to
the Company under the core program rather than the participating program, the
participating program accounted for less than 2% of the aggregate receivables
held by the Company as of January 31, 1998, representing a 3% decrease from 5%
on January 31, 1997. Management believes that this trend will continue and that
the significance of the participating program by comparison to the core program,
will diminish over future periods.
16
<PAGE>
The following table summarizes the status and collection experience of
receivables acquired by the Company (dollars in thousands):
<TABLE>
<CAPTION>
AS OF OR FOR THE NINE MONTHS ENDED JANUARY 31,
----------------------------------------------------
1997 1998
----------------------- -----------------------
NUMBER NUMBER
OF LOANS AMOUNT(1) OF LOANS AMOUNT(1)
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Delinquent amount outstanding:
30 - 59 days.................... 186 $ 2,728 251 $ 3,687
60 - 89 days.................... 72 1,001 96 1,400
90 days or more................. 88 1,422 169 2,627
--- --------- --- ---------
Total delinquencies.................. 346 $ 5,151 516 $ 7,714
=== ========= === =========
Total delinquencies as a percentage
of outstanding receivables......... 3.3% 3.3% 4.2% 4.3%
Net charge-offs as a percentage of
average receivables outstanding
during the
period(2)(3)....................... -- 1.5% -- 2.6%
</TABLE>
- ------------
(1) Amounts of delinquent receivables outstanding and total delinquencies as a
percent of outstanding receivables are based on gross receivables balances,
which include principal outstanding plus unearned interest income.
(2) Does not give effect to reimbursements under the Company's credit
enhancement insurance policies with respect to charged-off receivables. The
Company recognized no charge-offs prior to March 1994 since all credit
losses were reimbursed by third-party insurers. Subsequent to that time the
primary coverage has been reinsured by an affiliate of the Company under
arrangements whereby the Company bears the entire risk of credit losses, and
charge-offs have accordingly been recognized.
(3) The percentages have been annualized and are not necessarily indicative of
the results for a full year.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) 10.45 -- Security Agreement dated as of January 1, 1998 among First Investors Auto Capital
Corporation, First Union Capital Markets Corp., and First Investors Financial
Services, Inc.
10.46 -- Note Purchase Agreement dated as of January 1, 1998 between First Investors Auto
Capital Corporation, First Union Capital Markets Corp., the Investors, First Union
National Bank, and Variable Funding Capital Corporation.
10.47 -- Purchase Agreement dated as of January 1, 1998 between First Investors Financial
Services, Inc. and First Investors Auto Capital Corporation.
10.48 -- Servicing Agreement dated as of January 1, 1998 between First Investors Auto Capital
Corporation and General Electric Capital Corporation.
</TABLE>
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.
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(Registrant)
Date: March 16, 1998 By: /s/TOMMY A. MOORE, JR.
TOMMY A. MOORE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 16, 1998 By: /s/BENNIE H. DUCK
BENNIE H. DUCK
SECRETARY, TREASURER AND CHIEF FINANCIAL OFFICER
18
SECURITY AGREEMENT
among
FIRST INVESTORS AUTO CAPITAL CORPORATION
as Debtor,
FIRST UNION CAPITAL MARKETS CORP.,
as Deal Agent and Collateral Agent,
and
FIRST INVESTORS FINANCIAL SERVICES, INC.,
as Seller
Dated as of January 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...............................................1
ARTICLE II
GRANT OF SECURITY INTEREST
Section 2.1 Grant of Security Interest................................18
Section 2.2 [reserved]................................................19
Section 2.3 Re-Liening Trigger........................................19
Section 2.4 [reserved]................................................20
Section 2.5 Increase of Note..........................................20
Section 2.6 Release of Receivables....................................21
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR
Section 3.1 Representations and Warranties Concerning Receivables.....22
Section 3.2 Covenants of the Debtor...................................27
ARTICLE IV
SERVICING AND ADMINISTRATION
Section 4.1 Servicing.................................................33
Section 4.2 Rights After Designation of Successor Servicer............34
Section 4.3 Responsibilities of the Debtor............................34
Section 4.4 Monthly Debtor's Certificate..............................35
Section 4.5 Re-Written Receivables....................................35
ARTICLE V
ALLOCATION AND APPLICATION OF COLLECTIONS; RESERVE ACCOUNT
Section 5.1 Collections...............................................35
i
<PAGE>
Section 5.2 Remittances to the Secured Party..........................37
ARTICLE V-A
THE RESERVE ACCOUNT AND THE DEAL AGENT
Section 5A.1 Establishment of the Reserve Account.....................38
Section 5A.2 Maintenance of Eligible Investments......................40
Section 5A.3 Termination of Reserve Account; Release of Funds.........40
ARTICLE VI
TERMINATION EVENTS; SERVICING TERMINATION
Section 6.1 Termination Events........................................40
Section 6.2 Wind-Down Events..........................................42
Section 6.3 Amortization Events.......................................43
Section 6.4 Remedies..................................................43
Section 6.5 Proceeds..................................................44
ARTICLE VII
THE COLLATERAL AGENT
Section 7.1 Duties of the Collateral Agent............................44
Section 7.2 Compensation and Indemnification of Collateral Agent......45
Section 7.3 Representations, Warranties and Covenants of the
Collateral Agent............................................46
Section 7.4 Liability of the Collateral Agent.........................47
Section 7.5 Merger or Consolidation of, or Assumption of the
Obligations of, the Collateral Agent........................49
Section 7.6 Limitation on Liability of the Collateral Agent and
Others......................................................49
Section 7.7 Indemnification of the Secured Party......................50
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Notices, etc..............................................50
Section 8.2 Successors and Assigns....................................51
Section 8.3 Severability Clause.......................................52
Section 8.4 Amendments; Governing Law.................................52
Section 8.5 No Bankruptcy Petition Against the Company................52
Section 8.6 Setoff....................................................52
Section 8.7 No Recourse...............................................53
Section 8.8 Further Assurances........................................53
ii
<PAGE>
Section 8.9 Other Costs, Expenses and Related Matters.................53
Section 8.10 Reporting................................................53
Section 8.11 Counterparts.............................................54
Section 8.12 Headings.................................................54
EXHIBITS
EXHIBIT A Form of Note
EXHIBIT B Receivables Schedule
EXHIBIT C Servicing Agreement
EXHIBIT D List of Eligible Investments
EXHIBIT E Credit Guidelines
EXHIBIT F [reserved]
EXHIBIT G Form of Reassignment of Removed Receivables
EXHIBIT H Form of Monthly Debtor's Certificate
EXHIBIT I Form of Funding Notice
EXHIBIT J [reserved]
EXHIBIT K Forms of Contracts
iii
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (this "AGREEMENT"), dated as of January 1, 1998 among
FIRST INVESTORS AUTO CAPITAL CORPORATION, a Delaware corporation, as debtor
(together with its successors and assigns, the "DEBTOR"), FIRST INVESTORS
FINANCIAL SERVICES, INC., a Texas corporation (the "SELLER"), and FIRST UNION
CAPITAL MARKETS CORP., as deal agent (the "DEAL AGENT") and as collateral agent
(together with its successors and assigns in such capacity, the "COLLATERAL
AGENT").
W I T N E S S E T H :
WHEREAS, subject to the terms and conditions of this Agreement, the Debtor
desires to grant a security interest in and to the Receivables and related
property including the Debtor's security interest in the Financed Vehicles and
the Collections derived therefrom during the full term of this Agreement;
WHEREAS, pursuant to the Note Purchase Agreement, the Debtor has issued
the Note to the Deal Agent, as agent for the Company, and will be obligated to
the holder of such Note to pay the principal of and interest on such Note in
accordance with the terms thereof;
WHEREAS, the Debtor is granting a security interest in the Collateral to
the Collateral Agent, for the benefit of the Secured Party, to secure the
payment and performance of the Debtor of its obligations under this Agreement,
the Note and the Note Purchase Agreement;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS.
All capitalized terms used herein shall have the meanings herein
specified, and shall include in the singular number the plural and in the plural
number the singular:
ACCRUED INTEREST COMPONENT: For any Collection Period, the Interest Component of
all Commercial Paper Notes outstanding at any time during such Collection Period
which has accrued from the first day through the last day of such Collection
Period whether or not such Commercial Paper Notes mature during such Collection
Period. For purposes of the immediately preceding sentence, the portion of the
Interest Component of Commercial Paper Notes accrued in a Collection Period in
which Commercial Paper Notes have a stated maturity date that succeeds the last
day of such Collection Period shall be based on the actual number of days
elapsed in such Collection Period during which Commercial Paper Notes were
outstanding.
<PAGE>
ADDITIONAL AMOUNTS: (a) Any refunds or other payments under any Extended Service
Agreement; (b) refunds in connection with (i) credit life policies relating to
Financed Vehicles and (ii) accident and health policies relating to Financed
Vehicles and (c) sales tax refunds relating to Financed Vehicles.
ADJUSTED LIBOR RATE: With respect to any Collection Period, a rate per annum
equal to the sum (rounded upwards, if necessary, to the next higher 1/100 of 1%)
of (a) the rate obtained by dividing (i) the applicable LIBOR Rate by (ii) a
percentage equal to 100% minus the reserve percentage used for determining the
maximum reserve requirement as specified in Regulation D (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
that is applicable to the Liquidity Provider during such Collection Period in
respect of eurocurrency or eurodollar funding, lending or liabilities (or, if
more than one percentage shall be so applicable, the daily average of such
percentage for those days in such Collection Period during which any such
percentage shall be applicable) PLUS (b) the then daily net annual assessment
rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as estimated by
the Liquidity Provider for determining the current annual assessment payable by
the Liquidity Provider to the Federal Deposit Insurance Corporation in respect
of eurocurrency or eurodollar funding, lending or liabilities.
ADMINISTRATION AGREEMENT: The Administration Agreement, dated as of
September 28, 1995, between the Company and First Union Capital Markets Corp.,
as amended, modified and/or restated.
ADVANCE RATE: On any day, 88%.
AFFILIATE: With respect to a Person, any other Person which directly or
indirectly controls, is controlled by or is under common control with such
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
AGENT'S ACCOUNT: A special account (account number 01 41 96 47) in the name of
the Deal Agent, maintained at Bankers Trust Company.
AGREEMENT: This Security Agreement, as it may from time to time be amended,
supplemented or otherwise modified in accordance with the terms hereof.
AMORTIZATION EVENT: Has the meaning set forth in Section 6.3 hereof.
AMOUNT FINANCED: With respect to a Receivable means the amount advanced to,
or for the benefit of, the Obligor under the Receivable toward the purchase
price of the Financed Vehicle and any related costs.
2
<PAGE>
ANNUAL PERCENTAGE RATE or APR: The annual rate of finance charges of a
Receivable stated in the Receivable.
AVAILABLE COLLECTIONS: With respect to each Remittance Date, all Collections
received by the Servicer, from whatever source, during or with respect to the
prior Collection Period, LESS the fees and expenses of GECC as Servicer which
GECC, pursuant to the Servicing Agreement, is permitted to withhold from amounts
remitted to the Debtor or the Collateral Agent.
BAILEE: A "Bailee" within the meaning of Section 9-305 of the New York UCC.
BASE RATE: A rate per annum equal to the greater of (a) the prime rate of
interest announced by the Liquidity Provider (or, if more than one Liquidity
Provider, then by First Union National Bank) from time to time, changing when
and as said prime rate changes (such rate not necessarily being the lowest or
best rate charged by the Liquidity Provider (or First Union National Bank as
applicable)) and (b) the sum of (i) 1.50%, and (ii) the rate equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day for such transactions received by the Liquidity Provider
(or, if more than one Liquidity Provider, then by First Union National Bank)
from three Federal funds brokers of recognized standing selected by it.
BORROWING BASE: At any time, the product of (i) (a) the aggregate Principal
Balance of all Eligible Receivables MINUS (b) the aggregate Principal Balance of
all Eligible Receivables that constitute Re-Written Receivables to the extent
that such aggregate Principal Balance exceeds 3.0% of the aggregate Principal
Balance of all Eligible Receivables and (ii) the Advance Rate.
BUSINESS DAY: Any day (excluding Saturday or Sunday) on which banks are open for
business in New York, New York, Charlotte, North Carolina and Houston, Texas.
CARRYING COSTS: For any Collection Period the sum of:
(a) The sum of the dollar amount of the Company's obligations for such
Collection Period determined on an accrual basis in accordance with generally
accepted accounting principles consistently applied
(i) To pay interest with respect to Purchased Interests (such
interest to be calculated based on the Adjusted LIBOR Rate, provided such
rate is available, otherwise, the Base Rate) outstanding at any time
during such Collection Period accrued from the first day through the last
day of such Collection Period whether or not such interest is payable
during such Collection Period;
(ii) Without duplication of the amounts described in clause (i)
above, to pay interest, calculated at the Base Rate, with respect to
amounts disbursed by the Credit
3
<PAGE>
Support Provider in respect of Defaulted Receivables, outstanding at any
time during such Collection Period accrued from the first day through the
last day of such Collection Period whether or not such interest is payable
during such Collection Period;
(iii) Without duplication of the amounts described in clauses (i)
and (ii) above, to pay the Accrued Interest Component of Commercial Paper
Notes with respect to any Collection Period (it being understood that to
the extent the Company has obtained funding under the Liquidity Agreement
or a Credit Support Agreement, the Company will not obtain duplicative
funding in the commercial paper markets);
(iv) Any past due amounts not paid in clauses (i), (ii) or (iii)
above; and
(v) To pay the costs of the Company with respect to the operation of
the Yield Protection Provision; and
(b) The Program Fee and Liquidity Fee accrued from the first day through
the last day of such Collection Period and payable in accordance with the terms
of the Fee Letter.
CERTIFICATED SECURITIES: "Certificated securities" as defined in Section
8-102(l)(a) of the New York UCC and Section 8-102(a)(4) of the New York UCC
which are in the continuous possession in the State of New York by the
Financial Intermediary.
CLEARING CORPORATION: The Depository Trust Company.
CLEARING CORPORATION SECURITIES: "Certificated securities" as defined in Section
8-102(l)(a) of the New York UCC and Section 8-102(a)(4) of the New York UCC
which are in the continuous possession in the State of New York or the Clearing
Corporation or a Custodian Bank.
CLOSING DATE: January 1, 1998.
CODE: The Internal Revenue Code of 1986, as amended from time to time (including
any successor statute), and the regulations promulgated and the rulings issued
thereunder.
COLLATERAL: Has the meaning set forth in Section 2.1 of this Agreement.
COLLATERAL AGENT: First Union Capital Markets Corp., or any successor
thereto.
COLLECTION ACCOUNT: The account established pursuant to Section 4.1(b).
COLLECTION PERIOD: With respect to any Remittance Date, the calendar month
immediately preceding the month of such Remittance Date (and with respect to the
initial Remittance Date, the time period from and including the Closing Date to
and including January 31, 1998.
COLLECTIONS: All Principal Collections and Finance Charge Collections
received by the Servicer in respect of the Collateral in the form of cash,
checks, wire transfers or other form of payment.
4
<PAGE>
COMMERCIAL PAPER: Promissory notes of the Company issued by the Company in
the commercial paper market.
COMMERCIAL PAPER NOTES: Commercial Paper the proceeds of which are at any
time allocated by the Deal Agent in respect of the acquisition or maintenance
of the Net Investment.
COMPANY: Variable Funding Capital Corporation, a Delaware corporation,
together with its successors and assigns.
CONVEYANCE DATE: Has the meaning set forth in Section 3.1(a) hereof.
CREDIT GUIDELINES: Policies and procedures of the Seller, relating to the
operation of the automotive financing business of the Seller, including, without
limitation, the policies and procedures for determining the creditworthiness of
retail automotive installment sales contract customers, the extension of credit
to such customers and relating to the maintenance of retail automotive
installment sales contracts and collection of retail automotive installment
sales contracts, as such policies and procedures may be amended from time to
time and which shall be attached hereto as EXHIBIT E.
CREDIT INSURANCE: VSI Insurance and any other insurance with respect to the
Receivables upon which the Company and the Seller have agreed.
CREDIT SUPPORT AGREEMENT: Any agreement between the Company and the Credit
Support Provider evidencing the obligation of the Credit Support Provider to
provide credit support to the Company in connection with the issuance of
Commercial Paper.
CREDIT SUPPORT PROVIDER: The Person or Persons who will provide credit
support to the Company in connection with the issuance by the Company of its
Commercial Paper.
CUSTODIAN BANK: A "custodian bank" as defined in Section 8-102(4) of the New
York UCC.
CUT-OFF DATE: December 31, 1997.
DEAL AGENT: First Union Capital Markets Corp. and its successors and
assigns, as administrator for the Company.
DEBTOR: First Investors Auto Capital Corporation and its successors and
assigns.
DEFAULTED RECEIVABLE: Each Receivable with respect to which (a) in accordance
with the Credit Guidelines, the Seller has determined in good faith that
eventual payment in full is unlikely, (b) the related Financed Vehicle has been
repossessed (c) any payment or part thereof is over 90 days contractually
delinquent or (d) has been identified by the Servicer as uncollectible.
5
<PAGE>
DELINQUENT RECEIVABLE: Each Receivable (a) as to which any payment, or part
thereof, remains unpaid for more than 30 days from the original due date for
such payment and (b) is not a Defaulted Receivable.
DELINQUENCY RATIO: With respect to any Determination Date, the ratio (expressed
as a percentage) of (a) the aggregate amount of remaining scheduled payments of
principal and interest with respect to all Receivables which are Delinquent
Receivables as of the last day of the related Collection Period to (b) the
aggregate amount of remaining scheduled payments of principal and interest with
respect to all outstanding Receivables (that are not Defaulted Receivables) as
of the first day of the related Collection Period.
DETERMINATION DATE: With respect to any Remittance Date, the 15th day of the
month in which such Remittance Date falls or, if such day is not a Business Day,
the Business Day next succeeding such day.
DOLLAR, DOLLARS and "$": Lawful money of the United States of America.
ELIGIBLE INVESTMENTS: Each of the investments attached hereto on the list of
investments set forth as EXHIBIT D, as amended or modified only with the prior
written consent of the Deal Agent and which may include investments for which
the Collateral Agent (but not in its capacity as Collateral Agent) or an
Affiliate of the Collateral Agent provides services.
ELIGIBLE RECEIVABLES: As of any day, each Receivable of the Debtor:
(a) which is payable in Dollars;
(b) at the time of origination, the Obligor on which has provided, as its
most recent billing address, an address located in the United States;
(c) which is not a Defaulted Receivable as of the related Conveyance Date;
(d) which has been created in accordance with, or under standards no less
stringent than, the Credit Guidelines relating to the "Tier III" pricing
program, which Credit Guidelines are attached hereto as EXHIBIT E;
(e) which is not more than 30 days contractually delinquent from the due
date, as of the related Conveyance Date, nor does the Obligor with respect
thereto have any other automotive receivable owing to the Seller which is 60 or
more days contractually delinquent or defaulted as of the related Conveyance
Date.
(f) which was acquired by the Debtor in the ordinary course of the
Debtor's business, was acquired by the Seller in the ordinary course of the
Seller's business and which was created as a result of an advance by an
Originator, directly to or for the benefit of an Obligor for the purchase of an
automobile or light truck;
6
<PAGE>
(g) as of the related Conveyance Date, the Debtor will have good and
marketable title thereto and which is not subject to any Lien or claim or other
encumbrance for any work, labor or materials performed on the related Financed
Vehicle which are Liens prior to, or equal or coordinate with, the security
interest in the Financed Vehicle granted by the Receivable, and as to which, the
Collateral Agent, for the benefit of the Secured Party, shall have a valid and
perfected first priority security interest, free and clear of all Liens,
encumbrances, security interests and rights of others;
(h) as of the related Conveyance Date, to the best of the Seller's
knowledge, a bona fide down payment has been made;
(i) which provides for level monthly payments (provided that the payment
in the first and last month of the Receivable may be minimally different from
the level payment) that fully amortize the Amount Financed by maturity and yield
interest at the APR;
(j) which provides for, in the event that such Receivable is prepaid by
the Obligor, a prepayment that fully pays the Principal Balance of such
Receivable and any interest accrued through the date of prepayment;
(k) which does not represent either a direct or indirect obligation of any
federal, state or local government entity;
(l) the Obligor of which has not previously defaulted on an automobile
installment sales contract purchased by the Seller as of the related Conveyance
Date;
(m) which was originated by an Originator approved by the Seller and which
Originator is subject to an Originator Agreement with the Seller, and which if
acquired by the Seller pursuant to a "bulk purchase" from another Originator has
been approved in writing by the Deal Agent;
(n) which has a clear right of repossession on the Financed Vehicle
securing such Receivable;
(o) [reserved];
(p) which is not, as of the related Conveyance Date, subject to any right
of rescission, cancellation, setoff, claim, counterclaim or defense (including
the defense of usury) of the Obligor;
(q) which has an original term of 60 months or less;
(r) which has an APR of at least 15.0%;
(s) the due date for any payment or payments on which has not been
extended as of any date of determination; PROVIDED, that if the Obligor with
respect to a Receivable has made six
7
<PAGE>
consecutive payments in full on such
Receivable, such Receivable shall be an Eligible Receivable if it satisfies all
other clauses of this definition and if extensions have been granted on the
payments with respect to such Receivable either (i) in the aggregate for no more
than one month for each twelve months of the original term of such Receivable;
or (ii) no more than twice for periods of one month each during the preceding
twelve calendar months;
(t) which is secured by a valid, subsisting, and enforceable first
priority perfected security interest in favor of the Seller in the related
Financed Vehicle, which security interest has been validly assigned by the
Seller to the Debtor;
(u) which represents the genuine, legal, valid and binding payment
obligation in writing of the obligor, enforceable by the holder thereof in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally;
(v) which shall have complied with, at the time of its origination, and
shall remain in compliance with, all Requirements of Law;
(w) which had at the time of origination thereof, an outstanding Principal
Balance of not greater than $40,000;
(x) [reserved];
(y) the Obligor of which is required to make payments to a lockbox under
the control of the Servicer;
(z) which, as of the related Conveyance Date, has not been waived or
modified except as permitted herein by the Deal Agent;
(aa) as to which the Debtor has done nothing, as of the related Conveyance
Date, to impair the rights of the Deal Agent, the Company or the Collateral
Agent therein;
(bb) which is covered by a valid VSI Insurance Policy;
(cc) which constitutes "chattel paper" under and as defined in Article 9
of the UCC as then in effect in the Relevant UCC State; and
(dd) which was acquired pursuant to an Originator Agreement in a
transaction constituting a bona fide sale in the ordinary course of such
Originator's business.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
ERISA AFFILIATE: With respect to the Debtor, at any time, each trade or business
(whether or not incorporated) that would, at the time, be treated together with
the Debtor as a single employer under Section 4001 of ERISA or Sections 414(b),
(c), (m) or (o) of the Code.
8
<PAGE>
EXTENDED SERVICE AGREEMENT: A service contract covering repairs to a
Financed Vehicle.
FACILITY LIMIT: $25,000,000.
FEDERAL BOOK-ENTRY SECURITIES: Securities issued by the U.S. Treasury, FNMA
or by FHLMC which are maintained in book-entry form on the records of the
Federal Reserve Bank of Dallas.
FEE LETTER: The letter agreement, dated the Closing Date, between the
Company and the Debtor in respect of the payment by the Debtor of certain
fees.
FINANCE CHARGE COLLECTIONS: With respect to any Collection Period, the sum of
the following amounts: (a) that portion of all collections on Receivables
allocable to interest, late fees, insufficient funds check charges and related
charges assessed against Obligors, (b) Liquidation Proceeds to the extent
allocable to interest due thereon in accordance with the Servicer's customary
servicing procedures, (c) any amounts received by the Debtor pursuant to any
Interest Rate Hedge Agreement, and (d) the interest portion of the amount
required to be paid by the Debtor to reduce the principal balance of the Note
and release the lien of the Secured Party on each Receivable that became an
Ineligible Receivable during the related Collection Period.
FINANCED VEHICLE: An automobile or light truck, together with all accessions
thereto, securing an Obligor's indebtedness under the respective Receivable.
FINANCIAL INTERMEDIARY: First Union National Bank and any other entity
acting in the capacity of a "financial intermediary" as defined in Section
8-313(4) of the New York UCC.
FINANCIAL INTERMEDIARY SECURITIES ACCOUNT: A reserve account which is a
securities account maintained by the Financial Intermediary in the name of First
Union Capital Markets Corp., as Collateral Agent for the Secured Party.
GECC: Has the meaning specified in Section 4.1(a).
GOVERNMENTAL AUTHORITY: The United States of America, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
GROSS DEFAULT RATIO: On any Determination Date, a fraction (expressed as a
percentage) the numerator of which is the product of (i) 12 multiplied by (ii)
the aggregate outstanding principal balance of Receivables which became
Defaulted Receivables during the related Collection Period and the denominator
of which is the aggregate outstanding Principal Balance of all Eligible
Receivables as of the first day of the third prior Collection Period (provided,
however, that until the fourth Determination Date, the denominator shall be the
aggregate outstanding Principal Balance of all Eligible Receivables as of the
last day of the first Collection Period).
HEDGE COUNTERPARTY: Has the meaning specified in Section 3.2(n) of this
Agreement.
9
<PAGE>
INCIPIENT COVERAGE SHORTFALL: Occurs on any day on which the Net Investment
PLUS accrued Carrying Costs exceeds the sum of (a) the Borrowing Base and (b)
the amount on deposit in the Reserve Account.
INELIGIBLE RECEIVABLE: Has the meaning specified in Section 3.1.
INSTRUMENTS: Has the meaning specified in Section 9-105 of the New York UCC.
INTEREST COMPONENT: (i) with respect to any Commercial Paper issued on an
interest-bearing basis, the interest payable on such Commercial Paper at its
maturity (including any dealer commissions or placement agent fees) and (ii)
with respect to any Commercial Paper issued on a discount basis, the portion of
the face amount of such Commercial Paper representing the discount incurred in
respect thereof (including any dealer commissions or placement agent fees).
INITIAL FUNDING: Has the meaning specified in the Note Purchase Agreement.
INITIAL RESERVE ACCOUNT DEPOSIT: $250,000.
INTEREST RATE HEDGE AGREEMENT: Has the meaning specified in Section 3.2(n).
LAW: Any law (including common law), constitution, statute, treaty, regulation,
rule, ordinance, order, injunction, writ, decree or award of any Official Body.
LIBOR RATE: With respect to any Collection Period, the rate determined by First
Union National Bank ("FUNB") to be (a) the per annum rate for deposits in U.S.
Dollars for a term of one month which appears on the Telerate Page 3750 Screen
on the day that is two London Business Days prior to the first day of such
Collection Period except, that if such first day of the Collection Period is not
a Business Day, then the first preceding day that is a Business Day (rounded
upwards, if necessary, to the nearest 1/100,000 of l%), (b) if such rate does
not appear on the Telerate Page 3750 Screen the term "LIBOR Rate" with respect
to that Collection Period shall be the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/100,000 of l%) of the offered quotations obtained by
FUNB from four major banks in the London interbank market selected by FUNB (the
"REFERENCE BANKS") for deposits in U.S. dollars to leading banks in the London
interbank market as of approximately 11:00 a.m. (London time) on the day that is
two London Business Days prior to the first day of such Collection Period,
unless such first day of the Collection Period is not a Business Day, in which
case, the first preceding day that is a Business Day or (c) if fewer than two
Reference Banks provide FUNB with such quotations, the LIBOR Rate shall be the
rate per annum which FUNB determines to be the arithmetic mean (rounded upwards,
if necessary, to the nearest 1/100,000 of l%) of the offered quotations which
leading banks in New York City selected by FUNB are quoting in the New York
interbank market on such date for deposits in U.S. dollars to the Reference
Banks or, if fewer than two such quotations are available, to leading European
and Canadian Banks.
10
<PAGE>
LIEN: Any mortgage, deed of trust, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing and the filing of any financing statement under
the Uniform Commercial Code (other than any such financing statement filed for
informational purposes only) or comparable law of any jurisdiction to evidence
any of the foregoing.
LIQUIDATION PROCEEDS: (a) Proceeds of any claim under any Credit Insurance and
(b) all monies collected in connection with the disposition of any Financed
Vehicle, from whatever source, securing a Defaulted Receivable, net of the sum
of (x) any amounts reasonably expended by the Servicer in connection with the
liquidation of such Financed Vehicle for the account of the Obligor and (y) any
such amounts required by law to be remitted to the Obligor.
LIQUIDITY AGREEMENT: The agreement between the Company and any Liquidity
Provider evidencing the obligation of the Liquidity Provider to provide
liquidity support to the Company in connection with the issuance of Commercial
Paper.
LIQUIDITY FEE: A fee payable to the Investors by the Debtor, the terms of
which are set forth in the Fee Letter.
LIQUIDITY PROVIDER: The Person or Persons who will provide liquidity support to
the Company in connection with the issuance by the Company of its Commercial
Paper, which, initially, shall be First Union National Bank.
LONDON BUSINESS DAY: Any day which is a Business Day and also is a day on
which commercial banks are open for international business (including
dealings in U.S. dollar deposits) in London.
MONTHLY DEBTOR'S CERTIFICATE: Has the meaning specified in Section 4.4.
MOODY'S: Moody's Investors Service, Inc.
MULTI-EMPLOYER PLAN: A "multi-employer plan" as defined in Section
4001(a)(3) of ERISA to which contributions are or have been made by the
Debtor or any ERISA Affiliate of the Debtor.
NET INVESTMENT: With respect to any date of determination, (i) the sum of (a)
the Original Investment and (b) the amount of any Subsequent Funding occurring
on or prior to such date LESS (ii) the sum of (x) all Collections distributed to
the Deal Agent in reduction of the Net Investment pursuant to Section 5.1 hereof
on or prior to such date of determination, and (y) draws from the Reserve
Account distributed to the Noteholder in reduction of the Net Investment.
NOTE: The note issued by the Debtor to the Company pursuant to Section 2.1 of
the Note Purchase Agreement, as the same may be amended from time to time and
any other notes issued in replacement therefor.
11
<PAGE>
NOTEHOLDER: The Deal Agent as agent for the Company or any assignee of the
Company which shall include only the Company, any Liquidity Provider, or any
commercial paper conduit administered by First Union National Bank or First
Union Capital Markets Corp.
NOTE PURCHASE AGREEMENT: The Note Purchase Agreement dated as of January 1, 1998
by and among the Debtor, the Company, the Deal Agent, the financial institutions
parties thereto and First Union National Bank, as liquidity agent as such
agreement may be amended, modified and supplemented from time to time in
accordance with the terms thereof.
OBLIGOR: For any Receivable, each and every Person who purchased or
co-purchased a Financed Vehicle or any other person who owes payments under
such Receivable.
OFFICIAL BODY: Any government or political subdivision or any agency, authority,
bureau, central bank, commission, department or instrumentality of either, or
any court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
ORIGINAL INVESTMENT: The amount advanced to the Debtor in respect of the
Initial Funding (without reduction for any amount the Debtor directs to be
deposited in the Reserve Account).
ORIGINATOR: A bank, finance company, car rental company or factory authorized
dealer or its affiliates or any other Person approved in writing by the Deal
Agent which has entered into an Originator Agreement with the Seller.
ORIGINATOR AGREEMENT: The agreement between the Seller and an Originator
relating to the purchase by the Seller of a Receivable.
PBGC: The Pension Benefit Guaranty Corporation or any other entity
succeeding to the functions currently performed by the Pension Benefit
Guaranty Corporation.
PERSON: An individual, a partnership, a corporation (including a business
trust), a joint stock company, a trust, an unincorporated association, a joint
venture or other entity or a government or an agency or political subdivision
thereof.
PLAN: Any employee pension benefit plan that (a) is or has been maintained by
the Debtor or any ERISA Affiliate of the Debtor, or to which contributions by
any such Person are or have been required to be made, (b) is subject to the
provisions of Title IV of ERISA and (c) is not a Multi-employer Plan.
PLAN EVENT: (a) The provisions of a notice of intent to terminate any Plan under
Section 4041 of ERISA other than in a "standard termination", or the treatment
of a Plan amendment as a distress termination under Section 4041 of ERISA, (b)
the receipt of any notice by any Plan to the effect that the PBGC intends to
apply for the appointment of a trustee to administer any Plan, (c) the
termination of any Plan which may result in a material liability to the Debtor,
(d) the withdrawal of the Debtor or any ERISA Affiliate of the Debtor from any
Plan described in Section 4063 of ERISA which may result in a material liability
of the Debtor, (e) the complete or partial
12
<PAGE>
withdrawal of the Debtor or any ERISA Affiliate of the Debtor from any
Multi-employer Plan which may result in a material liability of the Debtor, (f)
a "reportable event" described in Section 4043 of ERISA (other than a
"reportable event" not subject to the provision for 30-day notice to the PBGC)
or an event described in Section 4068(f) of ERISA which may result in a material
liability of the Debtor, and (g) any other event or condition which under ERISA
or the Code may constitute grounds for the imposition of a lien on the assets of
the Debtor in respect of any Plan or Multi-employer Plan which is not corrected
within 30 days.
POTENTIAL AMORTIZATION EVENT: An event which, but for the lapse of time or
the giving of notice, or both, would constitute an Amortization Event.
POTENTIAL TERMINATION EVENT: An event which but for the lapse of time or the
giving of notice, or both, would constitute a Termination Event.
POTENTIAL WIND-DOWN EVENT: An event which, but for the lapse of time or the
giving of notice, or both, would constitute a Wind-Down Event.
PRINCIPAL BALANCE: The Amount Financed on a Receivable as of the close of
business on the last day of a Collection Period, MINUS the sum of (a), if such
Receivable is a Re-written Receivable, all Rewrites related thereto through the
Determination Date and (b) all Collections collected by the Servicer to and
including such day with respect to such Receivable and applied by the Servicer
in accordance with the Servicer's customary servicing procedures to reduce the
principal balance thereof; PROVIDED, HOWEVER, that the Principal Balance of any
Receivable which is a "Defaulted Receivable" as defined herein shall be zero.
PRINCIPAL COLLECTIONS: For any Remittance Date, the sum of the following amounts
with respect to the preceding Collection Period: (a) that portion of all
collections on Receivables allocable to principal, (b) Liquidation Proceeds
attributable to principal in accordance with the Servicer's customary servicing
procedures, (c) partial prepayments of any refunded item included in the Amount
Financed, such as extended warranty protection plan costs, or physical damage,
credit life, or disability insurance premiums, and (d) the principal portion of
the amount paid by the Debtor to reduce the principal balance of the Note and
release the lien of the Secured Party on each Receivable that became an
Ineligible Receivable during the related Collection Period.
PRINCIPAL COMPONENT: With respect to Commercial Paper (a) in the case of
Commercial Paper issued on a discount basis, the amount of proceeds received by
the Company upon the sale thereof and (b) in the case of Commercial Paper issued
on an interest-bearing basis, the face amount thereof.
PROGRAM FEE: A fee payable to the Company by the Debtor, the terms of which
are set forth in the Fee Letter.
PURCHASE AGREEMENT: The Purchase Agreement, dated as of January 1, 1998, between
the Debtor, as purchaser thereunder, and the Seller, as seller thereunder, as
the same may be
13
<PAGE>
amended, modified and supplemented from time to time in accordance with the
terms thereof and hereof.
PURCHASED INTEREST: The interest in the Note acquired by the Liquidity
Provider, if any.
RECEIVABLE: Any retail installment sales contract and any indebtedness owed
thereunder (including any Additional Amounts) in which the Debtor has or
acquires at any time an interest, whether constituting an account, chattel
paper, instrument, mortgage, deed of trust or general intangible, arising out of
or in connection with the sale of new or used cars, or new and used light trucks
including the rendering of services by the originator or any other party in
connection therewith, under an Extended Service Agreement or otherwise, and
including the right of payment of any finance charges and other obligations of
the Obligor with respect thereto. Notwithstanding the foregoing, once the
Collateral Agent has released its security interest in a Receivable pursuant to
Section 2.6 hereof, it shall no longer constitute a Receivable hereunder.
RECEIVABLE SCHEDULE: The schedule of Receivables (which schedule may be in the
form of a computer file or microfiche) attached as EXHIBIT B to this Agreement,
as amended or modified from time to time pursuant to the terms of this
Agreement.
RECOVERY RATIO: On any Determination Date, a fraction (expressed as a
percentage) the numerator of which is the sum of (i) the amount of Liquidation
Proceeds received during the related Collection Period from the disposition of
any Financed Vehicles which secured Defaulted Receivables plus (ii) the amount
of any rebates scheduled to be received within five months from the date of
receipt of such Liquidation Proceeds for add-on products financed for the
related Financed Vehicles, and the denominator of which is the aggregate
outstanding Principal Balance (such Principal Balance to be calculated without
giving effect to any Rewrite) of the related Receivables at the time such
Receivables were first classified as Defaulted Receivables.
RELEVANT UCC STATE: The States of New York and Texas.
RE-LIENING EXPENSE: All expenses incurred by the Seller or the Collateral Agent
for the purpose of re-titling the Financed Vehicles to name the Collateral Agent
as lienholder on the certificate of title thereto.
RE-LIENING TRIGGER:
(a) First Investors Financial Services Group, Inc. (including its
consolidated subsidiaries) stockholders' equity falls below $12,000,000;
(b) any event described in Section 6.1(c) hereof shall occur with respect
to the Seller or the Debtor; or
(c) one or more courts of competent jurisdiction have issued final,
non-appealable orders to the effect that the Collateral Agent does not have a
valid perfected first priority security interest in the Financed Vehicles
securing any Receivable where the aggregate initial Principal
14
<PAGE>
Balance of such affected Receivables is equal to or greater than 5.0% or more of
the aggregate Principal Balance of the Receivables as of the date of such order.
REMITTANCE DATE: The 20th day of each month beginning February 20, 1998, or, if
such 20th day is not a Business Day, the next succeeding Business Day.
REMOVAL DATE: Has the meaning specified in Section 2.6 hereof.
REQUIRED RESERVE ACCOUNT BALANCE: On any day, the greater of (a) an amount equal
to the product of (i) 1.00% and (ii) the Facility Limit and (b) an amount equal
to the product of (x) 2.00% and (y) the Net Investment on such date of
calculation (after giving effect to any increases in the Net Investment on such
date of determination).
REQUIREMENTS OF LAW: For any Person, the certificate of incorporation or
articles of association and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject,
whether Federal, state or local (including, without limitation, usury laws, the
Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of
Governors of the Federal Reserve System).
RESERVE ACCOUNT: The account established pursuant to Section 5A.1 hereof.
RESERVE ACCOUNT BANK: Bankers Trust Company or such other bank or trust
company as may be appointed by the Deal Agent from time to time.
RESERVE ADVANCE: Amounts advanced from the Reserve Account in accordance
with Section 5.1(b) hereof.
REVOLVING PERIOD: The period from and including the Closing Date to, but not
including, the Termination Date.
REWRITE: As to any Re-Written Receivable, the amount of any reduction of the
Principal Balance of such Re-Written Receivable.
RE-WRITTEN RECEIVABLE: Any Receivable as to which the Servicer has, pursuant to
the provisions of Section 4.5, reduced either (i) the Principal Balance thereof
or (ii) the APR thereof.
S&P: Standard & Poor's, a division of The McGraw-Hill Companies.
SECURED PARTY: The Noteholder.
SELLER: First Investors Financial Services, Inc.
SERVICER: GECC as servicer under the Servicing Agreement or any successor
Servicer acceptable to the Deal Agent.
15
<PAGE>
SERVICER EVENT OF DEFAULT: Has the meaning specified in the Servicing
Agreement.
SERVICING AGREEMENT: The Servicing Agreement, dated as of January 1, 1998,
between GECC, as servicer, and the Debtor, as such agreement may be amended,
modified and supplemented from time to time (but only with the consent of the
Deal Agent).
SUBSEQUENT FUNDING: Has the meaning specified in the Note Purchase Agreement.
SUBSIDIARY: Any corporation more than 50% of the outstanding voting securities
of which shall at any time be owned or controlled, directly or indirectly, by
the Debtor or by one or more Subsidiaries, or any similar business organization
which is so owned or controlled.
TARGETED MONTHLY PRINCIPAL PAYMENT: With respect each Remittance Date, the
amount necessary to reduce the Net Investment to an amount no greater than the
Borrowing Base.
TELERATE PAGE 3750 SCREEN: The display designated as "Page 3750" on the Telerate
Service (or such other page as may replace Page 3750 on that service or such
other service as may be nominated by the British Bankers' Association as the
information vendor for the purposes of displaying British Bankers' Association
Interest Settlement Rates for U.S. Dollar deposits).
TERMINATION DATE: The earliest of (a) December 31, 1998 unless such date shall
be extended by the parties hereto pursuant to a written document, (b) the date
of termination of the commitment of the Liquidity Provider under any Liquidity
Agreement, (c) the date of the termination of the commitment of the Credit
Support Provider under any Credit Support Agreement, (d) the date designated by
the Debtor as the date on which the Revolving Period shall terminate (which date
shall be the last day of a Collection Period) following not less than 30
Business Days' prior written notice to the Company and the Deal Agent, and (e)
the date on which any Termination Event has occurred.
TERMINATION EVENT: Has the meaning specified in Section 6.1 hereof.
TRANSFER or TRANSFERRED: When used with respect to Eligible Investments held
or to be held in the Reserve Account:
(a) with respect to each Clearing Corporation Security, transfer to the
Deal Agent will occur upon the latest of: (i) the making by the Clearing
Corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate securities
account of the Financial Intermediary by the amount of such Clearing Corporation
Security, (ii) the sending of a confirmation to the Deal Agent by the Financial
Intermediary of the purchase by the Deal Agent of such Clearing Corporation
Security and (iii) the identification by book entry to the Financial
Intermediary Securities Account by the Financial Intermediary of the Clearing
Corporation Securities as belonging to the Deal Agent, acting for the Collateral
Agent, on behalf of the Secured Party;
16
<PAGE>
(b) with respect to each Certificated Security, transfer to the Deal Agent
will occur upon the latest of (i) the sending of a confirmation by the Financial
Intermediary of the purchase by the Deal Agent of such Certificated Security and
(ii) the identification by book-entry to the Financial Intermediary Securities
Account by the Financial Intermediary of such Certificated Security as belonging
to the Deal Agent, acting for the Collateral Agent, on behalf of the Secured
Party;
(c) with respect to each Federal Book Entry Security, transfer to the Deal
Agent will occur upon the latest of (i) the making by the Federal Reserve Bank
of New York of appropriate entries transferring the Federal Book-Entry Security
on its books and records to the book-entry account of the Financial Intermediary
at the Federal Reserve Bank of New York, (ii) the sending of a confirmation by
the Financial Intermediary of the purchase by the Deal Agent of such Federal
Book-Entry Security, and (iii) the identification by book-entry to the Financial
Intermediary Securities Account by the Financial Intermediary of such Federal
Book Entry Security as belonging to the Deal Agent, acting for the Collateral
Agent, on behalf of the Secured Party;
(d) with respect to Instruments in the possession of the Bailee, in the
State of New York, the sending of notice to the Bailee by the Deal Agent of the
security interest of the Deal Agent, acting for the Collateral Agent, on behalf
of the Secured Party and the sending of an acknowledgment of such notice to the
Deal Agent; and
(e) with respect to any Eligible Investment, by any method creating a
perfected security interest in favor of the Deal Agent, acting for the
Collateral Agent, on behalf of the Secured Party, provided that the Debtor shall
have delivered an opinion of counsel to the Deal Agent and the Collateral Agent
to the effect that the Deal Agent acting for the Collateral Agent, on behalf of
the Secured Party, has a valid perfected first priority security interest in
such Eligible Investment.
UNIFORM COMMERCIAL CODE or UCC: The Uniform Commercial Code as adopted in
the Relevant UCC State.
LIQUIDITY FEE: A fee payable monthly to the Company by the Debtor, the terms
of which are set forth in the Fee Letter.
VSI INSURANCE: The blanket collateral protection insurance policy or policies of
insurance underwritten by Agricultural Excess and Surplus Insurance Company (or
any other insurance company acceptable to the Company) covering each of the
installment sales contracts held by the Debtor, including the Receivables, in
the form attached hereto as EXHIBIT J.
WIND-DOWN EVENT: Has the meaning specified in Section 6.2.
YIELD PROTECTION PROVISION: The compensation of the Company by the Debtor with
respect to increased taxes, reserves and funding costs of the Company as
described in Section 4.2 of the Note Purchase Agreement.
17
<PAGE>
ARTICLE II
GRANT OF SECURITY INTEREST
SECTION 2.1 GRANT OF SECURITY INTEREST.
As security for the prompt and complete payment of the Note and the
performance of all of the Debtor's obligations under the Note, the Note Purchase
Agreement and this Agreement, the Debtor hereby grants to the Collateral Agent,
for the benefit of the Secured Party, a security interest in and continuing Lien
on all of the Debtor's right, title and interest in, to and under (a) all
Receivables in which the Debtor at any time and from time to time has an
interest, all monies due or to become due with respect to such Receivables on
and after the Cut-Off Date, whether such amounts are considered accounts,
general intangibles or other property, and all monies, instruments, securities
or investments of any type or description on deposit in or credited to the
Collection Account at any time; (b) the security interests in the Financed
Vehicles granted by Obligors pursuant to the related Receivables and any
accessions thereto; (c) any proceeds from claims on any physical damage, credit
life, credit disability, VSI Insurance or other insurance policies covering
Financed Vehicles or Obligors and any other Liquidation Proceeds; (d) any
Interest Rate Hedge Agreement, including the right to payment under any such
Interest Rate Hedge Agreement or other hedging arrangement; and (e) the proceeds
of any and all of the foregoing (collectively, the "COLLATERAL"). As security
for the prompt and complete payment of the Note and the performance of all of
Debtor's obligations under the Note, the Note Purchase Agreement and this
Agreement, the Debtor hereby grants to the Collateral Agent for the benefit of
the Secured Party, a security interest in and continuing Lien on all of Debtor's
right, title and interest in, to and under the Reserve Account and all Eligible
Investments, securities, instruments and other financial assets (as defined in
Section 8-102(a)(9) of the 1994 official Text of the Uniform Commercial Code and
the New York UCC) credited to the Reserve Account and the proceeds thereof. In
addition, the Debtor hereby assigns to the Collateral Agent all of its rights
under the Purchase Agreement with respect to the Receivables. Notwithstanding
the foregoing assignment, the Debtor does not assign its rights as to any retail
installment sales contracts purchased thereunder other than the retail
installment sales contracts and any other rights relating to Receivables. The
foregoing pledge does not constitute an assumption by the Collateral Agent of
any obligations of the Debtor to Obligors or any other Person in connection with
the Collateral or under any agreement and instrument relating to the Collateral,
including without limitation any obligation to make future advances to or on
behalf of such Obligors.
In connection with such pledge, the Debtor agrees to record and file, at
its own expense, financing statements with respect to the Collateral now
existing and hereafter created for the transfer of chattel paper, accounts and
general intangibles (each as defined in Article 9 of the UCC as in effect in the
Relevant UCC State) meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect the first priority
security interest of the Collateral Agent in the Collateral, and to deliver a
file-stamped copy of such financing statements or other evidence of such filing
(which may, for purposes of this Section 2.1, consist
18
<PAGE>
of telephone confirmation of such filing) to the Company on or prior to the
Closing Date. In addition, the Debtor agrees to clearly and unambiguously mark
its general ledger and all accounting records and documents and all computer
tapes and records to show that the Receivables have been pledged to the
Collateral Agent hereunder, which marking shall be completed on or before the
relevant Conveyance Date.
In connection with the grant of the security interest pursuant to this
Section 2.1, the Debtor agrees to direct the Servicer, on or prior to the
related Conveyance Date, to indicate, on or prior to the related Conveyance
Date, clearly and unambiguously in its computer files described in the preceding
paragraph that a security interest in the Receivables has been granted to the
Collateral Agent pursuant to this Agreement, which marking shall be completed on
or before the relevant Conveyance Date. The Debtor shall deliver to the
Collateral Agent a computer file or microfiche list containing a true and
complete list of all Receivables, identified by account number and principal
balance as of (i) the Cut-Off Date, which shall be delivered on or before the
date of the Initial Funding and (ii) as of the last day of March, June,
September and December of each year, each such file or list shall be delivered
on the fifteenth Business Day after the end of such month. Such file or list
shall be marked as the Receivable Schedule and EXHIBIT B to this Agreement,
delivered to the Collateral Agent as confidential and proprietary information,
and is hereby incorporated into and made a part of this Agreement. The Debtor
agrees to deliver to the Collateral Agent at such times as requested by the
Collateral Agent in connection with a third party's request to review EXHIBIT B,
as provided in the financing statement filed by the Collateral Agent under the
UCC, a computer file or microfiche list containing a true and complete list of
all Receivables, including all Receivables created on or after the Cut-Off Date,
in existence as of the later of (x) the last day of the prior Collection Period
and (y) the most recent Removal Date by account number and by Principal Balance
as of such day or date. Such updated and revised file or list shall be marked as
the Receivable Schedule and EXHIBIT B to this Agreement, delivered to the
Collateral Agent as confidential and proprietary information, shall replace the
previously delivered Receivable Schedule identified as EXHIBIT B, and shall be
incorporated into and made a part of this Agreement. The Debtor agrees to direct
the Servicer, on each Conveyance Date, to indicate clearly and unambiguously in
its computer files that an undivided interest in the Receivables has been
pledged to the Collateral Agent pursuant to this Agreement.
SECTION 2.2 [RESERVED].
SECTION 2.3 RE-LIENING TRIGGER.
Upon the occurrence of a Re-Liening Trigger and at the direction of the
Deal Agent, the Seller shall take all steps necessary to cause the certificate
of title or other evidence of ownership of the related Financed Vehicle to be
revised to name the Collateral Agent on behalf of the Secured Party as
lienholder. Any costs associated with such revision of the Certificate of Title
shall be paid by the Seller and to the extent such costs are not paid by the
Seller such unpaid costs shall be recovered from funds available for application
as described in Section 5.1 hereof.
19
<PAGE>
In addition, with respect to any state in which obligors are located with
respect to Receivables that account for more than 10% of the initial aggregate
Principal Balance of Receivables, the Seller shall be required, at the request
of the Deal Agent, to deliver a legal opinion satisfactory to the Deal Agent and
counsel for the Deal Agent as to the status of the security interest of the
Collateral Agent, on behalf of the Secured Party, in the related Financed
Vehicles or cause the certificate of title or other evidence of ownership of the
related Financed Vehicle to be revised to name the Collateral Agent on behalf of
the Secured Party as lienholder.
Further, in the event that First Investors Financial Services Group, Inc.
(including its consolidated subsidiaries) stockholders' equity falls below
$15,000,000, the Seller shall within 30 days thereof, either (a) deliver to the
Collateral Agent and the Deal Agent opinions of legal counsel, in form and
substance satisfactory to the Deal Agent and counsel to the Deal Agent, with
respect to the laws of each state required by the Deal Agent, as to the status
of the security interest of the Collateral Agent, on behalf of the Secured
Party, in the related Financed Vehicles or (b) at the request of the Deal Agent,
the Seller shall cause to be taken all steps necessary to cause the certificate
of title or other evidence of ownership of the related Financed Vehicle to be
revised to name the Collateral Agent on behalf of the Secured Party as
lienholder. Any costs associated with such revision of the Certificate of Title
shall be paid by the Seller and to the extent such costs are not paid by the
Seller such unpaid costs shall be recovered from funds available for application
as described in Section 5.1 hereof.
SECTION 2.4 [RESERVED].
SECTION 2.5 INCREASE OF NOTE.
The Debtor may increase the outstanding principal amount of the Note only
upon satisfaction of the following conditions:
(a) no Termination Event, no Amortization Event, no Wind-Down Event and/or
Incipient Coverage Shortfall shall have occurred and be continuing;
(b) the Debtor shall have entered into any Interest Rate Hedge Agreement
that is satisfactory to the Deal Agent and meets the criteria set forth in
Section 3.2(n);
(c) after giving effect to any such increase, the sum of (x) the Net
Investment and (y) accrued Carrying Costs shall not be greater than the
Borrowing Base;
(d) after giving effect to any such increase, the sum of (x) the Net
Investment and (y) the interest component of Commercial Paper Notes would not
exceed the Facility Limit;
(e) the amount on deposit in the Reserve Account shall at least equal the
Initial Reserve Account Deposit;
20
<PAGE>
(f) after giving effect to such increase, the Debtor shall not have
requested increases in the principal amount of the Note more than seven (7)
times during the calendar month in which such request is made, unless otherwise
approved by the Deal Agent; and
(g) the Debtor shall have provided the Collateral Agent and the Deal Agent
with written notice in the form of Exhibit I hereto (the "FUNDING Notice") at
least three Business Days prior to such increase.
SECTION 2.6 RELEASE OF RECEIVABLES.
On any Business Day, provided that no Termination Event, Amortization
Event, Wind-Down Event or Incipient Coverage Shortfall shall have occurred, the
Debtor shall have the right to require the Collateral Agent to release all of
the Collateral Agent's right, title and interest in and to all or certain
specified Receivables on the terms and conditions set forth herein (the
effective date of any such release, the "REMOVAL DATE"). It shall be a condition
precedent to any such release that (a) after giving effect to any such release,
the sum of (x) Net Investment and (y) accrued Carrying Costs shall not exceed
the sum of (1) Borrowing Base and (2) the amount on deposit in the Reserve
Account (calculated after giving effect to any release of funds from the Reserve
Account on such Removal Date), such determination to be based on the most recent
Monthly Debtor's Certificate delivered by the Debtor, (b) such release does not
result in a Termination Event, a Wind-Down Event or an Amortization Event, (c)
the Debtor shall (i) pay to the Collateral Agent for payment to the Noteholder
on the day of receipt from the Debtor, an amount equal to the amount necessary,
if any, to reduce the Net Investment such that the sum of (x) Net Investment and
(y) accrued Carrying Costs does not exceed the Borrowing Base after giving
effect to such release and (ii) pay to the Collateral Agent for payment to the
Noteholder on the day of receipt from the Debtor, an amount equal to all unpaid
Carrying Costs (including Carrying Costs not yet accrued) to the extent
reasonably determined by the Deal Agent to be attributable to that portion of
the Net Investment to be reduced as a result of the payment referred to in
clause (c)(i)(y) above, (d) the Debtor shall have given the Collateral Agent and
the Deal Agent at least five (5) days prior written notice of its intention to
request the release of such Receivables, (e) all amounts due under the Note
Purchase Agreement, to the extent accrued to the date of such release or, at the
option of the Collateral Agent, acting upon the written instructions of the Deal
Agent, accrued to such date and to accrue thereafter, shall have been
reimbursed, (f) such release shall not materially and adversely affect the
Secured Party or any Purchaser and (g) such release shall include at least
$5,000,000 in Principal Balance of Receivables; PROVIDED, HOWEVER, that there
shall be no minimum release amount with respect to Ineligible Receivables. It is
the intention of the parties that, to the extent the Company is the Noteholder
and the Company is funding its interest in the Note through Commercial Paper
Notes, the Debtor shall pay to the Collateral Agent such amounts as are required
under this Section 2.6 on the Business Day preceding the maturity date of the
Commercial Paper Notes issued by the Company to fund its interest in the Note.
The Deal Agent agrees, subject to the provisions of the Administration
Agreement, to use its reasonable efforts to reinvest in overnight Eligible
Investments any payments received by the Company from the Debtor in respect of
maturing Commercial Paper prior to the Business Day preceding such maturity and
remit the proceeds of such investments to the Debtor.
21
<PAGE>
The amount described in clause (c)(i) above upon receipt by the Company
shall be applied in reduction of the Net Investment.
The Debtor shall also be obligated to pay to the Collateral Agent, the
Company and the Deal Agent the reasonable legal fees and expenses of the
Collateral Agent, the Deal Agent and the Company arising in connection with any
such release.
Upon (i) the deposit to the Collection Account and the payment to the
respective parties of the amounts described in this Section, and (ii) the
receipt by the Collateral Agent of a certificate of the Debtor stating that all
conditions precedent contained in this Section 2.6 have been satisfied, the
Collateral Agent shall execute and deliver to the Debtor, at the Debtor's
expense, such documents or instruments as are necessary to terminate the
Collateral Agent's interest in the applicable Receivables and the proceeds
thereof. Any such documents shall be prepared by or on behalf of the Debtor and
shall specifically identify (by loan or account number and outstanding Principal
Balance) the Receivables in which the Collateral Agent's security interest is to
be released.
The Debtor shall deliver to the Collateral Agent and the Deal Agent a
computer file, microfiche list or printed list containing a true and complete
list of all such Receivables to be released, identified by account number and
principal balance as of the Cut-Off Date and/or Removal Date. Such file or list,
when taken together with the list provided pursuant to Section 2.1 hereof shall
constitute the Receivables Schedule as of such Removal Date after giving effect
to such removal.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEBTOR
SECTION 3.1 REPRESENTATIONS AND WARRANTIES CONCERNING RECEIVABLES.
The Debtor represents and warrants to and covenants with the Collateral
Agent and the Secured Party as of the date of the Initial Funding and, except as
otherwise provided herein, as of each Conveyance Date, that:
(a) Immediately prior to the Initial Funding or, as to any Receivable that
is acquired by the Debtor after the Initial Funding, the date such Receivable is
acquired by the Debtor (each a "CONVEYANCE DATE"), the Seller had a valid and
enforceable first priority security interest in the related Financed Vehicle,
and such security interest had been duly perfected and was prior to all other
present and future liens and security interests (except future tax liens and
liens that, by statute, may be granted priority over previously perfected
security interests) that now exist or may hereafter arise, and the Seller had
the full right to assign such security interest to the Debtor.
22
<PAGE>
(b) On and after the related Conveyance Date, there shall exist under such
Receivable a valid, subsisting, and enforceable first priority perfected
security interest in the related Financed Vehicle (other than, as to the
priority of such security interest, any statutory lien arising by operation of
law after the related Conveyance Date which is prior to such interest) and,
following the grant of all of the Debtor's right, title and interest in and to
such security interest to the Collateral Agent, at such time as enforcement of
such security interest is sought there shall exist in favor of the Collateral
Agent a valid, subsisting, and enforceable first priority perfected security
interest (other than, as to the priority of such security interest, any
statutory lien arising by operation of law after the related Conveyance Date
which is prior to such interest) in the related Financed Vehicle.
(c) If such Receivable was originated in a state in which notation of a
security interest on the title document for the Financed Vehicle securing such
Receivable is required or permitted to perfect such security interest, the title
document for such Financed Vehicle shows, or if a new or replacement title
document is being applied for with respect to such Financed Vehicle the title
document will show, the Seller as the sole holder of a security interest in such
Financed Vehicle. If such Receivable was originated in a state in which the
filing of a financing statement under the UCC is required to perfect a security
interest in motor vehicles, such filings or recordings have been duly made and
show the Seller as the sole holder of a first priority security interest in such
Financed Vehicle, and in either case the Debtor has the same rights as the
Seller has or would have (if the Seller were still the owner of a Receivable)
against the Obligor and all creditors of the Obligor claiming an interest in
such Financed Vehicles.
(d) Immediately prior to the related Conveyance Date: (i) such Receivable
had not been sold, assigned, or pledged by the Seller to any Person; (ii) the
Seller had good and marketable title thereto free and clear of any encumbrance,
equity, pledge, charge, claim or security interest; (iii) the Seller was the
sole owner thereof and had full right to sell the Receivable to the Debtor and
upon the sale thereof to the Debtor, the Debtor will have good and marketable
title thereto and will own such Receivables free and clear of any encumbrances.
Such Receivable was acquired by the Seller, from an originator with which the
Seller does business, pursuant to an Originator Agreement between the Seller and
such Originator. Such Originator had full right to assign to the Seller such
Receivable and the security interest in the related Financed Vehicle. The Seller
has full right to sell to the Debtor such Receivable and the security interest
in the related Financed Vehicle. The Collateral Agent, for the benefit of the
Secured Party, has a valid and perfected first priority security interest in
such Receivable and all proceeds thereof, free and clear of all Liens,
encumbrances, security interests and rights of others.
(e) As of the related Conveyance Date, there is no lien against the
related Financed Vehicle for delinquent taxes.
(f) Such Receivable, and the sale of the Financed Vehicle securing such
Receivable, where applicable, complied, at the time it was made, and now
complies, in all material respects with applicable state and federal laws (and
regulations thereunder), including, without limitation, usury, disclosure and
consumer protection laws, equal credit opportunity, fair credit reporting,
truth-in-lending or other similar laws, the Federal Trade Commission Act, and
applicable state
23
<PAGE>
laws regulating retail installment sales contracts in general and motor vehicle
retail installment sales contracts and loans in particular, and the receipt of
interest on, and the ownership of, such Receivable by the Debtor will not
violate any such laws and the related Obligor has no right of rescission or
cancellation, claims or defenses, setoffs, or counterclaims of any kind
whatsoever as to or against the contract evidencing a related Receivable.
(g) The Receivable constitutes the entire agreement between the Seller (as
assignee of the related Originator) and the related Obligor.
(h) At the time of origination of such Receivable, the proceeds of such
Receivable were fully disbursed, and there is no requirement for future advances
thereunder, and all fees and expenses in connection with the origination of such
Receivable have been paid.
(i) As of the related Conveyance Date, there is no default, breach,
violation or event of acceleration existing under any such Receivable and no
event which, with the passage of time or with notice or with both, would
constitute a default, breach, violation or event of acceleration under any such
Receivable. The Seller has not waived any such default, breach, violation or
event of acceleration.
(j) In connection with the purchase of such Receivable, the Seller
required the related Originator to furnish evidence that the related Financed
Vehicle was covered by a comprehensive and collision insurance policy naming the
Seller as loss payee and insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by comprehensive and
collision coverage in an amount equal to the actual cash value of the related
Financed Vehicle.
(k) Such Receivable contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the related Financed Vehicle of the benefits of the
security.
(l) The collection practices used with respect to such Receivable have
been in all material respects legal, proper, prudent and customary in the
automobile installment sales contract or installment loan servicing business as
applied with respect to obligors with credit standings comparable to that of the
Obligor.
(m) [reserved].
(n) The related Obligor does not have any other motor vehicle retail
installment sale contracts owing to the Seller which are 60 or more days
contractually delinquent at the Conveyance Date.
(o) No Receivable is due from an Obligor who has defaulted under a
previous Receivable with the Seller.
24
<PAGE>
(p) The Originator that sold such Receivable to the Seller has entered
into an Originator Agreement and such Originator Agreement constitutes the
entire agreement between the Seller and the related Originator with respect to
the sale of such Receivable to the Seller, such Originator Agreement was, at the
time of the origination of such Receivable, in full force and effect and is the
legal, valid, binding and enforceable obligation of such Originator (subject to
applicable bankruptcy and insolvency laws and other similar laws affecting the
enforcement of creditors, rights generally and to principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at
law); there have been no material defaults by such Originator or by the Seller
under such Originator Agreement; the Seller has fully performed all of its
obligations under such Originator Agreement; the Seller has not made any
statements or representations to such Originator inconsistent with any term of
such Originator Agreement; the purchase price for such Receivable has been paid
in full by the Seller, there is no other payment due to such Originator from the
Seller for the purchase of such Receivable, such Originator has no right, title
or interest in or to any Receivable; there is no prior course of dealing between
such originator and the Seller which will affect the terms of such Originator
Agreement; and any additional payment that may be owed to such Originator by the
Seller is a corporate obligation of the Seller.
(q) The Seller has provided to the Servicer the sole original counterpart
of such Receivable as amended, and the related title document or the application
for title document, previously in the possession of the Seller.
(r) Such Receivable constitutes "chattel paper" for purposes of Sections
9-105(1)(b) and 9-308 of the UCC. The Seller's electronic ledgers have been
marked as provided in Section 2.1 and 2.2 of this Agreement with respect to such
Receivable.
(s) Such Receivable was not originated in, nor is it subject to the law
of, any jurisdiction, the laws of which would make unlawful the sale, transfer
or assignment of such document, under this Agreement, including any repurchase
in accordance with this Agreement.
(t) Such Receivable is in full force and effect in accordance with its
respective terms and neither the Seller nor the related Obligor has suspended or
reduced any payments or obligations due or to become due thereunder by reason of
a default by the other party to such Receivable; there are no proceedings
pending, or to the best of the Seller's knowledge, threatened, asserting
insolvency of the related Obligor; there has been no previous default on such
Receivable that resulted in repossession of the related Financed Vehicle; and
there are no proceedings pending, or to the best of the Seller's knowledge,
threatened wherein the related Obligor or any governmental agency has alleged
that such Receivable is illegal or unenforceable.
(u) Each contract evidencing a Receivable being acquired by the Debtor is
substantially similar to one of the Seller's standard form contracts attached
hereto as EXHIBIT K except for immaterial modifications or deviations therefrom
in accordance with state law which will not have a material adverse effect on
the Secured Party and will not reduce the scheduled payments thereunder or other
payments due under the Receivables.
25
<PAGE>
(v) The Seller has duly fulfilled all obligations to be fulfilled on the
Seller's part under or in connection with the origination, acquisition and
disposition of such Receivable, including, without limitation, giving any
notices or consents necessary to effect the acquisition of such Receivables by
the Debtor, and has done nothing to impair the rights of the Collateral Agent or
the Secured Party in such Receivable or payments with respect thereto. The
Seller has obtained all necessary licenses, permits and charters required to be
obtained by the Seller, which failure to obtain would render any portion of the
transaction document unenforceable and would have a material adverse effect on
the Secured Party.
(w) The Originator that originated such Receivable was selected by the
Seller based on such Originator's financial and operating history.
(x) [reserved]
(y) The contract securing such Receivable arose from a bona fide sale in
the ordinary course of the Originator's business.
(z) Such Receivable represents the sale of goods described in the contract
evidencing the Receivable.
(aa) Such Receivable is exclusive and contains all the terms and
conditions of the related contract.
(bb) To the best of the Debtor's knowledge, all signatures, names,
addresses, telephone numbers, figures and other statements of fact set forth in
the contract evidencing the Receivable are genuine, true and correct.
(cc) To the best of the Debtor's knowledge, no part of the down payment,
or any installment, has been loaned by the Originator to the related Obligor.
(dd) To the best of the Debtor's knowledge, all credit information
provided to the Seller is true and correct and reported as received from the
Obligor.
(ee) To the best of the Debtor's knowledge, the Obligor is in fact the
primary or sole operator of the related Financed Vehicle.
(ff) Each Receivable constitutes an Eligible Receivable.
(gg) The sale of the Extended Service Agreement to the related Obligor
complied at the time of such sale with all applicable state and federal laws
(and regulations thereunder), including without limitation, insurance, usury,
disclosure and consumer protection laws, equal credit opportunity, fair credit
reporting, truth-in-lending or other similar laws, the Federal Trade Commission
Act, and applicable state laws regulating extended service agreements and
insurance, and the ownership of such Extended Service Agreement will not violate
any such laws.
26
<PAGE>
(hh) To the best of the Debtor's knowledge, each Extended Service
Agreement and each credit life policy and accident and health policy relating to
a Financed Vehicle or an Obligor is the legal, valid and binding obligation of
each party thereto, and is enforceable in accordance with its terms.
(ii) To the best of the Debtor's knowledge, the Seller and any party
obligated to perform services under an Extended Service Agreement relating to a
Financed Vehicle, any credit life insurance policy or any accident and health
policy related to a Financed Vehicle or an Obligor have complied with all
licensing, insurance or other laws applicable to them in connection with the
origination, servicing, performance or administration thereof.
(jj) The Collateral Agent will be entitled to receive all amounts due to
an Obligor or lienholder upon cancellation by an Obligor of an Extended Service
Agreement or any credit life insurance policy and accident and health insurance
policy relating to a Financed Vehicle or an Obligor.
(kk) All rights (but not obligations) of the Seller under each Extended
Service Agreement and any credit life insurance policy and accident and health
insurance policy relating to a Financed Vehicle or an Obligor have been assigned
by the Seller to the Debtor, and subsequently assigned by the Debtor to the
Collateral Agent for the benefit of the Secured Party.
With respect to any Receivable for which any representation or warranty
made by the Debtor set forth in Section 3.1 above shall be or shall have been
untrue as of the last day of the prior Collection Period (each, an "Ineligible
Receivable") the Debtor shall be obligated to pay to the Collateral Agent, for
application in accordance with Section 5.1 as if such amounts constituted
Available Collections for such Remittance Date, the principal balance plus
accrued interest at the applicable APR on each such Ineligible Receivable. Such
payment shall be made on the Business Day preceding the next Remittance Date.
After the payment of such amount in respect of any Receivable, the lien of the
Collateral Agent in any such Receivable shall be released.
SECTION 3.2 COVENANTS OF THE DEBTOR.
The Debtor hereby covenants to the Collateral Agent and the Secured Party,
so long as any amounts shall be outstanding under the Note or the Note Purchase
Agreement, that:
(a) CORPORATE EXISTENCE. The Debtor will preserve and maintain its
existence as a corporation duly organized and existing under the laws of the
jurisdiction of its incorporation and will remain duly qualified as a foreign
corporation under the laws of each other jurisdiction in which the failure to so
qualify would have a material adverse effect on the ability of the Debtor to
perform its obligations under this Agreement, the Note, the Note Purchase
Agreement or the Purchase Agreement.
27
<PAGE>
(b) LOSSES, ETC. In any suit, proceeding or action brought by the
Collateral Agent or any Secured Party for any sum owing thereto, the Debtor will
save, indemnify and keep the Collateral Agent and the Secured Party harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor under such Receivable, arising out of a breach by the Debtor of any
obligation under the related Receivable or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such Obligor or
its successor from the Debtor, and all such obligations of the Debtor shall be
and remain enforceable against and only against the Debtor and shall not be
enforceable against the Collateral Agent or the Secured Party.
(c) COMPLIANCE WITH LAW. The Debtor will comply, in all material respects,
with all acts, rules, regulations, orders, decrees and directions of any
governmental authority applicable to the Receivables or any part thereof;
PROVIDED, HOWEVER, that the Debtor may contest any act, rule, regulation, order,
decree or direction in any reasonable manner which will not materially and
adversely affect the rights of the Collateral Agent in the Receivables or the
collectibility of the Receivables.
(d) NO INSTRUMENTS. The Debtor will take no action to cause any Receivable
to be evidenced by any instrument (as defined in the UCC as in effect in the
Relevant UCC State).
(e) NO LIENS. Except for the conveyances contemplated hereunder, the
Debtor will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on any Receivable or any
interest therein; the Debtor will notify the Collateral Agent and the Deal Agent
of the existence of any Lien on any Receivable immediately upon discovery
thereof; and the Debtor shall defend the right, title and interest of the
Collateral Agent on behalf of the Secured Party in, to and under the applicable
Receivables against all claims of third parties claiming through or under the
Debtor; PROVIDED, HOWEVER, that nothing in this Section 3.2(e) shall prevent or
be deemed to prohibit the Debtor from suffering to exist upon any of the
Receivables any Liens for municipal or other local taxes and other governmental
charges if such taxes or governmental charges shall not at the time be due and
payable or if the Debtor shall currently be contesting the validity thereof in
good faith by appropriate proceedings and shall have set aside on its books
adequate reserves with respect thereto.
(f) NOTICE TO THE COLLATERAL AGENT. The Debtor will advise the Collateral
Agent and the Deal Agent promptly, in reasonable detail, (i) of any Lien
asserted or claim made against any of the Receivables, (ii) of the occurrence of
any breach by the Debtor of any of its representations, warranties and covenants
contained herein and (iii) of the occurrence of any other event which would have
a material adverse effect on the Collateral Agent's security interest on behalf
of the Secured Party in the Receivables or the collectibility thereof, or which
would have a material adverse effect on the interests of the Secured Party.
(g) BOOKS AND RECORDS. The Collateral Agent and the Secured Party and
their agents and representatives shall at all times have full and free access
during normal business hours to all the computer tapes, books, correspondence
and records of the Debtor insofar as they relate to the Receivables, and the
Collateral Agent and its agents and representatives and the Deal Agent may
28
<PAGE>
examine the same, take extracts therefrom and make photocopies thereof, and the
Debtor agrees to render to the Collateral Agent and the Deal Agent or its agents
and representatives, at the Debtor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. The Debtor hereby
assigns to the Collateral Agent and its agents and representatives and the Deal
Agent all rights the Debtor has or shall have to examine computer tapes, books,
correspondence and records relating to Receivables serviced by the Servicer or
any successor servicer thereto. Each of the Collateral Agent and the Deal Agent
acknowledges that in exercising the rights and privileges conferred in this
Section 3.2(g) it, or its agents and representatives, may from time to time
obtain knowledge of information and practices set forth in such computer tapes,
books, correspondence and records (whether in the possession of the Debtor or
the Servicer) of a confidential nature and in which the Debtor has a proprietary
interest. The Collateral Agent and the Secured Party agree that all such
information, practices, books, correspondence and records are to be regarded as
confidential information and that (i) it shall retain in strict confidence and
shall use its best efforts to ensure that its representatives retain in strict
confidence and will not disclose without the prior written consent of the Debtor
any or all of such information, practices, books, correspondence and records
furnished to them and (ii) it will not, and will use its best efforts to ensure
that its agents and representatives will not, make any use whatsoever (other
than for the purposes contemplated by this Agreement) of any of such
information, practices, computer tapes, books, correspondence and records
without the prior written consent of the Debtor, unless such information (A) is
generally available to the public, (B) is required by law to be disclosed or is
requested by any Governmental Authority having authority over the Deal Agent,
the Company, any Liquidity Provider or Credit Support Provider or (C) is
requested by Moody's or S&P in connection with their rating of the Commercial
Paper Notes or the implied rating of the facility.
(h) ADMINISTRATIVE PROCEDURES. The Debtor will maintain and implement
administrative operating procedures (including, without limitation, an ability
to recreate records evidencing the Receivables in the event of the destruction
of the originals thereof) and keep and maintain all documents, books, records
and other information customarily maintained in the servicing of sub-prime auto
loans.
(i) UCC FILINGS. The Debtor shall execute and file such continuation
statements and any other documents requested by the Company, the Deal Agent or
the Collateral Agent or which may be required by law to fully preserve and
protect the interest of the Company, the Deal Agent, and the Collateral Agent
hereunder in and to the Receivables.
(j) CHANGE OF LOCATION. The Debtor will not, (i) without providing 60
days' notice to the Company, the Deal Agent, and the Collateral Agent and (ii)
without filing such amendments to any previously filed financing statements as
the Collateral Agent or the Deal Agent may require, either (A) change the
location of its principal executive office or the location of the offices where
the records relating to the accounts are kept, or (B) change its name, identity
or corporate structure in any manner which would, could or might make any
financing statement or continuation statement filed by the Debtor in accordance
with this Agreement seriously misleading within the meaning of Section 9-402(g)
of the UCC or any applicable enactment of the UCC.
29
<PAGE>
(k) FURTHER ASSURANCES. The Debtor shall deliver to the Company, the Deal
Agent, and the Collateral Agent within 90 days of the first anniversary of the
Closing Date and each anniversary thereafter an opinion of independent counsel
to the Debtor, dated as of a date during such 90-day period, either (i) stating
that, in the opinion of such counsel, (A) such action has been taken with
respect to the recording, registering, filing, re-recording, re-registering and
re-filing of financing statements, continuation statements or other instruments
or documents as is necessary to preserve and protect the interest of the
Collateral Agent and the Secured Party in and to the Receivables and reciting
the details of such action or referring to prior opinions of counsel in which
such details are given, and (B) all financing statements, continuation
statements and any other necessary documents have been executed and filed that
are necessary fully to preserve and protect the perfected interest of the
Collateral Agent and the Secured Party in and to the Receivables, and reciting
the details of such filings or referring to prior opinions of counsel in which
such details are given, or (ii) stating that, in the opinion of such counsel, no
such action is necessary to preserve and protect such interest.
(l) REPORTING. The Debtor will furnish, or cause to be furnished to the
Deal Agent, and the Collateral Agent (unless otherwise provided to the
Collateral Agent):
(i) NOTICE OF TERMINATION EVENT, AMORTIZATION EVENT, WIND-DOWN
EVENT, POTENTIAL TERMINATION EVENT, POTENTIAL AMORTIZATION EVENT OR
POTENTIAL WIND-DOWN EVENT. As soon as possible and in any event within
five days of becoming aware of the occurrence of each Termination Event,
Amortization Event, Wind-Down Event, or each Potential Termination Event,
Potential Amortization Event or Potential Wind-Down Event hereunder, or
each Servicer Event of Default (as defined in the Servicing Agreement) or
FIACC Event of Default (as defined in the Servicing Agreement) under the
Servicing Agreement, a statement of the chief financial officer or chief
accounting officer of the Debtor setting forth details of such Termination
Event, Amortization Event, Wind-Down Event, Potential Termination Event,
Potential Amortization Event or Potential Wind-Down Event, Servicer Event
of Default or FIACC Event of Default and the action which the Debtor
proposes to take with respect thereto.
(ii) CHANGE IN CREDIT GUIDELINES. Within 10 days after the date of
any material change in or amendment to the Credit Guidelines, a copy of
the Credit Guidelines then in effect indicating such change or amendment.
Any change that will materially and adversely affect the Deal Agent shall
be approved in writing by the Deal Agent.
(m) The Debtor shall not, without the prior written consent of the
Collateral Agent and the Deal Agent,
(i) engage in any business or activity other than those set forth in
Article III of the Debtor's Certificate of Incorporation;
30
<PAGE>
(ii) incur any indebtedness, or assume or guaranty an indebtedness
of any other entity, other than any indebtedness contemplated by Article
IV of the Debtor's Certificate of Incorporation, which indebtedness shall
be subordinated to all other obligations of the Debtor;
(iii) without the affirmative vote of 100% of the members of the
Board of Directors of the Debtor, institute proceedings to be adjudicated
bankrupt or insolvent, or consent to the institution of bankruptcy or
insolvency proceedings against it, or file a petition seeking or consent
to reorganization or relief under any applicable federal or state law
relating to bankruptcy, or consent to the appointment of a receiver,
liquidate, assignee, trustee, sequestrate (or other similar official) of
the corporation or a substantial part of its property, or make any
assignment for the benefit of creditors, or admit in writing its inability
to pay its debts generally as they become due, or take corporate action in
furtherance of any such action.
(iv) The Debtor shall at all times (A) to the extent the Debtor's
office is located in the offices of the Seller or any Affiliate of the
Seller, pay fair market rent for its executive office space located in the
offices of the Seller or any Affiliate of the Seller, (B) maintain the
Debtor's books, financial statements, accounting records and other
corporate documents and records separate from those of the Seller or any
other entity, (C) not commingle the Debtor's assets with those of the
Seller or any other entity (it being understood that certain Collections
on Receivables owned by the Debtor may be temporarily commingled with
collections on other receivables serviced by the Seller); (D) act solely
in its corporate name and through its own authorized officers and agents,
(E) make investments directly or by brokers engaged and paid by the Debtor
or its agents (provided that if any such agent is an Affiliate of the
Debtor it shall be compensated at a fair market rate for its services),
(F) separately manage the Debtor's liabilities from those of the Seller or
any Affiliates of the Seller and pay its own liabilities, including all
administrative expenses, from its own separate assets, and (G) pay from
the Debtor's assets all obligations and indebtedness of any kind incurred
by the Debtor. The Debtor shall abide by all corporate formalities,
including the maintenance of current minute books, and the Debtor shall
cause its financial statements to be prepared in accordance with generally
accepted accounting principles in a manner that indicates the separate
existence of the Debtor and its assets and liabilities. The Debtor shall
(1) pay all its liabilities, (2) not assume the liabilities of the Seller
or any Affiliate of the Seller, and (3) not guarantee the liabilities of
the Seller or any Affiliate of the Seller. The officers and directors of
the Debtor (as appropriate) shall make decisions with respect to the
business and daily operations of the Debtor independent of and not
dictated by any controlling entity.
(v) The Debtor shall only amend, alter, change or repeal its
Certificate of Incorporation as in effect on the date hereof with the
prior written consent of the Collateral Agent and the Deal Agent.
31
<PAGE>
(n) The Debtor shall have at all times from and after the date of the
Initial Funding in effect an interest rate cap agreement or agreements or other
interest rate hedge agreements acceptable to the Deal Agent (each an "INTEREST
RATE HEDGE AGREEMENT" and collectively the "INTEREST RATE HEDGE AGREEMENTS")
with a financial institution or institutions ("HEDGE COUNTERPARTIES") provided
that (i) any such Hedge Counterparty shall be approved by the Deal Agent, (ii)
such Hedge Counterparty shall have irrevocably and unconditionally agreed that,
prior to the date which is one year and one day after the payment in full of the
Note and the Commercial Paper, it will not institute against, or join any other
Person in instituting against, the Company, the Seller or the Debtor any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other similar proceeding under the laws of the United States, any state of
the United States or any other jurisdiction, (iii) the form and substance of any
such Interest Rate Hedge Agreement shall be acceptable to the Deal Agent, (iv)
all amounts payable by the Hedge Counterparty thereunder shall be required to be
paid by such counterparty directly to the Collection Account, (v) such Interest
Rate Hedge Agreement shall provide that the Hedge Counterparty acknowledges that
the Debtor's rights thereunder shall have been irrevocably assigned to, and a
security interest therein has been granted to, the Collateral Agent for the
benefit of the Secured Party and (vi) the strike rate of any Interest Rate Hedge
Agreement that is an interest rate cap agreement shall be not more than 9.0%.
The Interest Rate Hedge Agreements in effect on the date of the Initial Funding
shall cover at least 100% of the Net Investment, calculated as of the Cut-Off
Date, which hedge agreements shall have a term of at least 36 months from the
Cut-Off Date. On or before the fifth Business Day of each calendar month
("MONTHLY HEDGE DATE"), the Debtor shall have in effect Interest Rate Hedge
Agreements covering at least 100% of the increase in the Net Investment during
the immediately preceding calendar month, which hedge agreements shall have a
term of at 36 months from such Monthly Hedge Date.
(o) CREDIT GUIDELINES. The Debtor shall not amend, modify or supplement
its Credit Guidelines in any manner which would materially and adversely affect
the Noteholder, the Company, the Liquidity Providers or the Credit Support
Provider.
(p) EXTENDED SERVICE AGREEMENTS. The Debtor will not amend, and shall not
permit any amendment to any Extended Service Agreement relating to any Financed
Vehicle which would adversely affect its ability and right to receive refunds
under such contracts, or which would adversely affect the position of the
Noteholder, the Deal Agent, any Liquidity Provider or the Credit Support
Provider.
(q) THE NOTE. The Debtor will not amend, and shall not permit any
amendment to the Note, except in accordance with the Note Purchase Agreement,
except with the consent of the Company and the Deal Agent.
32
<PAGE>
ARTICLE IV
SERVICING AND ADMINISTRATION
SECTION 4.1 SERVICING.
(a) Pursuant to the Servicing Agreement, the Debtor has contracted with
General Electric Capital Corporation ("GECC") to act as servicer to manage,
collect and administer each of the Receivables. Until such time as GECC is
terminated as servicer under the Servicing Agreement, references to the Servicer
herein shall refer to GECC as servicer under the terms of the Servicing
Agreement. In the event of a Servicer Event of Default pursuant to Section 8.01
of the Servicing Agreement, the Debtor shall, upon the written direction of the
Deal Agent, or may, with the consent of the Deal Agent, terminate GECC as
Servicer thereunder. The Deal Agent shall also have the right to remove the
Servicer for cause, which shall include the material breach of any obligation or
covenant under the Servicing Agreement. Upon the termination of GECC as servicer
of the Receivables pursuant to either Section 8.01 or Section 9.02 of the
Servicing Agreement, the Deal Agent, shall have the right to appoint a successor
servicer and the Debtor shall enter into a servicing agreement with such
successor servicer in form and substance acceptable to the Deal Agent, with such
successor servicer acceptable to the Deal Agent at such time. Such appointment
shall be subject to the consent of the Debtor, which consent shall not be
unreasonably withheld; PROVIDED, HOWEVER, that if a Termination Event, a
Potential Termination Event, Wind-Down Event, Potential Wind-Down Event,
Amortization Event, Potential Amortization Event or Incipient Coverage
Shortfall, shall have occurred and be continuing the consent of the Debtor shall
not be required. Such servicing agreement shall specify the duties and
obligations of such successor servicer, and all references herein to the
Servicer shall be deemed to refer to such successor servicer.
(b) There shall be established on the Closing Date and maintained, for the
benefit of the Secured Party, in the trust department of a bank chosen by the
Collateral Agent (which bank shall be Bankers Trust Company or such other bank
or trust company as may be appointed by the Collateral Agent from time to time
with the consent of the Debtor, which consent shall not be unreasonably
withheld), a segregated account (the "COLLECTION ACCOUNT"), bearing a
designation clearly indicating that all of the funds deposited therein are held
for the benefit of the Secured Party. Funds on deposit in the Collection Account
(other than investment earnings) shall be invested by the Collateral Agent at
the direction of the Debtor in Eligible Investments that will mature so that
such funds will be available prior to the next succeeding Remittance Date,
except that in the case of funds representing Collections with respect to a
succeeding Collection Period, such Eligible Investments may mature so that such
funds will be available no later than the Business Day prior to the Remittance
Date for such Collection Period. Any funds on deposit in the Collection Account
to be so invested shall be invested solely in Eligible Investments. On each
Remittance Date, all interest and earnings (net of losses and investment
expenses) on funds on deposit in the Collection Account shall be available to
make any payments required hereunder and shall be distributed pursuant to the
priorities set forth in Section 5.1.
33
<PAGE>
(c) The Debtor shall cause GECC as servicer under the Servicing Agreement
to deposit all Collections in the Collection Account no later than ten (10)
Business Days after the end of the related Collection Period (LESS the fees and
expenses of GECC as Servicer which GECC, pursuant to the Servicing Agreement, is
permitted to withhold from amounts remitted to the Debtor or the Collateral
Agent), but in any event, on or before the 14th day of the month following the
related Collection Period.
SECTION 4.2 RIGHTS AFTER DESIGNATION OF SUCCESSOR SERVICER.
At any time following the designation of a Servicer (other than GECC)
pursuant to Section 4.1 as a result of the occurrence of a Servicer Event of
Default pursuant to Section 8.01 of the Servicing Agreement:
(a) The Collateral Agent and the Deal Agent may direct that payment of all
amounts payable under any Receivable be made directly to the Collateral Agent or
its designee.
(b) The Debtor shall, at the Collateral Agent's or the Deal Agent's
request and at the Debtor's expense, give notice of the Collateral Agent's
interest in the Receivables to each Obligor and direct that payments be made
directly to the Collateral Agent or its designee.
(c) The Debtor shall, at the Collateral Agent's or the Deal Agent's
request, (i) assemble all of the records relating to the Collateral, including
all Receivables files, and shall make the same available to the Collateral Agent
and the Deal Agent at a place selected by the Collateral Agent and the Deal
Agent or its designee, and (ii) segregate all cash, checks and other instruments
received by it from time to time constituting collections of Collateral in a
manner acceptable to the Collateral Agent and the Deal Agent and shall, promptly
upon receipt, remit all such cash, checks and instruments, duly endorsed or with
duly executed instruments of transfer, to the Collateral Agent or its designee.
(d) The Debtor hereby authorizes the Collateral Agent to take any and all
steps in the Debtor's name and on behalf of the Debtor necessary or desirable,
in the determination of the Collateral Agent, to collect all amounts due under
any and all of the Collateral with respect thereto, including, without
limitation, endorsing the Debtor's name on checks and other instruments
representing Collections and enforcing the Receivables.
SECTION 4.3 RESPONSIBILITIES OF THE DEBTOR.
Anything herein to the contrary notwithstanding, the Debtor shall (a)
perform all of its obligations under the Receivables to the same extent as if a
security interest in such Receivables had not been granted hereunder and the
exercise by the Collateral Agent of its rights hereunder shall not relieve the
Debtor from such obligations and (b) pay when due any taxes, including without
limitation, any sales taxes payable in connection with the Receivables and their
creation and satisfaction. Neither the Collateral Agent nor any Secured Party
shall have any obligation or liability with respect to any Receivable, nor shall
any of them be obligated to perform any of the obligations of the Debtor
thereunder.
34
<PAGE>
SECTION 4.4 MONTHLY DEBTOR'S CERTIFICATE.
On each Determination Date, the Debtor shall deliver to the Deal Agent and
the Collateral Agent a certificate in substantially the form of EXHIBIT H
attached hereto (the "MONTHLY DEBTOR'S CERTIFICATE") for the related Collection
Period. The Monthly Debtor's Certificate shall have attached thereto the
certificate of the Servicer with respect to the Receivables relating to the
immediately preceding Collection Period (which for so long as GECC is the
Servicer shall be in the form specified in Section 4.09 of the Servicing
Agreement). The Company shall provide (or cause the Deal Agent to provide) to
the Debtor, by the 10th day of the calendar month following the Collection
Period to which such Monthly Debtor's Certificate relates, information relating
to the amount of each obligation of the Company which comprises Carrying Costs
for such Collection Period. The Monthly Debtor's Certificate shall specify
whether a Termination Event, an Amortization Event or Wind-Down Event is deemed
to have occurred with respect to the Collection Period preceding such
Determination Date. Upon receipt of the Monthly Debtor's Certificate, the
Collateral Agent shall rely (and shall be fully protected in so relying) on the
information contained therein for the purposes of making distributions and
allocations as provided for herein.
SECTION 4.5 RE-WRITTEN RECEIVABLES.
The Servicer may, upon instruction from the Debtor, reduce either (i) the
Principal Balance or (ii) the APR of any Receivable. In the event of any such
reduction, the Seller agrees to deposit, immediately upon the granting of any
such reduction, to the Collection Account an amount, in immediately available
funds, equal to (x) if the Principal Balance of such Receivables is reduced, the
amount of the reduction in such Principal Balance, together with interest to
accrue on such reduction, at a rate per annum equal to the related APR, from the
date of such reduction to and including the last day of the calendar month in
which such reduction is effective and/or (y) if the APR is reduced, an amount
equal to the excess of (A) the amount of all remaining payments to be made by
the Obligor of such Receivable, calculated using the APR prior to such reduction
and (B) the amount of all remaining payments to be made by the Obligor of such
Receivable, calculated using the APR after giving effect to such reduction.
ARTICLE V
ALLOCATION AND APPLICATION
OF COLLECTIONS; RESERVE ACCOUNT
SECTION 5.1 COLLECTIONS.
(a) On each Remittance Date, the Collateral Agent shall determine by
reference to the Monthly Debtor's Certificate the Available Collections for the
prior Collection Period and shall withdraw such amount from the Collection
Account and allocate and pay such amount in the following order of priority;
35
<PAGE>
(i) to the Reserve Account to repay Reserve Advances;
(ii) to pay to the Collateral Agent all fees and expenses due
pursuant to Section 7.2(a) hereof;
(iii) first, to the Noteholder, an amount equal to Carrying Costs
(net of all amounts paid by a Reserve Advance in respect thereof during
the related Collection Period) for the related Collection Period and then
to pay the servicing fee due to any successor Servicer;
(iv) to the Noteholder, to pay the Targeted Monthly Principal
Payment;
(v) prior to the occurrence of a Termination Event, to the Reserve
Account, the amount necessary to increase the amount on deposit in the
Reserve Account to the Required Reserve Account Balance;
(vi) to the Collateral Agent, FIRST, the amount to be applied by the
Collateral Agent to pay any and all Re-Liening Expenses then due and
payable which have not been previously paid by or on behalf of the Debtor,
and SECOND, all amounts due the Collateral Agent pursuant to Section
7.2(b) hereof;
(vii) after the occurrence of a Termination Event, the remainder to
the Noteholder to reduce the Net Investment;
(viii) to the Noteholder or any other appropriate party, an amount
equal to any other amounts owed thereto under the Note Purchase Agreement
(other than amounts due under the Note, with the exception of costs
incurred in the enforcement of the Note), other amounts due thereto under
this Agreement, and unreimbursed Carrying Costs with respect to prior
Collection Periods; and
(ix) unless an Incipient Coverage Shortfall exists, all remaining
amounts shall be distributed by the Collateral Agent to a bank account
designated by the Debtor for further distribution; if an Incipient
Coverage Shortfall exists, then all remaining amounts shall be retained in
the Collection Account until the next Remittance Date, on which date such
amounts shall constitute funds available for application pursuant to this
Section 5.1(a).
(b) In the event that, on any Business Day on which any Commercial Paper
Notes mature (the "MATURED CP") other than a Remittance Date, the sum of (i)
funds on deposit in the Collection Account on such date and (ii) the aggregate
amounts paid to the Noteholder on any prior Remittance Date representing
Carrying Costs in respect of such Matured CP is less than the Interest Component
of such Matured CP (such difference being the "MATURED CP SHORTFALL"), then the
Deal Agent shall make an advance from the Reserve Account in an amount equal to
such Matured CP Shortfall (a "RESERVE ADVANCE") and pay to the Company the
amount of such
36
<PAGE>
advance. To the extent that amounts available in the Reserve
Account are insufficient to cover such Matured CP Shortfall, the Debtor shall be
obligated to make a payment to the Collateral Agent, for distribution to the
Company, in an amount equal to such remaining shortfall. Amounts required to be
remitted pursuant to this Section 5.1(b) to the Company shall be remitted in
immediately available funds to the Agent's Account no later than 12:00 noon, New
York City time, on the date due. The Deal Agent shall be entitled to direct the
Collateral Agent to make a demand for payment upon the Debtor for shortfalls
reasonably expected to occur in the amount available to be withdrawn from
Reserve Account pursuant to this Section 5.1(b), PROVIDED, that any such demands
shall be (i) based on the maturity schedule of Commercial Paper Notes and (ii)
made not more than four Business Days prior to the scheduled maturity date of
the Commercial Paper Notes to which such expected shortfall relates. The Debtor
shall deposit to the credit of the Reserve Account, on the Business Day
following any such demand, the amount of such requested payment.
(c) If the Available Collections in respect of a Remittance Date are
insufficient to pay the sum of the amounts to be distributed on such Remittance
Date pursuant to clauses (ii) through (iv) of Section 5.1(a) and, at the Deal
Agent's option, clause (vi) of Section 5.1(a), the Debtor shall notify the Deal
Agent of such shortfall and the Deal Agent shall cause the withdrawal of the
amount of such shortfall from the Reserve Account, to the extent of amounts on
deposit therein, and remit the proceeds of such withdrawal to the Collateral
Agent and the Collateral Agent shall apply such amount to the payment of the
items described in clauses (ii), (iii), (iv) and (vi) of Section 5.1(a), on the
related Remittance Date and in that order of priority. The Deal Agent shall be
entitled to direct the Collateral Agent to make a demand for payment upon the
Debtor for shortfalls reasonably expected to occur in the amount available to be
withdrawn from Reserve Account on any Remittance Date pursuant to this Section
5.1(c), PROVIDED, that any such demands shall be based on the information
contained in the related Monthly Debtor's Certificate. The Debtor shall deposit
to the credit of the Reserve Account, on the Business Day following any such
demand, the amount of such requested payment.
SECTION 5.2 REMITTANCES TO THE SECURED PARTY.
On each Remittance Date, the Collateral Agent shall remit Available
Collections to the Secured Party in accordance with the provisions of Section
5.1. The foregoing notwithstanding, the final remittance in respect of the Note
shall be made in the applicable manner specified above only upon presentation
and surrender of the Note at the office of the Debtor specified by it in the
notice of such final remittance or repurchase.
37
<PAGE>
ARTICLE V-A
THE RESERVE ACCOUNT AND THE DEAL AGENT
SECTION 5A.1 ESTABLISHMENT OF THE RESERVE ACCOUNT.
(a) ESTABLISHMENT OF RESERVE ACCOUNT. On or before the Closing Date, the
Debtor shall establish a segregated account, which shall be entitled "Reserve
Account of First Union Capital Markets Corp. as Collateral Agent for certain
secured parties under the Security Agreement dated as of January 1, 1998" (the
"RESERVE ACCOUNT"). Subject to the terms hereof, the Deal Agent for the benefit
of the Collateral Agent for the benefit of the Secured Party shall possess all
right, title and interest in and to all funds deposited from time to time in the
Reserve Account. Notwithstanding the foregoing, the Deal Agent shall not
withdraw any funds from, or otherwise exercise control over, the Reserve Account
except as provided in this Agreement and the Deal Agent acknowledges that all
amounts on deposit in the Reserve Account shall be held by the Deal Agent for
the benefit of the Collateral Agent for the benefit of the Secured Party.
(b) DEPOSITS TO AND WITHDRAWALS FROM THE RESERVE ACCOUNT. On or prior to
the date of the Initial Funding, the Debtor shall deposit or cause to be
deposited in the Reserve Account, the Initial Reserve Account Deposit. Such
deposit may be made by instruction from the Debtor to the Deal Agent to withhold
from the Initial Funding an amount equal to such Initial Reserve Account Deposit
and deposit such amount to the Reserve Account on such date. The Debtor shall
deposit into the Reserve Account all amounts which are required to be deposited
therein by this Agreement. The Deal Agent shall promptly withdraw from the
Reserve Account all amounts required to be withdrawn therefrom pursuant to
Section 5.1(b) and 5.1(c) hereof, and shall either (i) pay such amounts to the
Company (in the case of withdrawals pursuant to Section 5.1(b)) or (ii) remit
such amounts to the Collateral Agent (in the case of withdrawals therefrom
pursuant to Section 5.1(c)).
Prior to the occurrence of a Termination Event and at any time during
which an Incipient Coverage Shortfall does not exist and to the extent that
amounts on deposit in the Reserve Account on any Remittance Date, after giving
effect to any required withdrawals therefrom on such day, exceed the Required
Reserve Account Balance, such excess amounts shall be withdrawn from the Reserve
Account by the Deal Agent and be deposited by the Deal Agent in the Collection
Account and shall constitute part of the funds available for application
pursuant to Section 5.1(a) for the next succeeding Remittance Date.
From and after the occurrence of a Termination Event the Deal Agent may
withdraw any and all amounts on deposit in the Reserve Account in accordance
with the provisions of Section 5.1 to be applied in the Deal Agent's discretion
to reduce the Net Investment or to pay the Carrying Costs accrued and to accrue
on such reduction in the Net Investment.
38
<PAGE>
(c) INVESTMENT OF FUNDS ON DEPOSIT IN THE RESERVE ACCOUNT.
(i) Funds on deposit in the Reserve Account shall be invested in
Eligible Investments by or at the written direction of the Debtor,
PROVIDED that if a Termination Event shall have occurred, such investments
shall be limited to the Eligible Investments set forth in items A, B and C
of EXHIBIT D hereto. Any such written directions shall specify the
particular investment to be made and shall certify that such investment is
an Eligible Investment and is permitted to be made under this Agreement.
(ii) All investments of amounts on deposit in the Reserve Account
shall be accomplished in a manner so as to cause such investments to be
Transferred to the Collateral Agent, as agent, and, if required by
applicable law or any amendment thereto, to be maintained by the
Collateral Agent, as agent, through continued registration of the
Collateral Agent's ownership of such investments, so as to continuously
establish "control" (as defined in Section 8-106 of the 1994 Official Text
of Article 8 of the Uniform Commercial Code and the New York UCC) thereof
by the Collateral Agent, as agent; PROVIDED that investments need not be
Transferred to the Collateral Agent, as agent, in accordance with each
action set forth in the definition of "Transferred", if as a result of the
effectiveness in the State of New York of the 1994 Official Text of
Article 8 of the Uniform Commercial Code, or otherwise, such action is no
longer required to perfect the security interest of the Collateral Agent,
as agent. The Deal Agent and the Collateral Agent shall instruct the
Reserve Account Bank (and any other Financial Intermediary holding the
Reserve Account) to comply with all Entitlement Orders (as defined in
Section 8-102(a)(8) of the 1994 Official Text of the Uniform Commercial
Code and the New York UCC) received by it from the Deal Agent and not to
comply with Entitlement Orders (as defined in Section 8-102(a)(8) of the
1994 version of the Official Text of Article 8 of the Uniform Commercial
Code and the New York UCC) with respect to the Reserve Account given to it
by any Person other than the Deal Agent.
(iii) Funds on deposit in the Reserve Account on the date of the
Initial Funding and thereafter shall be so invested in Eligible
Investments that mature such that sufficient amounts of such funds or the
proceeds thereof will be available for withdrawal pursuant to Section
5.1(b) on the maturity date of Commercial Paper Notes and for remittance
to the Collateral Agent pursuant to Section 5.1(b); in any event the
maturity of any Eligible Investment shall not exceed 30 days. No Eligible
Investment may be liquidated or disposed of prior to its maturity. All
proceeds of any Eligible Investment shall be deposited in the Reserve
Account. Investments may be made on any date (provided such investments
mature in accordance with the preceding sentence), only after giving
effect to deposits to and withdrawals from the Reserve Account on such
date. Not later than 5:00 p.m. (New York time) on the Business Day prior
to each Remittance Date, all interest and earnings (net of losses and
investment expenses, if any) accrued since the previous Remittance Date
(or since the Closing Date in the case of the first Remittance Date) on
funds on deposit in the Reserve Account shall be withdrawn by the Deal
Agent and remitted to the Collateral Agent to be applied pursuant to
Section 5.1 of this Agreement in accordance with the Monthly Debtor's
Certificate. Realized losses, if any, on amounts
39
<PAGE>
invested in Eligible Investments shall be charged against undistributed
investment earnings on amounts on deposit in the Reserve Account.
(iv) The Debtor shall provide the Deal Agent on the date hereof and
from time to time upon request an incumbency certificate or the
substantial equivalent with respect to each officer of the Debtor that is
authorized to provide instructions relating to investments in Eligible
Investments.
SECTION 5A.2 MAINTENANCE OF ELIGIBLE INVESTMENTS.
Eligible Investments shall be maintained in such manner as may be
necessary to maintain the first priority perfected security interest in favor of
the Collateral Agent on behalf of the Secured Party.
All amounts or property credited to the Reserve Account shall be subject
to the lien of the Collateral Agent on behalf of the Secured Party, until
released or withdrawn from the Reserve Account.
SECTION 5A.3 TERMINATION OF RESERVE ACCOUNT; RELEASE OF FUNDS.
If and to the extent that all amounts owed by the Debtor to the Secured
Party hereunder, under the Note Purchase Agreement and the Note have been paid
in full, any amounts on deposit in the Reserve Account shall be released to the
Debtor. In the event that thereafter the Debtor shall request that the
Noteholder increase its Net Investment, it shall be a condition precedent
thereto that the Reserve Account be funded in an amount equal to the Required
Reserve Account Balance after giving effect to any Receivables added to the
Collateral in connection with such increase in the Net Investment.
ARTICLE VI
TERMINATION EVENTS; SERVICING TERMINATION
SECTION 6.1 TERMINATION EVENTS.
The occurrence of any one of the following events shall be a "TERMINATION
EVENT" under this Agreement:
(a) failure on the part of the Debtor to pay or disburse when due the
amounts provided for herein;
(b) failure (i) by the Debtor, to observe or perform any term, covenant,
condition or agreement set forth in Sections 3.2(a), (d), (e), (f), (g), (h),
(i), (j), (l), (m) or (n) of this Agreement or (ii) of any representation or
warranty of the Debtor, the Seller or the Servicer contained herein or, in the
Note Purchase Agreement, the Purchase Agreement or the Servicing
40
<PAGE>
Agreement to be true and correct in all material respects on any day when made
or deemed made hereunder, or (iii) by the Debtor to observe or perform any other
term, covenant, condition or agreement provided for herein or in the Note, the
Note Purchase Agreement, the Servicing Agreement, the Purchase Agreement or the
Interest Rate Hedge Agreement (other than those terms described in subsection
6.1(a) above) which failure, (A) in the case of clause (ii) above continues for
a period of thirty (30) days after the earlier of (1) the date on which written
notice of such breach shall have been given to the Debtor, the Seller or the
Servicer, by the Company, the Deal Agent or the Collateral Agent, (2) the date
on which the Debtor became aware of such breach or (3) the date on which the
Debtor exercising reasonable care should have become aware of such breach, or
(B) in the case of clause (iii) above continues for a period of thirty (30) days
after the earlier of (1) the date on which written notice of such failure shall
have been given to the Debtor by the Company, the Deal Agent, or the Collateral
Agent, (2) the date on which the Debtor became aware of such failure or (3) the
date on which the Debtor exercising reasonable care should have become aware of
such failure;
(c) the Debtor, the Seller or the Servicer shall consent to the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings of or relating to the Debtor, the Seller or the Servicer, as the
case may be, or of or relating to all or substantially all of its property, or a
decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Debtor, the Seller or the Servicer,
as the case may be, and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or the Debtor, the Seller or
the Servicer shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of an applicable insolvency
or reorganization statute, make any assignment for the benefit of its creditors
or voluntarily suspend payment of its obligations; or the Debtor, the Seller or
the Servicer, as the case may be, shall become unable for any reason to pledge
Collateral to the Collateral Agent in accordance with the provisions of this
Agreement;
(d) (i) the sum of (x) Net Investment and (y) accrued Carrying Costs
exceeds the sum of (I) the Borrowing Base and (II) the amount on deposit in the
Reserve Account for a period of 30 consecutive days; (ii) the Net Investment
PLUS the Accrued Interest Component equals or exceeds the Facility Limit or
(iii) the Net Investment at any time equals or exceeds the sum of the Principal
Balance of Eligible Loans plus the amount on deposit in the Reserve Account.
(e) the Debtor shall enter into any merger, consolidation or conveyance
transaction regardless of the surviving entity, or the Servicer shall enter into
any merger, consolidation or conveyance transaction whereby it is not the
surviving entity;
(f) any material adverse change in the operations of the Servicer which
materially adversely affects the ability of the Servicer to service the
Receivables or to perform its obligations under the Servicing Agreement (or any
other agreement pursuant to which the Servicer is acting as servicer of the
Receivables);
41
<PAGE>
(g) there shall be a payment default by the Seller or the Debtor under any
material agreement for borrowed money to which the Seller or the Debtor is a
Party or there shall be a Servicer Event of Default under the Servicing
Agreement;
(h) the Delinquency Ratio averaged over any three consecutive Collection
Periods shall equal or exceed 10.00%;
(i) either (a) the Gross Default Ratio averaged over any three consecutive
Collection Periods shall equal or exceed 16.00% or (b) the Recovery Ratio
averaged over any three consecutive Collection Periods shall be less than 55%;
(j) the Collateral Agent shall fail for any reason to have a valid and
perfected first priority security interest in the Receivables and the proceeds
thereof;
(k) there shall be a material breach by the Seller of its obligations
under the Purchase Agreement;
(l) (i) a final judgment for the payment of money in excess of $1,000,000
shall have been rendered against the Seller by a court of competent jurisdiction
and the Seller shall not have either: (1) discharged or provided for the
discharge of such judgment in accordance with its terms, or (2) perfected a
timely appeal of such judgment and caused the execution thereof to be stayed (by
supersedeas or otherwise) during the pendency of such appeal or (ii) the Seller
shall have made payments of amounts in excess of $1,000,000 in settlement of any
litigation;
(m) the weighted average APR of the Receivables is less than 17.0%;
(n) the weighted average remaining term to maturity on the Receivables is
greater than 60 months;
(o) the Servicer's long-term debt rating falls below A-/A3 and a successor
servicer acceptable to the Deal Agent is not in place within 60 days;
(p) the long-term debt rating of any active provider of an Interest Rate
Hedge Agreement is below A-/A3 and a successor to such provider acceptable to
the Deal Agent is not in place or collateral acceptable to the Deal Agent has
not been posted, in each case, within 10 business days;
(q) the occurrence of a Wind-Down Event which is not cured within 90 days.
SECTION 6.2 WIND-DOWN EVENTS.
The occurrence and continuation of any one of the following events shall
be a "WIND-DOWN EVENT" under this Agreement:
42
<PAGE>
(a) the Liquidity Provider or the Credit Support Provider shall have
notified the Company that an event of default has occurred under the Liquidity
Agreement or the Credit Support Agreement, respectively; or
(b) the Company's Commercial Paper shall no longer be rated at least
"A-2", in the case of S&P, and at least "P-2", in the case of Moody's.
SECTION 6.3 AMORTIZATION EVENTS.
The occurrence of any one of the following events shall be an
"AMORTIZATION EVENT" under this Agreement:
(a) on any date of determination, (i) the Gross Default Ratio as measured
on a three month rolling average basis exceeds 14.0%, (ii) the Recovery Ratio as
measured on a three month rolling average is less than 58.0%, or (iii) the
Delinquency Ratio as measured on a three month rolling average basis exceeds
7.0%;
(b) the First Investors Financial Services Group, Inc. consolidated
stockholders equity falls below $15,000,000 as reported on a Form 10-Q or
Form 10-K;
(c) the due diligence (which may occur no more than twice in each calendar
year) by the Deal Agent (or its designee) uncovers Receivables representing more
than 20% of the sample which display material adverse non-compliance with the
Seller's Credit Guidelines;
(d) GECC, as Servicer, is no longer obligated to service new Loans
originated by the Seller; and
(e) there occurs any material adverse change to the Seller's Credit
Guidelines, unless such change is approved by the Deal Agent.
SECTION 6.4 REMEDIES.
If a Termination Event as specified in Section 6.1 shall have occurred,
the Collateral Agent, at the written direction of the Deal Agent shall, declare
by written notice to the Debtor any date as the date upon which the Note shall
become due and payable and, the Collateral Agent shall have all of the rights
and remedies provided to a secured creditor under the UCC by applicable law in
respect thereto. In addition, the Company shall have the right to cease issuing
Commercial Paper Notes. The Company may, at its option, determine that its
Carrying Costs with respect to the Net Investment after the occurrence of a
Termination Event are calculated by reference to the Base Rate PLUS 2.0%. There
shall be no Subsequent Funding upon or after the occurrence of any Termination
Event or Potential Termination Event or during the continuance of any Wind-Down
Event, Potential Wind-Down Event, Amortization Event or Potential Amortization
Event.
43
<PAGE>
If the Note is declared due and payable in accordance with this Section
6.4, the Collateral Agent shall, at the direction of the Deal Agent, do any one
or more of the following:
(a) take all necessary action to foreclose upon the Collateral;
(b) retain in satisfaction of any amounts owing from the Debtor all
amounts otherwise payable to the Debtor pursuant to this Agreement to the extent
necessary to pay in full all amounts (including principal and interest) (i) due
and payable under the Note and (ii) due and payable by the Debtor under the Note
Purchase Agreement;
(c) pursue any available remedy by proceeding at law or in equity
including complete or partial foreclosure of the lien upon the Collateral and
sale of the Collateral or any portion thereof or rights or interest therein as
may appear necessary or desirable (i) to collect amounts owed pursuant to the
Note and any other payments then due and thereafter to become due under the Note
or (ii) to enforce the performance and observance of any obligation, covenant,
agreement or provision contained in this Agreement to be observed or performed
by the Debtor; or
(d) exercise any remedies of a secured party under the Uniform Commercial
Code and take any other appropriate action to protect and enforce the rights and
remedies of the Collateral Agent on behalf of the Secured Party.
SECTION 6.5 PROCEEDS.
The proceeds from the sale, disposition or liquidation of the Receivables
pursuant to Section 6.4 above shall be treated as Collections on the Receivables
and shall be allocated and deposited in accordance with the provisions governing
allocations set forth herein.
ARTICLE VII
THE COLLATERAL AGENT
SECTION 7.1 DUTIES OF THE COLLATERAL AGENT.
The Secured Party hereby appoints First Union Capital Markets Corp. to act
on its behalf as Collateral Agent hereunder, and First Union Capital Markets
Corp. hereby accepts such appointment. The Collateral Agent, both prior to the
occurrence of a Termination Event, Amortization Event or Wind-Down Event
hereunder and after an Amortization Event or Wind-Down Event shall have been
cured or waived, shall undertake to perform such duties and only such duties as
are specifically set forth in this Agreement. The Collateral Agent shall at all
times after the occurrence of a Termination Event, Amortization Event or
Wind-Down Event which has not been cured (except in the case of a Termination
Event) or waived exercise such of the rights and powers vested in it pursuant to
this Agreement using the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs.
44
<PAGE>
All Collections received by the Collateral Agent from the Servicer or
otherwise will, pending remittance to the Secured Party entitled thereto, be
held in trust by the Collateral Agent for the benefit of the Secured Party and
together with all other payment obligations of the Debtor hereunder owing to the
Secured Party shall be payable to the Secured Party in accordance with the
provisions of Article V hereof.
The Collateral Agent shall only resign if it shall (i) become incapable of
acting as Collateral Agent in accordance with the terms of this Agreement, (ii)
be adjudicated insolvent or bankrupt or otherwise become subject to any
bankruptcy, insolvency, reorganization or liquidation proceeding, (iii) be no
longer qualified as the Collateral Agent as such term is defined in the
agreement governing its responsibility as Collateral Agent or otherwise be
subject to replacement pursuant to or such agreement governing its
responsibility as Collateral Agent or (iv) materially breach any of the
provisions of this Agreement such Agreement or PROVIDED, FURTHER, that, without
the consent of the Company and the Deal Agent, such resignation shall not be
effective until a successor Collateral Agent acceptable to the Deal Agent shall
have accepted appointment as Collateral Agent hereunder and shall have agreed to
be bound by the terms of this Agreement.
Except as otherwise provided herein, the Collateral Agent shall not resign
from the obligations and duties hereby imposed on it except upon determination
that (i) the performance of its duties hereunder is no longer permissible under
applicable law and (ii) there is no reasonable action which the Collateral Agent
could take to make the performance of its duties hereunder permissible under
applicable law. Any such determination permitting the resignation of the
Collateral Agent shall be evidenced as to clause (i) above by an opinion of
counsel to such effect delivered to the Secured Party. Notwithstanding the
foregoing, the Collateral Agent may resign if, after demand therefor, it does
not receive payment of any compensation due from the Debtor pursuant to the
letter agreement described in Section 7.2. No resignation of the Collateral
Agent shall become effective until a successor Collateral Agent approved by the
Secured Party shall have assumed the responsibilities and obligations of the
Collateral Agent hereunder.
SECTION 7.2 COMPENSATION AND INDEMNIFICATION OF COLLATERAL AGENT.
(a) The Collateral Agent shall be compensated for its activities hereunder
and reimbursed for reasonable out-of-pocket expenses (including (i) securities
transaction charges not waived due to the Collateral Agent's receipt of a
payment from a financial institution with respect to certain Eligible
Investments, as specified by the Debtor and (ii) the compensation and expenses
of its counsel and agents) pursuant to a separate letter agreement between the
Collateral Agent and the Debtor. All such amounts shall be payable from funds
available therefor in accordance with Section 5.1(a)(ii) hereof with any
increase in such amounts to be approved by the Deal Agent. Subject to the terms
of such letter agreement, the Collateral Agent shall be required to pay the
expenses incurred by it in connection with its activities hereunder from its own
account. Notwithstanding any other provisions in this Agreement, the Collateral
Agent shall not be liable for any liabilities, costs or expenses of the Debtor
arising under any tax law, including without limitation any Federal, state or
local income or franchise taxes or any other tax
45
<PAGE>
imposed on or measured by income (or any interest or penalties with respect
thereto or from a failure to comply therewith).
(b) The Debtor shall indemnify the Collateral Agent, its officers,
directors, employees and agents for, and hold it harmless against any loss,
liability or expense incurred without willful misconduct, gross negligence or
bad faith on its part, arising out of or in connection with (i) the acceptance
or administration of this Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties under this Agreement and (ii) the
negligence, willful misconduct or bad faith of the Debtor in the performance of
its duties hereunder. All such amounts shall be payable in accordance with
Section 5.1(a)(vi) hereof. The provisions of this Section 7.2 shall survive the
termination of this Agreement.
SECTION 7.3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COLLATERAL
AGENT.
The Collateral Agent agrees to make the following representations,
warranties and covenants, and further agrees that the Secured Party shall be
deemed to have relied upon such representations, warranties and covenants in
accepting their interest in the Receivables.
(a) ORGANIZATION AND GOOD STANDING. The Collateral Agent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina, and has full corporate power, authority and legal right
to own its properties and conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver and
perform its obligations under this Agreement.
(b) DUE AUTHORIZATION. The execution, delivery, and performance of this
Agreement have been duly authorized by the Collateral Agent by all necessary
corporate action on the part of the Collateral Agent.
(c) BINDING OBLIGATION. This Agreement constitutes a legal, valid and
binding obligation of the Collateral Agent, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereinafter
in effect, affecting the enforcement of creditors, rights in general and except
as such enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(d) NO CONFLICT. The execution and delivery of this Agreement by the
Collateral Agent, and the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof applicable to the Collateral
Agent, will not conflict with, violate, result in any breach of any of the terms
and provisions of, or constitute (with or without notice or lapse of time or
both) a default under, any Requirement of Law applicable to the Collateral Agent
or any indenture, contract, agreement, mortgage, deed of trust or other
instrument to which the Collateral Agent is a party or by which it is bound.
46
<PAGE>
SECTION 7.4 LIABILITY OF THE COLLATERAL AGENT.
(a) The Collateral Agent shall be liable in accordance herewith only to
the extent of the obligations specifically undertaken by the Collateral Agent in
such capacity herein. No implied covenants or obligations shall be read into
this Agreement against the Collateral Agent and, in the absence of bad faith on
the part of the Collateral Agent, the Collateral Agent may conclusively rely on
the truth of the statements and the correctness of the opinions expressed in any
certificates or opinions furnished to the Collateral Agent and conforming to the
requirements of this Agreement.
(b) The Collateral Agent shall not be liable for an error of judgment made
in good faith by any officer of the Collateral Agent, unless it shall be proved
that the Collateral Agent shall have been negligent in ascertaining the
pertinent facts.
(c) The Collateral Agent shall not be liable with respect to any action
taken, suffered or omitted to be taken in good faith in accordance with this
Agreement or at the direction of a Secured Party relating to the exercise of any
power conferred upon the Collateral Agent under this Agreement.
(d) The Collateral Agent shall not be charged with knowledge of any
Termination Event, Wind-Down Event or Amortization Event unless an officer of
the Collateral Agent assigned to this transaction obtains actual knowledge of
such event or the Collateral Agent receives written notice of such event from
the Debtor, the Company, the Deal Agent or the Deal Agent, as the case may be.
(e) Without limiting the generality of this Section 7.4, the Collateral
Agent shall have no duty (i) to see to any recording, filing or depositing of
this Agreement or any agreement referred to herein or any financing statement or
continuation statement evidencing a security interest in the Receivables or the
Financed Vehicles, or to see to the maintenance of any such recording or filing
or depositing or to any recording, refiling or redepositing of any thereof, (ii)
to see to any insurance of the Financed Vehicles or Obligors or to effect or
maintain any such insurance, (iii) to see to the payment or discharge of any
tax, assessment or other governmental charge or any Lien or encumbrance of any
kind owing with respect to, assessed or levied against, any part of the
Receivables, (iv) to confirm or verify the contents of any reports or
certificates of the Servicer or the Debtor delivered to the Collateral Agent
pursuant to this Agreement believed by the Collateral Agent to be genuine and to
have been signed or presented by the proper party or parties or (v) to inspect
the Financed Vehicles at any time or ascertain or inquire as to the performance
or observance of any of the Debtor's or the Servicer's representations,
warranties or covenants or the Servicer's duties and obligations as Servicer and
as custodian of books, records, files and computer records relating to the
Receivables under the Servicing Agreement.
(f) The Collateral Agent shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there
shall be reasonable ground for believing that the repayment of such funds or
adequate indemnity against such risk or liability shall not be
47
<PAGE>
reasonably assured to it, and none of the provisions contained in this Agreement
shall in any event require the Collateral Agent to perform, or be responsible
for the manner of performance of, any of the obligations of the Servicer under
this Agreement.
(g) The Collateral Agent may rely and shall be protected in acting or
refraining from acting upon any resolution, officer's certificate, any Monthly
Debtor's Certificate, certificate of auditors, or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document reasonably believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(h) The Collateral Agent may consult with counsel and any opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it under this Agreement in good faith
and in accordance with such opinion of counsel.
(i) The Collateral Agent shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement or to institute, conduct or
defend any litigation under this Agreement or in relation to this Agreement, at
the request, order or direction of the Company pursuant to the provisions of
this Agreement, unless the Company shall have offered to the Collateral Agent
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained in this Agreement,
however, shall relieve the Collateral Agent of its obligations, upon the
occurrence of a Termination Event, a Wind-Down Event or Amortization Event (that
shall not have been cured or waived), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs.
(j) The Collateral Agent shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement.
(k) Prior to the occurrence of a Termination Event, Wind-Down Event or
Amortization Event and before the Collateral Agent has received notice of such
Termination Event, Wind-Down Event or Amortization Event and after the curing
(except with respect to a Termination Event) or waiver of any Termination Event,
Wind-Down Event or Amortization Event that may have occurred, the Collateral
Agent shall not be bound to make any investigation into the facts of matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond or other paper or document,
unless requested in writing so to do by a Secured Party; PROVIDED, HOWEVER, that
if the payment within a reasonable time to the Collateral Agent of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation shall be, in the opinion of the Collateral Agent, not reasonably
assured by the Debtor, the Collateral Agent may require reasonable indemnity
against such cost, expense or liability as a condition to so proceeding. The
reasonable expense of every such examination shall be paid by the Debtor or, if
paid by the Collateral Agent, shall be reimbursed by the Debtor upon demand.
48
<PAGE>
(l) The Collateral Agent may execute any of the trusts or powers hereunder
or perform any duties under this Agreement either directly or by or through
agents or attorneys or a custodian. The Collateral Agent shall not be
responsible for any misconduct or negligence of any such agent or custodian
appointed with due care by it hereunder.
SECTION 7.5 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE COLLATERAL AGENT.
The Collateral Agent shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(a) the corporation formed by such consolidation or into which the
Collateral Agent is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Collateral Agent substantially as an
entirety shall be a corporation organized and existing under the laws of the
United States of America or any State or the District of Columbia and, if the
Collateral Agent is not the surviving entity, shall expressly assume, by an
agreement supplemental hereto, executed and delivered to the Secured Party in
form satisfactory to the Secured Party, the performance of every covenant and
obligation of the Collateral Agent hereunder; and
(b) the Collateral Agent has delivered to the Secured Party an officer's
certificate and an opinion of counsel each stating that such consolidation,
merger, conveyance or transfer and such supplemental agreement comply with this
Section 7.5 and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 7.6 LIMITATION ON LIABILITY OF THE COLLATERAL AGENT AND OTHERS.
The directors, officers, employees or agents of the Collateral Agent shall
not be under any liability to the Collateral Agent, any Secured Party or any
other Person hereunder or pursuant to any document delivered hereunder, it being
expressly understood that all such liability is expressly waived and released as
a condition of, and as consideration for, the execution of this Agreement;
PROVIDED, HOWEVER, that this provision shall not protect the directors,
officers, employees and agents of the Collateral Agent against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. Except as provided in Section 7.4, the
Collateral Agent shall not be under any liability to any Secured Party or any
other Person for any action taken or for refraining from the taking of any
action in its capacity as Collateral Agent pursuant to this Agreement whether
arising from express or implied duties under this Agreement; PROVIDED, HOWEVER,
that this provision shall not protect the Collateral Agent against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Collateral Agent may rely in good faith
on any document of any kind PRIMA FACIE properly executed and submitted by any
Person respecting any matters arising hereunder. The Collateral Agent shall not
be under any obligation to appear in, prosecute
49
<PAGE>
or defend any legal action which is not incidental to its duties to administer
the Collections and the Collection Account in accordance with this Agreement
which in its reasonable opinion may involve it in any expense or liability.
SECTION 7.7 INDEMNIFICATION OF THE SECURED PARTY.
The Collateral Agent shall indemnify and hold harmless the Company from
and against any loss, liability, expense, damage or injury suffered or sustained
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of the duties of the Collateral Agent or by reason of reckless
disregard of obligations and duties of the Collateral Agent hereunder or by
reason of the acts, omissions or alleged acts or omissions of the Collateral
Agent pursuant to this Agreement. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 NOTICES, ETC.
Except where telephonic instructions or notices are authorized herein to
be given, all notices, demands, instructions and other communications required
or permitted to be given to or made upon any party hereto shall be in writing
and shall be sent by facsimile transmission with a confirmation of the receipt
thereof and shall be deemed to be given for purposes of this Agreement on the
day that the receipt of such facsimile transmission is confirmed in accordance
with the provisions of this Section 8.1. Unless otherwise specified in a notice
sent or delivered in accordance with the foregoing provisions of this Section
8.1, notices, demands, instructions and other communications in writing shall be
given to or made upon the respective parties hereto at their respective
addresses indicated below, and, in the case of telephonic instructions or
notices, by calling the telephone number or numbers indicated for such party
below:
If to the Company:
Variable Funding Capital Corporation
c/o First Union National Bank
301 South College Street
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention: Conduit Administration
Telephone: (704) 383-3766
Telecopy: (704) 383-6036
(with a copy to the Deal Agent)
50
<PAGE>
If to the Debtor:
First Investors Auto Capital Corporation
675 Bering Drive
Suite 710
Houston, Texas 77057
Attention: Bennie H. Duck
Vice President and Treasurer
Telephone: (713) 977-2600
Telecopy: (713) 977-0657
If to the Collateral Agent:
First Union Capital Markets Corp.
301 South College
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention: Bennett S. Cole
Telephone: (704) 383-3766
Telecopy: (704) 374-3254
If to the Deal Agent:
First Union Capital Markets Corp.
301 South College Street
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention: Conduit Administration
Telephone: (704) 383-3766
Telecopy: (704) 383-6036
If to the Seller:
First Investors Financial Services, Inc.
675 Bering Drive, Suite 710
Houston, Texas 77057
Attention: Bennie H. Duck
Vice President and Treasurer
Telephone: (713) 977-2600
Telecopy: (713) 977-0657
SECTION 8.2 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Company, the Debtor, the
Collateral Agent, the Secured Party, the Seller and their respective successors
and assigns and shall inure to the
51
<PAGE>
benefit of the Debtor, the Servicer, the Collateral Agent, the Secured Party,
the Seller and the Company and their respective successors and permitted assigns
including any Liquidity Provider; PROVIDED that the Debtor shall not assign any
of its rights or obligations hereunder without the prior written consent of the
Collateral Agent acting upon written instruction of the Secured Party. In
addition, the Debtor hereby acknowledges that the Company may at any time and
from time to time assign all or a portion of its rights hereunder to the
Liquidity Provider pursuant to the Liquidity Agreement. Except as expressly
permitted hereunder or in the agreements establishing the Company's commercial
paper program, the Company shall not assign any of its rights or obligations
hereunder without the prior written consent of the Debtor.
SECTION 8.3 SEVERABILITY CLAUSE.
Any provisions of this Agreement which are prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 8.4 AMENDMENTS; GOVERNING LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER (I)
MAY NOT BE CHANGED ORALLY BUT ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE
PARTY AGAINST WHICH ENFORCEMENT IS SOUGHT AND (II) SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA. THE
PARTIES HEREUNDER AGREE THAT THEY WILL NOT AMEND, MODIFY, WAIVE, OR TERMINATE
ANY PROVISION OF THIS AGREEMENT WITHOUT THE WRITTEN CONSENT OF EACH PARTY.
SECTION 8.5 NO BANKRUPTCY PETITION AGAINST THE COMPANY.
The Debtor and each of the other parties hereto covenant and agree that,
and each such Person agrees that they shall cause any successor Servicer
appointed pursuant to Section 4.1 to covenant and agree that, prior to the date
which is one year and one day after the payment in full of all Commercial Paper
issued by the Company it will not institute against, or join any other Person in
instituting against, the Company any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law.
SECTION 8.6 SETOFF.
The Debtor hereby irrevocably and unconditionally waives all right of
setoff that it may have under contract (including this Agreement), applicable
law or otherwise with respect to any funds or monies of the Debtor at any time
held by or in the possession of the Collateral Agent or the Reserve Account
Bank.
52
<PAGE>
SECTION 8.7 NO RECOURSE.
Except as otherwise expressly provided in this Agreement, it is understood
and agreed that the Debtor shall not be liable for amounts due under this
Agreement, the Note, or the Note Purchase Agreement, except to the extent of the
Collateral. The preceding sentence shall not relieve the Debtor from any
liability hereunder with respect to its representations, warranties, covenants
and other payment and performance obligations herein described.
SECTION 8.8 FURTHER ASSURANCES.
The Debtor agrees to do such further acts and things and to execute and
deliver to the Secured Party, the Deal Agent or the Collateral Agent such
additional assignments, agreements, powers and instruments as are required by
the Collateral Agent or the Deal Agent to carry into effect the purposes of this
Agreement or to better assure and confirm unto the Collateral Agent or the Deal
Agent its rights, powers and remedies hereunder.
SECTION 8.9 OTHER COSTS, EXPENSES AND RELATED MATTERS.
The Debtor agrees, upon receipt of a written invoice, to pay or cause to
be paid, and to save the Collateral Agent and the Secured Party harmless against
liability for the payment of, all reasonable out-of-pocket expenses (including,
without limitation, attorneys', accountant's and other third parties' fees and
expenses, any filing fees and expenses incurred by officers or employees of the
Collateral Agent) incurred by or on behalf of the Collateral Agent (a) in
connection with the negotiation, execution, delivery and preparation of this
Agreement and any documents or instruments delivered pursuant hereto and the
transactions contemplated hereby (including, without limitation, the perfection
or protection of the Collateral Agent's interest in the Collateral) and (b) from
time to time (i) relating to any amendments, waivers or consents under this
Agreement, (ii) arising in connection with the Collateral Agent's or the Secured
Party's or their agent's enforcement or preservation of rights (including,
without limitation, the perfection and protection of the Collateral Agent's
security interest in the Collateral under this Agreement), or (iii) arising in
connection with any audit, dispute, disagreement, litigation or preparation for
litigation involving this Agreement.
SECTION 8.10 REPORTING.
Notwithstanding anything herein to the contrary, any report, agreement, notice,
certificate or other document required to be delivered to both the Collateral
Agent and the Deal Agent may, during any time that the Deal Agent and the
Collateral Agent are First Union Capital Markets Corp., be delivered to the Deal
Agent alone and any such delivery to the Deal Agent shall be deemed to be
delivery, in accordance with the provisions of this Agreement, to the Collateral
Agent. The Deal Agent agrees to provide a copy of any report, agreement, notice,
certificate or other document it receives under this section to the appropriate
personnel of the Collateral Agent.
53
<PAGE>
SECTION 8.11 COUNTERPARTS.
This Agreement may be executed in any number of copies, and by the
different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument.
SECTION 8.12 HEADINGS.
Section headings used in this Agreement are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.
[remainder of page intentionally left blank]
54
<PAGE>
IN WITNESS WHEREOF, the Debtor, the Deal Agent, the Collateral Agent and
the Seller have caused this Agreement to be executed by their respective
officers thereunto duly authorized as of the day and year first above written.
FIRST INVESTORS AUTO CAPITAL CORPORATION,
as Debtor
By: /s/ BENNIE H. DUCK
Name: Bennie H. Duck
Title: Vice President and Treasurer
FIRST INVESTORS FINANCIAL SERVICES, INC.,
as Seller
By: /s/ BENNIE H. DUCK
Name: Bennie H. Duck
Title: Vice President and Treasurer
FIRST UNION CAPITAL MARKETS CORP.,
as Collateral Agent and Deal Agent
By: /s/ DARRELL R. BABER
Name: DARRELL R. BABER
Title: DIRECTOR
<PAGE>
EXHIBIT A
NOTE
$25,000,000 January 1, 1998
Reference is hereby made to that certain Note Purchase Agreement dated as
of January 1, 1998 (as amended, supplemented or otherwise modified in accordance
with the terms thereof and in effect from time to time, the "NOTE PURCHASE
AGREEMENT") by and between First Investors Auto Capital Corporation, a Delaware
corporation (the "ISSUER"), and Variable Funding Capital Corporation, a Delaware
corporation (the "COMPANY"), and to that certain Security Agreement dated as of
January 1, 1998 (as amended, supplemented or otherwise modified and in effect
from time to time, the "SECURITY AGREEMENT") by and among the Issuer, First
Investors Financial Services, Inc., as seller, and First Union Capital Markets
Corp., as deal agent and collateral agent. All capitalized terms used but not
defined herein shall have the meanings assigned thereto in the Note Purchase
Agreement or the Security Agreement.
FOR VALUE RECEIVED, the Issuer hereby promises to pay to the order of
First Union Capital Markets Corp., as Deal Agent as agent for the Company and
the Investors, at the principal office of the Deal Agent at One First Union
Center, Charlotte, North Carolina 28288, a principal sum equal to TWENTY-FIVE
MILLION DOLLARS ($25,000,000.00), in lawful money of the United States of
America and in immediately available funds.
The date and amount of each Funding extended by the Company to the Issuer
under the Note Purchase Agreement, and each payment of principal thereof, shall
be recorded by the Company on its books and, prior to any transfer of this Note
(or, at the discretion of the Company, at any other time), endorsed by the
Company on the schedule attached hereto or any continuation thereof. Although
the stated principal amount of this Note is as stated above, this Note shall be
enforceable only with respect to the Issuer's obligation to pay the principal
hereof only to the extent of the unpaid principal amount of the Fundings
outstanding under the Note Purchase Agreement at the time such enforcement shall
be sought.
Interest on the outstanding principal amount of this Note shall accrue at
the rate or rates necessary for the payment to the holder hereof, on the dates
provided for in the Security Agreement, of Carrying Costs payable to the holder
hereof on such date or dates, and shall be payable in accordance with the
priorities set forth in the Security Agreement.
Principal in an amount equal to the Targeted Monthly Principal Payment
will be due and payable on each Remittance Date, and such amounts shall be
payable in accordance with the priorities set forth in Section 5.1 of the
Security Agreement. On each Remittance Date, principal in an amount equal to the
principal balance of each Receivable determined during the prior Collection
Period to be an Ineligible Receivable shall be due and payable hereunder.
<PAGE>
The entire outstanding principal amount of this Note and accrued interest
thereon will be due and payable on the Remittance Date occurring in the calendar
month following the third calendar month in which the latest maturing Receivable
(determined as of the Termination Date) is scheduled to mature (without regard
to extensions subsequently granted on any Receivable by the Issuer or any
servicing agent).
After the occurrence of a Termination Event, the holder hereof may (with
the prior written consent of the Deal Agent, subject to the terms of the
Security Agreement) declare all amounts due hereunder to be immediately due and
payable.
The Issuer's obligation to make payments hereunder shall be a limited
recourse obligation of the Issuer, payable solely from the Collateral.
The Issuer shall pay all costs of collection of any amount due hereunder
when incurred, including without limitation, reasonable attorney's fees and
expenses, and including all costs and expenses actually incurred in connection
with the pursuit by the holder of any of its rights or remedies referred to
herein or in the Security Agreement or the protection of or realization upon
collateral, and all such costs shall be payable in accordance with Section
5.1(a)(vii) of the Security Agreement.
The Issuer waives presentment, notice of dishonor, protest and other
notice or formality with respect to this Note.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA.
FIRST INVESTORS AUTO CAPITAL
CORPORATION
By: _____________________________
Name:
Title:
==============================================================================
NOTE PURCHASE AGREEMENT
between
FIRST INVESTORS AUTO CAPITAL CORPORATION
as Issuer,
FIRST UNION CAPITAL MARKETS CORP.,
as Deal Agent
the INVESTORS
named herein
FIRST UNION NATIONAL BANK,
as Liquidity Agent
and
VARIABLE FUNDING CAPITAL CORPORATION,
as Company,
Dated as of January 1, 1998
==============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.1 Definitions................................................1
ARTICLE II
FUNDINGS; THE NOTE
Section 2.1 Funding; The Note..........................................3
Section 2.2 Acceptance and Custody of Note............................10
Section 2.3 Fees......................................................10
Section 2.4 Commercial Paper Limitations..............................11
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER
Section 3.1 Representations, Warranties and Covenants of the Issuer...11
ARTICLE IV
INDEMNIFICATION
Section 4.1 Indemnity.................................................13
Section 4.2 Indemnity for Taxes, Reserves and Expenses................14
Section 4.3 Other Costs, Expenses and Related Matters.................16
ARTICLE V
THE DEAL AGENT AND THE LIQUIDITY AGENT
Section 5.1 Authorization and Action..................................17
Section 5.2 Delegation of Duties......................................17
Section 5.3 Exculpatory Provisions....................................18
Section 5.4 Reliance..................................................19
Section 5.5 Non-Reliance on Deal Agent, Liquidity Agent and Other
Investors.............................................................19
Section 5.6 Reimbursement and Indemnification.........................20
Section 5.7 Deal Agent and Liquidity Agent in their Individual
Capacities............................................................20
i
<PAGE>
Section 5.8 Successor Deal Agent or Liquidity Agent...................20
ARTICLE VI
ASSIGNMENTS; PARTICIPATIONS
Section 6.1 Assignments and Participations............................21
ARTICLE VII
MISCELLANEOUS
Section 7.1 Notices, etc..............................................24
Section 7.2 Successors and Assigns....................................24
Section 7.3 Severability Clause.......................................25
Section 7.4 Amendments................................................25
Section 7.5 No Bankruptcy Petition Against the Company................26
Section 7.6 Costs, Expenses and Taxes.................................26
Section 7.7 Setoff....................................................26
Section 7.8 No Recourse...............................................27
Section 7.9 Further Assurances........................................27
Section 7.10 Confidentiality..........................................27
Section 7.11 GOVERNING LAW............................................28
Section 7.12 WAIVER OF JURY TRIAL.....................................28
Section 7.13 Counterparts.............................................28
Section 7.14 Headings.................................................28
EXHIBITS
EXHIBIT A...FORM OF NOTE
EXHIBIT B...FORM OF FUNDING REQUEST
EXHIBIT C...FORM OF ASSIGNMENT AND ACCEPTANCE
ii
<PAGE>
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT, dated as of January 1, 1998, by and among:
(1) FIRST INVESTORS AUTO CAPITAL CORPORATION, a Delaware corporation, as
Issuer (together with its successors and assigns, the "Issuer").
(2) the financial institutions listed on the signature pages of this
Agreement under the heading "INVESTORS" and their respective
permitted successors and assigns (but excluding participants under
Section 6.1 hereof) (the "INVESTORS");
(3) VARIABLE FUNDING CAPITAL CORPORATION, a Delaware corporation (the
"COMPANY");
(4) FIRST UNION CAPITAL MARKETS CORP. ("FCMC"), as the deal agent (the
"DEAL AGENT") and as documentation agent (the "DOCUMENTATION
AGENT"); and
(5) FIRST UNION NATIONAL BANK, with its main office located in
Charlotte, North Carolina ("FIRST UNION"), as the liquidity agent
(the "LIQUIDITY AGENT").
W I T N E S S E T H :
WHEREAS, subject to the terms and conditions of the Security Agreement,
the Issuer desires to obtain funds from time to time from the Company, and to
evidence the obligation to repay such amounts through the issuance of the Note;
WHEREAS, pursuant to the Security Agreement, the Issuer will pledge to the
Collateral Agent for the benefit of the Secured Party its interest in the
Receivables and related property including the Issuer's security interest in the
Financed Vehicles;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS.
Unless otherwise defined herein, all capitalized terms used herein shall
have the meanings given to such terms in the Security Agreement, dated as of
January 1, 1998 (the "SECURITY AGREEMENT"), among First Investors Financial
Services, Inc., as the Seller, the Issuer, as debtor, and First Union Capital
Markets Corp., as the Collateral Agent, and the Deal Agent, as
<PAGE>
amended, modified and supplemented from time to time. The following terms shall
have the following meanings:
AGREEMENT: This Note Purchase Agreement, as it may from time to time be
amended, supplemented or otherwise modified in accordance with the terms
hereof.
AGENT'S ACCOUNT: A special account (account number 01 41 96 47) in the name of
the Deal Agent, maintained at Bankers Trust Company.
ASSIGNMENT AND ACCEPTANCE: An assignment and acceptance entered into by an
Investor and an Eligible Assignee, and accepted by the Deal Agent, in
substantially the form of EXHIBIT C hereto.
CLOSING DATE: January 1, 1998.
CODE: The Internal Revenue Code of 1986, as amended from time to time (including
any successor statute), and the regulations promulgated and the rulings issued
thereunder.
COMMITMENT: For each Investor, the commitment of such Investor to make Fundings
hereunder in an amount not to exceed the amount set forth under such Investor's
name on the signature pages of this Agreement, as such amount may be modified in
accordance with the terms hereof.
COMMITMENT TERMINATION DATE: December 31, 1998 or such later date to which the
Commitment Termination Date may be extended by written agreement among the
parties hereto.
ELIGIBLE ASSIGNEE: (a) (i) A Person whose short-term rating is at least A-1 from
S&P and P-1 from Moody's, or whose obligations under this Agreement are
guaranteed by a Person whose short-term rating is at least A-1 from S&P and P-1
from Moody's, or (ii) such other Person satisfactory to the Company, the Deal
Agent and each of the rating agencies rating the Commercial Paper and (b) a
Person approved by the Issuer.
FUNDING: Any advance by a Purchaser to the Issuer hereunder pursuant to
Section 2.1(a) hereof.
FUNDING REQUEST: Has the meaning specified in Section 2.1(a) hereof.
INDEMNIFIED AMOUNTS: Has the meaning specified in Section 4.1 hereof.
INDEMNIFIED PARTIES: Has the meaning specified in Section 4.1 hereof.
INITIAL FUNDING: The first Funding which is made after the Closing Date
pursuant to Section 2.1(a) hereof.
NOTE: The note issued to the Company pursuant to Section 2.1(f)(i) of this
Agreement.
ORIGINAL INVESTMENT: The amount advanced to the Issuer in respect of the
Initial Funding (without reduction for any amount the Issuer directs to be
deposited in the Reserve Account).
2
<PAGE>
OTHER ISSUER: Any Person other than the Issuer that has entered into a transfer
and administration agreement, receivables purchase agreement, note purchase
agreement or other similar agreement with the Company and which is not a party
to any Transaction Document.
PRO-RATA SHARE: For each Investor, the Commitment of such Investor divided
by the Facility Limit.
PURCHASER: Collectively, the Company and the Investors and any other Person
that agrees, pursuant to the pertinent Assignment and Acceptance, to make
Fundings hereunder.
REGISTER: Has the meaning specified in Section 6.1(c).
REQUIRED INVESTORS: At any time, Investors with Commitments in excess of 50%
of the Facility Limit.
SECTION 4.2 COSTS: Has the meaning specified in Section 4.2 hereof.
- -----------------
SUBSEQUENT FUNDING: A Funding which is made pursuant to Section 2.1(a)
hereof after the Initial Funding.
TRANSACTION COSTS: Has the meaning specified in Section 4.3 hereof.
TRANSACTION DOCUMENTS: This Agreement, the Security Agreement, the Purchase
Agreement, the Fee Letter and all other documents, certificates, reports and
agreements delivered in connection with the foregoing.
ARTICLE II
FUNDINGS; THE NOTE
SECTION 2.1 FUNDING; THE NOTE.
(a) FUNDINGS. Upon the terms and subject to the conditions herein set
forth, the Company may, in its sole and absolute discretion, make advances and,
if the Company does not make any such advances, the Investors shall, make
advances (any such advance, whether made by the Company or the Investors, a
"FUNDING," the first such advance being the "INITIAL FUNDING" and each such
additional Funding occurring after the Initial Funding being a "SUBSEQUENT
FUNDING") to the Issuer from time to time on or after the Closing Date and prior
to (i) the Termination Date, in the case of the Company and (ii) the earlier of
the Termination Date and the Commitment Termination Date, in the case of the
Investors; PROVIDED, however, that the Issuer shall not request more than seven
(7) Fundings in any one calendar month and any Funding in excess of seven in any
one calendar month shall be void unless permitted in writing by the Deal Agent.
In connection with each Funding, the Issuer shall, by notice to the Deal Agent
in the form of Exhibit B hereto (a "FUNDING REQUEST") request such Funding at
least three (3) Business Days prior to the proposed date of such Funding. Such
notice shall specify the proposed Funding
3
<PAGE>
Amount (which shall be at least $1,000,000, except in the case of the Initial
Funding, which must be at least $5,000,000) and the proposed date of the
Funding.
(b) PAYMENTS BY PURCHASERS. Following each Funding, the Company or each
Investor shall deposit to the Agent's Account, in immediately available funds an
amount equal to (i) the Funding, in the case of a Funding by the Company or (ii)
such Investor's Pro-Rata Share of the Funding, in the case of a Funding by the
Investors.
(c) CONDITIONS TO FUNDING. Neither the Company nor any Investor shall, nor
shall either have any obligation to, advance any funds to the Issuer in
connection with any Funding unless on the date of such Funding (i) the sum of
the Net Investment after giving effect to such Funding plus the interest
component of Commercial Paper Notes would not exceed the Facility Limit; (ii)
the Net Investment, after giving effect to such Funding, would not be greater
than the Borrowing Base; (iii) an amount equal to the Initial Reserve Account
Deposit shall be on deposit in the Reserve Account; (iv) each representation and
warranty of the Issuer herein, in the Security Agreement or in any other
Transaction Document shall be true and correct; (v) a Wind-Down Event, an
Amortization Event, a Potential Termination Event, a Potential Wind-Down Event,
a Potential Amortization Event or an Incipient Coverage Shortfall shall not have
occurred or be continuing and the Termination Date shall not have occurred; (vi)
in connection with the Initial Funding, the conditions precedent set forth in
paragraph (g) of this Section shall be satisfied; and (vii) the aggregate amount
of outstanding Fundings (after giving effect to the amount of any requested
Funding) would not exceed the Facility Limit. In addition to the foregoing and
not in limitation thereof, no Investor shall, nor shall it have any obligation
to, advance funds to the Issuer in connection with any Funding unless the date
of such Funding occurs on or before the Commitment Termination Date.
(d) FUNDING REQUEST IRREVOCABLE. The notice of the proposed Initial
Funding and any Funding Request shall be irrevocable and binding on the Issuer
and the Issuer shall indemnify the Company, the Liquidity Agent and the
Investors against any loss or expense incurred by the Company, either directly
or indirectly (including through the Liquidity Agreement) as a result of any
failure by the Issuer to complete the requested Funding including, without
limitation, any loss (including loss of anticipated profits) or expense incurred
by the Company, the Liquidity Agent or any Investor, either directly or
indirectly (including pursuant to the Liquidity Agreement), by reason of the
liquidation or re-employment of funds acquired by the Company, the Liquidity
Agent or any Investor (including, without limitation, funds obtained by issuing
commercial paper or promissory notes or obtaining deposits or loans from third
parties) for the Company, the Liquidity Agent or any Investor to complete the
requested Funding.
(e) DISBURSEMENT OF FUNDS. No later than 3:00 p.m. (New York City time) on
the date on which a Funding is to be made, the Deal Agent will, to the extent of
funds received from Purchasers, make available to the Issuer in immediately
available funds, the amount of the Funding to be made on such day by remitting
the amount thereof to an account of the Issuer as designated in the related
notice requesting such Funding.
4
<PAGE>
(f) THE NOTE.
(i) The Issuer's obligation to pay the principal of and interest on
all amounts advanced hereunder pursuant to any Funding shall be evidenced
by a single note of the Issuer (the "NOTE") which shall (1) be dated the
Closing Date; (2) be in the stated principal amount equal to the Facility
Limit (as reflected from time to time on the grid attached thereto); (3)
bear interest as provided therein; (4) be payable to the order of the Deal
Agent, as agent for the Company and the Investors and mature on the
Remittance Date occurring in the third calendar month following the
calendar month in which the latest maturing Receivable (determined as of
the Termination Date) is scheduled to mature (without regard to extensions
subsequently granted on any Receivable by the Issuer or any servicing
agent); (5) be entitled to the benefits of the Security Agreement; and (6)
be substantially in the form of Exhibit A to this Agreement, with blanks
appropriately completed in conformity herewith. The Deal Agent shall, and
is hereby authorized to, make a notation on the schedule attached to the
Note of the date and the amount of each Funding and the date and amount of
the payment of principal thereon, and prior to any transfer of the Note,
the Deal Agent shall endorse the outstanding principal amount of the Note
on the schedule attached thereto; PROVIDED, HOWEVER, that failure to make
such notation shall not adversely affect the Company's, the Deal Agent's,
the Collateral Agent's, the Liquidity Agent's or any Investor's rights
with respect to the Note.
(ii) Although the Note shall be dated the Closing Date, interest in
respect thereof shall be payable only for the periods during which amounts
are outstanding thereunder and on such amounts as are outstanding
thereunder. Although the stated principal amount of the Note shall be
equal to the Facility Limit, the Note shall be enforceable with respect to
the Issuer's obligation to pay the principal thereof only to the extent of
the unpaid principal amount of the Fundings outstanding thereunder at the
time such enforcement shall be sought.
(g) The obligations of the Company, the Liquidity Agent and the Investors
under this Agreement are subject to the accuracy of the representations and
warranties on the part of the Issuer contained herein, as of the date hereof, as
of the Closing Date (as if made on such date) and as of the date of each Funding
(as if made on such date), to the performance by the Issuer of its obligations
under this Agreement and to the satisfaction of the following further conditions
on the Closing Date or the date of the Initial Funding, as indicated below:
(i) The Deal Agent shall have received opinions, dated the Closing
Date, of Buck, Keenan & Owens, L.L.P., special counsel to the Issuer, as
to "true sale" and substantive nonconsolidation issues under the
Bankruptcy Code (each such opinion referred to herein as a "BANKRUPTCY
OPINION").
(ii) The Deal Agent shall have received an opinion, dated the
Closing Date, from Buck, Keenan & Owens, L.L.P., special counsel for the
Issuer, with respect to:
5
<PAGE>
(1) Each of the Note, this Agreement and the Security
Agreement have been duly authorized, executed and delivered by the
Issuer and is a valid and binding agreement, enforceable against the
Issuer in accordance with its respective terms, except to the extent
that enforcement thereof may be limited by (A) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, (B)
general principles of equity (regardless of whether enforceability
is considered in a proceeding at law or in equity) and (C) the
qualification that certain remedial provisions of the Security
Agreement may be unenforceable in whole or in part, but the
inclusion of such provisions does not affect the validity of the
Security Agreement, and the Security Agreement, together with
applicable law, contains adequate remedial provisions for the
practical realization of the benefits of the security created
thereby;
(2) The pledge of the Receivables and the other property
pledged by the Issuer to the Collateral Agent, on behalf of the
Secured Parties pursuant to the Security Agreement, the compliance
by the Issuer with all of the provisions of the Security Agreement,
this Agreement and the Note and the consummation of the transactions
therein or herein contemplated will not (A) conflict with or result
in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to
which the Issuer is a party or by which the Issuer is bound or to
which any of the property or assets of the Issuer is subject, (B)
result in any violation of the provisions of any order known to such
counsel of any court or governmental agency or body having
jurisdiction over the Issuer or any of its properties or (C) result
in any violation of the provisions of the charter or the by-laws of
the Issuer or any statute or any rule or regulation of any
governmental agency or body having jurisdiction over the Issuer or
any of its properties;
(3) No authorization, approval, consent or order of, or filing
with, any court or governmental authority or agency is required by
the Issuer in connection with the consummation of the transactions
contemplated in the Security Agreement and this Agreement, except
such as have been obtained;
(4) To the best of such counsel's knowledge and information,
there are no legal or governmental proceedings pending or threatened
(A) asserting the invalidity of the Security Agreement or this
Agreement, (B) seeking to prevent the consummation by the Issuer of
any of the transactions contemplated by the Security Agreement or
this Agreement or (C) which might materially and adversely affect
the performance by the Issuer of its obligations under the Security
Agreement or this Agreement;
(5) The provisions of the Security Agreement are effective to
create a valid security interest in the Collateral in favor of the
Collateral Agent on behalf
6
<PAGE>
of the Secured Parties and such security interest is perfected and
prior to all other creditors of and purchasers from the Issuer; and
(6) The Issuer is not required to be registered as an
"investment company" under the Investment Company Act of 1940, as
amended.
(iii) The Deal Agent shall have received an opinion, dated the
Closing Date, from Buck, Keenan & Owens, L.L.P., counsel to the Seller, to
the effect that:
(1) The Seller is a corporation organized, existing and in
good standing under the laws of the State of Texas, with corporate
power and authority to own its properties and conduct its business
as currently conducted; and the Seller is qualified to do business
as a foreign corporation in good standing in each jurisdiction in
which it owns or leases substantial properties or in which the
conduct of its business requires such qualification;
(2) The Seller has or had at all relevant times full power,
authority and legal right to exercise, deliver and perform its
obligations under the Purchase Agreement; and has or had at all
relevant times full power, authority and legal right to acquire, own
and transfer the Receivables and the other property transferred by
it to the Issuer pursuant to the Purchase Agreement;
(3) The Purchase Agreement has been duly authorized, executed
and delivered by the Seller and is a valid and binding agreement,
enforceable against the Seller in accordance with its terms, except
to the extent that enforcement thereof may be limited by (A)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors', rights
generally and (B) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at
law);
(4) The transfer of the Receivables and the other property
transferred by the Seller to the Issuer pursuant to the Purchase
Agreement, the compliance by the Seller with all of the provisions
of the Purchase Agreement, the Security Agreement and this Agreement
and the consummation of the transactions therein or herein
contemplated will not (A) conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Seller is
a party or by which the Seller is bound or to which any of the
property or assets of the Seller is subject, (B) result in any
violation of the provisions of any order known to such counsel of
any court or governmental agency or body having jurisdiction over
the Seller or any of its properties or (C) result in any violation
of the provisions of the charter or the by-laws of the Seller or any
statute or any rule or regulation of any governmental agency or body
having jurisdiction over the Seller or any of its properties;
7
<PAGE>
(5) No authorization, approval, consent or order of, or filing
with, any court or governmental authority or agency is required by
the Seller in connection with the consummation of the transactions
contemplated in the Purchase Agreement and this Agreement, except
such as have been obtained; and
(6) To the best of such counsel's knowledge and information,
there are no legal or governmental proceedings pending or threatened
(A) asserting the invalidity of the Purchase Agreement, the Security
Agreement or this Agreement, (B) seeking to prevent the consummation
by the Seller of any of the transactions contemplated by the
Purchase Agreement, the Security Agreement or this Agreement or (C)
which might materially and adversely affect the performance by the
Seller of its obligations under the Purchase Agreement, the Security
Agreement or this Agreement.
(iv) The Deal Agent shall have received written confirmation from
both Moody's and S&P that the purchase by VFCC of any interest in the Note
hereunder will not cause either such rating agency to reduce its rating of
the Commercial Paper below A-1, in the case of S&P and P-1, in the case of
Moody's.
(v) The Deal Agent shall have received certificates of the Issuer,
dated the Closing Date and as of the date of the Initial Funding (if not
the Closing Date), stating that (A) its representations and warranties
made herein and in the Security Agreement are true and correct as of the
Closing Date or the date of the Initial Funding (if not the Closing Date),
and (B) the Issuer has complied with all agreements and satisfied all
conditions to be satisfied on its part pursuant to this Agreement at or
prior to the Closing Date or the date of the Initial Funding (if not the
Closing Date).
(vi) [reserved]
(vii) All conditions precedent to the authentication and delivery of
the Note under this Agreement shall have been satisfied on or before the
Closing Date.
(viii) Each party shall have performed and complied with all
agreements and conditions contained herein and in the Security Agreement
and all other documents delivered in connection herewith or therewith
which are required to be performed or complied with by such party on or
before the Closing Date and as of the date of the Initial Funding (if not
the Closing Date).
(ix) This Agreement, the Purchase Agreement and the Security
Agreement shall have been duly authorized, executed and delivered by the
respective parties thereto, shall be in full force and effect on the
Closing Date and as of the date of the Initial Funding (if not the Closing
Date) and shall be in form and substance satisfactory to the Deal Agent.
8
<PAGE>
(x) The Deal Agent shall have received the following, in each case
in form and substance satisfactory to it:
(1) copy of the resolutions of the Board of Directors of the
Issuer, certified by the Secretary or an Assistant Secretary as of
the Closing Date, duly authorizing the execution, delivery and
performance by the Issuer of the documents executed by or on behalf
of the Issuer in connection with the transactions contemplated by
this Agreement and the Security Agreement; and attesting to the
names and true signatures of the person or persons executing and
delivering each such document;
(2) a copy of the resolutions of the Board of Directors of the
Seller, certified by the Secretary or an Assistant Secretary of the
Seller as of the Closing Date, duly authorizing the execution,
delivery and performance by the Seller of the Purchase Agreement and
any other documents executed by or on behalf of the Seller in
connection with the transactions contemplated hereby; and an
incumbency certificate of the Seller as to the person or persons
executing and delivering each such document;
(3) a certificate of the Collateral Agent dated as of the
Closing Date regarding its authority and the incumbency of its
officers; and
(4) such other documents and evidence with respect to the
Issuer, the Seller and the Servicer as the Deal Agent may reasonably
request in order to establish the corporate existence and good
standing of each thereof, the proper taking of all appropriate
corporate proceedings in connection with the transactions
contemplated by this Agreement, the Security Agreement, the
Servicing Agreement and the Purchase Agreement and the compliance
with the conditions set forth herein and therein, in any case as of
the Closing Date and/or the date of the Initial Funding.
(xi) No fact or condition shall exist as of either the Closing Date
or the date of the Initial Funding under applicable law or applicable
regulations thereunder or interpretations thereof by any regulatory
authority which in the Deal Agent's reasonable opinion would make it
unlawful to issue the Note or for the Issuer or any of the other parties
thereto to perform their respective obligations under this Agreement, the
Security Agreement and the Purchase Agreement.
(xii) On or prior to the Closing Date, the Seller and the Issuer
shall have filed any financing statements or amendments thereto, wherever
necessary or advisable, in order to perfect the transfer and assignment of
the Receivables to the Issuer and the grant of the security interest
therein to the Collateral Agent and shall have delivered file-stamped
copies of such financing statements or other evidence of the filing
thereof to the Company.
9
<PAGE>
(xiii) All taxes and fees due in connection with the filing of the
financing statements referred to in clause (xii) of this Section 2.1(g)
shall have been paid in full or duly provided for.
(xiv) [reserved]
(xv) As of either the Closing Date or the date of the Initial
Funding, no action or proceeding shall have been instituted nor shall any
governmental action be threatened before any court or governmental agency
nor shall any order, judgment or decree have been issued or proposed to be
issued by any court or governmental agency to set aside, restrain, enjoin
or prevent the performance of this Agreement or any of the other
agreements or the transactions contemplated hereby.
(xvi) The Deal Agent shall, as of the Closing Date and the date of
the Initial Funding, have been furnished with such other documents and
opinions (including executed copies, addressed to it or otherwise
expressly allowing it to rely thereon of such documents or opinions)
delivered to any other person in connection with this Agreement and the
transactions contemplated hereby as it may reasonably require, and all
documents and opinions as well as actions and proceedings taken by the
Issuer in connection with the issuance of the Note shall be satisfactory
in form and substance to the Deal Agent and its counsel.
(xvii) [reserved]
(xviii) The Company shall have received, in substance reasonably
satisfactory to the Company, the Fee Letter dated as of the Closing Date.
(xix) The Reserve Account shall have been established at Bankers
Trust Company and either on or before the date of the Initial Funding the
Initial Reserve Account Deposit by the Issuer into the Reserve Account
shall have been made or instructions shall have been given to the Deal
Agent to deduct such amount from the amount of the Initial Funding and
paid to the Reserve Account Agent.
SECTION 2.2 ACCEPTANCE AND CUSTODY OF NOTE.
On the Closing Date, the Deal Agent shall take delivery of the Note and
maintain custody thereof on behalf of the Purchasers.
SECTION 2.3 FEES.
The Issuer shall pay to the Company, the Program Fee and the Liquidity Fee
at the times and in the amounts set forth in the Fee Letter. Such fees are
non-refundable.
10
<PAGE>
SECTION 2.4 COMMERCIAL PAPER LIMITATIONS.
The Deal Agent (on behalf of the Company) will not cause or permit to be
(i) issued any Commercial Paper Notes with a maturity date exceeding 90 days or
(ii) allocated to purchase of the Note or the maintenance of VFCC's investment
in the Note, Commercial Paper Notes with more than 15 different maturity dates
outstanding at any time.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER
SECTION 3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER.
The Issuer represents and warrants to and covenants with the Company, the
Deal Agent, the Liquidity Agent and the Investors as of the Closing Date and,
except as otherwise provided herein, as of each date of any Funding that:
(a) ORGANIZATION AND GOOD STANDING. The Issuer is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its incorporation, and has full corporate power, authority and
legal right to own its properties and conduct its business as such properties
are presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement and to execute, deliver
and perform its obligations under the Note.
(b) DUE QUALIFICATION. The Issuer is duly qualified to do business and is
in good standing as a foreign corporation in any state required in order to
conduct its business, and has obtained all necessary licenses and approvals, in
each jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would have a material adverse effect on the conduct of the Issuer's
business.
(c) DUE AUTHORIZATION. The Issuer has the power and authority to execute
and deliver this Agreement, the Security Agreement and the Note. The execution
and delivery of this Agreement, the Security Agreement and the Note by the
Issuer and the consummation of the transactions provided for in this Agreement
and the Security Agreement have been duly authorized by the Issuer by all
necessary corporate action on the part of the Issuer.
(d) NO CONFLICT. The execution and delivery of this Agreement, the
Security Agreement and the Note, the performance of the transactions
contemplated by this Agreement and the Security Agreement and the fulfillment of
the terms hereof will not conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a default under, any Requirement of Law applicable to the Issuer or any
indenture, contract, agreement, mortgage, deed of trust, or other material
instrument to which the Issuer is a party or by which it or any of its
properties are bound.
11
<PAGE>
(e) NO PROCEEDINGS. There are no proceedings or investigations pending or,
to the best knowledge of the Issuer, threatened, before any court, regulatory
body, administrative agency, arbitrator or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Agreement, the Security
Agreement or the Note, (ii) seeking to prevent the issuance of the Note or the
consummation of any of the transactions contemplated by this Agreement, the
Security Agreement or the Note, (iii) seeking any determination or ruling that,
individually or in the aggregate, in the reasonable judgment of the Issuer,
would materially and adversely affect the performance by the Issuer of its
obligations under this Agreement, the Security Agreement or the Note, or (iv)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Agreement, the Security Agreement or the
Note.
(f) ALL CONSENTS REQUIRED. All approvals, authorizations, consents, orders
or other actions of any Person or of any governmental body or official required
to be obtained on or prior to the date hereof in connection with the execution
and delivery of this Agreement, the Security Agreement and the Note, the
performance by the Issuer of the transactions contemplated by this Agreement,
the Security Agreement and the fulfillment by the Issuer of the terms hereof,
have been obtained.
(g) SOLVENCY. The Issuer is not insolvent and will not be rendered
insolvent immediately following the consummation on the Closing Date of the
transactions contemplated by this Agreement and the Security Agreement,
including the pledge by the Issuer to the Collateral Agent of the Collateral
specified in Section 2.1 of the Security Agreement.
(h) NO TERMINATION EVENT. After giving effect to the payment by the
Company of the Original Investment and the issuance of the Note and the making
of any Subsequent Funding, no Potential Termination Event, Potential Wind-Down
Event, Potential Amortization Event, Termination Event, Wind-Down Event,
Amortization Event or Incipient Coverage Shortfall exists.
(i) INFORMATION FURNISHED TO THE COMPANY. All information furnished by or
on behalf of the Issuer to the Deal Agent will be true and complete in all
material respects.
(j) TAXES. The Issuer has filed all tax returns required to be filed and
has paid or made adequate provision for the payment of all its taxes,
assessments and other governmental charges.
(k) COMPLIANCE. The Issuer has complied in all material respects with all
Requirements of Law in respect of the conduct of its business and ownership of
its property.
(l) INVESTMENT COMPANY. The Issuer is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or is exempt from
the provisions of such act.
12
<PAGE>
(m) ERISA. The Issuer is in compliance with ERISA in all material
respects. No Plan Event has occurred or is expected to occur that might result,
directly or indirectly, in any lien being imposed on the property of the Issuer.
(n) HEDGING. The Issuer will not enter into Interest Rate Hedges or other
agreements or mechanisms for hedging except as set forth in Section 3.2(n) of
the Security Agreement.
The representations and warranties set forth in this Section 3.1 shall
survive the pledge and grant of a lien in the respective Receivables to the
Collateral Agent as agent for the Noteholder. Upon discovery by the Issuer, the
Company, the Deal Agent, the Liquidity Agent or any of the Investors of a breach
of any of the foregoing representations and warranties, the party discovering
such breach shall give prompt written notice to the others.
ARTICLE IV
INDEMNIFICATION
SECTION 4.1 INDEMNITY.
Without limiting any other rights which the Company, the Deal Agent, the
Liquidity Agent, any of the Investors, the Reserve Account Agent, the Collateral
Agent, the Liquidity Provider and the Credit Support Provider and any permitted
assigns and their respective agents, officers, directors and employees
(collectively, "INDEMNIFIED PARTIES") may have hereunder or under applicable
law, the Issuer agrees to indemnify each Indemnified Party from and against any
and all damages, losses, claims, liabilities, costs and expenses, including,
reasonable attorneys' fees (which such attorneys may be employees of such
Indemnified Party) and disbursements (all of the foregoing being collectively
referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them
arising out of or as a result of this Agreement or the ownership, either
directly or indirectly, by any such Indemnified Party of the Note excluding,
however, (i) Indemnified Amounts to the extent resulting from gross negligence
or willful misconduct on the part of such Indemnified Party or (ii) recourse
(except as otherwise specifically provided in this Agreement) for uncollectible
Receivables. Such Indemnified Amounts shall be paid in accordance with Section
5.1 of the Security Agreement. Without limiting the generality of the foregoing,
the Issuer shall indemnify each Indemnified Party for Indemnified Amounts
relating to or resulting from:
(a) reliance on any representation or warranty made by the Issuer or the
Servicer (or any officers of the Issuer or the Servicer) under or in connection
with this Agreement, the Servicing Agreement, any Servicer's Certificate or any
other information or report delivered by the Issuer or the Servicer pursuant
hereto or thereto, which shall have been false or incorrect in any material
respect when made or deemed made;
(b) the failure by the Issuer or the Servicer to comply with any
applicable law, rule or regulation with respect to the Collateral, or the
nonconformity of the Collateral with any such applicable law, rule or
regulation;
13
<PAGE>
(c) the failure to vest and maintain vested in the Collateral Agent a
first priority perfected security interest in the Collateral, free and clear of
any Lien;
(d) the failure to file, or any delay in filing, financing statements,
continuation statements, or other similar instruments or documents under the UCC
of any applicable jurisdiction or other applicable laws with respect to all or
any part of the Collateral in order to maintain the first priority perfected
security interest of the Collateral Agent in such Collateral;
(e) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable not being the
legal, valid and binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the sale of a
Financed Vehicle or services related to such Receivable or the furnishing or
failure to furnish such Financed Vehicle or services;
(f) any failure of the Issuer to perform its duties or obligations in
accordance with the provisions of Articles IV and V of the Security Agreement;
or
(g) any products liability claim or personal injury or property damage
suit or other similar or related claim or action of whatever sort arising out of
or in connection with the related Financed Vehicle or related merchandise or
services which are the subject of any Receivable; PROVIDED, HOWEVER, that if the
Company enters into agreements for the purchase of interests in receivables from
one or more Other Issuers, the Company shall allocate such Indemnified Amounts
which are in connection with the Liquidity Agreement or the Credit Support
Agreement to the Issuer and each Other Issuer; and PROVIDED, FURTHER, that if
such Indemnified Amounts are attributable to the Issuer and not attributable to
any Other Issuer, the Issuer shall be solely liable for such Indemnified Amounts
or if such Indemnified Amounts are attributable to Other Issuers and not
attributable to the Issuer, such Other Issuers shall be solely liable for such
Indemnified Amounts.
SECTION 4.2 INDEMNITY FOR TAXES, RESERVES AND EXPENSES.
(a) If after the date hereof, the adoption of any Law or bank regulatory
guideline or any amendment or change in the interpretation of any existing or
future Law or bank regulatory guideline by any Official Body charged with the
administration, interpretation or application thereof, or the compliance with
any directive of any Official Body (in the case of any bank regulatory
guideline, whether or not having the force of Law):
(1) shall subject any Indemnified Party to any tax, duty or
other charge with respect to this Agreement, the Note, the Net
Investment, the Collateral or payments of amounts due hereunder, or
shall change the basis of taxation of payments to any Indemnified
Party of amounts payable in respect of this Agreement, the Note, the
Net Investment, the Collateral or payments of amounts due hereunder
or its obligation to advance funds under the Liquidity Agreement,
14
<PAGE>
the Credit Support Agreement or otherwise in respect of this
Agreement, the Note, the Net Investment or the Collateral (except
for changes in the rate of general corporate, franchise, net income
or other income tax imposed on such Indemnified Party by the
jurisdiction in which such Indemnified Party's principal executive
office is located); or
(2) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of Governors
of the Federal Reserve System) against assets of, deposits with or
for the account of, or credit extended by, any Indemnified Party or
shall impose on any Indemnified Party or on the United States market
for certificates of deposit or the London interbank market any other
condition affecting this Agreement, the Note, the Net Investment,
the Collateral or payments of amounts due hereunder or its
obligation to advance funds under the Liquidity Agreement, the
Credit Support Agreement or otherwise in respect of this Agreement,
the Note, the Net Investment or the Collateral;
(3) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys, fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement, the
Note, the Net Investment, the Collateral or payments of amounts due
hereunder or its obligation to advance funds under the Liquidity
Agreement or the Credit Support Agreement or otherwise in respect of
this Agreement, the Note, the Net Investment or the Collateral;
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the Note, the Net Investment,
the Collateral, the obligations hereunder, the funding of any purchases
hereunder, the Liquidity Agreement or the Credit Support Agreement, by an amount
deemed by such Indemnified Party to be material, then within 10 days after
demand by the Company, the Issuer shall pay to the Company such additional
amount or amounts as will compensate such Indemnified Party for such increased
cost PROVIDED that no such amount shall be payable with respect to any period
commencing more than 90 days prior to the date the Company first notifies the
Issuer of its intention to demand compensation therefor under this Section
4.2(a).
(b) If any Indemnified Party shall have determined that after the date
hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any directive regarding capital
adequacy (in the case of any bank regulatory guideline, whether or not having
the force of law) of any such Official Body, has or would have the effect of
reducing the rate of return on capital of such Indemnified Party (or its parent)
as a consequence of such Indemnified Party's obligations hereunder or with
respect hereto to a level below that which such Indemnified Party (or its
parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Indemnified Party to be material, then from time to time,
within 10 days after demand by
15
<PAGE>
the Company, the Issuer shall pay to the Deal Agent (for payment by the Deal
Agent to such Indemnified Party) such additional amount or amounts as will
compensate such Indemnified Party (or its parent) for such reduction; PROVIDED
that no such amount shall be payable with respect to any period commencing less
than 30 days after the date an Indemnified Party first notifies the Issuer of
its intention to demand compensation under this Section 4.2(b).
(c) The Company will promptly notify the Issuer of any event of which it
has knowledge, occurring after the date hereof, which will entitle an
Indemnified Party to compensation pursuant to this Section 4.2. A notice by the
Company claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, the Company may use
any reasonable averaging and attributing methods.
(d) Anything in this Section 4.2 to the contrary notwithstanding, if the
Company enters into agreements for the acquisition of interests in receivables
from one or more Other Issuers, the Company shall allocate the liability for any
amounts under this Section 4.2 ("SECTION 4.2 COSTS") ratably to the Issuer and
each Other Issuer; and PROVIDED, FURTHER, that if such Section 4.2 Costs are
attributable to the Issuer and not attributable to any Other Issuer, the Issuer
shall be solely liable for such Section 4.2 Costs or if such Section 4.2 Costs
are attributable to Other Issuers and not attributable to the Issuer, such Other
Issuers shall be solely liable for such Section 4.2 Costs.
SECTION 4.3 OTHER COSTS, EXPENSES AND RELATED MATTERS.
The Issuer agrees, upon receipt of a written invoice, to pay or cause to
be paid, in accordance with 5.1(a)(viii) of the Security Agreement and to save
each Indemnified Party harmless against liability for the payment of, all
reasonable out-of-pocket expenses (including, without limitation, attorneys',
accountant's and other third parties' fees and expenses, any filing fees and
expenses incurred by officers or employees of such Indemnified Party) incurred
by or on behalf of such Indemnified Party (i) in connection with the
negotiation, execution, delivery and preparation of this Agreement, the Note and
the Security Agreement and any documents or instruments delivered pursuant
hereto or thereto and the transactions contemplated hereby and thereby and (ii)
from time to time (a) relating to any amendments, waivers or consents under this
Agreement, the Note and the Security Agreement, (b) arising in connection with
such Indemnified Party's enforcement or preservation of rights (including,
without limitation, the perfection and protection of the Collateral Agent's
security interest in the Collateral), or (c) arising in connection with any
audit, dispute, disagreement, litigation or preparation for litigation involving
this Agreement (all of such amounts, collectively, "TRANSACTION COSTS").
16
<PAGE>
ARTICLE V
THE DEAL AGENT AND THE LIQUIDITY AGENT
SECTION 5.1 AUTHORIZATION AND ACTION.
(a) Each Investor hereby designates and appoints the Deal Agent as Deal
Agent hereunder, and authorizes the Deal Agent to take such actions as agent on
its behalf and to exercise such powers as are delegated to the Deal Agent by the
terms of this Agreement together with such powers as are reasonably incidental
thereto. The Deal Agent shall not have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any
Investor, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities on the part of the Deal Agent shall be read into this
Agreement or otherwise exist for the Deal Agent. In performing its functions and
duties hereunder, the Deal Agent shall act solely as agent for the Investors and
does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for the Issuer or any of its successors
or assigns. The Deal Agent shall not be required to take any action which
exposes the Deal Agent to personal liability or which is contrary to this
Agreement or applicable law. The appointment and authority of the Deal Agent
hereunder shall terminate at the indefeasible payment in full of all of the Net
Investment, all Carrying Costs and any other amount due under this Agreement,
the Note, the Security Agreement or the Fee Letter.
(b) Each Investor hereby designates and appoints First Union National Bank
as Liquidity Agent hereunder, and authorizes the Liquidity Agent to take such
actions as agent on its behalf and to exercise such powers as are delegated to
the Liquidity Agent by the terms of this Agreement together with such powers as
are reasonably incidental thereto. The Liquidity Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Investor, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities on the part of the
Liquidity Agent shall be read into this Agreement or otherwise exist for the
Liquidity Agent. In performing its functions and duties hereunder, the Liquidity
Agent shall act solely as agent for the Investors and does not assume nor shall
be deemed to have assumed any obligation or relationship of trust or agency with
or for the Issuer or any of its successors or assigns. The Liquidity Agent shall
not be required to take any action which exposes the Liquidity Agent to personal
liability or which is contrary to this Agreement or applicable law. The
appointment and authority of the Liquidity Agent hereunder shall terminate at
the indefeasible payment in full of all of the Net Investment, all Carrying
Costs and any other amount due under this Agreement, the Note, the Security
Agreement or the Fee Letter.
SECTION 5.2 DELEGATION OF DUTIES.
(a) The Deal Agent may execute any of its duties under this Agreement by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Deal Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
17
<PAGE>
(b) The Liquidity Agent may execute any of its duties under this Agreement
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Liquidity Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
SECTION 5.3 EXCULPATORY PROVISIONS.
(a) Neither the Deal Agent nor any of its directors, officers, agents or
employees shall be (i) liable for any action lawfully taken or omitted to be
taken by it or them under or in connection with this Agreement (except for its,
their or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Investors for any recitals, statements,
representations or warranties made by the Issuer contained in this Agreement or
in any certificate, report, statement or other document referred to or provided
for in, or received under or in connection with, this Agreement or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other document furnished in connection herewith, or for
any failure of the Issuer to perform its obligations hereunder, or for the
satisfaction of any condition specified in Section 2.1. The Deal Agent shall not
be under any obligation to any Investor to ascertain or to inquire as to the
observance or performance of any of the agreements or covenants contained in, or
conditions of, this Agreement, or to inspect the properties, books or records of
the Issuer. The Deal Agent shall not be deemed to have knowledge of any
Potential Termination Event, Potential Wind-Down Event, Potential Amortization
Event, Termination Event, Wind-Down Event, Amortization Event or Incipient
Coverage Shortfall unless the Deal Agent has received notice from the Issuer or
an Investor.
(b) Neither the Liquidity Agent nor any of its directors, officers, agents
or employees shall be (i) liable for any action lawfully taken or omitted to be
taken by it or them under or in connection with this Agreement (except for its,
their or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to the Deal Agent or any of the Investors for any
recitals, statements, representations or warranties made by the Issuer contained
in this Agreement or in any certificate, report, statement or other document
referred to or provided for in, or received under or in connection with, this
Agreement or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other document furnished in connection
herewith, or for any failure of the Issuer to perform its obligations hereunder,
or for the satisfaction of any condition specified in Section 2.1. The Liquidity
Agent shall not be under any obligation to the Deal Agent or any Investor to
ascertain or to inquire as to the observance or performance of any of the
agreements or covenants contained in, or conditions of, this Agreement, or to
inspect the properties, books or records of the Issuer. The Liquidity Agent
shall not be deemed to have knowledge of any Potential Termination Event,
Potential Wind-Down Event, Potential Amortization Event, Termination Event,
Wind-Down Event, Amortization Event or Incipient Coverage Shortfall unless the
Liquidity Agent has received notice from the Issuer, the Deal Agent or an
Investor.
18
<PAGE>
SECTION 5.4 RELIANCE.
(a) The Deal Agent shall in all cases be entitled to rely, and shall be
fully protected in relying, upon any document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Issuer), independent accountants and other experts selected by
the Deal Agent. The Deal Agent shall in all cases be fully justified in failing
or refusing to take any action under this Agreement or any other document
furnished in connection herewith unless it shall first receive such advice or
concurrence of the Company or the Required Investors or all of the Investors, as
applicable, as it deems appropriate or it shall first be indemnified to its
satisfaction by the Investors, PROVIDED that unless and until the Deal Agent
shall have received such advice, the Deal Agent may take or refrain from taking
any action, as the Deal Agent shall deem advisable and in the best interests of
the Investors. The Deal Agent shall in all cases be fully protected in acting,
or in refraining from acting, in accordance with a request of the Company or the
Required Investors or all of the Investors, as applicable, and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Investors.
(b) The Liquidity Agent shall in all cases be entitled to rely, and shall
be fully protected in relying, upon any document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Issuer), independent accountants and other
experts selected by the Liquidity Agent. The Liquidity Agent shall in all cases
be fully justified in failing or refusing to take any action under this
Agreement or any other document furnished in connection herewith unless it shall
first receive such advice or concurrence of Required Investors as it deems
appropriate or it shall first be indemnified to its satisfaction by the
Investors, PROVIDED that unless and until the Liquidity Agent shall have
received such advice, the Liquidity Agent may take or refrain from taking any
action, as the Liquidity Agent shall deem advisable and in the best interests of
the Investors. The Liquidity Agent shall in all cases be fully protected in
acting, or in refraining from acting, in accordance with a request of the
Required Investors and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Investors.
SECTION 5.5 NON-RELIANCE ON DEAL AGENT, LIQUIDITY AGENT AND OTHER
INVESTORS.
Each Investor expressly acknowledges that neither the Deal Agent, the
Liquidity Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representations or warranties to it
and that no act by the Deal Agent hereafter taken, including, without
limitation, any review of the affairs of the Issuer, shall be deemed to
constitute any representation or warranty by the Deal Agent or the Liquidity
Agent. Each Investor represents and warrants to the Deal Agent and to the
Liquidity Agent that it has and will, independently and without reliance upon
the Deal Agent, the Liquidity Agent or any other Investor and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, prospects,
financial and other conditions and creditworthiness of the Issuer and made its
own decision to enter into this Agreement.
19
<PAGE>
SECTION 5.6 REIMBURSEMENT AND INDEMNIFICATION.
The Investors agree to reimburse and indemnify the Company, the Deal
Agent, the Liquidity Agent and each of their respective officers, directors,
employees, representatives and agents ratably according to their Pro Rata
Shares, to the extent not paid or reimbursed by the Issuer (i) for any amounts
for which the Company, the Liquidity Agent, acting in its capacity as Liquidity
Agent, or the Deal Agent, acting in its capacity as Deal Agent, is entitled to
reimbursement by the Issuer hereunder and (ii) for any other expenses incurred
by the Company, the Liquidity Agent, acting in its capacity as Liquidity Agent,
or the Deal Agent, in its capacity as Deal Agent and acting on behalf of the
Investors, in connection with the administration and enforcement of this
Agreement.
SECTION 5.7 DEAL AGENT AND LIQUIDITY AGENT IN THEIR INDIVIDUAL
CAPACITIES.
The Deal Agent, the Liquidity Agent and each of their respective
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Issuer or any Affiliate of the Issuer as though the
Deal Agent or the Liquidity Agent, as the case may be, were not the Deal Agent
or the Liquidity Agent, as the case may be, hereunder. With respect to the
Fundings pursuant to this Agreement, the Deal Agent, the Liquidity Agent and
each of their respective Affiliates shall have the same rights and powers under
this Agreement as any Investor and may exercise the same as though it were not
the Deal Agent or the Liquidity Agent, as the case may be, and the terms
"INVESTOR," "PURCHASER," "INVESTORS" and "PURCHASERS" shall include the Deal
Agent or the Liquidity Agent, as the case may be, in its individual capacity.
SECTION 5.8 SUCCESSOR DEAL AGENT OR LIQUIDITY AGENT.
(a) The Deal Agent may, upon 5 Business Days' written notice to the Issuer
and the Investors, resign as Deal Agent. If the Deal Agent shall resign, then
the Required Investors during such 5-day period shall appoint from among the
Investors a successor agent. If for any reason no successor Deal Agent is
appointed by the Required Investors during such 5-day period, then effective
upon the termination of such five day period, the Investors shall perform all of
the duties of the Deal Agent hereunder and the Issuer shall make all payments in
respect of the Net Investment, all Carrying Costs and all other amounts due
under any Transaction Document or under any fee letter directly to the
applicable Investor and for all purposes shall deal directly with the Investors.
After any retiring Deal Agent's resignation hereunder as Deal Agent, the
provisions of this Article V and Article IV shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Deal Agent under this
Agreement.
(b) The Liquidity Agent may, upon 5 days' notice to the Issuer, the Deal
Agent and the Investors, and the Liquidity Agent will, upon the direction of all
of the Investors (other than the Liquidity Agent, in its individual capacity)
resign as Liquidity Agent. If the Liquidity Agent shall resign, then the
Required Investors during such 5-day period shall appoint from among the
Investors a successor Liquidity Agent. If for any reason no successor Liquidity
Agent is appointed by the Required Investors during such 5-day period, then
effective upon the
20
<PAGE>
termination of such five day period, the Investors shall
perform all of the duties of the Liquidity Agent hereunder and all payments in
respect of the principal and interest and any amount due at any time hereunder
or under any fee letter directly to the applicable Investor and for all purposes
shall deal directly with the Investors. After any retiring Liquidity Agent's
resignation hereunder as Liquidity Agent, the provisions of this Article V and
Article IV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Liquidity Agent under this Agreement.
ARTICLE VI
ASSIGNMENTS; PARTICIPATIONS
SECTION 6.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Each Investor may upon at least 30 days' written notice to the
Company, the Deal Agent, the Liquidity Agent and S&P and Moody's, assign to one
or more banks or other entities all or a portion of its rights and obligations
under this Agreement; PROVIDED HOWEVER, that (i) each such assignment shall be
of a constant, and not a varying percentage of all of the assigning Investor's
rights and obligations under this Agreement, (ii) the amount of the Commitment
of the assigning Investor being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than the lesser of (A) $5,000,000 or an
integral multiple of $1,000,000 in excess of that amount and (B) the full amount
of the assigning Investor's Commitment, (iii) each such assignment shall be to
an Eligible Assignee, (iv) the assigning Investor and the assignee with respect
to each such assignment shall execute and deliver to the Deal Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with a processing and recordation fee of $3,500 or such lesser amount as shall
be approved by the Deal Agent and (v) the parties to each such assignment shall
have agreed to reimburse the Deal Agent, the Liquidity Agent and the Company for
all fees, costs and expenses (including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel for each of the Deal Agent, the Liquidity
Agent and the Company) incurred by the Deal Agent, the Liquidity Agent and the
Company, respectively, in connection with such assignment, and PROVIDED FURTHER
that upon the effective date of such assignment the provisions of Section
3.03(f) of the Administration Agreement shall be satisfied. Upon such execution,
delivery and acceptance by the Deal Agent and the Liquidity Agent and the
recording by the Deal Agent, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be the date of acceptance
thereof by the Deal Agent and the Liquidity Agent, unless a later date is
specified therein, (i) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations of
an Investor hereunder and (ii) the Investor assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Investor's
rights and obligations under this Agreement, such Investor shall cease to be a
party hereto).
21
<PAGE>
(b) By executing and delivering an Assignment and Acceptance, the Investor
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Investor makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Investor makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the Company
or the performance or observance by the Company of any of its obligations under
this Agreement or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of such financial statements and other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Deal Agent or the Liquidity Agent,
such assigning Investor or any other Investor and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assigning Investor and such assignee confirm that such assignee is an Eligible
Assignee; (vi) such assignee appoints and authorizes each of the Deal Agent and
the Liquidity Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to such agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement are required to be
performed by it as an Investor.
(c) The Deal Agent shall maintain at its address referred to herein a copy
of each Assignment and Acceptance delivered to and accepted by it and a register
for the recordation of the names and addresses of the Investors and the
Commitment of, and the amount of each Funding by made by each investor from time
to time (the "REGISTER"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Company, the Issuer and
the Investors may treat each Person whose name is recorded in the Register as an
Investor hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Company, the Liquidity Agent or any Investor at
any reasonable time and from time to time upon reasonable prior notice.
(d) Subject to the provisions of Section 6.1(a), upon its receipt of an
Assignment and Acceptance executed by an assigning Investor and an assignee, the
Deal Agent and the Liquidity Agent shall each, if such Assignment and Acceptance
has been completed and is in substantially the form of EXHIBIT C hereto, accept
such Assignment and Acceptance, and the Deal Agent shall then (i) record the
information contained therein in the Register and (ii) give prompt notice
thereof to the Company.
(e) Each Investor may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the portion of each Funding made by it); PROVIDED, HOWEVER, that without the
prior consent of the Issuer (such consent not to be
22
<PAGE>
unreasonably withheld), no such participation may be sold to any Person,
reasonably believed by an officer of the Investor selling such participation, to
be a Person (a) who has business operations materially the same as those of the
Servicer and (b) who is in direct competition with the Servicer for obligors
substantially the same as the Servicer; PROVIDED, FURTHER, that (i) such
Investor's obligations under this Agreement (including, without limitation, its
Commitment hereunder) shall remain unchanged, (ii) such Investor shall remain
solely responsible to the other parties hereto for the performance of such
obligations and (iii) the Deal Agent and the other Investors shall continue to
deal solely and directly with such Investor in connection with such Investor's
rights and obligations under this Agreement, and PROVIDED, FURTHER, that (i) the
Deal Agent shall have confirmed that upon the effective date of such
participation the provisions of Section 3.03(f) of the Administration Agreement
shall be satisfied and (ii) the Issuer shall have reasonably approved such
participant. Notwithstanding anything herein to the contrary, each participant
shall have the rights of an Investor (including any right to receive payment)
under Article IV; PROVIDED, HOWEVER, that no participant shall be entitled to
receive payment under such Article in excess of the amount that would have been
payable under such Article by the Issuer to the Investor granting its
participation had such participation not been granted, and no Investor granting
a participation shall be entitled to receive payment under either such Section
in an amount which exceeds the sum of (i) the amount to which such Investor is
entitled under such Article with respect to the any portion of any Funding made
by such Investor which is not subject to any participation PLUS (ii) the
aggregate amount to which its participants are entitled under such Article with
respect to the amounts of their respective participations. With respect to any
participation described in this Section 6.1, the participant's rights, as set
forth in the agreement between such participant and the applicable Investor, to
agree to or to restrict such Investor's ability to agree to any modification,
waiver or release of any of the terms of this Agreement or any other document or
to exercise or refrain from exercising any powers or rights which such Investor
may have under or in respect of this Agreement or any other document shall be
limited to the right specifically given to participants in Section 7.4 of this
Agreement.
(f) Each Investor may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 6.1, disclose
to the assignee or participant or proposed assignee or participant any
information relating to the Issuer or the Company furnished to such Investor by
or on behalf of the Issuer or the Company.
(g) In the event (i) an Investor ceases to qualify as an Eligible
Assignee, or (ii) an Investor makes demand for compensation pursuant to Sections
4.2 or 4.3, the Company may, and, upon the direction of the Issuer and prior to
the occurrence of any of a Potential Termination Event, Potential Wind-Down
Event, Potential Amortization Event, Termination Event, Wind-Down Event,
Amortization Event or Incipient Coverage Shortfall, shall, in any such case,
notwithstanding any provision to the contrary herein, replace such Investor with
an Eligible Assignee by giving three Business Days' prior written notice to the
such Investor. In the event of the replacement of an Investor, such Investor
agrees (i) to assign all of its rights and obligations hereunder to an Eligible
Assignee selected by the Company upon payment to such Investor of the amount of
such Investor's portion of any Funding together with any accrued and unpaid
Carrying Costs related thereto, all accrued and unpaid fees owing to such
Investor and all other amounts owing to such Investor hereunder and (ii) to
execute and deliver an Assignment and Acceptance
23
<PAGE>
and such other documents evidencing such assignment as shall be necessary or
reasonably requested by the Liquidity Agent or the Deal Agent. In the event that
any Investor ceases to qualify as an Eligible Assignee, such affected Investor
agrees (1) to give the Deal Agent, the Issuer and the Company prompt written
notice thereof and (2) subject to the following proviso, to reimburse the Deal
Agent, the Liquidity Agent and the relevant assignee for all fees, costs and
expenses (including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for each of the Deal Agent, the Liquidity Agent and such
assignee) incurred by the Deal Agent, the Liquidity Agent and such assignee,
respectively, in connection with any assignment made pursuant to this Section
6.1(g) by such affected Investor; PROVIDED, HOWEVER, that such affected
Investor's liability for such costs, fees and expenses shall be limited to the
amount of any up-front fees paid to such affected Investor at the time that it
became a party to this Agreement.
(h) Nothing herein shall prohibit any Investor from pledging or assigning
as collateral any of its rights under this Agreement to any Federal Reserve Bank
in accordance with applicable law and any such pledge or collateral assignment
may be made without compliance with Section 6.1(a) or Section 6.1(b).
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NOTICES, ETC.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or delivered,
as to each party hereto, at its address set forth under its name on the
signature pages hereof or specified in such party's Assignment and Acceptance or
at such other address as shall be designated by such party in a written notice
to the other parties hereto. All such notices and communications shall be
effective, upon receipt, or in the case of (a) notice by mail, five days after
being deposited in the United States mails, first class postage prepaid, (b)
notice by telex, when telexed against receipt of answerback, or (c) notice by
facsimile copy, when verbal communication of receipt is obtained, except that
notices and communications pursuant to Article II shall not be effective until
received with respect to any notice sent by mail or telex.
SECTION 7.2 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Issuer and the Company and their
respective successors and assigns and shall inure to the benefit of the Issuer,
and the Company and their respective successors and assigns including the
Liquidity Provider; PROVIDED that the Issuer shall not assign any of its rights
or obligations hereunder without the prior written consent of the Company, the
Collateral Agent and the Deal Agent. The Issuer hereby acknowledges that the
Company has assigned and granted a security interest in all of its rights
hereunder and under the Note to the Liquidity Providers. In addition, the Issuer
hereby acknowledges that the Company
24
<PAGE>
may at any time and from time to time assign all or a portion of its rights
hereunder to the Liquidity Provider pursuant to the Liquidity Agreement. Except
as expressly permitted hereunder or in the agreements establishing the Company's
commercial paper program, the Company shall not assign any of its rights or
obligations hereunder without the prior written consent of the Issuer. The
parties hereto agree that the Deal Agent is an intended third-party beneficiary
of this Agreement.
SECTION 7.3 SEVERABILITY CLAUSE.
Any provisions of this Agreement which are prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 7.4 AMENDMENTS.
(a) Except as provided in this Section 7.4, no amendment or modification
of any provision of this Agreement shall be effective without the written
agreement of the Issuer, the Deal Agent and the Purchasers, and no termination
or waiver of any provision of this Agreement or consent to any departure
therefrom by the Issuer shall be effective without the written concurrence of
the Deal Agent and the Required Investors. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) No provision of this Agreement may be amended, supplemented, modified
or waived except in writing in accordance with the provisions of this Section
7.4(b). The Company, the Issuer and the Deal Agent at the direction of the
Required Investors, may enter into written modifications or waivers of any
provisions of this Agreement, PROVIDED, HOWEVER, that no such modification or
waiver shall:
(i) without the consent of each affected Investor, (A) extend the
Commitment Termination Date or the date of any payment or deposit of
Collections by the Issuer or the Servicer, (B) change the definition of
"Carrying Costs" or any component thereof, (C) reduce any fee payable to
the Deal Agent for the benefit of the Investors, (D) change the amount of
the Net Investment or an Investor's Commitment, (E) amend, modify or waive
any provision of the definition of Required Investors or this Section
7.4(b), (F) consent to or permit the assignment or transfer by the Issuer
of any of its rights and obligations under this Agreement, the Note or the
Security Agreement or (G) amend or modify any defined term (or any defined
term used directly or indirectly in such defined term) used in clauses (A)
through (E) above in a manner which would circumvent the intention of the
restrictions set forth in such clauses;
(ii) without the written consent of the Deal Agent, amend, modify or
waive any provision of this Agreement if the effect thereof is to affect
the rights or duties of such Deal Agent; or
25
<PAGE>
(iii) without the written consent of the Liquidity Agent, amend,
modify or waive any provision of this Agreement if the effect thereof is
to affect the rights or duties of such Liquidity Agent.
Notwithstanding the foregoing, without the consent of the Investors, the Deal
Agent may, with the consent of the Issuer amend this Agreement solely to add
additional Persons as Investors hereunder. Any modification or waiver shall
apply to each of the Investors equally and shall be binding upon the Issuer, the
Investors and the Deal Agent.
SECTION 7.5 NO BANKRUPTCY PETITION AGAINST THE COMPANY.
THE ISSUER COVENANTS AND AGREES THAT, PRIOR TO THE DATE WHICH IS ONE YEAR
AND ONE DAY AFTER THE PAYMENT IN FULL OF ALL COMMERCIAL PAPER ISSUED BY THE
COMPANY, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER PERSON IN INSTITUTING
AGAINST, THE COMPANY ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY OR
LIQUIDATION PROCEEDINGS, OR OTHER PROCEEDINGS UNDER ANY FEDERAL OR STATE
BANKRUPTCY OR SIMILAR LAW.
SECTION 7.6 COSTS, EXPENSES AND TAXES.
In addition to the rights of indemnification granted to the Deal Agent,
the Purchasers and their respective Affiliates under Article IV hereof, the
Issuer agrees to pay on demand all costs and expenses of the Purchasers and the
Deal Agent, and their respective Affiliates, successors or assigns, if any
(including reasonable counsel fees and expenses), incurred in connection with
the negotiation, execution, and delivery of this Agreement and the transactions
contemplated hereby, any removal of the facility and/or the enforcement,
administration (including periodic auditing), amendment or modification of, or
any waiver or consent issued in connection with, this Agreement, the Note, any
other Transaction Document and the other documents to be delivered hereunder or
thereunder, or in connection herewith or therewith. The Issuer also agrees to
pay on demand all reasonable out-of-pocket costs and expenses incurred by a
Purchaser in connection with the administration (including rating agency
requirements, modification and amendment) of this Agreement, the Transaction
Documents and the other documents to be delivered hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for
Purchaser and the Deal Agent with respect thereto and with respect to advising
the Purchaser as to its rights and remedies under this Agreement, the
Transaction Documents and the other agreements executed pursuant hereto. Any
amounts subject to the provisions of this section shall be paid by the Issuer to
the Deal Agent within ten (10) Business Days following the Deal Agent's demand
therefor.
SECTION 7.7 SETOFF.
The Issuer hereby irrevocably and unconditionally waives all right of
setoff that it may have under contract (including this Agreement), applicable
law or otherwise with respect to any funds or monies of any Purchaser at any
time held by or in the possession of the Issuer.
26
<PAGE>
SECTION 7.8 NO RECOURSE.
The Issuer's obligations under the Note are payable solely from the
Collateral and no general recourse shall be had on the Note against the Issuer.
Except as otherwise expressly provided in this Agreement, it is understood and
agreed that the Issuer shall not be liable for the payment of Commercial Paper
or for any losses suffered by the Company in respect of the Note. The foregoing
sentence shall not relieve the Issuer from any liability hereunder or under the
Security Agreement with respect to its representations, warranties, covenants
and other payment and performance obligations herein or therein described.
SECTION 7.9 FURTHER ASSURANCES.
The Issuer agrees to do such further acts and things and to execute and
deliver to the Company or the Collateral Agent such additional assignments,
agreements, powers and instruments as are required by the Deal Agent, the
Liquidity Agent, any Purchaser or the Collateral Agent to carry into effect the
purposes of this Agreement or the Security Agreement or to better assure and
confirm unto the Deal Agent, the Liquidity Agent, any Purchaser or the
Collateral Agent its rights, powers and remedies hereunder or thereunder.
SECTION 7.10 CONFIDENTIALITY.
(a) Each of the parties hereto shall maintain and shall cause each of its
employees and officers to maintain the confidentiality of any confidential
proprietary information with respect to the other parties hereto and their
respective businesses obtained by it or them in connection with the structuring,
negotiating and execution of the transactions contemplated herein, except that
each such party and its officers and employees may (i) disclose such information
to its external accountants and attorneys and as required by applicable law,
applicable accounting requirements or order of any judicial or administrative
proceeding and (ii) disclose the existence of this Agreement.
(b) Anything herein to the contrary notwithstanding, the Issuer hereby
consents to the disclosure of any nonpublic information with respect to it (i)
to the Deal Agent, the Liquidity Agent, the Investors, prospective Investors
(provided that each such prospective Investor has entered into a confidentiality
agreement reasonably acceptable to the Deal Agent) or a Purchaser by each other,
(ii) by the Deal Agent or the Purchasers to any prospective or actual assignee
or participant of any of them or (iii) by the Deal Agent to any rating agency
that provides a rating for the Commercial Paper, Commercial Paper dealer or
placement agent or provider of a surety, guaranty or credit or liquidity
enhancement to a Purchaser and to any officers, directors, employees, outside
accountants and attorneys of any of the foregoing, provided each such Person is
informed of the confidential nature of such information and agrees to keep such
information confidential pursuant to the terms of this section. In addition, the
Purchasers, the Liquidity Agent and the Deal Agent may disclose any such
nonpublic information pursuant to any law, rule, regulation, direction, request
or order of any judicial, administrative or regulatory authority or proceedings
(whether or not having the force or effect of law).
27
<PAGE>
SECTION 7.11 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES).
SECTION 7.12 WAIVER OF JURY TRIAL.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PURCHASERS, THE
ISSUER AND THE DEAL AGENT WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
SECTION 7.13 COUNTERPARTS.
This Agreement may be executed in any number of copies, and by the
different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument.
SECTION 7.14 HEADINGS.
Section headings used in this Agreement are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.
28
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Note
Purchase Agreement to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
THE ISSUER: FIRST INVESTORS AUTO CAPITAL CORPORATION,
as Issuer
By: /s/ BENNIE H. DUCK
Name: Bennie H. Duck
Title: Vice President and Treasurer
First Investors Auto Capital Corporation
675 Bering Drive
Suite 710
Houston, Texas 77057
Attention: Bennie H. Duck
Facsimile: (703) 977-0657
Telephone: (713) 977-2600
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By /s/ DARRELL R. BABER
Name: DARRELL R. BABER
Title: DIRECTOR
First Union Capital Markets Corp.
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention: Mr. Bennett S. Cole
Facsimile: (704) 374-3254
Telephone: (704) 383-3766
<PAGE>
THE COMPANY: VARIABLE FUNDING CAPITAL CORPORATION
By First Union Capital Markets
Corp., as attorney-in-fact
By /s/ DARRELL R. BABER
Name: DARRELL R. BABER
Title: DIRECTOR
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-6
Attention: Conduit Administration
Facsimile: (704) 383-6036
Telephone: (704) 383-9343
With a copy to:
Variable Funding Capital Corporation
c/o Lord Securities Corp.
2 Wall Street, 19th Floor
New York, New York 10005
Attention: Mr. Richard Taiano
Facsimile: (212) 346-9012
Telephone: (212) 346-9006
THE LIQUIDITY AGENT: FIRST UNION NATIONAL BANK
By /s/ BILL A. SHIRLEY
Name: BILL A. SHIRLEY
Title: VICE PRESIDENT -North Carolina
First Union National Bank
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention: Bill A. Shirley, Jr.
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
<PAGE>
THE INVESTOR: FIRST UNION NATIONAL BANK
By /s/ BILL A. SHIRLEY
Name: BILL A. SHIRLEY
Title: VICE PRESIDENT -North Carolina
Commitment: $25,000,000
First Union National Bank
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention: Bill A. Shirley, Jr.
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of January 1, 1998, by and between First
Investors Financial Services, Inc., a Texas corporation (the "SELLER"), having
its principal executive office at 675 Bering Drive, Suite 710, Houston, Texas
77057, and First Investors Auto Capital Corporation, a Delaware corporation
("FIACC"), having its principal executive office at 675
Bering Drive, Suite 710, Houston, Texas 77057.
WHEREAS, in the regular course of its business, the Seller purchases motor
vehicle installment sales contracts secured by new and used automobiles and
light duty trucks from motor vehicle dealers and others; and
WHEREAS, the Seller and FIACC desire to set forth their agreement pursuant
to which certain of such installment sales contracts are to be sold and
transferred by the Seller to FIACC from time to time;
NOW THEREFORE, in consideration of the foregoing, other good and valuable
consideration, and the mutual terms and covenants contained herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms used but not otherwise defined herein shall have the
meanings given to such terms in the Security Agreement (as defined below). As
used in this Agreement, the following terms shall, unless the context otherwise
requires, have the following meanings (such meanings to be equally applicable to
the singular and plural forms of the terms defined).
AGREEMENT: This Purchase Agreement as such agreement may be amended,
modified and/or restated.
ASSIGNMENT: The document of assignment substantially in the form attached to
this Agreement as Exhibit A.
EFFECTIVE TIME: With respect to the sale of any Receivable pursuant to this
Agreement, the time at which FIACC pays to or for the account of Seller, the
Purchase Price of such Receivable.
FIACC: First Investors Auto Capital Corporation, a Delaware corporation.
<PAGE>
PRECOMPUTED RECEIVABLE: Any Receivable under which the portion of a payment
allocable to earned interest and the portion allocable to the Amount Financed is
determined according to the sum of periodic balances or the sum of monthly
balances or any equivalent method of calculating monthly actuarial receivables.
PURCHASE AMOUNT: The sum of (i) the outstanding Principal Balance of the related
Receivable and (ii) accrued and unpaid interest to the end of the month of
purchase at the APR of the related Receivable. The Purchase Amount shall include
any out-of-pocket expenses of the Servicer which are otherwise reimbursable to
the Servicer by FIACC under the Servicing Agreement.
PURCHASE PRICE: With respect to any Receivable sold by the Seller to FIACC
pursuant to this Agreement, the outstanding Principal Balance of such
Receivable, computed in accordance with the Simple Interest Method, as of the
applicable Effective Time.
PURCHASED RECEIVABLE: Any Receivable, any interest in which is transferred by
the Seller to FIACC at any time under this Agreement, together with the Related
Security related to such Receivable.
RELATED SECURITY: As to any Receivable, (i) the interest of the Seller in all
security interests and liens in or on the Financed Vehicle and any accessions
thereto granted by an Obligor pursuant to such Receivable; (ii) the interest of
the Seller in any proceeds from claims on Credit Insurance, or other insurance
policies covering such Financed Vehicle or Obligor; (iii) the interest of the
Seller in all rebates or premiums and other amounts relating to insurance
policies and other items financed under such Receivables as of the Effective
Time.
SECURITY AGREEMENT: That certain Security Agreement dated as of January 1, 1998
among FIACC, as debtor, First Union Capital Markets Corp., as Deal Agent and
Collateral Agent, and the Seller, as such agreement may be amended or
supplemented in accordance with the terms thereof.
SELLER: First Investors Financial Services, Inc., a Texas corporation.
UCC: Shall have the meaning ascribed to it in the Security Agreement.
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
From time to time until the termination of this Agreement, the Seller
shall sell and transfer Receivables to FIACC, and FIACC shall purchase and pay
for such Receivables, as follows:
(a) SELECTION OF RECEIVABLES. The Seller shall select Receivables for sale
to FIACC hereunder in such amounts and at such times as the Seller shall
determine in its sole discretion; however, the Seller shall not use any
selection procedure that would result in a material adverse
2
<PAGE>
effect on the Secured Party, the Noteholder, the Deal Agent, the Liquidity
Agent, the Credit Support Provider, any Liquidity Provider or the Company. The
Seller's selection of any Receivable for sale to FIACC shall be conclusively
evidenced by the tender of such Receivable pursuant to clause (b) immediately
following.
(b) TENDER OF RECEIVABLES. The Seller shall tender a Receivable for sale
to FIACC by delivering such Receivable to or as directed by FIACC, together with
all documentation pertaining to such Receivable, which documentation shall
include a validly executed Assignment with respect to such Receivable.
(c) TRANSFER OF RECEIVABLES. As of the Effective Time with respect to any
Receivable, the Seller shall sell, transfer, assign and otherwise convey to
FIACC, without recourse, a 100% interest in (i) all right, title and interest of
the Seller in and to such Receivable, and all monies paid thereon, and due
thereon, at or after the Effective Time, as applicable, whether such amounts are
considered accounts, general intangibles or other property; (ii) all Related
Security; and (iii) the proceeds of any and all of the foregoing.
(d) PAYMENT FOR RECEIVABLES. As of the Effective Time with respect to any
Receivable, FIACC shall purchase and pay for such Receivable by causing the
Purchase Price thereof to be paid to the Seller in cash; provided, however that
at the discretion of the Seller, any number of specified Receivables may be
assigned and transferred to FIACC from time to time as a capital contribution by
Seller to FIACC in the amount of the aggregate Purchase Price otherwise
applicable thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF FIACC.
FIACC hereby represents and warrants to the Seller as of the date hereof:
(a) ORGANIZATION, ETC. FIACC has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, and has full corporate power and authority to execute and deliver this
Agreement and to perform the terms and provisions hereof.
(b) DUE AUTHORIZATION AND NO VIOLATION. This Agreement has been duly
authorized, executed and delivered by FIACC, and is the valid, binding and
enforceable obligation of FIACC except as the same may be limited by insolvency,
bankruptcy, reorganization or other laws relating to or affecting the
enforcement of creditors' rights or by general equity principles. The
consummation of the transactions contemplated by this Agreement, and the
fulfillment of the terms thereof, will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under (in each
case material to FIACC), or (except as contemplated by the Security Agreement)
result in the creation or imposition of any Lien, charge or encumbrance (in
3
<PAGE>
each case material to FIACC) upon any of the property or assets of FIACC
pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement,
guarantee, lease financing agreement or similar agreement or instrument under
which FIACC is a debtor or guarantor, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or the By-laws
of FIACC.
(c) NO LITIGATION. No legal or governmental proceedings are pending to
which FIACC is a party or of which any property of FIACC is the subject, and no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others other than such proceedings which will not have a material
adverse effect upon the general affairs, financial position, net worth or
results of operations (on an annual basis) of FIACC and will not materially and
adversely affect the performance by FIACC of its obligations under, or the
validity and enforceability of, this Agreement.
3.2 REPRESENTATIONS AND WARRANTIES OF THE SELLER.
(a) The Seller hereby represents and warrants to FIACC as of the date
hereof:
(i) ORGANIZATION, ETC. The Seller has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Texas, and is duly qualified to transact business and is in good
standing in each jurisdiction in the United States of America in which the
conduct of its business or the ownership of its property requires such
qualification.
(ii) POWER AND AUTHORITY. The Seller has full power and authority to
sell and assign the property to be sold and assigned to FIACC hereunder
and has duly authorized such sale and assignment to FIACC by all necessary
corporate action. This Agreement has been duly authorized, executed and
delivered by the Seller and shall constitute the legal, valid and binding
obligation of the Seller except as the same may be limited by insolvency,
bankruptcy, reorganization or other laws relating to or affecting the
enforcement of creditors' rights or by general equity principles.
(iii) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement, and the fulfillment of the terms thereof,
will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under (in each case material to the
Seller and its subsidiaries considered as a whole), or result in the
creation or imposition of any adverse claim, charge or encumbrance (in
each case material to the Seller and its subsidiaries considered as a
whole) upon any of the property or assets of the Seller pursuant to the
terms of any indenture, mortgage, deed of trust, loan agreement,
guarantee, lease financing agreement or similar agreement or instrument
under which the Seller is a debtor or guarantor, nor will such action
result in any violation of the provisions of the Articles of Incorporation
or the By-laws of the Seller.
(iv) NO PROCEEDINGS. No legal or governmental proceedings are
pending to which the Seller is a party or of which any property of the
Seller is the subject, and no
4
<PAGE>
such proceedings are threatened or contemplated by governmental
authorities or threatened by others, other than such proceedings which
will not have a material adverse effect upon the validity or
collectability of the Receivables, or upon the general affairs, financial
position, net worth or results of operations (on an annual basis) of the
Seller and its subsidiaries considered as a whole and will not materially
and adversely affect the performance by the Seller of its obligations
under, or the validity and enforceability of, this Agreement.
(v) NO ADVERSE EVENTS. No event has occurred that would have a
material adverse effect on the Receivables, the ability of the Seller to
collect the Receivables or to perform its obligations hereunder or the
ability of FIACC to collect the Receivables.
(b) The Seller makes the following representations and warranties as to
the Receivables on which FIACC relies in purchasing the Receivables. Such
representations and warranties speak as of the execution and delivery of this
Agreement, and as of the Effective Time with respect to each Receivable, but
shall survive the sale, transfer, and assignment of the Receivables to FIACC:
(i) Immediately prior to the Effective Time the Seller had a valid
and enforceable first priority security interest in the related Financed
Vehicle, and such security interest had been duly perfected and was prior
to all other present and future liens and security interests (except
future tax liens and liens that, by statute, may be granted priority over
previously perfected security interests) that now exist or may hereafter
arise, and the Seller had the full right to assign such security interest
to FIACC.
(ii) On and after the Effective Time, there shall exist under such
Receivable a valid, subsisting, and enforceable first priority perfected
security interest in the related Financed Vehicle (other than, as to the
priority of such security interest, any statutory lien arising by
operation of law after the Effective Time which is prior to such interest)
and, following the grant of all of the Seller's right, title and interest
in and to such security interest to FIACC, at such time as enforcement of
such security interest is sought there shall exist in favor of FIACC a
valid, subsisting, and enforceable first priority perfected security
interest (other than, as to the priority of such security interest, any
statutory lien arising by operation of law after the Effective Time which
is prior to such interest) in the related Financed Vehicle.
(iii) If such Receivable was originated in a state in which notation
of a security interest on the title document for the Financed Vehicle
securing such Receivable is required or permitted to perfect such security
interest, the title document for such Financed Vehicle shows, or if a new
or replacement title document is being applied for with respect to such
Financed Vehicle the title document will show, the Seller as the sole
holder of a security interest in such Financed Vehicle. If such Receivable
was originated in a state in which the filing of a financing statement
under the UCC is required to perfect a security interest in motor
vehicles, such filings or recordings have been duly made and show the
Seller as the sole holder of a first priority security interest in such
Financed
5
<PAGE>
Vehicle, and in either case FIACC has the same rights as the Seller has or
would have (if the Seller were still the owner of a Purchased Receivable)
against the Obligor and all creditors of the Obligor claiming an interest
in such Financed Vehicle.
(iv) Immediately prior to the Effective Time: (i) such Receivable
had not been sold, assigned, or pledged by the Seller to any Person; (ii)
the Seller had good and marketable title thereto free and clear of any
encumbrance, equity, pledge, charge, claim or security interest; (iii) the
Seller was the sole owner thereof and had full right to sell the
Receivable to FIACC and upon the sale thereof to FIACC, FIACC will have
good and marketable title thereto and will own such Receivables free and
clear of any encumbrances. Such Receivable was acquired by the Seller,
from an Originator with which the Seller does business, pursuant to an
Originator Agreement between the Seller and such Originator. Such
Originator had full right to assign to the Seller such Receivable and the
security interest in the related Financed Vehicle. The Seller has full
right to sell to FIACC such Receivable and the security interest in the
related Financed Vehicle.
(v) As of the Effective Time, there is no lien against the related
Financed Vehicle for delinquent taxes.
(vi) Such Receivable, and the sale of the Financed Vehicle securing
such Receivable, where applicable, complied, at the time it was made, and
now complies, in all material respects with applicable state and federal
laws (and regulations thereunder), including, without limitation, usury,
disclosure and consumer protection laws, equal credit opportunity, fair
credit reporting, truth-in-lending or other similar laws, the Federal
Trade Commission Act, and applicable state laws regulating retail
installment sales contracts in general and motor vehicle retail
installment sales contracts and loans in particular, and the receipt of
interest on, and the ownership of, such Receivable by FIACC will not
violate any such laws and the related Obligor has no right of rescission
or cancellation, claims or defenses, set-offs, or counterclaims of any
kind whatsoever as to or against the contract evidencing a related
Receivable.
(vii) The Receivable constitutes the entire agreement between the
Seller (as assignee of the related Originator) and the related Obligor.
(viii) At the time of origination of such Receivable, the proceeds
of such Receivable were fully disbursed, and there is no requirement for
future advances thereunder, and all fees and expenses in connection with
the origination of such Receivable have been paid.
(ix) As of the Effective Time, there is no default, breach,
violation or event of acceleration existing under any such Receivable and
no event which, with the passage of time or with notice or with both,
would constitute a default, breach, violation or event of acceleration
under any such Receivable. The Seller has not waived any such default,
breach, violation or event of acceleration.
6
<PAGE>
(x) In connection with the Seller's acquisition of such Receivable,
the Seller required the related Originator or Obligor to furnish evidence
that the related Financed Vehicle was covered by a comprehensive and
collision insurance policy naming the Seller as loss payee and insuring
against loss and damage due to fire, theft, transportation, collision and
other risks generally covered by comprehensive and collision coverage in
an amount equal to the actual cash value of the related Financed Vehicle.
(xi) Such Receivable contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate
for the realization against the related Financed Vehicle of the benefits
of the security.
(xii) The collection practices used with respect to such Receivable
have been in all material respects legal, proper, prudent and customary in
the automobile installment sales contract or installment loan servicing
business as applied with respect to obligors with credit standings
comparable to that of the Obligor.
(xiii) [reserved].
(xiv) The related Obligor does not have any other motor vehicle
retail installment sale contracts owing to the Seller which are 60 or more
days past due or defaulted at the Effective Time.
(xv) Such Receivable is not due from an Obligor who has defaulted
under a previous Receivable with the Seller.
(xvi) The Originator that sold such Receivable to the Seller has
entered into an Originator Agreement and such Originator Agreement
constitutes the entire agreement between the Seller and the related
Originator with respect to the sale of such Receivable to the Seller, such
Originator Agreement was, at the time of the origination of such
Receivable, in full force and effect and the legal, valid, binding and
enforceable obligation of such Originator (subject to applicable
bankruptcy and insolvency laws and other similar laws affecting the
enforcement of creditors' rights generally and to principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or
at law); there have been no material defaults by such Originator or by the
Seller under such Originator Agreement; the Seller has fully performed all
of its obligations under such Originator Agreement; the Seller has not
made any statements or representations to such Originator inconsistent
with any term of such Originator Agreement; the purchase price for such
Receivable has been paid in full by the Seller, there is no other payment
due to such Originator from the Seller for the purchase of such
Receivable, such Originator has no right, title or interest in or to any
Receivable; there is no prior course of dealing between such Originator
and the Seller which will affect the terms of such Originator Agreement;
any additional payment that may be owed to such Originator by the Seller
is a corporate obligation of the Seller.
7
<PAGE>
(xvii) The Seller has provided to the Servicer the sole original
counterpart of such Receivable, as amended, and the related title document
or the application for title document, previously in the possession of the
Seller.
(xviii) Such Receivable constitutes "chattel paper" for purposes of
Section 9-105(a)(ii) and 9-308 of the UCC. The Seller's electronic ledgers
have been marked as provided in Section 2.1 and 2.2 of the Security
Agreement with respect to such Receivable.
(xix) Such Receivable was not originated in, nor is it subject to
the law of, any jurisdiction, the laws of which would make unlawful the
sale, transfer or assignment of such Receivable, under this Agreement,
including any repurchase in accordance with this Agreement.
(xx) Such Receivable is in full force and effect in accordance with
its respective terms and neither the Seller nor the related Obligor has
suspended or reduced any payments or obligations due or to become due
thereunder by reason of a default by the other party to such Receivable;
there are no proceedings pending, or to the best of the Seller's
knowledge, threatened, asserting insolvency of the related Obligor, there
has been no previous default on such Receivable that resulted in
repossession of the related Financed Vehicle; and there are no proceedings
pending, or to the best of the Seller's knowledge, threatened, wherein the
related Obligor or any governmental agency has alleged that such
Receivable is illegal or unenforceable.
(xxi) Each contract evidencing a Receivable being acquired by FIACC
is substantially similar to one of the Seller's standard form contracts
attached to the Security Agreement as Exhibit K except for immaterial
modifications or deviations therefrom in accordance with state law which
will not have a material adverse effect on FIACC or any pledgee from FIACC
and will not reduce the scheduled payments thereunder or other payments
due under the Receivables.
(xxii) The Seller has duly fulfilled all obligations to be fulfilled
on the Seller's part under or in connection with the origination,
acquisition and disposition of such Receivable, including, without
limitation, giving any notices or consents necessary to effect the
acquisition of such Receivables by FIACC, and has done nothing to impair
the rights of the Secured Parties in such Receivables or payments with
respect thereto. The Seller has obtained all necessary licenses, permits
and charters required to be obtained by the Seller, which failure to
obtain would render any Receivable, this Agreement, the Note, the Note
Purchase Agreement or the Security Agreement unenforceable and would have
a material adverse effect on FIACC or any pledgees of FIACC.
(xxiii) The Originator that originated such Receivable was selected
by the Seller based on such Originator's financial and operating history.
8
<PAGE>
(xxiv) The contract securing such Receivable arose from a bona fide
sale in the ordinary course of the Originator's business.
(xxv) Such Receivable represents the sale of goods described in the
contract evidencing the Receivable.
(xxvi) Such Receivable is exclusive and contains all the terms and
conditions of the related contract.
(xxvii) To the best of the Seller's knowledge, all signatures,
names, addresses, telephone numbers, figures and other statements of fact
set forth in the contract evidencing the Receivable are genuine, true and
correct.
(xxviii) To the best of the Seller's knowledge, no part of the down
payment, or any installment, has been loaned by the Originator to the
related Obligor.
(xxix) To the best of the Seller's knowledge, all credit information
provided to FIACC is true and correct and reported as received from the
Obligor.
(xxx) To the best of the Seller's knowledge, the Obligor is in fact
the primary or sole operator of the related Financed Vehicle.
(xxxi) Each Receivable constitutes an Eligible
Receivable.
(xxxii) The sale of the Extended Service Agreement to the related
Obligor complied at the time of such sale with all applicable state and
federal laws (and regulations thereunder), including without limitation,
insurance, usury, disclosure and consumer protection laws, equal credit
opportunity, fair credit reporting, truth-in-lending or other similar
laws, the Federal Trade Commission Act, and applicable state laws
regulating extended service agreements and insurance, and the ownership of
such Extended Service Agreement will not violate any such laws.
(xxxiii) To the best of the Seller's knowledge, each Extended
Service Agreement and each credit life insurance policy and each accident
and health policy related to such Financed Vehicle or an Obligor is the
legal, valid and binding obligation of each party thereto, and is
enforceable in accordance with its terms.
(xxxiv) To the best of the Seller's knowledge, any party obligated
to perform services under an Extended Service Agreement relating to a
Financed Vehicle, any credit life insurance policy or any accident and
health policy related to a Financed Vehicle or an Obligor have complied
with all licensing, insurance or other laws applicable to them in
connection with the origination, servicing, performance or administration
thereof.
(xxxv) The Collateral Agent will be entitled to receive all amounts
due to an Obligor or lienholder upon cancellation by an Obligor of an
Extended Service Agreement
9
<PAGE>
or any credit life insurance policy and accident and health insurance
policy relating to a Financed Vehicle or an Obligor.
(xxxvi) All rights (but not obligations) of the Seller under each
Extended Service Agreement and each credit life insurance policy and
accident and health insurance policy relating to a Financed Vehicle or an
Obligor have been assigned by the Seller to FIACC.
(xxxvii) No Receivable has been satisfied, subordinated, or
rescinded, nor has any Financed Vehicle been released, in whole or in
part, from the lien granted by the related Receivable.
(xxxviii) It is the intention of the Seller that each transfer and
assignment contemplated by this Agreement constitute a sale of the related
Receivables from the Seller to FIACC and that the beneficial interest in
and title to the Receivables shall not be part of the Seller's estate in
the event of the filing of a bankruptcy petition by or against the Seller
under any bankruptcy law.
ARTICLE IV
CONDITIONS
4.1 CONDITIONS TO OBLIGATIONS OF FIACC.
The obligation of FIACC to purchase the Receivables is subject to the
satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Seller hereunder shall be true and correct at the Effective
Time with respect to each Receivable, with the same effect as if then made.
(b) DOCUMENTS TO BE DELIVERED BY THE SELLER.
(i) THE ASSIGNMENT. As provided herein, the Seller shall have
executed and delivered an Assignment, which shall be substantially in the
form of Exhibit A hereto.
(ii) EVIDENCE OF UCC FILING. The Seller shall have recorded and
filed, at its own expense, a UCC-1 financing statement in each
jurisdiction in which filing is required by applicable law, executed by
the Seller, as seller of the Receivables, and naming FIACC, as purchaser
of the Receivables, and the Collateral Agent, as assignee, describing the
Receivables and the other property conveyed hereunder, meeting the
requirements of the laws of each jurisdiction and in such manner as is
necessary to perfect the sale, transfer, assignment and conveyance of such
Receivables to FIACC. The Seller shall deliver to FIACC, the Collateral
Agent and the Deal Agent a file-stamped copy, or other evidence
satisfactory to FIACC, the Collateral Agent and the Deal Agent of such
filing.
10
<PAGE>
(iii) OTHER DOCUMENTS. All other documents in the possession of the
Seller relating to the Receivables and any other document requested by the
Deal Agent to be delivered shall have been delivered by the Seller.
4.2 CONDITIONS TO OBLIGATIONS OF THE SELLER.
The obligation of the Seller to sell the Receivables to FIACC is subject
to the satisfaction of the following conditions:
(a) REPRESENTATION AND WARRANTIES TRUE. The representations and warranties
of FIACC hereunder shall be true and correct at the Effective Time with the same
effect as if then made.
(b) RECEIVABLES PURCHASE PRICE. At the Effective Time with respect to each
Receivable, FIACC shall have delivered to the Seller the Purchase Price of each
Receivable, as provided in clause (d) of Article II, above or, the Seller shall
have determined to make a capital contribution of such Receivables as provided
herein.
ARTICLE V
COVENANTS OF THE SELLER
The Seller agrees with FIACC as follows:
5.1 PROTECTION OF RIGHT, TITLE AND INTEREST.
(a) The Seller shall execute and file such financing statements and cause
to be executed and filed such continuation statements and any required
documentation all in such manner and in such places as may be required by law
fully to preserve, maintain and protect the ownership interest of FIACC in the
Purchased Receivables and in the proceeds thereof. The Seller shall deliver (or
cause to be delivered) to FIACC and the Deal Agent filed-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing.
(b) The Seller shall not change its name, identity, or corporate structure
in any manner that would, could, or might make any financing statement or
continuation statement filed by the Seller in accordance with paragraph (a)
above seriously misleading within the meaning of Section 9-402 of the UCC,
unless it shall have given FIACC, the Collateral Agent and the Deal Agent at
least sixty days' prior written notice thereof and shall have filed appropriate
amendments to all previously filed financing statements or continuation
statements prior to such changes.
(c) The Seller shall give FIACC, the Deal Agent and the Collateral Agent
at least sixty days' prior written notice of any relocation of its principal
executive office if, as a result of such relocation, the applicable provisions
of the UCC would require the filing of any amendment
11
<PAGE>
of any previously filed financing or continuation statement or of any new
financing statement and shall file any such amendment prior to any such
relocation. The Seller shall at all times maintain its principal executive
office within the United States of America.
(d) The Seller shall maintain its computer systems so that, from and after
the time of sale hereunder of the Receivables to FIACC, the Seller's master
computer records (including any back-up archives) that refer to a Purchased
Receivable shall indicate clearly the interest of FIACC in such Purchased
Receivable and that such Purchased Receivable is owned by FIACC. Indication of
FIACC's ownership of a Purchased Receivable shall be deleted from or modified on
the Seller's computer systems when, and only when, the Purchased Receivable
shall have been paid in full or repurchased.
(e) If at any time the Seller shall propose to sell, grant a security
interest in, or otherwise transfer any interest in automotive receivables to any
prospective purchaser, lender, or other transferee, the Seller shall give to
such prospective purchaser, lender, or other transferee computer tapes, records,
or print-outs (including any restored from back-up archives) that, if they shall
refer in any manner whatsoever to any Purchased Receivable, the same shall
indicate clearly that such Purchased Receivable has been sold to and is owned by
FIACC.
(f) Upon the written request of the Collateral Agent, upon written request
from the Secured Parties, the Seller shall cause the following notation to be
stamped on the face of the retail installments sales contract evidencing such
Receivable: "FIRST INVESTORS FINANCIAL SERVICES, INC. HAS SOLD AND ASSIGNED ALL
RIGHT, TITLE AND INTEREST IN THIS CONTRACT TO FIRST INVESTORS AUTO CAPITAL
CORPORATION, WHICH HAS GRANTED A SECURITY INTEREST IN THIS CONTRACT TO FIRST
UNION CAPITAL MARKETS CORP., AS COLLATERAL AGENT FOR CERTAIN SECURED PARTIES."
(g) Within sixty days after the Effective Time with respect to each
Purchased Receivable, the Seller shall give written notice by regular mail,
addressed to the Obligor under such Receivable, in form acceptable to FIACC, to
the effect that such Purchased Receivable has been sold and assigned to FIACC.
(h) The Seller shall permit FIACC and its agents and the Deal Agent and
its agents at any time during normal business hours to inspect, audit, and make
copies of and abstracts from the Seller's records regarding any Purchased
Receivable.
(i) The Seller shall, or shall cause the Servicer to, provide a list to
the Deal Agent of all Purchased Receivables, such list to be delivered to the
Deal Agent, as of the end of each March, June, September and December, on the
fifteenth Business Day after the end of each such month, beginning with March,
1998. Upon request, the Seller shall furnish to FIACC and the Deal Agent, within
five Business Days, a list of all Purchased Receivables (by contract number and
name of Obligor) previously sold to FIACC pursuant to this Agreement.
12
<PAGE>
(j) The Seller will not amend, and shall not permit any amendment to any
Extended Service Agreement relating to the Financed Vehicles related to the
Purchased Receivables which would adversely affect its ability and right to
receive refunds under such contracts, or which would adversely affect the rights
of any of the Deal Agent, the Liquidity Agent, the Secured Party, the
Noteholder, any Liquidity Provider, the Credit Support Provider or the Company.
(k) The Seller agrees, for the benefit of the Deal Agent, to take all
reasonable measures to enforce any right to a refund due to it under any
Extended Service Agreement related to the Purchased Receivables.
5.2 OTHER LIENS OR INTERESTS.
Except for the conveyances hereunder, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any adverse claim on any interest in the Purchased Receivables,
and the Seller shall defend the right, title, and interest of FIACC in, to and
under the Purchased Receivables against all claims of third parties claiming
through or under the Seller.
5.3 COSTS AND EXPENSES.
The Seller agrees to pay all reasonable costs and disbursements in
connection with the perfection, as against all third parties, of FIACC's right,
title and interest in and to the Purchased Receivables, including, without
limitation, Financed Vehicles and the Seller shall take, at its expense, any
additional action required by FIACC, the Deal Agent or the Collateral Agent in
order to protect FIACC's and the Collateral Agent's (on behalf of the Secured
Parties) interests in the Purchased Receivables, including, without limitation,
the Financed Vehicles and, in connection therewith, shall execute and file such
financing statements, or amendments thereto, continuation statements, and such
other instruments, documents, or notices as may be requested by FIACC or the
Collateral Agent.
5.4 INDEMNIFICATION.
The Seller shall indemnify FIACC, the Collateral Agent and each Secured
Party under the Security Agreement for any liability as a result of the failure
of a Purchased Receivable to be originated in compliance with all requirements
of law and for any breach of any of its representations and warranties contained
herein. These indemnity obligations shall be in addition to any obligation that
the Seller may otherwise have.
5.5 SALE.
Seller agrees to treat this conveyance for all purposes (including without
limitation tax and financial accounting purposes) as a sale on all relevant
books, records, tax returns, financial statements and other applicable
documents.
13
<PAGE>
5.6 SELLER'S RECEIPT OF PAYMENT.
Seller agrees that any amounts received by Seller in respect of any of the
Purchased Receivables after the Effective Time applicable thereto shall be
received in trust for the benefit of FIACC, shall be segregated from other funds
of the Seller and shall immediately be paid over to the Collection Account in
the same form as so received (with any necessary endorsement).
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 OBLIGATION OF SELLER.
The obligations of the Seller under this Agreement shall not be affected
by reason of the invalidity, illegality or irregularity of any Receivable.
6.2 REPURCHASE EVENTS.
The Seller hereby covenants and agrees with FIACC (for the benefit of the
Collateral Agent, for the benefit of the Secured Party), that the Seller shall
promptly repurchase from FIACC any Purchased Receivable, for the Purchase Amount
in cash, with respect to which either of the following events ("REPURCHASE
EVENTS") shall have occurred: (i) any representation and warranty of the Seller
contained in Section 3.2(b) shall have been breached with respect to such
Purchased Receivable as of the Effective Time, or (ii) FIACC, or any servicing
agent who may at the time be servicing such Purchased Receivable for FIACC,
shall have failed to receive, within sixty days following the applicable
Effective Time, (A) a Tax Collector's Receipt for Texas Title
Application/Registration/Motor Vehicle Tax (commonly known as a "white slip") in
proper form, (B) a Certificate of Title in proper form issued by the Texas
Department of Transportation, or (C) the equivalent certificates or
registrations in proper form issued by the appropriate authorities of other
states if applicable, reflecting FIACC (or the Seller) as the lienholder thereon
with respect to the Financed Vehicle covered by such Purchased Receivable. This
repurchase obligation of the Seller shall constitute the sole remedy of FIACC
and the Collateral Agent under the Security Agreement against the Seller with
respect to any Repurchase Event. With respect to all Purchased Receivables
repurchased by the Seller pursuant to this Agreement, FIACC shall assign,
without recourse, representation or warranty, to the Seller all of FIACC's
right, title and interest in and to such Purchased Receivables, and all security
and documents relating thereto.
6.3 TERMINATION.
The obligations of the Seller to sell Receivables to FIACC, and of FIACC
to purchase Receivables from the Seller, pursuant to this Agreement shall
terminate at such time as all amounts due and payable by FIACC under the
Security Agreement are paid in full; provided, however, that (i) the
representations and warranties of Seller pursuant to Section 3.2(b) of this
Agreement, insofar as they relate to Receivables sold to FIACC pursuant to this
Agreement prior to such termination, shall survive such termination; (ii) with
respect to all such Purchased
14
<PAGE>
Receivables, the obligations of Seller set forth
in Section 5.1, 5.2, 5.3 and 5.6 pertaining to the protection of such Purchased
Receivables, and the obligation of Seller set forth in Section 5.4 pertaining to
indemnification under certain circumstances, shall survive such termination; and
(iii) with respect to all Purchased Receivables, the repurchase obligations of
Seller pursuant to Section 6.2 shall survive such termination.
6.4 AMENDMENT.
This Agreement may be amended from time to time by a written instrument
duly executed and delivered by the Seller and FIACC; PROVIDED, HOWEVER, that no
such amendment shall be effective without a prior written consent of the Deal
Agent.
6.5 COLLATERAL ASSIGNMENT.
Notwithstanding anything to the contrary contained herein, the Seller (i)
acknowledges and consents that FIACC has assigned its rights hereunder and its
interest herein as collateral pursuant to the Security Agreement for the benefit
of the Secured Party, and (ii) agrees to attorn to the Collateral Agent in the
event of its succession to the rights and interest of FIACC hereunder by reason
of foreclosure or otherwise.
6.6 POWER OF ATTORNEY.
The parties recognize that, notwithstanding the sale and assignment of a
Receivable to FIACC pursuant to this Agreement, it may not be practicable under
applicable state recordation procedures to substitute FIACC for the Seller as
the lienholder identified on the certificate of title or similarly recorded
instrument pertaining to the related Financed Vehicle. Accordingly, with respect
to each Purchased Receivable, the Seller hereby grants to FIACC, and to any
servicing agent who may service such Purchased Receivable for FIACC, an
irrevocable power of attorney, coupled with interest, to enforce, in the name,
place and stead of the Seller, all rights and remedies of the holder of such
Purchased Receivable and of the security interests in the related Financed
Vehicle. The Seller agrees to provide, promptly upon the request of FIACC or
such servicer, any additional documentation which they may reasonably require to
evidence, or otherwise to more perfectly vest, the irrevocable power of attorney
granted hereby. The Seller also agrees, as provided in the Security Agreement,
to execute such documents as are required under Section 501.114 of the Texas
Certificate of Title Act to assign the liens recorded on the Certificates of
Title covering the Financed Vehicles from the Seller to FIACC, if the Collateral
Agent shall have reasonably determined that such assignment is necessary to the
enforcement of the related Purchased Receivable or Receivables.
6.7 WAIVERS.
No failure or delay on the part of any party in exercising any power,
right or remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any power, right or remedy preclude any
other further exercise thereof or the exercise of any other power, right or
remedy.
15
<PAGE>
6.8 NOTICES.
All communications and notices directed to either party pursuant to this
Agreement shall be in writing addressed or delivered to it at its address shown
in the introductory paragraph of this Agreement and to the Deal Agent at: First
Union Capital Markets Corp., One First Union Center, TW-6, Charlotte, North
Carolina 28288, Attn: Conduit Administration or at such other address as may be
designated by it by notice to other party and, if mailed or transmitted by
facsimile transmission, shall be deemed given when mailed or transmitted.
6.9 COSTS AND EXPENSES.
The Seller will pay all expenses incident to the performance of its
obligations under this Agreement and the Seller agrees to pay all reasonable
out-of-pocket costs and expenses of FIACC, in connection with the perfection as
against third parties of FIACC's right, title and interest in and to the
Purchased Receivables and the enforcement of any obligation of the Seller
hereunder.
6.10 HEADINGS AND CROSS REFERENCES.
The various headings in this Agreement are included for convenience only
and shall not affect the meaning or interpretation of any provisions of this
Agreement.
6.11 GOVERNING LAW.
This Agreement and the Assignment shall be governed by and construed in
accordance with the laws of the State of Texas.
6.12 COUNTERPARTS.
This Agreement may be executed in two or more counterparts and by
different parties on separate counterparts, each of which shall be an original,
but all of which together shall constitute one and the same instrument.
6.13 NO PROCEEDINGS.
For so long as the Company shall have any short-term commercial paper
notes outstanding and for one year and one day thereafter, the Seller agrees
that it will not file any involuntary petition or otherwise institute any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or
other proceeding under any federal or state bankruptcy or similar law against
FIACC.
16
<PAGE>
6.14 THIRD PARTY BENEFICIARY.
Each of the parties hereto agree that the Deal Agent, as agent, is a third
party beneficiary of this Agreement.
6.15 ASSIGNMENT.
This Agreement may not be assigned by either party hereto without the
prior written consent of the Deal Agent.
[remainder of page intentionally left blank]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed by their respective officers thereunder to duly authorized as of the
date and year first above written.
FIRST INVESTORS FINANCIAL SERVICES, INC.
By: /s/ BENNIE H. DUCK
Bennie H. Duck,
Vice President and Treasurer
FIRST INVESTORS AUTO CAPITAL CORPORATION
By: /s/ BENNIE H. DUCK
Bennie H. Duck,
Vice President and Treasurer
<PAGE>
Exhibit A
Assignment
FOR VALUE RECEIVED, in accordance with the Purchase Agreement dated as of
January 1, 1998 (the "PURCHASE AGREEMENT") between the undersigned and First
Investors Auto Capital Corporation (the "PURCHASER"), the undersigned does
hereby sell, assign, transfer and otherwise convey unto the Purchaser, without
recourse, all right, title and interest of the undersigned in and to:
(A) all motor vehicle installment sales contracts, any interest in which
may from time to time be transferred by the undersigned to the Purchaser under
the Purchase Agreement (the "PURCHASED RECEIVABLES") and all monies paid
thereon, and due thereon, at or after the Effective Time as applicable, whether
such amounts are considered accounts, general intangibles or other property;
(B) together with (i) the interest of the undersigned in all security
interests and liens in or on the Financed Vehicle and any accessions thereto
granted by an Obligor pursuant to the Purchased Receivables, and all monies paid
thereon, and due thereon, at or after the Effective Time, as applicable whether
such amounts are considered accounts, general intangibles or other property,
(ii) the interest of the undersigned in any proceeds from claims on any physical
damage, credit life, credit disability, Credit Insurance or other insurance
policies covering such Financed Vehicle or Obligor, (iii) the interest of the
undersigned in all rebates of premiums and other amounts relating to insurance
policies and other items financed under the Purchased Receivables as of the
Effective Time, and (iv) the proceeds of any and all of the foregoing.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the
Purchase Agreement and is to be governed by the Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be duly
executed, effective as of the Effective Date of this Assignment as provided in
the Purchase Agreement.
FIRST INVESTORS FINANCIAL SERVICES, INC.
By: ___________________________________
Name: ____________________________
Title: ___________________________
SERVICING AGREEMENT
This Servicing Agreement, dated as of January 1, 1998, is between First
Investors Auto Capital Corporation ("FIACC"), a Delaware corporation, and
General Electric Capital Corporation, as Servicer ("Servicer").
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
INTRODUCTION
Contemporaneously with the execution of this Agreement, (i) FIACC has
entered into a Note Purchase Agreement dated as of January 1, 1998 among FIACC,
the financial institutions listed on the signature pages thereof (the
"Investors"), Variable Funding Capital Corporation (the "Company"), First Union
Capital Markets Corp. (the "Deal Agent"), and First Union National Bank, whereby
FIACC has issued to the Deal Agent, as agent for the Company and the Investors,
its Note evidencing certain indebtedness on the terms and conditions set forth
therein (the "Indebtedness"); (ii) FIACC has entered into a Security Agreement
dated as of January 1, 1998 (the "Security Agreement") among FIACC, the Deal
Agent (also in its capacity as collateral agent, hereafter the "Collateral
Agent"), and First Investors Financial Services, Inc., whereby FIACC has granted
to the Collateral Agent for the benefit of the Secured Party (as defined
therein), a first priority security interest in the Receivables (as defined
therein ("Receivables")) and certain other properties and rights as provided in
the Security Agreement, to collateralize the Indebtedness, and (iii) in
accordance with the terms of the Security Agreement, the Collateral Agent has
agreed to administer the receipt and disbursement of funds generated from the
Receivables on the terms and conditions provided therein. In connection
therewith, the Servicer has agreed to service the Receivables on the terms and
conditions set forth below.
SERVICING AGREEMENT
<PAGE>
ARTICLE II
DEFINITIONS
SECTION 2.01. DEFINITIONS.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
"AGREEMENT" means this Servicing Agreement and all amendments and
supplements thereto; provided, however, that the Collateral Agent has
given its prior written consent to such amendments and supplements.
"AMOUNT FINANCED" with respect to a Receivable means the amount advanced
to or for the account of an Obligor under the Receivable toward the
purchase price of the Financed Vehicle and any related costs.
"ANNUAL PERCENTAGE RATE" or "APR" of a Receivable means the annual rate of
finance charges stated in the Receivable.
"BUSINESS DAY" means a day on which banks are open for business in New
York, New York, Charlotte, North Carolina, and Houston, Texas.
"COLLECTION ACCOUNT" means the account referred to in Section 5.01.
"COLLATERAL AGENT" AND "DEAL AGENT" mean First Union Capital Markets
Corp., in its capacity as collateral agent or deal agent under the
Security Agreement, as the context may require, and any successor
collateral agent or deal agent, as the case may be, appointed pursuant to
the provisions of the Security Agreement.
"COLLATERAL AGENT OFFICER" means the chairman or vice-chairman of the
board of directors, the chairman or vice-chairman of the executive
committee of the board or directors, the president, any vice president,
the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller and any assistant controller or
any other officer of the Collateral Agent customarily performing functions
similar to those performed by any of the above designated officers and
also means, with respect to a
2
SERVICING AGREEMENT
<PAGE>
particular corporate trust matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with
the particular subject.
"COLLECTION PERIOD" means a calendar month.
"COMPANY" means Variable Funding Capital Corporation, a
Delaware corporation.
"CREDIT INSURANCE" means VSI Insurance and any other insurance with
respect to the Receivables maintained in accordance with the Security
Agreement.
"DEALER" means the dealer who sold a Financed Vehicle and who originated
and assigned the related Receivable to First Investors under an existing
agreement between such dealer and First Investors.
"EFFECTIVE TIME" means the time at which the purchase of any Receivable by
FIACC from First Investors shall be effective in accordance with the terms
of the Purchase Agreement.
"ELIGIBLE SERVICER" means any established institution approved in writing
by the Collateral Agent and having a consolidated net worth of not less
than $100,000,000 or the accounts of which are consolidated for financial
accounting purposes with any established institution having such a
consolidated net worth and whose regular business shall include the
servicing of automotive receivables.
"ENDING DATE" means the last day of each Collection Period.
"FACILITY" means the revolving credit facility created and evidenced by
the Note Purchase Agreement and the Security Agreement.
"FINANCED VEHICLE" means an automobile or light truck, together with all
accessions thereto, securing an Obligor's indebtedness under the
respective Receivable.
"FIRST INVESTORS" means First Investors Financial Services, Inc., a
Texas corporation.
"FIACC" means First Investors Auto Capital Corporation, a
Delaware corporation.
3
SERVICING AGREEMENT
<PAGE>
"FIACC EVENT OF DEFAULT" means an event specified in Section 8.02.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes
only) or comparable law of any jurisdiction to evidence any of the
foregoing.
"LIQUIDATED RECEIVABLE" means any Defaulted Receivable (as defined in the
Security Agreement) liquidated by the Servicer through sale of the
Financed Vehicle or otherwise.
"LIQUIDATION PROCEEDS" means (i) proceeds of any claim under any Credit
Insurance and (ii) all monies collected in connection with the disposition
of any Financed Vehicle relating to a Liquidated Receivable, from whatever
source, net of the sum of (x) any amounts reasonably expended by the
Servicer in connection with the liquidation of such Financed Vehicle for
the account of the Obligor and, (y) any such amounts required by law to be
remitted to the Obligor.
"NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement dated January
1, 1998 among FIACC, the Company and others evidencing the Facility, as
the same may be amended, modified and supplemented from time to time in
accordance with the terms thereof.
"OBLIGOR" on a Receivable means the purchaser or co-purchasers of the
Financed Vehicle or any other Person who owes payments under the
Receivable.
"OFFICER'S CERTIFICATE" means a certificate signed by the chairman of the
board, the president, any vice chairman of the board, any vice president,
the treasurer, the controller or any assistant treasurer or any assistant
controller of FIACC, First Investors, or a Servicing Employee of the
Servicer, as appropriate.
4
SERVICING AGREEMENT
<PAGE>
"OPINION OF COUNSEL" means a written opinion of counsel who may, but need
not, be counsel to FIACC or the Servicer, which counsel shall be
acceptable to the Collateral Agent and the Deal Agent and which opinion of
counsel shall, in addition to the addressee specified, be addressed to the
Collateral Agent and the Deal Agent.
"PERSON" means an individual, a partnership, a corporation, (including a
business trust), a joint stock company, a trust, an unincorporated
association, a joint venture or other entity or a government or an agency
or political subdivision thereof.
"PRECOMPUTED RECEIVABLE" means any Receivable under which the portion of a
payment allocable to earned interest (which may be referred to in the
Receivable as an add-on finance charge) and the portion allocable to the
Amount Financed is determined according to the sum of periodic balances or
the sum of monthly balances or any equivalent method of calculating
monthly actuarial receivables.
"PURCHASE AGREEMENT" means the agreement dated as of January 1, 1998
relating to the purchase by FIACC from First Investors of the Receivables,
as the same may be amended, modified and supplemented from time to time in
accordance with the terms thereof and of the Security Agreement, but only
with the written consent of the Collateral Agent.
"PURCHASE AMOUNT" means the amount, as of an Ending Date, required to
prepay in full the respective Receivable under the terms thereof including
interest to the end of the month of purchase. In the event a Receivable is
repurchased by First Investors from FIACC, the Purchase Amount shall
include any out-of-pocket expenses which are otherwise reimbursable
hereunder.
"PURCHASED RECEIVABLE" means a Receivable purchased as of the respective
Ending Date by the Servicer pursuant to Section 4.07 or by First Investors
pursuant to Section 3.02.
"RECEIVABLE" means indebtedness owed to FIACC under a retail installment
sales contract pledged to secure the Facility pursuant to the Security
Agreement, whether constituting an account, chattel paper, instrument,
mortgage, deed of trust or general intangible, arising out of or in
connection with the sale of new or used cars, or new or used light trucks
including the rendering of services by the Dealer in
5
SERVICING AGREEMENT
<PAGE>
connection therewith, and includes the right of payment of any finance
charges and other obligations of the Obligor with respect thereto.
Notwithstanding the foregoing, once the Collateral Agent has released its
security interest in a Receivable and FIACC shall have given notice
thereof to the Servicer pursuant to Section 3.03, it shall no longer
constitute a Receivable hereunder.
"RECEIVABLE FILES" means the documents specified in Section 3.04.
"SCHEDULED PAYMENTS" on a Precomputed Receivable means that portion of the
payment required to be made by the Obligor during the respective
Collection Period sufficient to amortize the principal balance over the
term of the Receivable and to provide interest at the APR.
"SECURITY AGREEMENT" means the Security Agreement dated January 1, 1998
among FIACC, the Collateral Agent and First Investors, as the same may be
amended, modified and supplemented from time to time in accordance with
the terms thereof.
"SERVICER" means General Electric Capital Corporation as the servicer of
the Receivables, and each successor to General Electric Capital
Corporation (in the same capacity) approved by the Collateral Agent in
writing pursuant to Section 7.03 or 8.03.
"SERVICER EVENT OF DEFAULT" means an event specified in Section 8.01.
"SERVICER'S CERTIFICATE" means a certificate completed and executed on
behalf of the Servicer by a Servicing Employee of the Servicer pursuant to
Section 4.09.
"SERVICING EMPLOYEE" means any employee of the Servicer authorized to
execute documents on behalf of the Servicer, involved in, or responsible
for, the administration and servicing of the Receivables whose name
appears on a list of servicing employees furnished to FIACC and the
Collateral Agent by the Servicer, as such list may from time to time be
amended.
"SERVICING FEE" means the fee payable to the Servicer for services
rendered during the respective Collection Period, determined pursuant to
Section 4.08.
6
SERVICING AGREEMENT
<PAGE>
"SIMPLE INTEREST METHOD" means the method of allocating a fixed level
payment to principal and interest, pursuant to which the portion of such
payment that is allocated to interest is equal to the product of the fixed
rate of interest multiplied by the unpaid principal balance multiplied by
the period of time elapsed since the preceding payment of interest was
made.
"SIMPLE INTEREST RECEIVABLE" means any Receivable under which the portion
of a payment allocable to interest and the portion allocable to principal
is determined in accordance with the Simple Interest Method.
"STATE" means any state or commonwealth of the United States of
America, or the District of Columbia.
"SUB-SERVICER" means any Person appointed by the Servicer as a
sub-servicer pursuant to Section 4.12.
"UCC" means the Uniform Commercial Code as in effect from time to time in
the States of New York and Texas.
"VSI INSURANCE" means the blanket collateral protection insurance policy
or policies of insurance underwritten by Agricultural Excess and Surplus
Insurance Company covering each of the installment sales contracts held by
FIACC, including the Receivables, in the form attached hereto as Exhibit
"A".
SECTION 2.02. USAGE OF TERMS.
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
genders; references to "writing" include printing, typing, lithography, and
other means of reproducing words in a visible form; references to agreements and
other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation."
7
SERVICING AGREEMENT
<PAGE>
ARTICLE III
THE RECEIVABLES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF FIACC.
FIACC makes the following representations and warranties as to
the Receivables on which the Servicer may rely in accepting the responsibilities
of Servicer hereunder and on which the Collateral Agent may also rely. Such
representations and warranties speak (i) as of the execution and delivery of
this Agreement, but shall survive such execution and delivery, and (ii) as of
the Effective Time of the sale of each Receivable to FIACC under the Purchase
Agreement.
(i) CHARACTERISTICS OF RECEIVABLES. Each Receivable (a) shall have
been originated in the United States of America, shall have been fully and
properly executed by the parties thereto, shall have been purchased by
FIACC from First Investors and shall have been validly assigned to FIACC;
(b) shall have created a valid, subsisting and enforceable first priority
security interest in favor of First Investors in the Financed Vehicle,
which security interest has been assigned by First Investors to FIACC, (c)
shall contain customary and enforceable provisions such that the rights
and remedies of the holder thereof shall be adequate for realization
against the collateral of the benefits of the security, (d) shall provide
for level monthly payments (provided that the payment in the first or last
month in the life of the Receivable may be different from the level
payment) that fully amortize the Amount Financed by maturity and yield
interest at the Annual Percentage Rate, (e) is an "Eligible Receivable" as
defined in the Security Agreement, and (f) in the case of a Precomputed
Receivable, shall provide for, in the event that such contract is prepaid,
a prepayment that fully pays the principal balance and includes a full
month's interest, in the month of prepayment, at the Annual Percentage
Rate.
(ii) COMPLIANCE WITH LAW. Each Receivable and the sale of the
Financed Vehicle complies with all requirements of applicable federal,
State, and local laws, and regulations thereunder, including, without
limitation, usury laws, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Fair Debt
Collection-Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and
Z, the Texas Consumer Credit Code and State adaptations of the National
Consumer Act and of the Uniform
8
SERVICING AGREEMENT
<PAGE>
Consumer Credit Code, and other consumer credit laws and equal credit
opportunity and disclosure laws.
(iii) BINDING OBLIGATION. Each Receivable shall represent the
genuine, legal, valid, and binding payment obligation in writing of the
Obligor, enforceable by the holder thereof in accordance with its terms.
(iv) NO GOVERNMENT OBLIGOR. None of the Receivables shall be due
from the United States of America or any State or from any agency,
department, or instrumentality of the United States of America or any
State.
(v) SECURITY INTEREST IN FINANCED VEHICLE. Immediately prior to the
sale, assignment, and transfer thereof under the Purchase Agreement, each
Receivable shall be secured by a validly perfected first priority Lien and
security interest in the Financed Vehicle in favor of First Investors as
secured party or all necessary and appropriate actions shall have been
commenced that would result in the valid perfection of a first priority
security interest in the Financed Vehicle in favor of First Investors as
secured party.
(vi) RECEIVABLES IN FORCE. No Receivable shall have been satisfied,
subordinated, or rescinded, nor shall any Financed Vehicle have been
released from the lien granted by the related Receivable in whole or in
part.
(vii) NO WAIVER. No provision of a Receivable shall have been
waived.
(viii) NO AMENDMENTS. No Receivable shall have been amended such
that the number of the Obligor's Scheduled Payments in the case of a
Precomputed Receivable or the number of originally scheduled due dates in
the case of a Simple Interest Receivable shall have been increased.
(ix) NO DEFENSES. No right of rescission, cancellation, claim, set
off, counterclaim, or defense shall have been asserted or threatened with
respect to any Receivable, nor does any Obligor have any right or
rescission or cancellation, claim, defense, set off or counterclaim of any
kind with respect to any Receivable.
(x) NO LIENS. To the best of FIACC's knowledge, no liens or claims
shall have been filed for work, labor, or materials relating to a Financed
Vehicle that shall be liens
9
SERVICING AGREEMENT
<PAGE>
prior to, or equal or coordinate with, the security interest in the
Financed Vehicle granted by the Obligor.
(xi) NO DEFAULT. Except for payment delinquencies permitted for
Eligible Receivables as defined in the Security Agreement, no default,
breach, violation, or event permitting acceleration under the terms of
such Receivable shall have occurred; and no continuing condition that with
notice or the lapse of time would constitute a default, breach, violation
or event permitting acceleration under the terms of such Receivable shall
have arisen; and FIACC shall not waive any of the foregoing.
(xii) INSURANCE. First Investors, in accordance with its customary
procedures, shall have determined that the Obligor has obtained or agreed
to obtain physical damage insurance.
(xiii) TITLE. It is the intention of FIACC that each transfer and
assignment contemplated by the Purchase Agreement constitute a sale of the
Receivables from First Investors to FIACC and that the beneficial interest
in and title to the Receivables shall not be part of the debtor's estate
in the event of the filing of a bankruptcy petition by or against First
Investors under any bankruptcy law. No Receivable has been sold,
transferred, assigned or pledged by First Investors or FIACC to any Person
other than the pledge to the Collateral Agent pursuant to the Security
Agreement. FIACC has good and marketable title to each Receivable free and
clear of all Liens, encumbrances, security interests, and rights of others
except for the security interest of the Collateral Agent under the
Security Agreement.
(xiv) LAWFUL ASSIGNMENT. No Receivable shall have been originated
in, or shall be subject to the laws of, any jurisdiction under which the
sale, transfer, and assignment of such Receivable from First Investors to
FIACC under the Purchase Agreement, or the pledge of such Receivable by
FIACC to the Collateral Agent under the Security Agreement, shall be
unlawful, void, or voidable.
(xv) ALL FILINGS MADE. All filings (including, without limitation,
UCC filings) necessary in any jurisdiction to give the Collateral Agent a
first perfected security interest in each Receivable shall have been made
as of the relevant Effective Time.
10
SERVICING AGREEMENT
<PAGE>
(xvi) ONE ORIGINAL. There shall be only one original executed copy
of each Receivable, which shall be delivered to the Servicer in accordance
with Section 3.03.
(xvii) CHATTEL PAPER. Each Receivable constitutes "chattel paper"
under the UCC.
(xviii) MATURITY. Each Receivable shall have an original maturity of
not more than 60 months.
(xix) LOCATION OF OFFICE. The principal executive office of FIACC is
located in Houston, Texas.
(xx) AGENT FOR SERVICE. The agent for service for FIACC shall be CT
Corporation System, 811 Dallas Avenue, Houston, Texas 77002.
(xxi) NO INSOLVENT OBLIGORS. As of the Effective Time with respect
to any Receivable, no Obligor on such Receivable is shown on the
Receivable Files to be the subject of a bankruptcy proceeding.
SECTION 3.02. REPURCHASE UPON BREACH.
FIACC and the Servicer shall each promptly inform the other, in writing,
with a copy to the Collateral Agent, upon the discovery of any breach of FIACC's
representations and warranties made pursuant to Section 3.01. Unless the breach
shall have been cured by the second Ending Date following such written notice,
FIACC shall exercise its rights under the Purchase Agreement to cause First
Investors to repurchase any Receivable materially and adversely affected by the
breach. FIACC shall remit the Purchase Amount, in the manner specified in
Section 5.04. For purposes of this Section 3.02, the Purchase Amount of a
Receivable which is not consistent with the warranty pursuant to Section
3.01(i)(d) or (f) shall include such additional amount as shall be necessary to
provide the full amount of interest as contemplated therein. The sole remedy of
the Servicer with respect to a breach of any representation and warranty
pursuant to Section 3.01 shall be to require FIACC to enforce First Investors'
obligation to FIACC to repurchase such Receivables pursuant to the Purchase
Agreement.
SECTION 3.03. DESIGNATION AND REMOVAL OF RECEIVABLES.
Prior to the transfer by FIACC of a security interest in Receivables to
the Collateral Agent pursuant to the Security Agreement, FIACC shall give
written notice of such transfer to the Servicer (i) identifying all such
Receivables, and (ii) specifying
11
SERVICING AGREEMENT
<PAGE>
the date on which such transfer is to be effected. On or prior to such date, the
Servicer shall clearly and unambiguously mark all computer tapes, files and
records to indicate that such security interest has been transferred to the
Collateral Agent as of the indicated date.
In the event that any Receivable should cease to be a Receivable by reason
of the release of the security interest of the Collateral Agent therein, FIACC
shall promptly give notice thereof to the Servicer and the Collateral Agent (i)
identifying such Receivable, and (ii) specifying the date as of which the same
shall cease to be a Receivable for purposes of this Agreement. The Servicer
shall promptly modify its computer tapes, files and records accordingly.
SECTION 3.04. CUSTODY OF RECEIVABLE FILES.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, FIACC, upon the execution and delivery of this Agreement,
hereby revocably appoints the Servicer, and the Servicer hereby accepts such
appointment, to act as the agent of the Collateral Agent as custodian (such
appointment being subject to revocation to the extent provided in Section 3.08)
of the following documents or instruments which shall be delivered to the
Servicer, as custodian for the Collateral Agent, with respect to each
Receivable:
1. Agreement of Obligor to provide physical damage insurance
or binder
2. Original application for title with lien of First Investors
disclosed therein which has been presented, together with tender of filing fee,
to designated agent of the Texas Department of Transportation in accordance with
Section 501.113 of Texas Certificate of Title Act (or equivalent documents under
other applicable state laws)
a. White Slip or original certificate of title (or
other title documents under applicable state law)
b. Letter of Guaranty
3. Original sales contract/security agreement evidencing the Receivable
signed by Obligor and the original of any assumption agreement or
any modification, extension or refinancing agreement
12
SERVICING AGREEMENT
<PAGE>
4. Factory invoice (new car) or loan to value evaluation (used car)
5. Original credit application (signed by Obligor)
6. Credit Bureau reports
7. Insurance score sheet
8. GAP and VSI insurance certificate
9. Credit life & disability insurance certificate, application or
policy to the extent obtained by the Obligor
10. (a) Assignment and Power of Attorney, transferring title from First
Investors to FIACC
(b) Power of Attorney in favor of Servicer from First
Investors
11. Equifax report
12. Any and all other documents that Servicer shall maintain on file, in
accordance with customary servicing practices, pertaining to such
Receivable or the related Obligor or Financed Vehicle.
The Servicer shall not be responsible for the custody and maintenance of
any of the foregoing documents that have not been delivered to it or obtained by
the Servicer in the course of servicing the Receivables pursuant to this
Agreement.
SECTION 3.05. DUTIES OF SERVICER AS CUSTODIAN.
(a) SAFEKEEPING. The Servicer shall hold the Receivable Files
on behalf of the Collateral Agent and maintain such accounts,
records, and computer systems pertaining to each Receivable File in
a manner that is consistent with customary servicing practices. In
performing its duties as custodian the Servicer shall act with
reasonable care, using that degree of skill and attention that the
Servicer exercises with respect to the receivable files relating to
comparable automotive receivables that the Servicer services for
itself or others. The Servicer shall promptly report to the
Collateral Agent any material failure on its part to hold the
Receivable Files and maintain its accounts, records,
13
SERVICING AGREEMENT
<PAGE>
and computer systems as herein provided and promptly take
appropriate action to remedy any such failure, it being understood
that the Servicer shall have no responsibility with respect to
Receivable Files (or any portion thereof) not delivered to the
Servicer. Nothing herein shall be deemed to require an initial
review or any periodic review by the Collateral Agent of the
Receivable Files.
(b) MAINTENANCE OF AND ACCESS TO RECORDS. The Servicer shall
maintain each Receivable File at one of its offices specified in
Exhibit "B" to this Agreement, or at such other office in the United
States as shall be specified to FIACC and the Collateral Agent by
written notice delivered promptly, but in no event later than 20
days after any change in location. The Servicer may temporarily move
individual Receivable Files or any portion thereof without notice as
necessary to conduct collection and other servicing activities in
accordance with its customary practices and procedures. The Servicer
shall make available to FIACC and the Collateral Agent a list of
locations of the Receivable Files, and the related accounts, records
and computer systems maintained by the Servicer at such times as
FIACC or the Collateral Agent shall reasonably request.
(c) RELEASE OF DOCUMENTS. Upon written instruction from the
Collateral Agent, the Servicer shall release any Receivable File to
the Collateral Agent, the Collateral Agent's agent, or the
Collateral Agent's designee, as the case may be, at such place or
places as the Collateral Agent may designate, as soon as
practicable. The Servicer shall not be responsible for any
Receivable File so released until such time, if any, as it has been
returned to the Servicer.
SECTION 3.06. INSTRUCTIONS; AUTHORITY TO ACT.
To the extent that the Servicer is authorized or required under this
Agreement to act upon the instructions of the Collateral Agent with respect to
the custody of the Receivable Files, the Servicer shall be deemed to have
received proper instructions with respect to the Receivable Files upon its
receipt of written instructions signed by a Collateral Agent Officer.
14
SERVICING AGREEMENT
<PAGE>
SECTION 3.07. CUSTODIAN'S INDEMNIFICATION.
The Servicer as custodian shall indemnify FIACC, for any breach of its
obligations as custodian hereunder, to the extent specified in Section 7.02.
SECTION 3.08. EFFECTIVENESS AND TERMINATION.
The Servicer's appointment as custodian shall become effective as of the
date hereof and shall continue in full force and effect until such time as all
of the rights and obligations of the Servicer shall have been terminated in
accordance with the provisions of this Agreement.
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.01. DUTIES OF SERVICER.
The Servicer as agent for FIACC (to the extent provided herein) shall
manage, service, administer and make collections on the Receivables with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to automotive receivables that it services for itself or
others. The Servicer's duties shall include, to the extent specified herein,
collection and posting of payments, responding to inquiries of Obligors on such
Receivables, investigating delinquencies, sending payment coupons to Obligors,
accounting for collections, and furnishing monthly statements to FIACC and the
Collateral Agent as provided herein. Subject to the provisions of Section 4.02,
the Servicer shall follow its customary standards, policies, and procedures in
performing its duties as Servicer. Without limiting the generality of the
foregoing, and subject to the provisions of Section 4.06, the Servicer is
authorized and empowered to execute and deliver, on behalf of itself or FIACC
any and all instruments of satisfaction or cancellation, or partial or full
release or discharge, and all other comparable instruments, with respect to the
Financed Vehicles securing the Receivables. If the Servicer, in its sole
discretion, determines that it is necessary or desirable to commence a legal
proceeding to enforce a Receivable, the Servicer shall consult with FIACC to
determine whether to commence such a legal proceeding. If the Servicer and FIACC
agree to commence legal proceedings with respect to such Receivable, then (i)
the costs and expenses (including, without limitation, any legal fees) incurred
in connection with such legal proceeding shall be borne by FIACC, and (ii) the
Servicer may reimburse itself for its reasonable out-of-pocket expenses incurred
in connection with
15
SERVICING AGREEMENT
<PAGE>
such legal proceedings prior to depositing any recoveries received by the
Servicer from such legal proceeding in the Collection Account pursuant to
Section 5.02. FIACC shall furnish the Servicer with any powers of attorney,
including any requisite power of attorney from First Investors, and any other
documents reasonably necessary or appropriate to enable the Servicer to carry
out its servicing and administrative duties hereunder.
SECTION 4.02. COLLECTION OF RECEIVABLE PAYMENTS.
The Servicer shall make reasonable efforts to collect all payments called
for under the terms and provisions of the Receivables as and when the same shall
become due and shall follow such collection procedures as it follows with
respect to comparable automotive receivables that it services for itself or
others. The Servicer may in its discretion grant extensions, rebates or
adjustments on a Receivable or waive any late payment charge or any other fees
that may be collected in the ordinary course of servicing a Receivable
consistent with its customary servicing procedures. The foregoing
notwithstanding, no extension of a monthly payment shall be granted with respect
to a Receivable unless the first six consecutive monthly payments were made in
accordance with the terms of such Receivable, and in no event (i) shall more
than two extensions of monthly payments with respect to a Receivable be granted
during any 12-month period, or (ii) shall the total extensions of monthly
payments granted over the term of a Receivable exceed one such extension for
every 12 months in the stated term of such Receivable. Upon the written
instructions of FIACC, the Servicer shall take the necessary action to reduce
either the outstanding principal balance or the Annual Percentage Rate of any
Receivable as specified in such instructions.
SECTION 4.03. REALIZATION UPON RECEIVABLES.
The Servicer shall use its reasonable best efforts, consistent with its
customary servicing procedures, to repossess or otherwise convert the ownership
of the Financed Vehicle securing any Receivable as to which the Servicer shall
have determined that no satisfactory arrangement can be made for collection of
payments, and in the case of the repossession of Financed Vehicles, the Servicer
shall use its best efforts to remarket the repossessed Financed Vehicles in the
same manner that the Servicer remarkets its own financed vehicles. The foregoing
shall be subject to the provision that, in any case in which the Financed
Vehicle shall have suffered damage, the Servicer shall not expend funds in
connection with the repair or the repossession of such Financed Vehicle unless
it shall determine in good faith and in its
16
SERVICING AGREEMENT
<PAGE>
reasonable discretion that such repair and/or repossession will increase the
Liquidation Proceeds by an amount greater than the amount of such expenses;
provided, however, that the Servicer shall incur no liability hereunder if such
repair and/or possession does not, in fact, increase the Liquidation Proceeds by
an amount greater than the amount of such expenses. Notwithstanding any
provision of this Agreement to the contrary, the Servicer shall not be obligated
to institute any action for repossession through judicial proceedings unless it
shall determine in good faith and in its reasonable discretion that such action
would increase the Liquidation Proceeds by an amount greater than the amount of
expenses incurred by it in connection with such proceeding; provided, however,
that the Servicer shall incur no liability hereunder if such proceeding does
not, in fact, increase the Liquidation Proceeds by an amount greater than the
amount of expenses incurred by it in connection with such proceeding. The
Servicer may reimburse itself for its reasonable out-of-pocket expenses incurred
in connection with the repossession or disposition of a Financed Vehicle prior
to depositing any Liquidation Proceeds with respect thereto in the Collection
Account pursuant to Section 5.02.
With respect to any Receivable, the Obligor of which has filed bankruptcy,
if it is not referred by the Servicer to outside legal counsel the Servicer
shall be entitled to receive a one time fee of $250 in respect of such
Receivable, and, if it is so referred, the Servicer shall be entitled to
reimbursement of the fees and expenses of such counsel. The Servicer shall have
no obligation under the Agreement to take any action to realize upon any
recourse to Dealers.
SECTION 4.04. INSURANCE AND TITLE TRACKING.
The Servicer, in accordance with its customary servicing procedures, shall
monitor the contractual requirement that each Obligor shall maintain physical
damage insurance covering the Financed Vehicle as of the execution date of the
Receivable. The Servicer shall track the expirations and cancellations of
insurance policies required to be maintained by Obligors and shall send reminder
notices to Obligors whose insurance policies have expired and default letters to
Obligors who fail to obtain or maintain required coverages. The Servicer shall
notify the Collateral Agent and FIACC on a monthly basis of Obligors who have
failed to obtain or maintain such coverages. The Servicer may subcontract such
insurance services to a third party.
17
SERVICING AGREEMENT
<PAGE>
FIACC shall undertake to cause the proper Certificates of Title issued by
the Texas Department of Transportation, or the equivalent certificates or
registrations issued by the appropriate authorities of other States, if
applicable, to reflect FIACC (or First Investors) as the lienholder thereon with
respect to any Financed Vehicle covered by a Receivable. The Servicer shall
establish procedures to track and verify the receipt of proper Certificates of
Title issued by the Texas Department of Transportation, or the equivalent
certificates or registrations issued by the appropriate authorities of other
States if applicable, reflecting FIACC (or First Investors) as the lienholder
thereon with respect to any Financed Vehicle covered by a Receivable. In the
event that the Servicer does not receive such documentation with respect to any
Receivable, within 120 days after the Servicer enters such Receivable into its
tracking system, the Servicer shall promptly notify FIACC and the Collateral
Agent by delivery of a Notice of Title Discrepancy in the form attached hereto
as Exhibit "C". The Servicer shall have no obligations hereunder to cause any
such Certificate or Title or equivalent certificates to reflect FIACC (or First
Investors) as the lienholder thereon with respect to any Financed Vehicle
covered by a Receivable.
SECTION 4.05. MAINTENANCE OF SECURITY INTERESTS IN FINANCED
VEHICLES.
The Servicer shall, in accordance with its customary servicing procedures,
cooperate with FIACC in taking such steps as are necessary to maintain
perfection of the security interest created by each Receivable in the related
Financed Vehicle. FIACC hereby authorizes the Servicer to take such steps as are
necessary to reperfect such security interest on behalf of FIACC in the event of
the relocation of a Financed Vehicle or for any other reason. Without limiting
the foregoing, the Servicer shall take such steps as are necessary to assure
that any remarketing of repossessed Financed Vehicles under consignment
arrangements with dealers or other third parties are effected in such manner as
to assure that the priority of the security interest of FIACC therein is not
impaired.
Notwithstanding the foregoing or any other provision of this Agreement, the
Servicer shall have no obligation to effect any change in the notation of First
Investors as the lienholder on any title documents relating to the Financed
Vehicles or to cause any such title documents to be endorsed or delivered to
FIACC.
18
SERVICING AGREEMENT
<PAGE>
SECTION 4.06. COVENANTS OF SERVICER.
Except as may otherwise be required by any applicable law, rule,
regulation, order or decree, the Servicer shall not (i) impair FIACC's ownership
of the Receivables, or (ii) release the Financed Vehicle securing any such
Receivable from the security interest granted by such Receivable, in whole or in
part, except upon the expiration of twenty days following (a) payment in full by
the Obligor thereunder, (b) repossession, or (c) payment of final settlement
with a physical damage insurance carrier.
SECTION 4.07. PURCHASE OF RECEIVABLES UPON BREACH.
The Servicer and FIACC shall promptly inform the other, in writing (with a
copy to the Collateral Agent), upon the discovery of any breach of Section 4.06.
Unless the breach shall have been cured by the second Ending Date following such
discovery (or, at the Servicer's election, the first following Ending Date), the
Servicer shall purchase the related Receivable. In consideration of the purchase
of such Receivable, the Servicer shall remit the Purchase Amount in the manner
specified in Section 5.04. The sole remedy of FIACC with respect to a breach of
Section 4.06 shall be to require the Servicer to purchase Receivables pursuant
to this Section 4.07.
SECTION 4.08. SERVICING COMPENSATION.
The Servicing Fee with respect to each Collection Period, which shall be
withheld by the Servicer from collections on Receivables prior to remittance to
the Collection Account as provided in Section 5.02, shall equal (i) $12.45 for
each Receivable being serviced by the Servicer as of the tenth day of such
Collection Period, plus (ii) $13.25 for each new Receivable which is initially
received by the Servicer for servicing during such Collection Period, plus (iii)
$75.00 for each Financed Vehicle repossessed and remarketed.
SECTION 4.09. SERVICER'S MONTHLY REPORTS.
On or before the tenth day after each Ending Date, the Servicer shall
deliver to FIACC and the Collateral Agent the following reports with respect to
the preceding Collection Period: (i) a Servicer's Certificate substantially in
the form of Exhibit "D" hereto (on which the "principal portion of amount
collected", the "interest portion of amount collected" and the "aggregate
principal balance of the Receivables as of the Ending Date" shall be computed in
accordance with the Simple Interest Method), (ii) a Trial Balance and
Collections Report substantially in the form of Exhibit "D-1" hereto, and (iii)
a Monthly Delinquency Report substantially in the form of Exhibit "D-2" hereto.
Such reports
19
SERVICING AGREEMENT
<PAGE>
shall be presumed correct and accurate unless, within thirty days after receipt
thereof, FIACC or the Collateral Agent delivers to the Servicer by registered or
certified mail, written objection specifying the error or errors contained in
such reports, in which event the Servicer's sole liability shall be to make
appropriate adjustments correcting such error.
SECTION 4.10. NOTICE OF DEFAULT.
The Servicer shall deliver to FIACC and the Collateral Agent promptly
after having obtained knowledge thereof, but in no event later than two business
Days thereafter, written notice in an Officer's Certificate of any event which
with the giving of notice or lapse of time, or both, would become a Servicer
Event of Default under Section 8.01. FIACC shall deliver to the Collateral Agent
and the Servicer, promptly after having obtained knowledge thereof, but in no
event later than two Business Days thereafter, written notice in an Officer's
Certificate of any event which with the giving of notice or lapse of time, or
both, would become a FIACC Event of Default under Section 8.02.
SECTION 4.11. SERVICER EXPENSES.
Except as otherwise reimbursable hereunder, the Servicer shall be required
to pay all expenses incurred by it in connection with its activities hereunder,
including taxes imposed on the Servicer.
SECTION 4.12. APPOINTMENT OF SUB-SERVICER.
The Servicer may at any time appoint a Sub-servicer to perform any of the
duties or obligations of the Servicer hereunder; provided, however, that such
appointment shall not relieve the Servicer of its responsibility with respect to
such duties and obligations. All Sub-servicing arrangements will be upon such
terms and conditions as are not inconsistent with this Agreement. The fees and
expenses of the Sub-servicer shall be as agreed between the Servicer and its
Sub-servicer from time to time and FIACC shall have no responsibility therefor.
SECTION 4.13. PROCESSING OF CLAIMS UNDER CREDIT INSURANCE.
The Servicer will administer the filings of claims under the policies of
Credit Insurance by filing the appropriate notices related to claims as well as
claims with the respective carriers or their authorized agents all in accordance
with the terms of such policies. The Servicer shall use reasonable efforts to
file such notices and claims on a timely basis after obtaining knowledge of the
events giving rise to such claims, subject to the servicing
20
SERVICING AGREEMENT
<PAGE>
standard set forth in Section 4.01; provided, however, that the Servicer shall
have no responsibility in connection with the resolution of any dispute that may
arise between FIACC and such carriers with respect to the settlement of any such
claims.
The Servicer shall not be required to pay any premiums or, other than
administering the filing of claims and performing reporting requirements
specified in the insurance policies, in connection with filing such claims
perform any obligations of the named insured under any of the foregoing
insurance policies, and shall not be required to institute any litigation or
proceeding or otherwise enforce the obligations of any insurer thereunder.
Notwithstanding any provision to the contrary in this Agreement, the Servicer
shall not be responsible to FIACC (i) for any act, or omission to act, done in
order to comply with the requirements or satisfy any provisions of any of the
foregoing insurance policies or (ii) for any act, absent willful misconduct or
gross negligence, or omission to act done in compliance with this Agreement. In
the case of any inconsistency between this Agreement and the terms of any
insurance policy, the Servicer shall comply with the latter.
SECTION 4.14. AGENCY STATUS.
The parties hereto agree and acknowledge that to the extent General
Electric Capital Corporation is named in any title document, UCC financing or
continuation statement, insurance policy, Receivable document or court document
as a lienholder, secured party, loss payee, owner of a Financed Vehicle or
agent, or in another similar capacity, General Electric Capital Corporation is
acting in such capacity as agent of FIACC for the sole purpose of facilitating
the servicing of the Receivables and has no equitable interest in the
Receivables, except such as it may have by virtue of its purchase of a
Receivable pursuant to this Agreement.
SECTION 4.15. INSPECTION.
At the request of FIACC or the Collateral Agent and upon reasonable
notice, the Servicer shall make available to authorized representatives of FIACC
or the Collateral Agent for inspection and copying, during regular business
hours, the computer disks, tapes or other records reflecting the payment status
and history, and related information maintained by the Servicer in accordance
with its customary servicing procedures, with respect to the Receivables.
21
SERVICING AGREEMENT
<PAGE>
ARTICLE V
DISTRIBUTIONS
SECTION 5.01. COLLECTION ACCOUNT.
FIACC represents to the Servicer that, contemporaneously with the execution
of this Agreement, the Collateral Agent shall establish the Collection Account
in accordance with the requirements of Section 4.1(b) of the Security Agreement.
SECTION 5.02. COLLECTIONS.
The Servicer shall remit, within ten Business Days (but in no event more
than 14 calendar days) after each Ending Date, to the Collection Account all
payments by or on behalf of the Obligors (other than Purchased Receivables), and
all Liquidation Proceeds, both as collected during the Collection Period. The
Servicer shall remit such collections to the Collection Account in immediately
available funds and from the time of receipt of any of the amounts specified in
this paragraph until deposit thereof in the Collection Account, the Servicer
shall not be required to segregate such amounts from other funds held by it.
Except as otherwise provided in Section 5.04, the foregoing requirements for
deposit in the Collection Account shall be exclusive, it being understood and
agreed that, without limiting the generality of the foregoing, the Servicer
shall withhold from the Collection Account, (a) the Servicing Fee as provided in
Section 4.08 and (b) any reimbursable expenses incurred by the Servicer in
repossessing a Financed Vehicle pursuant to Section 4.03 or commencing a legal
proceeding to enforce a Receivable pursuant to Section 4.01. Moreover, the
Servicer may instruct the Collateral Agent to withdraw from the Collection
Account and deliver to the Servicer (a) amounts deposited in error, and (b)
chargebacks attributable to errors in posting, returned checks, or rights of
offset for amounts that should not have been paid or that must be refunded as a
result of a successful claim or defense under bankruptcy or similar laws.
SECTION 5.03. APPLICATION OF COLLECTIONS.
All collections for the Collection Period shall be applied by the Servicer
as follows:
With respect to each Receivable (other than a Purchased Receivable),
payments by or on behalf of the Obligor shall be applied first, in the case of
Precomputed Receivables, to the Scheduled Payment and, in the case of Simple
Interest Receivables, to be applied to interest and principal in accordance with
the
22
SERVICING AGREEMENT
<PAGE>
Simple Interest Method. With respect to Precomputed Receivables,
any remaining excess shall be applied to prepay the Precomputed
Receivable.
SECTION 5.04. ADDITIONAL DEPOSITS.
The Servicer and FIACC, as the case may be, shall deposit or cause to be
deposited in the Collection Account the aggregate Purchase Amount required to be
paid by it pursuant to Section 4.07 or 3.02, respectively, with respect to
Purchased Receivables. All such deposits shall be made in immediately available
funds on the Business Day next following the purchase of the Purchased
Receivable.
SECTION 5.05. NET DEPOSITS.
As an administrative convenience, the Servicer will be permitted to make
the deposit of collections on the Receivables for or with respect to the
Collection Period net of distributions to be made to the Servicer, in accordance
with the express terms hereof, with respect to the Collection Period or amounts
payable to or withdrawable by the Servicer pursuant to this Agreement. The
Servicer, however, will account to FIACC and the Collateral Agent as if all
deposits, distributions and transfers were made individually.
ARTICLE VI
FIACC
SECTION 6.01. REPRESENTATIONS OF FIACC.
FIACC makes the following representations on which the Servicer may rely
in accepting the responsibilities of Servicer hereunder and on which the
Collateral Agent may also rely. The representations speak as of the execution
and delivery of the Agreement and shall survive such execution and delivery.
(i) ORGANIZATION AND GOOD STANDING. FIACC is duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority to own its properties and to conduct its
business as such properties shall be currently owned and such business is
presently conducted, and had at all relevant times, and has, power, authority,
and legal right to acquire and own the Receivables.
23
SERVICING AGREEMENT
<PAGE>
(ii) DUE QUALIFICATION. FIACC is duly qualified to do business as a
foreign corporation and is in good standing under the laws of, and shall have
obtained all necessary licenses and approvals in, all jurisdictions in which the
ownership or lease of property or the conduct of its business shall require such
qualifications, licenses or approvals.
(iii) POWER AND AUTHORITY. FIACC has the power and authority to execute
and deliver this Agreement and to carry out its terms, and the execution,
delivery, and performance of this Agreement has been duly authorized by FIACC by
all necessary corporate action.
(iv) BINDING OBLIGATION. This Agreement constitutes a legal, valid, and
binding obligation of FIACC enforceable in accordance with its terms, subject as
to the enforcement of remedies (x) to applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws affecting creditors' rights
generally and (y) to general principles of equity (regardless of whether the
enforcement of such remedies is considered in a proceeding in equity or at law).
(v) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof will not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the certificate of
incorporation or bylaws of FIACC, or any indenture, agreement, or other
instrument to which FIACC is a party or by which it shall be bound; nor result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such indenture, agreement, or other instrument (other than as
contemplated by this Agreement); nor violate any law or any order, rule, or
regulation applicable to FIACC of any court or of any federal or state
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over FIACC or its properties and no consent, approval,
authorization, order, registration or qualification of or with any court,
regulatory authority or other governmental agency or body is required for the
execution and delivery of this Agreement, or the consummation of the
transactions contemplated thereby.
(vi) NO PROCEEDINGS. There are no proceedings or investigations pending,
or, to FIACC's best knowledge, threatened, before any court, regulatory body,
administrative agency, or other governmental instrumentality having jurisdiction
over FIACC or its properties: A) asserting the invalidity of this Agreement; B)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement, or C) seeking any determination or ruling that might materially
and adversely affect the performance
24
SERVICING AGREEMENT
<PAGE>
by FIACC of its obligations under, or the validity or
enforceability, of this Agreement.
SECTION 6.02. LIABILITY OF FIACC; INDEMNITIES.
FIACC shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by FIACC under this Agreement.
(i) FIACC shall indemnify, defend and hold harmless the Servicer and its
respective officers, directors, agents and employees from and against any taxes
that may at any time be asserted against the Servicer with respect to the
Receivables, including any sales, gross receipts, general corporation, tangible
personal property, privilege, or license taxes and costs and expenses in
defending against the same.
(ii) FIACC shall indemnify, defend and hold harmless the Servicer, its
parents, subsidiaries, affiliates and the directors, officers, employees,
partners, agents, successors and assigns of each of such companies from and
against any claim, action, loss, damage, penalty, fine, cost, expense or other
liability, including all court costs and reasonable attorneys' fees incurred in
enforcing this indemnity or defending any claim or action, directly or
indirectly resulting from or arising out of the transactions contemplated by
this Agreement or FIACC's performance of its duties under this Agreement,
including without limitation, any misrepresentation or breached warranty under
this Agreement.
(iii) FIACC shall indemnify, defend and hold harmless the Servicer and any
director, officer, employee or agent of the Servicer from and against any and
all costs, expenses, losses, claims, damages and liabilities incurred in
connection with any legal action or proceeding relating to this Agreement, other
than any such cost, expense, loss, claim, damage or liability for which the
Servicer provides an indemnity pursuant to Section 7.02 or for which the
Servicer is otherwise entitled to reimbursement under this Agreement.
Indemnification and rights of reimbursement under this Section 6.02 shall
survive the termination of this Agreement and shall include, without limitation,
reasonable fees and expenses of counsel and any other expenses incurred in
connection with preparing for, investigating or defending any such claims,
damages, losses or liabilities, which FIACC shall reimburse as incurred by the
indemnified party. If FIACC shall have made any indemnity payments pursuant to
this Section and the recipient thereafter
25
SERVICING AGREEMENT
<PAGE>
shall collect any of such amounts from others, the recipient shall repay such
amounts to FIACC, without interest.
SECTION 6.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF FIACC.
Any Person (a) into which FIACC may be merged or consolidated, (b) which
may result from any merger or consolidation to which FIACC shall be a party, or
(c) which may succeed to the properties and assets of FIACC substantially as a
whole, which Person in any of the foregoing cases executes an agreement or
assumption to perform every obligation of FIACC under this Agreement, shall be
the successor to FIACC hereunder without the execution or filing of any document
or any further act by any of the parties to this Agreement; provided, however,
that (i) the Collateral Agent has consented in writing to such consolidation,
merger or succession, (ii) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Section 3.01 shall have been
breached and no FIACC Event of Default, and no event that, after notice or lapse
of time, or both, would become a FIACC Event of Default shall have happened and
be continuing, (iii) FIACC shall have delivered to the Collateral Agent an
Officer's Certificate and an Opinion of Counsel, addressed to the Collateral
Agent , each stating that such consolidation, merger, or succession and such
agreement or assumption comply with this Section 6.03 and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with and (iv) FIACC shall have delivered to the Collateral
Agent an Opinion of Counsel, addressed to the Collateral Agent, either (A)
stating that, in the opinion of such counsel, all financing statements and
continuation statements and amendments thereto have been executed and filed that
are necessary fully to preserve and protect the security interest of the
Collateral Agent in the Receivables, and reciting the details of such filings,
or (B) stating that in the opinion of such Counsel, no such action shall be
necessary to preserve and protect such interest. Notwithstanding anything herein
to the contrary, the execution of the foregoing agreement or assumption and
compliance with clauses (i), (ii), (iii) and (iv) above shall be conditions to
the consummation of the transactions referred to in clauses (a), (b) or (c)
above.
SECTION 6.04. LIMITATION ON LIABILITY OF FIACC AND OTHERS.
FIACC and any director or officer or employee or agent of FIACC may rely in
good faith on the advice of counsel or on any document of any kind, PRIMA FACIE
properly executed and submitted by any Person respecting any matters arising
hereunder. FIACC shall
26
SERVICING AGREEMENT
<PAGE>
not be under any obligation to appear in, prosecute, or defend any legal action
that shall not be incidental to its obligations under this Agreement, and that
in its opinion may involve it in any expense or liability.
ARTICLE VII
THE SERVICER
SECTION 7.01. REPRESENTATIONS OF SERVICER.
The Servicer makes the following representations to FIACC as of the
execution and delivery of this Agreement, which representations shall survive
such execution and delivery:
(i) ORGANIZATION AND GOOD STANDING. The Servicer is duly organized and
validly existing as a corporation in good standing under the laws of the state
of its incorporation, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and shall have, power,
authority, and legal right to service the Receivables and to hold the Receivable
Files as custodian as provided herein.
(ii) DUE QUALIFICATION. The Servicer is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary material
licenses and approvals in all jurisdictions in which the servicing of the
Receivables as required by this Agreement shall require such qualifications.
(iii) POWER AND AUTHORITY. The Servicer shall have the power and authority
to execute and deliver this Agreement and to carry out its terms; and the
execution, delivery, and performance of this Agreement shall have been duly
authorized by the Servicer by all necessary corporate action.
(iv) BINDING OBLIGATION. This Agreement shall constitute a legal, valid,
and binding obligation of the Servicer enforceable in accordance with its terms
subject as to the enforcement of remedies (x) to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights generally and (y) to general principles of equity (regardless
of whether the enforcement of such remedies is considered in a proceeding in
equity or at law).
(v) NO VIOLATION. The consummation by the Servicer of the transactions
contemplated by this Agreement and the fulfillment by the Servicer of the terms
hereof shall not conflict with, result in
27
SERVICING AGREEMENT
<PAGE>
any breach of any of the terms and provisions of, nor constitute (with or
without notice or lapse of time) a material default under, the articles of
incorporation or bylaws of the Servicer, or any indenture, agreement, or other
instrument to which the Servicer is a party or by which it shall be bound; nor
violate any law or any order, rule, or regulation applicable to the Servicer of
any court or of any federal or state regulatory body, administrative agency, or
other governmental instrumentality having jurisdiction over the Servicer or its
properties, which conflict, breach, default or violation would have a material
and adverse affect on the ability of the Servicer to perform its obligations
hereunder.
(vi) NO PROCEEDINGS. There are no proceedings or investigations relating
to the Servicer pending, or to the Servicer's knowledge, threatened, before any
court, regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Servicer or its properties: A)
asserting the invalidity of this Agreement, B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, or C)
seeking any determination or ruling that might materially and adversely affect
the performance by the Servicer of its obligations under, or the validity or
enforceability of, this Agreement.
SECTION 7.02. INDEMNITIES OF SERVICER.
The Servicer shall indemnify, defend, and hold harmless FIACC, its
directors, officers, employees, agents, successors and assigns, respectively,
from and against any claim, action, loss, damage, penalty, fine, cost, expense
or other liability, including all court costs and reasonable attorneys' fees
incurred in enforcing this indemnity or defending any claim or action, directly
resulting from any breach of any representation or warranty made by the Servicer
in this Agreement or directly resulting from the Servicer's willful misconduct,
bad faith or gross negligence. The right of indemnification provided hereby
shall survive the termination of this Agreement. If the Servicer shall have made
any indemnity payments pursuant to this Section and the recipient thereafter
collects any of such amounts from others, the recipient shall promptly repay
such amounts to the Servicer, without interest.
SECTION 7.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SERVICER.
Any Person (a) into which the Servicer may be merged or consolidated (b)
which may result from any merger or consolidation to which the Servicer shall be
a party, or (c) which may succeed to
28
SERVICING AGREEMENT
<PAGE>
the properties and assets of the Servicer substantially as a whole, which Person
executed an agreement of assumption to perform every obligation of the Servicer
hereunder, shall be the successor to the Servicer under this Agreement without
further act on the part of any of the parties to this Agreement; provided
however, that immediately after giving effect to such transaction, no Servicer
Event of Default specified in clauses (iii) or (iv) of Section 8.01, and no
event which, after notice or lapse of time, or both, would become such a
Servicer Event of Default shall have happened and be continuing.
SECTION 7.04. LIMITATION ON LIABILITY OF SERVICER AND OTHERS.
The Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically undertaken by the Servicer under this Agreement.
Neither the Servicer nor any of the directors or officers or employees or
agents of the Servicer shall be under any liability to FIACC, except as
expressly provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or any action taken in
good faith or for errors in judgment; provided, however, that this provision
shall not protect the Servicer or any such person against any liability that
would otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence in the performance of duties under this Agreement. The Servicer and
any director or officer or employee or agent of the Servicer may rely in good
faith on any document of any kind PRIMA FACIE properly executed and submitted by
any Person respecting any matters arising under this Agreement. The Servicer
shall not be liable for an error of judgment made in good faith by a Servicing
Employee, unless it shall be proved that the Servicer shall have been grossly
negligent in ascertaining the pertinent facts. The Servicer and any director,
officer, employee or agent of the Servicer may consult with counsel respecting
any matters arising under this Agreement and shall be protected in relying in
good faith on the advice of such counsel.
Except as expressly provided in this Agreement, the Servicer shall not be
under any obligation to appear in, prosecute, or defend any legal action that
shall not be incidental to its duties to service the Receivables in accordance
with this Agreement; provided, however, that the Servicer may undertake any
reasonable action that it may deem necessary or desirable in respect of this
Agreement and the rights and duties of the parties to this Agreement. In such
event, the reasonable legal expenses and costs of such action and any liability
resulting therefrom shall be
29
SERVICING AGREEMENT
<PAGE>
expenses, costs, and liabilities of FIACC and the Servicer shall be entitled to
be reimbursed therefor. Rights of reimbursement under this Section 7.04 shall
survive the termination of this Agreement.
ARTICLE VIII
DEFAULT
SECTION 8.01. SERVICER EVENTS OF DEFAULT.
If any one of the following events ("Servicer Events of Default") shall
occur and be continuing:
(i) Any failure by the Servicer to deposit or transfer into the Collection
Account any proceeds or payment, required to be so deposited or transferred
under the terms of this Agreement that shall continue unremedied for a period of
three Business Days after written notice of such failure is received by the
Servicer from FIACC or the Collateral Agent; or
(ii) Failure on the part of the Servicer duly to observe or to perform in
any material respect any other covenants or agreements of the Servicer set forth
in this Agreement, or the material breach by the Servicer or any of its
representations and warranties set forth in this Agreement, which failure or
breach shall (a) materially and adversely affect the rights of FIACC and (b)
continue unremedied for a period of 30 days after the date on which written
notice of such failure or breach, requiring the same to be remedied, shall have
been given to the Servicer by FIACC or the Collateral Agent; or
(iii) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver, or liquidator for the Servicer in any insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings, or for the winding up or liquidation of its affairs; or
(iv) The consent by the Servicer to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities, or similar proceedings of or relating to the Servicer or
of or relating substantially to all of its property; or the Servicer shall admit
in writing its inability to pay its debts generally as they become due, file a
petition to avail itself of any applicable insolvency or reorganization statute,
make an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
30
SERVICING AGREEMENT
<PAGE>
then, and in each and every case, so long as a Servicer Event of Default shall
not have been cured, FIACC may with the written consent of the Collateral Agent
and shall at the written direction of the Collateral Agent, terminate all of the
rights and obligations of the Servicer under this Agreement, subject to accrued
compensation, rights of reimbursement and the survival of indemnity and
limitation on liability provisions, by notice in writing to the Servicer sent by
certified mail, postage prepaid, or by hand delivery. Upon the Servicer's
receipt of notice of termination pursuant to this Section 8.01, the Servicer
shall continue to perform its functions as Servicer under this Agreement until
the earlier of (i) the appointment of a successor Servicer pursuant to Section
8.03, and (ii) 45 days from its receipt of such notice of termination.
SECTION 8.02. FIACC EVENTS OF DEFAULT.
If any one of the following events ("FIACC Events of Default") shall occur
and be continuing:
(i) FIACC fails to timely remit to the Servicer any Servicing Fees
due and payable and such failure continues for a period of 30 days from
the date of the mailing or delivery of an invoice from the Servicer to
FIACC and the Collateral Agent; or
(ii) If any representation or warranty of FIACC in this Agreement is
false, incorrect or misleading in any material respect, or if any
representation or warranty contained in any reports, documents,
certificates or other papers delivered to the Servicer from time to time
is false, incorrect or misleading in any material respect, and is not
cured within 30 days of written notice thereof to FIACC; or
(iii) If FIACC breaches or fails to perform or observe any
obligation or condition to be performed or observed by it under this
Agreement in any material respect and such breach or default is not cured
within 30 days after the Servicer has given FIACC written notice demanding
that such breach or default be cured;
then, and in each and every case, so long as such FIACC Event of Default shall
not have been cured, the Servicer may terminate all of its rights and
obligations as Servicer under this Agreement by notice in writing to FIACC and
the Collateral Agent sent by certified mail, postage prepaid, or by hand
delivery. Upon FIACC's and the Collateral Agent's receipt of notice of
termination pursuant to this Section 8.02, the Servicer shall not be required
31
SERVICING AGREEMENT
<PAGE>
to accept for servicing any new Receivables created thereafter (although the
Servicer shall accept Receivables which were, at the time such notice was
received, in transit to the Servicer), but the Servicer shall continue to
perform its functions as Servicer under this Agreement until the earlier of (i)
the appointment of a successor Servicer (approved in writing by the Collateral
Agent) pursuant to Section 8.03 and (ii) 120 days from the delivery of notice of
termination to FIACC in accordance with the preceding sentence; provided,
however, that if the Servicer has exercised its termination right hereunder on
the basis of a FIACC Event of Default not involving the failure by FIACC to
timely pay Servicing Fees or expenses reimbursable to the Servicer hereunder,
then the Servicer shall, after the expiration of such 120 day period, continue
(for so long as the Servicing Fees and reimbursable expenses are being timely
paid) to service Receivables then being serviced until (a) the appointment of a
successor Servicer acceptable to the Collateral Agent, or (b) such Receivables
are fully paid or otherwise liquidated; and, provided further, that the Servicer
shall not be obligated to continue to service any such Receivables to the extent
such FIACC Event of Default impairs or prevents the Servicer from performing its
obligations hereunder.
SECTION 8.03. APPOINTMENT OF SUCCESSOR.
(a) In the event that FIACC (with the written consent or at the written
direction of the Collateral Agent) should exercise its rights of termination
under Section 8.01, or the Servicer should exercise its rights of termination
under Section 8.02, FIACC (with the consent of the Collateral Agent, which will
not be unreasonably withheld) shall appoint a successor Servicer, which shall
accept its appointment by a written assumption in form acceptable to FIACC and
the Collateral Agent; provided, however, that if a Termination Event shall have
occurred under the Security Agreement and the indebtedness secured thereby shall
have been accelerated pursuant to the terms thereof, the Collateral Agent shall
have the right to appoint a successor Servicer.
(b) Upon appointment, the successor Servicer shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Servicer, and shall be entitled to the Servicing Fee
and all of the rights granted to the predecessor Servicer hereunder. Upon the
appointment of a successor Servicer in accordance herewith, all authority and
power of the Servicer under this Agreement, whether with respect to the
Receivables or otherwise, shall, without further action, pass to and be vested
in such successor Servicer; and, without limitation, FIACC is hereby authorized
and empowered to execute and deliver, on behalf of the predecessor Servicer, as
attorney-in-fact or otherwise, any and all documents and other
32
SERVICING AGREEMENT
<PAGE>
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Receivables and related documents,
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer and FIACC in effecting the termination of the responsibilities and
rights of the predecessor Servicer under this Agreement, including the transfer
to the successor Servicer for administration by it of all cash amounts that
shall at the time be held by the predecessor Servicer for deposit, or shall
thereafter be received with respect to a Receivable, and delivery of the
Receivable Files. All reasonable costs and expenses (including attorneys' fees)
incurred in connection with transferring the Receivable Files to the successor
Servicer and amending this Agreement to reflect such succession as Servicer
shall be paid by (i) the predecessor Servicer in the case of termination under
Section 8.01, or (ii) FIACC in the case of termination under Section 8.02.
SECTION 8.04. PAYMENT OF COMPENSATION; REPAYMENT OF ADVANCES.
If the identity of the Servicer shall change, the predecessor Servicer
shall be entitled to receive all accrued unpaid Servicing Fees, and other
accrued and unpaid compensation described in Section 4.08 hereof, in each case
through the date it performs its duties hereunder. The predecessor Servicer
shall also be entitled to receive reimbursement for all outstanding reimbursable
expenses.
SECTION 8.05. WAIVER OF PAST DEFAULTS.
FIACC (with the written consent of the Collateral Agent) may waive any
default by the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required deposits to the Collection
Account in accordance with this Agreement. Upon any such waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
33
SERVICING AGREEMENT
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.01. AMENDMENT.
This Agreement may be amended, modified or supplemented only by a written
instrument executed by FIACC (with the written consent of the Collateral Agent)
and the Servicer. Both FIACC and the Servicer shall promptly notify the
Collateral Agent in writing of any such amendment, modification or supplement.
SECTION 9.02 TERM.
The term of this Agreement shall begin on the date hereof and shall end on
October 31, 2000; provided, however, that the Servicer may terminate the
acceptance of new Receivables upon written notice to FIACC (with a copy to the
Collateral Agent and all others entitled to notice under the Security Agreement)
upon a failure of the parties to reach agreement on or before October 31 of any
year as to the terms of Section 4.08 hereof, which may be the subject of annual
negotiation during the term hereof upon the written request of either party on
or before June 30 of any year. Upon the expiration of the term of this Agreement
on October 31, 2000, or upon the earlier exercise by the Servicer of its right
to terminate the acceptance of new Receivables as above provided, (i) the
Servicer's obligation to accept new Receivables shall terminate on the December
31 next following, and (ii) Servicer shall be obligated to service only the
Receivables being serviced hereunder as of such December 31 until the same are
fully paid or otherwise liquidated whereupon, after payment of all Servicing
Fees and other amounts due Servicer hereunder, this Agreement shall terminate.
In the event that the Servicer exercises its right to terminate the
acceptance of new Receivables pursuant to this Section 9.02 prior to the
expiration of the term of this Agreement, within 30 days thereafter FIACC, at
its discretion (with the written consent of the Collateral Agent), may terminate
this Agreement upon written notice to the Servicer, such termination to be
effective on the December 31 next following. If notice of termination is given
by FIACC pursuant to the preceding sentence, (i) the Servicer shall cooperate
with FIACC and any successor servicer (acceptable to the Collateral Agent) in
effecting the termination of the responsibilities and rights of the Servicer
under this Agreement, including the transfer to FIACC or the successor servicer
for administration by it of all cash amounts that shall at the time be held by
the Servicer for deposit, or shall thereafter be received with respect to a
Receivable, and
34
SERVICING AGREEMENT
<PAGE>
delivery of the Receivable Files, and (ii) upon payment of all Servicing Fees
and other amounts due Servicer hereunder, this Agreement shall terminate.
SECTION 9.03. PROTECTION OF THE RECEIVABLES.
(a) FIACC shall execute and file such financing statements and cause to be
executed and filed such continuation statements, all in such manner and in such
places as may be required by law fully to preserve, maintain, and protect the
first priority security interest of the Collateral Agent in the Receivables.
FIACC shall deliver (or cause to be delivered) to the Collateral Agent file
stamped copies of, or filing receipts for, any document filed as provided above,
as soon as available following such filing.
(b) In the event FIACC or the Servicer shall change its name, identity, or
corporate structure in any manner that would, could, or might make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of Section 9.402 of the UCC, it shall
give the Servicer and the Collateral Agent (in the case of FIACC) or FIACC and
the Collateral Agent (in the case of the Servicer) written notice thereof and
shall promptly file appropriate amendments to all previously filed financing
statements or continuation statements.
(c) FIACC and the Servicer shall have an obligation to give the Servicer
and the Collateral Agent (in the case of FIACC) and FIACC and the Collateral
Agent (in the case of the Servicer) at least 60 days' prior written notice of
any relocation of its principal executive office and shall promptly file any
amendment or new financing statements required under the UCC. The Servicer shall
at all times maintain each office from which it shall service Receivables,
within the United States of America.
(d) The Servicer shall maintain records for each Receivable, which records
shall include (i) the original principal balance, the amount of each payment
applied to the Receivable, the date of each payment, the interest rate and the
current outstanding gross balance, and (ii) a reconciliation between payments or
recoveries on (or with respect to) the Receivable and the amounts from time to
time deposited in the Collection Account in respect of the Receivable. The
Servicer's obligation to perform its servicing duties and maintain accurate
records hereunder is limited to the accuracy and availability of the information
the Servicer receives in the Receivable Files delivered to the Servicer
hereunder.
35
SERVICING AGREEMENT
<PAGE>
SECTION 9.04. GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES UNDER THIS
AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 9.05. NOTICES.
All demands, notices and communications upon or to FIACC, the Servicer or
the Collateral Agent under this Agreement shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, and shall be
deemed to have been duly given upon receipt (a) in the case of FIACC, to 675
Bering, Suite 710, Houston, Texas 77057, Attention: President, (b) in the case
of the Servicer, to General Electric Capital Corporation, Automobile
Securitization, 600 Hart Road, Barrington, Illinois 60010, and (c) in the case
of the Deal Agent or the Collateral Agent, , to First Union Capital Markets
Corp., One First Union Center, 301 South College Street, TW-6, Charlotte, North
Carolina 28288-0610, Attention: Mr. Bennett Cole, Director, or in each case at
such other address as shall be designated in a written notice to the parties to
this Agreement.
SECTION 9.06. SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions, or terms of
this Agreement shall be for any reason whatsoever held invalid, then, to the
extent permitted by law, such covenants, agreements, provisions, or terms shall
be deemed severable from the remaining covenants, agreements, provisions, or
terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
SECTION 9.07. ASSIGNMENT.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 9.08 below and in the provisions of this Agreement
concerning the appointment of a successor Servicer, this Agreement may not be
assigned by FIACC or the Servicer without the prior written consent of the other
and the Collateral Agent.
SECTION 9.08. COLLATERAL ASSIGNMENT.
Notwithstanding anything to the contrary contained herein, the Servicer
(i) acknowledges and consents that FIACC has assigned its rights hereunder and
its interests herein to the Collateral Agent as collateral pursuant to the
Security Agreement, and (ii) agrees
36
SERVICING AGREEMENT
<PAGE>
to attorn to the Collateral Agent in the event of its succession to the rights
and interests of FIACC hereunder pursuant to the provisions of the Security
Agreement.
SECTION 9.09. GOODWILL.
FIACC hereby acknowledges that substantial goodwill exists with respect to the
trade names "GE", "GECC", "GE Capital Corporation" and "General Electric Capital
Corporation" in the United States and that the Servicer's reputation in the
financial services business is of substantial importance to the operations of
the Servicer. Accordingly, FIACC agrees to use its best efforts to conduct its
activities under this Agreement in a manner that will not detract from the
Servicer's goodwill and standing and will not otherwise damage the reputation or
the Servicer.
SECTION 9.10. CERTAIN PROCEEDINGS.
Until one year and one day have expired since the payment in full of all
obligations of FIACC under or in connection with the Facility, the Servicer
hereby agrees that it will not file any involuntary petition or otherwise
institute any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding or other proceeding under any federal or state bankruptcy or similar
law against FIACC.
SECTION 9.11. LIMITED RECOURSE OF THE SERVICER.
Any provisions of this Agreement to the contrary notwithstanding, the sole
recourse of the Servicer for the payment of monies due and owing to it under the
terms of this Agreement shall be as follows:
(i) with respect to Servicing Fees as provided in Section 4.08 and
reimbursable expenses as provided in Sections 4.01 and 4.03, the Servicer's
right to withhold the same from deposit in the Collection Account as provided in
Section 5.02 shall be exclusive of any other recourse, and no other amounts
shall be withheld by the Servicer from deposits in the Collection Account
pursuant to the terms of Sections 5.02 and 5.05;
(ii) with respect to any other amounts of any nature that may become due
and owing by FIACC to the Servicer hereunder (including, without limitation, any
Purchase Amount payable by FIACC pursuant to Section 3.02 and any amounts
payable by FIACC pursuant to its indemnification obligations under Section
6.02), such amounts shall be payable only from funds available to FIACC as a
result of distributions to it from the Collection Account in accordance with the
priorities set forth in the Security Agreement; and
37
SERVICING AGREEMENT
<PAGE>
(iii) except as expressly provided in clause (i) of this Section 9.11, the
Servicer hereby irrevocably and unconditionally waives all rights of setoff that
it may have under contract (including this Agreement), applicable law or
otherwise with respect to any funds or monies of FIACC at any time held by or in
the possession of the Servicer.
SECTION 9.12. THIRD PARTY BENEFICIARY.
Each of the parties agrees that the Collateral Agent is a third-party
beneficiary of this Agreement.
IN WITNESS WHEREOF, FIACC and the Servicer have caused this Servicing
Agreement to be duly executed by their respective officers as of the day and
year first above written.
FIRST INVESTORS AUTO CAPITAL
CORPORATION
By: /s/ BENNIE H. DUCK
Bennie H. Duck, Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: [SIGNATURE ILLEGIBLE]
Title: Manager - Doc
38
SERVICING AGREEMENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 3,893,774
<SECURITIES> 0
<RECEIVABLES> 132,334,660
<ALLOWANCES> 1,315,733
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 152,695,716
<CURRENT-LIABILITIES> 0
<BONDS> 125,206,224
0
0
<COMMON> 5,567
<OTHER-SE> 25,296,976
<TOTAL-LIABILITY-AND-EQUITY> 152,695,716
<SALES> 14,878,206
<TOTAL-REVENUES> 14,878,206
<CGS> 5,811,799
<TOTAL-COSTS> 5,811,799
<OTHER-EXPENSES> 4,960,172
<LOSS-PROVISION> 2,409,276
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,151,877
<INCOME-TAX> 785,435
<INCOME-CONTINUING> 1,366,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,366,442
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
