[EXECUTION COPY]
SIDE AGREEMENT
SIDE AGREEMENT between AUTOBOND ACCEPTANCE CORPORATION
("AutoBond"), AUTOBOND FUNDING CORPORATION II (the "Borrower"), and PEOPLES
SECURITY LIFE INSURANCE COMPANY (the "Lender"). Capitalized terms used and not
defined herein shall have the meanings specified in the Credit Agreement, dated
as of May 21, 1996 (the "Credit Agreement") among the Borrower, AutoBond, as
Administrator and Peoples Security Life Insurance Company.
Notwithstanding the provisions set forth in the Credit Agreement
and the Security Agreement, in connection with the execution and delivery of the
Credit Agreement and the Security Agreement, the Borrower, AutoBond and the
Lender desire to set forth herein certain additional requirements (the
"Additional Requirements"). Such additional requirements shall be deemed to
supplement the Credit Agreement and the Security Agreement and shall be of the
same force and effect as though set forth therein.
Section 1. Additional Defined Terms. Except as the context shall
otherwise require, the following terms shall have the following meanings for all
purposes of this Side Agreement (the definitions to be applicable to both the
singular and the plural form of the terms defined, where either such form is
used in this Side Agreement):
"Borrowing Base Deficiency" means, on any date of termination
the excess of Advances outstanding on such Determination Date over the sum of
(a) the aggregate Unpaid Principal Balance of all Specified Sold Auto Loans
other than Excluded Auto Loans and (b) all amounts on deposit in the Loan
Purchase Account and Loan Revenue Account (to the extent allocable to
principal).
"Excluded Auto Loan" means, on any Determination Date, any
Specified Sold Auto Loan (a) as to which a first payment default has occurred,
(b) which is a Defaulted Auto Loan, (c) as to which a claim has been filed under
the VSI Policy (d) as to which the Obligor is bankrupt, (e) as to which the
related Auto has been repossessed and (f) as to which the related Closing Date
is more than 120 days prior to such date of determination.
"Net Worth" means, with respect to AutoBond, on any date of
determination, the excess of total assets over total liabilities (determined in
accordance with GAAP).
"Post IPO Equity Value" means the value of the shareholder's
equity (determined in accordance with GAAP following the completion of the
initial public offering).
"Specified Reserve Allocation Percentage" has the
meaning specified in the Security Agreement.
Section 2. Additional Representations and Warranties. In addition
to the representations and warranties set forth in Section 2.3 of the Credit
Agreement, with respect to each Auto Loan, each of AutoBond and the Borrower
represents and warrants to the Lender, as of the Closing Date on which such Auto
Loan becomes a Specified Sold Auto Loan:
(a) the total amount financed by such Auto Loan does
not exceed $40,000;
(b) such Auto Loan was not purchased by AutoBond at a
discount greater than 19%;
(c) the APR for such Auto Loan is not less than 14.5%
per annum; and
(d) the original term of such Auto Loan does not exceed
60 months.
The remedy for any breach of a representation or warranty set forth in this
Section 2 shall be as set forth in Section 2.3(c) of the Credit Agreement.
Section 3. Additional Covenants. In addition to the covenants set
forth in Section 10 of the Credit Agreement with respect to the Borrower and
Section 11 of the Credit Agreement with respect to AutoBond, each of the
Borrower and AutoBond hereby make the following additional covenants, which
shall be determined as of each Determination Date:
(a) no more than 10% of the aggregate Unpaid Principal Balance of
the Specified Sold Auto Loans shall represent Automobiles purchased from Dealers
who are not franchised new car Dealers; provided, however, that neither the
Borrower nor AutoBond shall be deemed to have violated this covenant if the
Borrower and AutoBond cure any violation of the immediately preceding clause
within 30 days of the earlier to occur of (i) the first Determination Date on
which the requirements specified in the immediately preceding clause was
determined to have been breached and (ii) the date on which the Borrower or
AutoBond has actual knowledge that the requirements set forth in the second
preceding clause have been breached;
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(b) the weighted average purchase discount with respect to all
Specified Sold Auto Loans shall not exceed 15% and the weighted average APR
shall not be less than 16% per annum; provided, however, that neither the
Borrower nor AutoBond shall be deemed to have violated this covenant if the
Borrower and AutoBond cure any violation of the immediately preceding clause
within 30 days of the earlier to occur of (i) the first Determination Date on
which the requirements specified in the immediately preceding clause was
determined to have been breached and (ii) the date on which the Borrower or
AutoBond has actual knowledge that the requirements set forth in the second
preceding clause have been breached;
(c) no more than 2% of the aggregate Unpaid Principal Balance of
the Specified Sold Auto Loans shall be in respect of Automobiles with a model
year prior to 1988; provided, however, that neither the Borrower nor AutoBond
shall be deemed to have violated this covenant if the Borrower and AutoBond cure
any violation of the immediately preceding clause within 30 days;
[(d) to their knowledge, there is no Borrowing Base Deficiency;
provided, however, that the Borrower and AutoBond shall not be required to make
such covenant during such time as an Amortization Event has occurred and is
continuing;] and
(e) to calculate the Borrowing Base and determine the existence
or extent of any Borrowing Base Deficiency on each Determination Date and to
provide such information to the Lender in the Monthly Servicer Report.
The remedy for any breach of the covenants set forth in this Section 3 shall be
as provided in Section 13.1(c) of the Credit Agreement.
Section 4. Additional Events of Default. In addition to the
Events of Default set forth in the Credit Agreement, the occurrence of the
following conditions or events shall also constitute an Event of Default:
(a) there is a Borrowing Base Deficiency that continues
unremedied for a period of 5 Business Days following [earlier to occur of actual
knowledge thereof or] the Determination Date on which such Borrowing Base
Deficiency was determined to exist; or
(b) a Change of Control has occurred; or
(c) the Net Worth of AutoBond is less than $2.5 million prior to
the initial public offering or less than 50% of Post IPO Equity Value following
the completion of the initial public offering;
upon the occurrence of any of the foregoing additional Events of
Default, the provisions set forth in Section 13 of the Credit
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Agreement shall apply with the same force and effect as though such additional
Events of Default were set forth therein.
Section 5. Additional Funding Termination Events. In addition to
the Funding Termination Events set forth in the Credit Agreement, the occurrence
of the following conditions or events shall also constitute a Funding
Termination Event:
(a) during such time as the Specified Reserve Allocation
Percentage is 100% or
(b) during such time as a Purchase Termination Event (as such
term is defined in the Loan Acquisition Agreement) has occurred and is
continuing.
Section 6. Certain Definitions. Notwithstanding the requirements
set forth in the Credit Agreement and the Security Agreement, for purposes of
making any calculations or disbursements under, determining the compliance with,
or the occurrence of an Event of Default under the provisions of the Credit
Agreement or the Security Agreement, the following terms shall have the meanings
specified herein:
"Delinquency Ratio" shall mean as of any Determination Date, the
product of (a) the percentage equivalent of a fraction (i) the numerator of
which equals the sum of (A) the aggregate Unpaid Principal Balance of Specified
Sold Auto Loans which have become Defaulted Auto Loans as of the end of the most
recently ended Collection Period minus (B) the sum of the aggregate Unpaid
Principal Balance of (1) all Specified Sold Auto Loans against which insurance
claims have been filed as of the end of the most recently ended Collection
Period and (2) Specified Sold Auto Loans for which the related financed vehicles
are subject to repossession as of the end of the most recently ended Collection
Period and which are not included in (1), and (ii) the denominator of which
equals the aggregate Unpaid Principal Balance of Specified Sold Auto Loans
outstanding as of the end of the most recently ended Collection Period minus the
amount determined pursuant to clause (B) above and (b) 12.
"Net Loss Ratio" shall mean, as of any Determination Date, the
product of (a) the percentage equivalent of a fraction (i) the numerator of
which equals (a) the Net Unrealized Amounts on Auto Loans that became subject to
repossession during the most recently ended Collection Period, plus (b) any
adjustments (which may be positive or negative) to Net Unrealized Amounts from a
prior period and not reflected, and (ii) the denominator of which equals the
average aggregate Unpaid Principal Balance of Auto Loans outstanding during the
most recently ended Collection Period and (b) 12.
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"Reserve Account Required Balance" shall mean, as of any Payment
Date, the greater of (a) $150,000 and (b) the product of (i) the Target Reserve
Percentage and (ii) the aggregate principal amount of all Advances outstanding
as of such Payment Date (after giving effect to any payments to be made on such
Payment Date, if any); provided, however, that in no event shall the Reserve
Account Required Balance be less than $250,000 during such time as any Advance
is outstanding.
"Target Reserve Percentage" shall mean 6%; provided,
that if, as of a Determination Date,
(a) the average of the Net Loss Ratios for the immediately
preceding three Collection Periods is greater than or equal to
2.75% but less than 4%, the Target Reserve Percentage shall equal
9%;
(b) the average of the Net Loss Ratios for the immediately
preceding three Collection Periods is greater than or equal to
4%, the Target Reserve Percentage shall equal 12%;
(c) the average of the Net Loss Ratios for the immediately
preceding six Collection Periods is less than 4% but equal to or
greater than 2.75%, then the Target Reserve Percentage shall
revert to 9%;
(d) the average of the Net Loss Ratios for the immediately
preceding six Collection Periods is less than 2.75%, then the
Target Reserve Percentage shall revert to 6%;
(e) the Delinquency Ratio is greater than or equal to 7% or
the average net loss per Defaulted Auto Loan is greater than or
equal to $3,000, then the Target Reserve Percentage shall equal
9%; and
(f) the average of the Delinquency Ratio over two Collection
Periods is less than 7%, then the Target Reserve Percentage shall
revert to 6%;
(g) there occurs an Event of Collection Agent Termination
with respect to AutoBond under Sections 3.07(c) or (d) of the
Servicing Agreement, then the Target Reserve Percentage shall
equal 10%; and
(h) if the Specified Reserve Allocation Percentage equals
100% or during such time as a Funding Termination Event is
continuing, then the Target Reserve Percentage shall equal 100%.
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Section 7. Miscellaneous.
(a) Governing Law. THIS SIDE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(b) Consent to Jurisdiction and Venue. The Borrower, AutoBond and
the Lenders each hereby irrevocably (i) agrees that any suit, action or other
legal proceeding arising out of or relating to the Program Documents or this
Side Agreement may be brought in a court of record in the State of New York or
in the courts of the United States of America located in such State, (ii)
consents to the jurisdiction of each such court in any such suit, action or
proceeding, and (iii) waives any objection which it may have to the laying of
venue of any such claim that any such suit, action or proceeding has been
brought in an inconvenient forum and covenants that it will not seek to
challenge the jurisdiction of any such court or seek to oust the jurisdiction of
any such court, whether on the basis of inconvenient forum or otherwise. The
Borrower, AutoBond and the Lender each irrevocably consent to the service of any
and all process in any such suit, action or proceeding by mail copies of such
process to the addresses set forth in the Credit Agreement. The Borrower and
AutoBond each agree that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. All mailings under this Section 7(b)
shall be in accordance with the provisions of Section 16.7 of the Credit
Agreement. Nothing in this Section 7(b) shall affect the Lender's right to serve
legal process in any other manner permitted by law or affect the Lender's right
to bring any suit, action or proceeding against the Borrower or any of its
properties in the courts of any other jurisdiction.
(c) No Petition. Each of AutoBond, the Collateral Agent, the
Lender and each Assignee hereby covenant and agree that, until the expiration of
the later of, (i) the date which is one year and one day after the payment in
full of all outstanding Advances, and (ii) the date which is one year and one
day after the payment in full of all investor certificates or other securities
outstanding and issued pursuant to any Disposition, it will not institute
against the Borrower, or join in any institution against the Borrower of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any applicable bankruptcy or similar law in
connection with any obligations relating to the Advances or the Program
Documents.
(d) Counterparts. This Agreement may be executed and delivered
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Side
Agreement to be duly executed as of the day and year first above written.
AUTOBOND FUNDING CORPORATION II
By: /s/ Xxxxxx Xxxx
_______________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
_______________________________________
Name:
Title:
PEOPLES SECURITY LIFE INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxxxx
_______________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS
COLLATERAL AGENT
By: /s/ Xxxxxxx Xxxxx
_______________________________________
Name:
Title:
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