ASSET PURCHASE AGREEMENT

Exhibit 10.19

ASSET PURCHASE AGREEMENT

DATED

FEBRUARY 16, 2006

BY AND AMONG

REGIONAL ACCEPTANCE CORPORATION,

FSB FINANCIAL, LTD.,

SOUTHWEST SECURITIES, FSB,

FSBF, LLC

AND STEVEN BURKE

TABLE OF CONTENTS

 

 

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3

 

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SCHEDULES

 

EXHIBITS

 

*All of the exhibits and schedules to this agreement set forth on the table of contents hereto have been omitted pursuant to Item 601(b)(2) of Regulation S-K. SWS Group, Inc. agrees to furnish supplementally to the SEC, upon request, a copy of any omitted exhibit or schedule.

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT, dated as of February 16, 2006, is by and among Regional Acceptance Corporation, a North Carolina corporation (“Buyer”), FSB Financial, Ltd., a Texas limited partnership (“Seller”), Southwest Securities, FSB, a federally chartered savings bank with a limited partnership interest in Seller (“SSB”), FSBF, LLC, a Texas limited liability company with a general partnership interest in Seller (“FSBF”), and Steven Burke, an individual with a limited partnership interest in Seller (each of SSB, FSBF and Steven Burke are collectively referred to herein as the “Partners”).

STATEMENT OF PURPOSE

Seller is engaged in the origination and purchasing of sub-prime automobile loans and automobile lending portfolios (the “Business”). Seller and the Partners desire to sell to Buyer, and Buyer desires to purchase from Seller and the Partners all of Seller’s right, title and interest in and to certain loans and related personal property, and Buyer agrees to assume certain liabilities of Seller, upon the terms and conditions set forth herein.

To accomplish such purposes and in consideration of the mutual representations, warranties, covenants, and agreements hereinafter set forth, and for good and valuable consideration, both the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Definitions

1.1 Certain Definitions . For purposes of this Agreement, the following capitalized terms shall mean the following:

“ Account ” means each of the loan accounts from Seller’s loan portfolio that are identified on the closing tapes included in Schedule 2.1 attached hereto, except for the Exclusion Accounts.

“ Account Agreement ” means the written agreement between Seller and Obligor, as amended, which sets forth the terms and conditions for each Account.

“ Account Application ” means the signed original application or conformed copy thereof whereby a Person applied for each Account.

“ Accountholder ” means any Obligor of an Account.

“ Agreement ” means this Asset Purchase Agreement, together with all schedules, exhibits, supplements and documents that are attached hereto or incorporated herein by reference.

“ AG Settlements ” means the transactions contemplated by (i) the Agreement, dated September 12, 2005, by and between the Attorney General of the State of Iowa and Seller, and

(ii) the Agreement, dated September 14, 2005, by and between the Attorney General of the State of South Dakota and Seller, each pertaining to the portfolio of loans Seller previously purchased from South Dakota Acceptance Corporation.

“ Assets ” means the assets to be acquired by Buyer as set forth in Section 2.2(a) of this Agreement.

“ Bill of Sale and Assignment and Assumption Agreement ” means the Bill of Sale and Assignment and Assumption Agreement between Buyer and Seller substantially in the form attached hereto as Exhibit A .

“ Books and Records ” means all books, records, manuals, documents, files, notes, materials and other information in paper, electronic or other form in which they are maintained by Seller or its affiliates with respect to each Account, including the Account Agreement, monthly billing statements, any correspondence from or to the Accountholder(s), and any and all other documents or other materials relating to such Account, together with, in some cases, an Account Application.

“ Buying Guidelines ” means Section III(e), (f) and (g) of Seller’s Loan Policy.

“ Cash ” means all account balances held at any bank accounts in Seller’s name.

“ Closing Statement ” means the statement, in the form set forth in Schedule 2.3(b)(ii) attached hereto, that sets forth the calculation of the Closing Date Net Worth.

“ Cut-off Time ” means 11:59:59 p.m., EDT, on the day prior to the Closing Date, by which time all file maintenance and Account servicing shall have been performed by Seller in accordance with past custom and practice for the business day immediately preceding the Closing Date.

“Escrow Agent” means Branch Banking and Trust Company.

“ Exclusion Accounts ” are those Accounts, whether or not Seller or the respective Partners have knowledge, which as of the Cut-off Time are accounts on which the Obligor’s name is on, or the Obligor resides in, or the Obligor is associated with, any governmental list of prohibited individuals, entities or countries (e.g., as promulgated pursuant to the USA Patriot Act of 2001).

“ File ” means, with respect to each Account, all information, comments, documents and any correspondence from or to such Account’s Obligor(s), including, without limitation, the Account Application, Account Agreement, statement fiche, billing dispute documents and collections documents.

“ GAAP ” means United States generally accepted accounting principles consistently applied.

 

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“Holdbacks” means the specific loan loss reserves resulting from negotiated prior purchases and as set forth on Seller’s Financial Statements as of the Closing Date.

“ Liens ” means all liens, encumbrances, security interests, mortgages, pledges, charges, conditional sales or other title retention agreements, preemptive rights, easements, covenants, licenses, options, rights of first refusal, title defects or claims of any kind whatsoever.

“Neutral Accounting Firm” shall mean Deloitte & Touche, L.P.

“ Obligor ” means any Person obligated to make payments with respect to any Account, including any guarantor or co-obligor thereof.

“ Person ” means an individual, a corporation, a partnership, a limited partnership, a limited liability company, a joint venture, a trust, an unincorporated association or organization, a government body, agency or instrumentality, or any other entity.

“ Preliminary Closing Statement ” means the statement, in the form set forth in Schedule 2.3(b)(i) attached hereto, setting forth the calculation of the Estimated Closing Date Net Worth as defined in Section 2.3(b)(i).

“ Purchase Price ” means the amount set forth in Section 2.3(a), as adjusted pursuant to Section 2.3(b).

“ Receivable ” means any amount owing by an Obligor under any Account including, without limitation, any amounts owing for the payment of goods and services, advances, fees, accrued and unpaid interest, accrued and unpaid finance charges, accrued and unpaid late charges and any other accrued and unpaid fee, expense or charge of every nature, kind and description whatsoever, less any amount owed by Seller to the Obligor as a credit.

“ Seller’s Policies and Procedures ” means Seller’s policies and normal, day-to-day operating procedures and practices in compliance with such policies, as existing as of the date of this Agreement.

“Tax” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other Tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, and including any transferee or secondary liability in respect of any Tax (whether imposed by law, contractual agreement or otherwise).

“Tax Returns” means all returns, statements, declarations, reports and other documents required to be filed with respect to Taxes.

“ Valuation Date ” means the date that is four (4) business days prior to the Closing Date.

 

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ARTICLE II

Purchase of Assets and Assumption of Liabilities

2.1 Schedule of Accounts . On the Valuation Date, Seller shall deliver to Buyer a version of Schedule 2.1 (“Valuation Tape”) reflecting all Accounts as of 11:59:59 p.m. EDT on the day immediately prior to the Valuation Date. No later than five business days after the Closing Date, Seller shall deliver to Buyer an updated version of Schedule 2.1 reflecting all Accounts as of the Cut-off Time (“Closing Tape”). Schedule 2.1 shall, with respect to each Account, completely and accurately set forth the: (a) Account number; (b) Account balance; (c) date of the last payment; (d) amount of the last payment; (e) annual percentage rates applicable to each balance within the Account; (f) current delinquency of the Receivables; (g) state wherein the Obligor resides; (h) state wherein the loan originated; (i) make and model of the automobile; (j) Obligor’s home address; (k) Obligor’s last name and first initial; (l) origination date and/or purchase date; (m) original loan amount; (n) interest rate; (o) original amortized term; (p) Seller’s purchase price; (q) first lien amount; (r) documentation type; and (s) first payment due date. Seller shall provide Buyer all versions of Schedule 2.1 in an electronic format.

2.2 Purchase of Assets .

(a) Assets. On the Closing Date and subject to the terms and conditions set forth herein, Seller shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase and receive from Seller, all of Seller’s right, title, and interest in and to substantially all of Seller’s assets, excluding the Cash, free and clear of any and all Liens (collectively, the “Assets”), including, but not limited to:

 

(i)

all Accounts;

 

(ii)

all Receivables;

 

(iii)

all Account Agreements;

 

(iv)

all loan loss reserves calculated in accordance with GAAP and Holdbacks each as reflected on Seller’s Financial Statements as of the Closing Date;

 

(v)

all rights to receive payment for accrued but not yet billed fees, interest, and other charges on the Accounts, including deferred commitment fees;

 

(vi)

the pro-rata portion of any annual fee associated with the Accounts relating to any period following the Cut-off Time;

 

(vii)

all prepaid expenses;

 

(viii)

all Files and Books and Records;

 

(ix)

all closing tapes specified in this Agreement;

 

(x)

all rights and interests of Seller as tenant under the lease to occupy the real property located at 110 West Randol Mill Road, Arlington, Texas 76011 (the “Leased Property”);

 

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(xi)

all the removable fixtures, furniture and office equipment, communications equipment and computers included in Schedule 2.2(a)(xi) , including agreed upon leasehold improvements;

 

(xii)

all rights and interests of Seller as lessee and/or licensee under any lease and/or license agreements with third party software vendors each as listed in Schedule 2.2(a)(xii) and all rights and interests of Seller in each of the assumed contracts also listed in Schedule 2.2(a)(xii) ; and

 

(xiii)

all rights and interests of Seller in the “FSB Financial, Ltd.” trademark and/or trade name and any derivation thereof with such transfer to be evidenced by a Trademark Assignment Agreement substantially in the form attached hereto as Exhibit C .

(b) Excluded Assets. All assets of Seller not specifically listed or included in Section 2.2(a) hereof shall remain the assets of Seller (together with the Exclusion Accounts, the “Excluded Assets”). Without limitation, Seller shall retain all right, title, and interest in and to all of the Excluded Assets.

2.3 Transaction Consideration .

(a) Purchase Price. The purchase price for the Assets shall consist of an amount of cash equal to the product of (i) 3.19579 (the “Factor”) multiplied by (ii) the Closing Date Net Worth (as defined below), as may be adjusted pursuant to Section 2.3(b) of this Agreement (the “Purchase Price”), of which ten percent (10%) of such Purchase Price (the “Purchase Price Holdback”) will be retained until June 30, 2007 to secure the purchase price adjustments as provided in Sections 2.3(b) and 2.6 hereof and to secure Seller’s and the Partners’ indemnifications as provided in Section 2.5 and Article IX of this Agreement.

(b) Payment of Purchase Price and Adjustments.

(i) On the Valuation Date, Seller shall in good faith prepare and deliver to Buyer a Preliminary Closing Statement in the form set forth in Schedule 2.3(b)(i) , along with all supporting documentation used by Seller to prepare the Preliminary Closing Statement for Buyer’s review, setting forth the calculation of Seller’s estimated aggregate net worth as of the Closing, determined on an accrual basis in accordance with GAAP (the “Estimated Closing Date Net Worth”), provided that , in no event shall the Estimated Closing Date Net Worth be less than Ten Million Five Hundred Thousand Dollars ($10,500,000) (the “Target Closing Date Net Worth”). On the Closing Date, Buyer shall pay to Seller a dollar amount in cash (the “Closing Date Payment”) equal to (A) the product of (1) the Factor multiplied by (2) the Estimated Closing Date Net Worth, minus (B) the Purchase Price Holdback (by wire transfer of immediately available funds to an account provided by Seller to Buyer two business days before the Closing Date). On the Closing Date, Buyer also shall pay to the Escrow Agent the Purchase Price Holdback. The Purchase Price Holdback shall be held by the

 

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Escrow Agent in an interest-bearing account subject to the terms of the escrow agreement (the “Escrow Agreement”) to be dated as of the Closing Date among the Escrow Agent, Buyer, Seller and the respective Partners in the form attached hereto as Exhibit B .

(ii) No later than 30 days after the Closing Date, Buyer shall review the Accounts, Receivables, Files and Books and Records (the “Post-Closing Review”) and prepare and deliver to Seller a Closing Statement in the form set forth in Schedule 2.3(b)(ii) attached hereto setting forth the calculation of Seller’s aggregate net worth as of the Cut-off Time determined on an accrual basis in accordance with GAAP (the “Closing Date Net Worth”) and shall describe any adjustments to the Estimated Closing Date Net Worth as set forth in the Preliminary Closing Statement.

(iii) If within 10 days after Seller’s receipt of the Closing Statement, Buyer and Seller mutually agree on each line item in the Closing Statement, then:

(A) if the Closing Date Net Worth shown on the Closing Statement is the same as the Estimated Closing Date Net Worth shown on the Preliminary Closing Statement, then no adjustment to the Closing Date Payment shall be made;

(B) if the Closing Date Net Worth shown on the Closing Statement is less than the Estimated Closing Date Net Worth shown on the Preliminary Closing Statement (the “Closing Date Net Worth Deficiency”), the Closing Date Payment shall be adjusted downward based on the product of (1) the Factor multiplied by (2) the Closing Date Net Worth Deficiency (the “Downward Adjustment”). Seller shall pay to Buyer the Downward Adjustment plus interest calculated at the Federal Funds Rate from the Closing Date to the date such payment is made; or

(C) if the Closing Date Net Worth shown on the Closing Statement is greater than the Estimated Closing Date Net Worth shown on the Preliminary Closing Statement (the “Estimated Closing Date Net Worth Deficiency”), the Closing Date Payment shall be adjusted upward based on the product of (1) the Factor multiplied by (2) the Estimated Closing Date Net Worth Deficiency (the “Upward Adjustment”). Buyer shall pay to Seller the Upward Adjustment plus interest calculated at the Federal Funds Rate from the Closing Date to the date such payment is made.

Any payment required under (B) or (C) of this paragraph shall be made no later than two business days after Seller’s and Buyer’s mutual agreement on each line item in the Closing Statement and shall be made by wire transfer as instructed by the receiving party two business days prior thereto.

 

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(iv) If within 10 days after Seller’s receipt of the Closing Statement, Buyer and Seller do not mutually agree upon the correct amounts for each line item in the Closing Statement, then Seller shall, within such 10 day period, notify Buyer in writing of all line items still in dispute. Within five days after Seller’s notice to Buyer that some line items remain in dispute, the parties shall refer such dispute to the Neutral Accounting Firm, which shall review the line items in dispute on the Closing Statement. The cost of such review and the preparation of the Neutral Accounting Firm Closing Statement shall be borne by the party that the Neutral Accounting Firm determines is the non-prevailing party. The Neutral Accounting Firm Closing Statement prepared by the Neutral Accounting Firm shall be final, conclusive and binding on the parties for matters covered thereby and a judgment may be entered thereon. The Neutral Accounting Firm Closing Statement shall be in a form substantially similar to the Closing Statement. Any adjustments to the Closing Date Payment resulting from the Neutral Accounting Firm Closing Statement shall be calculated as described in Section 2.3(b)(iii). Any payment required under this paragraph shall be paid to the other party with interest calculated at the Federal Funds Rate from the Closing Date to the date final payment is made, shall be made no later than two business days after finalization of the Neutral Accounting Firm Closing Statement and shall be made by wire transfer as instructed by the receiving party two business days prior thereto.

(c) Allocation of Purchase Price. Seller and Buyer hereby agree to allocate the Purchase Price and the Assumed Liabilities among the Assets in accordance with Section 1060 of the Tax Code and file or cause to be filed in a timely fashion any information that may be required pursuant to regulations promulgated under the Tax Code.

2.4 Assumption of Liabilities .

(a) Buyer’s Assumed Liabilities . On the Closing Date, Buyer shall assume and, thereafter, discharge fully only the following liabilities of Seller accrued after the Cut-off Time: (i) all of the obligations of Seller to the Accountholders under the Account Agreements; (ii) any expenses related to the Accounts and the activity thereon; (iii) all obligations of Seller under the lease for the Leased Property; and (iv) all obligations of Seller under (A) the lease and/or license agreements with third party software vendors and (B) the assumed contracts, each as listed in Schedule 2.2(a)(xii) (collectively, the “Assumed Liabilities”). Except as provided in this Section 2.4(a), Buyer shall not assume any liability, indebtedness or obligation of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise (collectively, the “Excluded Liabilities”).

 

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(b) Seller’s Expenses . Seller agrees that it shall be: (i) solely responsible for any draft retrievals or incorrectly posted transactions that occur through the Cut-off Time and that relate to any Account; and (ii) solely responsible for all expenses related to the Accounts and activity thereon prior to the Cut-off Time.

2.5 Seller’s Indemnity for Certain Accounts . In the event that any Account or Receivable purchased by Buyer should not have been deemed an “Account” or a “Receivable”, respectively, as of the Cut-off Time, because such Account is an Exclusion Account, or such Receivable is an amount owed by an Obligor under an Exclusion Account, Seller shall indemnify Buyer for the full amount of the applicable Account and/or the applicable Receivable, net of any amounts collected by Buyer thereunder. In such event, Seller shall pay Buyer, on demand, the amount of the Account and/or Receivable as of the date demanded by Buyer. Buyer shall transfer to Seller such Account and/or Receivable and Seller shall assume from Buyer all liabilities related to such transferred Account and/or Receivable. Seller shall bear all costs and expenses associated with such transfer.

2.6 Post-Closing Adjustments . Following the Closing, the parties shall, with each other’s cooperation and assistance, promptly make any adjustments to the Closing Date Payment based on the following:

(a) Unposted Items. Any items or transactions that affect the Closing Date Payment, but that were unposted or unaccounted for on or before the Cut-off Time, including without limitation, payments in process, unidentified or unlocated items, or errors.

(b) Changes in Receivable Calculation or Misclassification of an Account. Misclassification of an Account or changes to the Receivables calculation based on the receipt or discovery of information by Buyer or Seller prior to or after the Cut-off Time and any adjustments relating to: (i) a data error that occurred on or prior to the Cut-off Time; or (ii) an event, act, or omission that resulted in the miscalculation of the Receivables as contemplated in this Agreement.

(c) Payments Received before and after the Cut-off Time. Seller shall be entitled to retain payments on Accounts from Accountholders received and posted to the Accounts by Seller prior to the Cut-off Time. All payments received by Seller after the Cut-off Time relating to the Accounts or received prior to the Cut-off Time but not posted to the Account as of the Cut-off Time shall belong to Buyer and shall be handled in accordance with the requirements of this Agreement.

2.7 Closing . The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of BB&T Corporation’s Legal Department, located at 200 West Second Street, Third Floor, Winston-Salem, North Carolina 27101, at 11:00 a.m. EDT on March 1, 2006 (the “Closing Date”), unless the parties hereto agree in writing upon a different time, date or place. The effective time of the Closing shall be 12:01 a.m. EDT on the Closing Date (the “Effective Time”). The Closing shall not be deemed to have occurred until all actions necessary to complete the Closing have occurred.

 

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ARTICLE III

Representations and Warranties of Seller

Seller represents and warrants to Buyer as follows:

3.1 Organization and Good Standing. Seller is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas with full power and authority to own, lease and operate its properties and assets, and to carry on the Business as now conducted and as presently proposed to be conducted, and is duly qualified to do business in the states of the United States where its ownership or leasing of property or the conduct of the Business requires such qualification.

3.2 Authority. Seller has all requisite power and authority to enter into and to perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by Seller has been duly and validly authorized by all necessary action. This Agreement constitutes the legal, valid and binding obligation of Seller, and is enforceable against Seller in accordance with its terms, subject to bankruptcy, insolvency, moratorium, reorganization, conservatorship, receivership or similar laws affecting the rights of creditors.

3.3 Capitalization . All issued and outstanding partnership interests of Seller are owned of record and beneficially as described in Schedule 3.3 . No other partnership interests of Seller are issued and outstanding.

3.4 No Conflict . Except as provided in Schedule 3.4 , neither the execution and delivery by Seller of this Agreement, nor the performance of any other obligation of Seller under this Agreement, conflicts with, will result in the breach of, or constitutes a default under, the terms of any of Seller’s organizational documents, any Material Contract (as defined in Section 3.7), any indenture or other instrument or agreement to which Seller is a party or by which any of the assets of Seller may be bound or affected, or any statute, ordinance, judgment, order, decree, regulation or rule of any court or governmental body affecting or relating to Seller or its assets, or will result in the creation of any Lien upon any assets of Seller.

3.5 Required Consents . Schedule 3.5 describes each notice to, each consent, waiver, approval, or authorization from, and each registration or filing with, any federal, state or local judicial or governmental authority or agency or any other third party (collectively, the “Required Consents”) that is required in order (a) for Seller to execute, deliver and perform this Agreement or to consummate the transactions contemplated hereby or (b) for Seller to maintain in full force and effect, upon the consummation of the transactions contemplated hereby, the Material Contracts (as defined in Section 3.7) and the approvals, authorizations, consents, licenses, orders, permits, Intangible Rights (as defined in Section 3.18) and other rights of Seller existing and in effect immediately prior to the Closing.

3.6 Subsidiaries and Investments . Except as provided in Schedule 3.6 , Seller has no subsidiary or direct or indirect interest in any partnership, joint venture, corporation, or other business.

 

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3.7 Material Contracts . Schedule 3.7 sets forth a true, complete and correct list of all Material Contracts. For the purpose of this Agreement, a “Material Contract” means all Account Agreements as listed in Schedule 2.1 , the lease for the Leased Property, the lease and/or license agreements between Seller and third party software vendors and the assumed contracts each as listed in Schedule 2.2(a)(xii) , and any other written or oral contract, agreement, undertaking or commitment relating to the Assets with or to any person or entity whatsoever of a current value, or calling for any payments, exceeding $10,000 in any calendar year. Except as set forth in Schedule 3.7 , all of the Material Contracts are valid and in full force and effect, and there are no existing or, to the knowledge of Seller, claimed defaults by any party thereunder and no event, act or omission has occurred which (with or without notice, lapse of time or the happening or occurrence of any other event) would result in a default under any Material Contract.

3.8 Account Applications and Agreements . Seller has previously provided to Buyer a form of all of the Account Applications and of all of the Account Agreements pursuant to which all Accounts are governed. The terms of such Account Applications and Account Agreements have not been impaired, waived, altered, or modified in any respect except by (i) written instruments contained in the Books and Records or (ii) pursuant to the AG Settlements. All Account Agreements and Accounts, including the Receivables, are freely assignable by Seller, do not require the approval or consent of any Accountholder or any other Person to effectuate the valid assignment of the same in favor of Buyer, and are subject to federal law and contain choice of law provisions purporting to select the laws of the states identified on the closing tapes. Seller is in full compliance with all the terms and conditions in the Account Agreements and has performed all of its duties thereunder. Except as recorded in the Books and Records or reflected on the Financial Statements (as defined below), to Seller’s knowledge there exists or is threatened no default, breach, or other event which, with the passage of time or the giving of notice, or both, would constitute a default or breach under any Account Agreement.

3.9 Financial Statements . Seller has previously delivered to Buyer, or will prior to Closing deliver to Buyer, true and complete copies of: (i) its balance sheets and income statements as of and for the periods ended June 30, 2005, 2004 and 2003, and the related statements of operations, stockholders’ equity and cash flows for the fiscal years then ended, including the footnotes thereto, if any, additional or supplemental information supplied therewith and the report prepared in connection therewith by the independent certified public accountants compiling such financial statements; and (ii) its interim financial reports for the periods ended September 30, 2005 and December 31, 2005 (collectively, the “Financial Statements”). To the knowledge of Seller, the Financial Statements:

(a) are true, complete and correct in all material respects;

(b) are in accordance with the books and records of Seller;

(c) present fairly and accurately the assets, liabilities, revenues, expenses and financial condition of Seller as of the dates thereof, and the results of operations for the periods then ending, each in all material respects;

 

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(d) are prepared on a consistent basis throughout the periods involved; and

(e) have been prepared in accordance with GAAP.

3.10 Absence of Certain Changes . Except as described in Schedule 3.10 , since June 30, 2005 Seller has conducted its operations and business only in the ordinary course, has in all material respects complied with Seller’s Policies and Procedures, including, without limitation, purchasing in accordance with the applicable Buying Guidelines, origination, charge-off, delinquency grading, re-aging/re-writing and collection procedures, and has not:

 

(a)

Suffered any damage, destruction or loss to any material asset, whether or not covered by insurance;

 

(b)

Sold, transferred, distributed or otherwise disposed of any material asset;

 

(c)

Made or entered into any general wage or salary increase for its employees as a group;

 

(d)

Amended or terminated any material contract, lease, license or commitment;

 

(e)

Incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise and whether due or to become due) except normal trade payables incurred in the ordinary course of business;

 

(f)

Introduced any new method of management, operations or accounting;

 

(g)

Defaulted or otherwise failed to perform any of its material obligations under any Account Agreement;

 

(h)

Incurred any material liability due or payable following the Closing to any employee or former employee for severance benefits;

 

(i)

Suffered any material adverse change in the condition (financial or otherwise), results of operations or business, or any other event or condition of any character that might reasonably be expected to have a material adverse effect on its operations or its assets, or has had or could reasonably be expected to have any effect that would, individually or in the aggregate, materially impair, hinder or otherwise adversely affect the ability of Seller to effect the Closing, or to perform any of its material obligations under this Agreement; or

 

(j)

Agreed, whether in writing or otherwise, to take any action described in this Section 3.10 other than pursuant to this Agreement.

 

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3.11 Undisclosed Liabilities . Seller does not have any indebtedness, liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, other than those reflected in the Financial Statements (and in the actual amounts so reflected), and those described in Schedule 3.11 .

3.12 Title to and Sufficiency of Assets

(a) Seller has good and marketable title to all of its properties and assets (real, personal and mixed, tangible and intangible), free and clear of Liens, except as set forth in Schedule 3.12(a) . Except as listed in Schedule 3.12(a) , the properties and assets owned or leased by Seller constitute all the assets necessary to operate the business as now conducted by Seller, and such assets are located within the State of Texas. All of the physical assets currently used in Seller’s operations are in good operational condition and repair, normal wear and tear excepted.

(b) The leases for all assets, real and personal, leased by Seller are valid and in full force and effect; no default or event of default, or event which, with the giving of notice or passage of time or both would constitute a default or event of default, caused by or on the part of Seller under any of such leases has occurred and is continuing; and none of such leases is terminable as a result of the transactions contemplated by this Agreement. As to any of such leases, to the knowledge of Seller, no default or event of default, or event which, with the giving of notice or passage of time or both, would constitute a default or event of default caused by or on the part of any party other than Seller has occurred or is continuing. Seller has previously furnished to Buyer true, correct and complete copies of all such leases, which have not been amended or modified as of the date hereof.

(c) Schedule 3.12(c) sets forth a true, correct and complete list and summary description of all real property, interests in real property and tangible personal property (including, without limitation, machinery, equipment and inventory) owned or leased by Seller, indicating whether such property is owned or leased or otherwise used in connection with the business of Seller, the location of such property and, in the case of leased property, the commencement date, expiration date and annual rental payable under the lease.

3.13 Accounts and Loan Documents .

(a) Except as disclosed in Schedule 3.13(a) , each Account (i) if originated by Seller, has been made in accordance with applicable origination standards of Seller, (ii) if purchased by Seller, was purchased in accordance with Seller’s Buying Guidelines, (iii) is evidenced by note(s), agreement(s) or such other contract(s) and document(s) as required by the applicable Credit Approval Terms (as defined below) that are true, genuine and what they purport to be (the “Loan Documents”), (iv) originals or imaged copies of such Loan Documents are in the possession of Seller (or its agents), (v) all parties to such Loan Documents had legal capacity to execute the Loan Documents and each Loan Document has been duly and properly executed by such parties, (vi) has been

 

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secured by valid Liens on and security interests in assets as required by the applicable Credit Approval Terms or Buying Guidelines and such Liens and security interests have been perfected and have first priority unless the applicable Credit Approval Terms or Buying Guidelines state a lesser priority or the Obligor has granted a later purchase money security interest that by operation of law is superior to the Lien and the security interest securing such Account, (vii) is a legal, valid and binding obligation of the Obligor named therein and the Account and its respective Loan Documents are enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles, (viii) is not subject to any rights of rescission, set-off, counterclaim or defense, including the defense