Sale And Contribution Agreement

LOAN ACQUISITION,
SALE AND CONTRIBUTION AGREEMENT


Dated as of May 21, 1996


by and between


AUTOBOND ACCEPTANCE CORPORATION


and


AUTOBOND FUNDING CORPORATION II


TABLE OF CONTENTS


Page
---- SECTION 1. Definitions; Interpretation......................... 1


SECTION 2. Sale and Disposition of Auto
Loans............................................... 9


SECTION 3. Intended Characterization; Grant
of Security Interest................................ 13


SECTION 4. Conditions Precedent to
Purchase............................................ 14


SECTION 5. Representations and Warranties
of AutoBond......................................... 14


SECTION 6. Additional Covenants of
AutoBond............................................ 21


SECTION 7. Termination......................................... 23


SECTION 8. Events of Purchase Termination...................... 23


SECTION 9. Indemnification..................................... 25


SECTION 10. Confidentiality..................................... 26


SECTION 11. No Proceedings...................................... 27


SECTION 12. Notices, Etc........................................ 27


SECTION 13. No Waiver; Remedies................................. 27


SECTION 14. Binding Effect; Assignability....................... 27


SECTION 15. Amendments; Consents and
Waivers; Entire Agreement........................... 28


SECTION 16. Severability........................................ 28


SECTION 17. GOVERNING LAW; CONSENT TO
JURISDICTION; WAIVER OF JURY
TRIAL............................................... 28


SECTION 18. Headings............................................ 29


SECTION 19. Execution in Counterparts........................... 29


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EXHIBITS


EXHIBIT A - FORM OF SALE ASSIGNMENT EXHIBIT B - FORM OF OFFICER'S CERTIFICATE EXHIBIT C - FORM OF OPINION EXHIBIT D - FORM OF REPURCHASE ASSIGNMENT EXHIBIT E - FORM OF DEALER AGREEMENT


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LOAN ACQUISITION SALE AND CONTRIBUTION AGREEMENT (the "Agreement"), dated as of May 21, 1996, by and between AutoBond Acceptance Corporation ("AutoBond"), a Texas corporation, and its successors and permitted assigns and AutoBond Funding Corporation II ("AutoBond Funding"), a Delaware corporation, and its successors and assigns.


W I T N E S S E T H:


WHEREAS, AutoBond Funding has been formed for the sole purpose of acquiring and holding Auto Loans pending transfer of such Auto Loans in one or more Dispositions;


WHEREAS, from time to time, AutoBond intends to sell or contribute Auto Loans to AutoBond Funding and AutoBond Funding intends to purchase and/or accept Auto Loans from AutoBond to hold pending transfer thereof in connection with one or more Dispositions; and


WHEREAS, subject to the terms and conditions set forth herein, AutoBond agrees, from time to time, to sell or contribute Auto Loans to AutoBond Funding and AutoBond Funding agrees to purchase and/or accept Auto Loans from AutoBond;


NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:


SECTION 1. Definitions; Interpretation.


(a) In this Agreement the following capitalized terms have the respective following meanings:


"Adverse Claim" means a claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, or other
type of preferential arrangement having the effect of a lien or security
interest upon or with respect to (i) any Auto Loans sold hereunder other
than in favor of Purchaser and the Trustee with respect to this Agreement
or (ii) any Financed Vehicle securing payment of any such Auto Loan other
than in favor of the Obligor, Purchaser and the Trustee.


"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or
indirect common control with such specified Person. For the purposes of
this definition, "control" when used with respect to any specified Person
means the power to


direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.


"Amount Financed" means, with respect to any Auto Loan, the meaning
ascribed thereto in the applicable disclosure documents given to the
Obligor in satisfaction of the requirements of the Federal
Truth-in-Lending Act.


"Approval Date" means, with respect to any Auto Loan, the date on
which AutoBond makes its written credit approval with respect to the
Obligor under such Auto Loan.


"AutoBond" means AutoBond Acceptance Corporation a Texas
corporation.


"AutoBond Funding" means AutoBond Funding Corporation II, a Delaware
corporation and its successors and permitted assigns.


"AutoBond Program" means the auto loan origination program in
accordance with which certain member dealers originate auto loans in
accordance with the AutoBond Program Manual.


"AutoBond Program Manual" means the AutoBond Program Manual in
effect as of the date hereof, as modified from time to time pursuant to
Section 2(c).


"Auto Loan" means a consumer automobile loan financing the purchase
of new and used automobiles, light-duty trucks and vans, which loans are
secured by a lien and security interest in the automobile financed
thereunder in favor of the loan holder.


"Business Day" means any day other than a Saturday or a Sunday, or
another day an which commercial banks in the States of New York, Minnesota
or Texas (or in any other state in which the Servicer or AutoBond are
located) are required, or authorized by law, to close.


"Business Day Certificate" means an Officer's Certificate of
AutoBond specifying days other than Saturdays or Sundays which are not
Business Days.


"Closing Date" means May 22, 1996.


"Collateral Account" has the meaning specified in Section 2(d).


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"Collateral Agent" means each Person designated as such by AutoBond
Funding in writing to AutoBond.


"Collection Account" has the meaning specified in Section 2(d).


"Collection Agent" means AutoBond Acceptance Corporation a Texas
corporation, its permitted successors and assigns.


"Credit Agreement" means any warehouse credit agreement between
AutoBond Funding and a lender.


"Credit and Collection Policies" means written policies consistent
with the requirements of this Agreement and the Servicing Agreement, in
effect from time to time formulated by AutoBond as to the requirements of
certain servicing matters.


"Credit Endorsement" means the deficiency balance endorsement issued
by Interstate under the VSI Policy.


"Cut-Off Date" means May , 1996 with respect to the initial Sale
Date hereunder, and the last Business Day of the previous calendar month
with respect to any subsequent Sale Date hereunder.


"Dealer" means an automobile dealer who has entered into a Dealer
Agreement with AutoBond with respect to, among other things, the
origination of Auto Loans.


"Dealer Agreement" means an agreement between AutoBond and a Dealer
relating to the origination, purchase and sale of Auto Loans substantially
in the form attached to the AutoBond Program Manual.


"Debt" means for any Person, (a) indebtedness of such Person for
borrowed money or credit extended, (b) obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c)
obligations of such Person to pay the deferred purchase price of property
or services, (d) obligations of such Person as lessee under leases which
have been or should be, in accordance with GAAP, recorded as capital
leases, (e) obligations secured by any lien or other charge upon property
or assets owned by such Person, even though such Person has not assumed or
become liable for the payment of such obligations, (f) obligations of such
Person under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise
to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (e)
above, and (g) liabilities in respect of unfunded vested benefits under
plans covered by ERISA. For the purposes hereof, the term "guarantee"
shall include any agreement, whether such


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agreement is on a contingency or otherwise, to purchase, repurchase or
otherwise acquire Debt of any other Person, or to purchase, sell or lease,
as lessee or lessor, property or services, in any such case primarily for
the purpose of enabling another Person to make payment of Debt, or to make
any payment (whether as an advance, capital contribution, purchase of an
equity interest or otherwise) to assure a minimum equity, asset base,
working capital or other balance sheet or financial condition, in
connection with the Debt of another Person, or to supply funds to or in
any manner invest in another Person in connection with Debt of such
Person.


"Defaulted Auto Loan" means an Auto Loan which by its terms has more
than 10% of any installment of principal or interest which is 60 or more
days contractually past due.


"Defaulted Receivable" means, as of the end of any Due Period, (a) a
Defaulted Auto Loan, (b) an Auto Loan as to which the proceeds of the sale
of the related Financed Vehicle have been received by AutoBond and (c) a
Receivable as to which AutoBond has determined (or should have determined
in accordance with the Credit and Collection Policies) that no further
proceeds other than from the VSI Policy are expected to be received or
that such Auto Loan is uncollectible and such determination was made at or
prior to the last day of such Due Period.


"Determination Date" means the 10th day of each month (or the
preceding Business Day, if such day is not a Business Day).


"Disposition" has the meaning specified in Section 2(j).


"Disposition Agreement" mens each pooling and servicing, loan sale
trust agreement or similar agreement pursuant to which a Disposition
occurs.


"Due Period" means (a) for the initial Due Period, the period from
the Closing Date through June 1, 1996 and (b) thereafter, each calendar
month.


"Eligible Dealer" means a franchised Dealer (A) duly licensed and
authorized by Governmental Authorities and the relevant manufacturers, as
applicable, as a dealer in new or used Financed Vehicles, (B) as to which
AutoBond has performed an investigation in accordance with the customary
and usual standards of sub-prime automobile finance companies and (C) as
to which AutoBond has not received notice from AutoBond Funding in
accordance with Section 2(b), prior to the related Approval Date, that
such Dealer has ceased to be an Eligible Dealer.


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"Eligible Receivable" means any Auto Loan which complies with the
representations and warranties set forth in Section 5(b).


"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.


"Event of Purchase Termination" has the meaning specified in Section
8.


"Financed Vehicles" means new and used automobiles and light-duty
trucks and vans, the purchase of which is financed by the Auto Loans.


"Financing Rate" means the applicable weighted average coupon under
a Credit Agreement or Disposition Agreement.


"Governmental Authority" means the United States of America, any
federal, state, local or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions thereof or pertaining thereto.


"Indemnified Amounts" has the meaning specified in Section 9.


"Indemnified Party" means AutoBond Funding, each holder of the
indebtedness issued by AutoBond Funding and the successors, assigns,
Affiliates, agents, officers, shareholders, directors, servants and
employees thereof.


"Loan Acquisition Price", with respect to any Auto Loan to be sold
pursuant to Section 2, has the meaning set forth in the applicable Credit
Agreement, and otherwise means an amount equal to the sum of (i) the
Amount Financed and (ii) accrued but unpaid interest on such Auto Loan as
of the related Sale Date.


"Loan Documents" means, with respect to an Auto Loan, (i) the
original retail installment contract and security agreement evidencing
such Auto Loan, (ii) the original confirmation of title, copy of the
application for title or letter of guaranty from the applicable Dealer, as
the case may be, for the related Financed Vehicle, (iii) a copy of the
credit application, (iv) the original confirmation of payment of premiums
required under the VSI Policy and (v) such other documents as may be
required under the applicable Credit Agreement or Disposition Agreement.


"Loan File" means, with respect to any Auto Loan, the original
retail installment loan contract and security agreement evidencing the
Auto Loan and originals or copies of


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such other documents and instruments relating to such Auto Loan and the
security interest on the selected Financed Vehicle as specified in the
Credit and Collection Policies.


"Lockbox" means each lockbox and related account (if any)
established in the name of a Collateral Agent or Trustee.


"Lockbox Bank" means ComerciaBank-Texas.


"Necessary Consents" means all necessary consents to the closing of
the transactions contemplated hereby, in form and substance satisfactory
to AutoBond and AutoBond Funding.


"Net Payoff Balance" means, in respect of any Precomputed
Receivables, the net payoff less any accrued but unpaid late charges.


"Net Principal Balance" means, with respect to any Precomputed
Receivable, the Net Payoff Balance as of the due date of the last full
Scheduled Payment, or if more recent, the due date of the last periodic
payment of principal thereon.


"Net Unrealized Amount" means, (a) with respect to any Auto Loan
which is more than 90 days contractually past due or where the Financed
Vehicle is otherwise subject to repossession (including voluntary or
involuntary, or upon casualty), the Unpaid Principal Balance of such Auto
Loan minus the sum of (i) any repossession proceeds allocable to principal
actually received on such Auto Loan, (ii) any insurance proceeds allocable
to principal actually received from a claim with respect to such Auto Loan
and (iii) refunds received from the cancellation of any insurance policies
or service contracts with respect to such Auto Loan, and (b) with respect
to any Auto Loan where the related Obligor is in bankruptcy, the amount of
losses allocable to principal incurred thereon.


"Obligor" means, with respect to any Auto Loan, the Person primarily
obligated to make payments in respect thereto.


"Other Disposition" has the meaning specified in Section 2(j).


"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
association, joint venture, Governmental Authority or any other entity of
whatever nature.


"Precomputed Receivable" means any Auto Loan under which earned
interest (which may be referred to in the Auto Loan as the add-on finance
charge) and principal is determined


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according to the sum of periodic balances or the sum of monthly balances
or the sum of the digits or any equivalent method commonly referred to as
the "Rule of 78s".

"Purchaser" means AutoBond Funding Corporation II, and its permitted
successors and assigns.


"Recoveries" means, for any Due Period, all amounts received during
such Due Period with respect to (a) Defaulted Receivables from any source,
including, without limitation, net proceeds from the repossession and
liquidation of Financed Vehicles, proceeds of insurance (including
insurance maintained by Obligor and the VSI Policy), and (b) the
Repurchase Price of Auto Loans repurchased by AutoBond pursuant to Section
5(d).


"Repurchase Price" means, with respect to any Sold Auto Loan which
Seller or AutoBond is obligated to repurchase, an amount equal to (i) the
Unpaid Principal Balance of such Sold Auto Loan as of the end of the
preceding Due Period plus (ii) accrued and unpaid interest in respect
thereof calculated at the Financing Rate from the last day to which
interest has been paid on such Auto Loan through the last day of such Due
Period, minus (iii) the amount of any principal paid in respect of such
Auto Loan since the end of such Due Period.


"Repurchase Requirement" has the meaning specified in Section 5(d).


"Sale" means a sale of an Auto Loan to AutoBond Funding in
accordance with Section 2.


"Sale Assignment" means, with respect to any Auto Loan sold or
contributed hereunder, the assignment substantially in the form of Exhibit
A hereto and made a part hereof.


"Sale Date" means, with respect to any Auto Loan, the date on which
such Auto Loan is sold or contributed in accordance with Section 2.


"Sales Finance Company License" means a current license issued to
AutoBond authorizing it to make, purchase, and sell Auto Loans in each
state in which such license is required.


"Scheduled Payment" means a payment due on an Auto Loan in
accordance with its terms.


"Securitization" has the meaning specified in Section 2(j).


"Securitization Trust" has the meaning specified in Section 2(j).


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"Selling Dealer" means with respect to each Sold Auto Loan, the
Dealer that sold such Sold Auto Loan to AutoBond.


"Servicer" means CSC Logic/MSA L.L.P., a Texas limited liability
partnership, doing business as Loan Servicing Enterprise, and any
successor thereto in accordance with a Servicing Agreement.


"Servicing Agreement" means any Servicing Agreement for the
servicing of Sold Auto Loans.


"Sold Auto Loan" means an Auto Loan sold to AutoBond Funding in
accordance with Section 2.


"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other
Persons performing similar functions are at the time directly or
indirectly owned by such Person.


"Termination Date" has the meaning specified in Section 7.


"Trustee" means each trustee in respect of a Securitization Trust or
other Disposition Agreement.


"UCC" means the Uniform Commercial Code as in effect in the relevant
state.


"Unpaid Principal Balance" means, with respect to any Auto Loan as
of any date of determination, (i) for an Auto Loan bearing interest
calculable on a simple interest basis, the unpaid principal amount for
such Auto Loan or (ii) for a Precomputed Receivable, the Net Principal
Balance, in each case as of the end of the most recent specified period;
provided, that for any Auto Loan where the Net Unrealized Amount equals
the Unpaid Principal Balance, such Unpaid Principal Balance shall
thereafter equal zero (other than for purposes of calculating the
Repurchase Price).


"VSI Policy" means the Vender's single Interest Insurance Policy,
including the Credit Endorsements, issued by Interstate Fire & Casualty
Company, insuring against risk of physical damage or other losses on the
Financed Vehicles, a copy of which is attached as an Exhibit to the
Pooling Agreement.


"Whole Loan Sales" has the meaning specified in Section 2(j).


(b) The following rules apply to this Agreement:


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(i) the singular includes the plural and the plural includes the
singular;


(ii) "or" is not exclusive and "include" and "including" are not
limiting;


(iii) a reference to any agreement or other contract includes
permitted supplements and amendments;


(iv) a reference to a law includes any amendment or modification
to such law and any rules or regulations issued thereunder or any law
enacted in substitution or replacement therefor;


(v) a reference to a person includes its permitted successors and
assigns;


(vi) a reference to a Section, an Exhibit or a Schedule without
further reference is to the relevant Section, Exhibit or Schedule of this
Agreement;


(vii) any right may be exercised at any time and from time to
time; and


(viii) words such as "hereunder", "hereto", "hereof" and "wherein"
and other words of like import shall, unless the context clearly indicates
to the contrary, refer to the whole of this Agreement and not to any
particular Section, subsection or clause hereof.


SECTION 2. Sale and Disposition of Auto Loans.


(a) From time to time, AutoBond has agreed and agrees to sell or contribute (and by execution of this Agreement and any Sale Assignment does hereby sell or contribute) to AutoBond Funding, subject to the terms and conditions of this Agreement, all right, title and interest of AutoBond in and to:


(i) fixed-rate fully amortizing closed-end consumer installment
Auto Loans listed on Schedule 1 to a Sale Assignment, all principal
Payments paid in respect thereof after the related Cut-off Date and all
monies due, to become due or paid in respect thereof after the related
Sale Date and all liquidation proceeds and recoveries thereon;


(ii) all security interests and liens and property subject thereto
from time to time purporting to secure payment by Obligors under the Sold
Auto Loans, including, without limitation, the Financed Vehicles;


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(iii) all rights (but no obligations) under the Dealer Agreements
and all proceeds from recourse to Dealers relating to the Sold Auto Loans;


(iv) all guaranties, indemnities and warranties, and proceeds of
insurance policies (including the Insurance Policies), certificates of
title and other title documentation and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Sold Auto Loans;


(v) all collections and records (including computer records) with
respect to the foregoing;


(vi) all documents relating to the Sold Auto Loans, including
those contained in the Loan Files and all Loan Documents; and


(vii) all proceeds and other benefits of any and all of the
foregoing.


Subject to the terms and conditions of this Agreement, AutoBond Funding agrees to purchase or accept the foregoing from AutoBond. To the extent that the Loan Acquisition Price paid to Seller for any Sold Auto Loan is less than the fair market value of such Sold Auto Loan, the difference between such fair market value and the Loan Acquisition Price shall be deemed to be a capital contribution made by Seller to Purchaser on the relevant Sale Date.


(b) The parties hereto agree that the obligation to repay an Auto Loan purchased by AutoBond Funding pursuant hereto must be secured by a Financed Vehicle sold to an Obligor by an Eligible Dealer. An otherwise Eligible Dealer shall cease to be an Eligible Dealer within fifteen calendar days or sooner, if practicable, following a determination by AutoBond, or following the receipt by AutoBond of written notice of the determination of AutoBond Funding that such dealer has ceased to be an Eligible Dealer. Following any such determination, AutoBond agrees that it will approve no additional Auto Loans for sale hereunder, which are originated by such Dealer.


(c) The parties hereto agree that the AutoBond Program Manual may be modified from time to time by AutoBond (i) in any immaterial respect, without the consent of the parties hereto and (ii) in any material respect, with the consent of the parties ...