UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from to
Commission File Number: 0-22067
National Auto Finance Company, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 65-0688619
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (561) 997-2413
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 requirementNo [
]e past 90 days. Yes [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value on April 24, 1998 (based on the $2.50 closing price
on the NASDAQ Stock Market on that date) of the common equity held by
non-affiliates of the registrant was $12,001,905. The number of shares of the
registrant's Common Stock outstanding on April 24, 1998 was 9,030,762.
<PAGE>
FORWARD-LOOKING STATEMENTS
When used in this Annual Report on Form 10-K or future filings by the
Company (as hereinafter defined) with the Securities and Exchange Commission
(the "Commission"), in the Company's press releases or other public or
stockholder communications, or in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities, and competitive and regulatory
factors could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated by any forward-looking statement.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
PART I
Item 1. Business.
General
National Auto Finance Company, Inc. (the "Company") is a consumer finance
company specializing in the business of purchasing, financing, securitizing and
servicing motor vehicle retail installment sale contracts ("Loans") originated
by automobile dealers ("Dealers") in the sale of new and used automobiles.
Through its Loan purchases, the Company provides indirect financing to consumers
with limited financial resources or past credit problems ("Non-Prime
Consumers"). The Company serves as a source of financing for Dealers, allowing
them to sell automobiles to customers who otherwise might not be able to obtain
financing from more traditional sources.
The Company's business strategy is to increase its Loan volume by: (i)
marketing its products and services to an increasing number of Dealers
throughout the United States through its regional salespersons ("Dealer
Relations Managers") located in strategic geographic areas ("Direct Dealer
Originations"); (ii) continuing to implement its existing, and developing new,
strategic referral and marketing alliances ("Strategic Alliances"); and (iii)
purchasing Non-Prime Consumer Loans that meet the Company's underwriting
criteria from third-party originators ("Third-Party Originators"), such as
consumer finance companies and other financial institutions (the "Portfolio
Acquisition Program").
The Non-Prime Consumer Automobile Finance Industry
Automobile financing is the second largest sector, by dollar amount, of
consumer installment debt in the United States. According to the United States
Federal Reserve Board, approximately $381.0 billion of automobile installment
credit was outstanding at the end of 1996, of which the Company estimates
approximately $75.0 billion was attributable to Non-Prime Consumers. The market
for Non-Prime Consumer credit is highly fragmented, with no one finance company
controlling more than 2% of the market.
Dealer Relationships
As of December 31, 1997, the Company had contractual relationships with
over 2,300 Dealers located in 29 states, more than 1,200 of which were the
result of the Company's Strategic Alliance with First Union National Bank of
North Carolina ("First Union") and certain of its national bank affiliates (the
"First Union Strategic Alliance"). The Company focuses on developing
relationships with well-established Dealers. The vast majority of the Company's
contractual
<PAGE>
relationships are with manufacturer-franchised Dealers, rather than independent
Dealers.
Each Dealer doing business with the Company enters into a non-exclusive
written agreement with the Company that governs the Company's purchases of Loans
from the Dealer (a "Dealer Agreement"). Although these agreements do not
obligate a Dealer to sell, or the Company to purchase, any particular Loan, the
Dealer Agreement sets forth the terms upon which approved Loans will be
purchased by the Company. Additionally, these agreements contain representations
and warranties to be made with respect to each Loan purchased by the Company,
each automobile that serves as collateral for the Loan (e.g., that it is
properly registered and that the Company will be the first lienholder), and each
Loan's compliance with certain laws and regulations. Dealer Agreements generally
provide that the Loans are sold to the Company "without recourse" (i.e., the
Dealer does not assume or retain the credit risk with respect to any Loan
purchased by the Company), unless the Dealer has materially breached certain
representations and warranties in the Dealer Agreement. The Company carefully
monitors its Dealer network and will terminate its agreement with a particular
Dealer if the Company discovers material misrepresentations with respect to any
Loan, or unusual repossession experience or other factors that might indicate
fraudulent conduct by a particular Dealer.
In the Company's experience, Dealers prefer financing sources that: (i)
provide value-added products and services designed to increase their sales of
automobiles; (ii) maintain regular contact with Dealer finance departments;
(iii) communicate credit decisions in a timely manner; (iv) have consistent
underwriting standards; (v) are able to fund Loan purchases quickly; and (vi)
offer a competitive price to purchase the Loan. The Company seeks to meet these
needs while taking efforts to ensure that its delinquency and loss experiences
remain at acceptable levels.
Products and Services
In its efforts to build a strong Dealer network, the Company provides an
array of products and services to Dealers. The Company's products generally
consist of the Loan programs it offers to Dealers. For example, the Company
currently is willing to purchase Loans on automobiles that are up to five model
years old with fewer than 75,000 odometer miles and, depending on the model
year, is willing to purchase Loans having maximum terms of 60 months, with the
length of the Loan being shorter for older model-year automobiles. The perceived
credit risk of the borrower will affect the annual percentage rate charged for a
particular Loan and will also affect the discount from the face amount of a Loan
at which the Company is willing to purchase the Loan from the Dealer (the
"Dealer Discount"). The Company also offers a lease-equivalent product, the
Preferred Customer Option Plan ("PCOP"), designed to appeal to the most
creditworthy of the Non-Prime Consumers the Company will finance. The PCOP
program enables the borrower to purchase a more expensive vehicle than he or she
might otherwise be able to afford, because a substantial portion of the Loan
balance is deferred until a balloon payment at maturity, which, depending on the
model year, may be as late as five years after the Loan is made. At maturity,
the borrower has the option of refinancing the automobile for one year with the
Company, making the final payment and thereby retaining the automobile, or
returning the automobile to the Dealer for a $250 termination fee. If the
borrower returns the automobile, the Dealer may either buy it from the Company
by making the final Loan payment or return it to the Company. Based on the
Company's experience, the wholesale auction value of returned automobiles
generally equals or exceeds the amount of the balloon payment. The Company,
however, maintains insurance to protect its residual interest in automobiles
financed under the PCOP program. At December 31, 1997, PCOP Loans accounted for
1.72% of the aggregate outstanding principal amount of Loans for which the
Company performs servicing and collections (the "Servicing Portfolio").
The Company seeks to provide value-added services to Dealers to enhance
their financing of Non-Prime Consumer Loans by: (i) reviewing Dealer inventories
to determine adequate inventory levels based on trends the Company observes in
Non-Prime Consumer automobile purchasing; (ii) training Dealer sales people to
identify Non-Prime Consumers who meet the Company's underwriting criteria; and
(iii) working with Dealers to establish separate finance desks that specifically
service Non-Prime Consumers. The Company also has developed specific services
for Dealers that are designed to attract customers and offer flexible financing.
For example, Credit Clinic(TM) is a service pursuant to which the Dealer
advertises a sale for the "credit challenged" and the Company provides an
on-site credit counselor who advises the Non-Prime Consumer on choosing a
vehicle with a monthly payment he or she can manage. The Company believes that
this service enhances a Dealer's sales of automobiles because it encourages
Non-Prime Consumers, who might otherwise be apprehensive about their personal
credit histories, to seek financing for their vehicle purchases.
<PAGE>
The Company constantly seeks to modify its products and services and to
implement new ones in order to respond to changing market conditions and to
serve specific niches in the Non-Prime Consumer market.
Marketing and Loan Acquisition Strategy
General
The Company attempts to increase the number of Loans it purchases,
securitizes and services by (i) marketing the Company's products and services to
an increasing number of Dealers throughout the United States through its Dealer
Relations Managers; (ii) maximizing its existing, and developing new, Strategic
Alliances; and (iii) purchasing Non-Prime Consumer Loans that meet the Company's
underwriting criteria from Third-Party Originators.
Direct Dealer Marketing
The Company's direct marketing strategy is centered around experienced
management and field sales employees who are located in key geographic regions.
Direct marketing to Dealers is conducted by Dealer Relations Managers who seek
to train and educate Dealers about the credit profile of the Non-Prime Consumer
who meets the Company's underwriting criteria, familiarize Dealers with the
Company's existing products and services, solicit feedback from Dealers
regarding new products and services that would enhance a Dealer's ability to
sell automobiles to Non-Prime Consumers, and generally provide Dealers with
ongoing service and support. The Company's marketing department also designs
sales incentives to motivate Dealers to submit applications to the Company. For
example, the Company periodically offers "vacation miles" awards to Dealers for
each contract funded, which the Dealer, in turn, can award to its sales
personnel. Those vacation miles may be redeemed by the Dealer's employees for
vacation packages or airline tickets. Similarly, the Company has created sales
incentives that enable Dealers to earn gift certificates from various retailers.
The marketing department works closely with the Dealer Relations Managers to
design appealing incentives for the Company's Dealers. The Company believes that
the intensive on-site Dealer service provided by Dealer Relations Managers and
the Company's marketing programs enhance the effectiveness of the products and
services offered by the Company, strengthen existing Dealer relationships and
foster new business. The Company derived approximately 31% of its Loan volume
for the year ended December 31, 1997 from Direct Dealer Originations, which
excludes Strategic Alliance originations.
Strategic Alliance Marketing
The Company relies on its Strategic Alliances to increase the number of
Loans it purchases by (i) using the sales force of the financial institutions
and Dealer groups with which the Company establishes such alliances to market
the Company's Non-Prime Consumer products and services and (ii) obtaining the
right to review and purchase Non-Prime Consumer Loans that do not meet a
financial institution's or Dealer group's underwriting criteria. Through these
alliances, the Company offers these financial institutions and Dealer groups the
opportunity to expand their product offerings and to earn fees based on the
number of Loans that are purchased by the Company as a result of the alliance.
Direct marketing to financial institutions and Dealer groups is conducted
by senior management of the Company. Senior management seeks to identify
prospective financial institutions or Dealer groups suitable for Strategic
Alliances and negotiate the terms of such alliances. The Company's Dealer
Relations Managers provide operating services and support, including training
and education with respect to both the Non-Prime Consumer market and the
Company's products and services. Upon consummation of a Strategic Alliance, the
Company expects that the financial institution's or Dealer group's sales
personnel also will support or supplement the Company's direct marketing
efforts.
In April 1996, the Company entered into the First Union Strategic Alliance,
the Company's first Strategic Alliance. The First Union Strategic Alliance
provides for the (i) joint marketing of the Company's products and services by
both the Company's sales force and the sales personnel of the automobile finance
division of First Union ("First Union Auto Finance") to the approximately 3,400
Dealers throughout twelve states and the District of Columbia with which First
<PAGE>
Union Auto Finance has an existing relationship and (ii) exclusive referral by
First Union Auto Finance to the Company of all applications for Loans received
from Dealers that fall below certain established credit guidelines. In
consideration for these services, First Union receives a fee on each Loan
purchased by the Company as a result of the First Union Strategic Alliance.
Pursuant to the referral agreement, funded Loan referrals are without recourse
to First Union. The First Union Strategic Alliance has enhanced significantly
the Company's ability to further its market penetration and increase the size of
its Dealer base. For the year ended December 31, 1997, approximately 43% of the
Loans the Company purchased were attributable to the First Union Strategic
Alliance.
The Company's referral agreement with First Union Auto Finance has a
three-year term that currently terminates in April 2000. Subject to the consent
of First Union Auto Finance, the referral agreement may be renewed in April of
each year for an additional year, such that, after its renewal, the remaining
term of the referral agreement continues to be three years. First Union may
terminate the referral agreement upon, among other things, a "change of control"
of the Company as defined in the referral agreement. In the event the referral
agreement is terminated, the Company may continue the relationships it has
established with First Union-related Dealers. In addition, the referral
agreement precludes the Company from purchasing Loans from First Union-related
Dealers through other Strategic Alliances in the same geographic areas as those
covered by the First Union Strategic Alliance.
In March 1998, the Company entered into a similar Strategic Alliance with
U.S. Bank, N.A. (the "U.S. Bank Strategic Alliance") to serve as a non-prime
automobile financing source for U.S. Bank, N.A.'s ("U.S. Bank") Dealer network
of approximately 2,500 Dealers in 20 Western and Midwestern states. The Company
believes that the U.S. Bank Strategic Alliance creates another strong
distribution channel through which the Company may access new Dealers in new
markets.
The Company also has referral relationships with Amcore Bank, N.A. in
Illinois, Community Bank in California, First Federal Savings Bank, N.A. in
Illinois, The Rock Island Bank, N.A. in Illinois and Budget Group Inc. (a
division of Budget Rent-A-Car).
Portfolio Acquisition Program
To enhance the Company's growth and as a natural extension of its lines of
business, in May 1996, the Company began purchasing Non-Prime Consumer Loans
meeting the Company's portfolio acquisition underwriting guidelines from
Third-Party Originators. Purchasing selected Loans from Third-Party Originators
enables the Company to acquire Loans at a lower cost than comparable quality
Dealer-originated Loans due to decreased origination expense. In many cases the
Company has the opportunity to acquire Loans that have six month or longer
payment histories, reducing the Company's exposure to early Loan defaults. In
addition, the Company is able to capitalize on relationships with Dealers that
have been established by other smaller finance companies. For the year ended
December 31, 1997, the Company purchased a total of $46.5 million principal
amount of Loans or approximately 25% of its Loan volume from Third-Party
Originators. Although the purchase of Loans from Third-Party Originators is a
significant component of the Company's overall business strategy, the Company
expects to continue to focus on Direct Dealer Originations and Strategic
Alliances, and will use the Portfolio Acquisition Program opportunistically.
The Loan Purchase Process From Dealers
The Company purchases Loans directly from Dealers and presently does not
make Loans directly to purchasers of automobiles. To be eligible for purchase by
the Company, a Loan must have been originated by a Dealer that has entered into
a Dealer Agreement. When a retail automobile buyer elects to obtain financing
from a Dealer, an application is taken for submission by the Dealer to its
financing sources. Typically, a Dealer will submit the buyer's application to
more than one financing source for review. The Company believes that a Dealer's
decision to finance the automobile purchase with the Company, rather than with
other financing sources, is based upon the Company's relationship with the
Dealer, the Dealer's analysis of the discounted purchase price offered by the
Company for the Loan, any incentives offered to the Dealer, the timeliness,
consistency and predictability of the Company's response, and the Company's
ability to fund Loan purchases typically within 24 hours of receipt of all
required documentation.
<PAGE>
Upon receipt of an application from a Dealer, the Company orders a credit
report on the borrower from one or more of the three major national credit
bureaus, "scores" the borrower's credit status using a proprietary scoring model
developed by the Company with the assistance of Fair Isaac and Company, Inc.
("Fair Isaac") and verifies the borrower's employment, residence and insurance
history. If a Company loan officer determines that the application would meet
the Company's underwriting criteria subject to further information or with
modifications to the originally proposed terms of the Loan, the Company may
request and review further information and supporting documentation before it
decides to purchase a Loan. When presented with an application, the Company
typically notifies the Dealer within 75 minutes whether it intends to purchase
the Loan. The discounted price the Company will offer to pay the Dealer for a
particular Loan generally varies based on the perceived credit-risk of the
potential borrower as determined through the underwriting process.
Typically, once an application is approved, or, if approved conditionally,
upon fulfillment of the required stipulations, and after required financing
documents are obtained by the Dealer and the Dealer assigns the contract to the
Company, the Company purchases the Loan and then records its lien on the
vehicle. The Company then commences servicing the Loan, including sending the
borrower monthly billing statements.
Credit Underwriting and Administration
Target Market and Consumer Profile
The Company seeks to identify customers with stable and predictable
incomes, whose payments will be made in a timely and consistent manner and who
fall into the "B-", "C+" and "C" credit borrower categories. A description of
the credit rating categories used by the Company is set forth below:
Category
"A" A consumer who has a long credit history with no defaults, has been in
the same job for at least 18 months and can easily finance a new
automobile purchase through a bank or captive finance subsidiary of an
automobile manufacturer.
"B" A Non-Prime Consumer who may have had some minor credit problems in his
or her past, or may not have been employed at his or her current job
for 18 months. To finance a new or late-model used automobile, the "B"
credit borrower may not qualify for a loan from a bank, but may have
success borrowing from a captive finance subsidiary and can access
credit through an independent finance company.
"C" A Non-Prime Consumer who may have an inconsistent employment record or
more significant or unresolved problems with credit in the past. To
finance a late-model or older used automobile purchase, this borrower
will generally not be able to obtain a loan from a captive finance
subsidiary or a bank and will have to access an independent finance
company that lends to this market category.
"D" A consumer who has unfavorable employment history and serious credit
problems, such as multiple personal bankruptcies. This borrower's only
choice is to finance his or her used automobile purchase, which is
often from an independent as opposed to a franchise dealer, through an
independent finance company that is active in this market segment.
The Company targets Non-Prime Consumers who previously established good
credit records but who have subsequently experienced non-repetitive credit
problems such as a personal bankruptcy due to illness, loss of employment or
poor cash management. The Company's target customer is generally anxious to
re-establish his or her credit and obtain transportation for employment.
<PAGE>
Credit Evaluation Procedures
The Company applies uniform underwriting standards in purchasing Loans.
These standards have been developed and refined over the course of management's
years of experience in the automobile finance industry. The two most important
criteria the Company uses in evaluating a Loan are the applicant's
creditworthiness and the collateral value of the automobile. The Dealer submits
the customer's credit application to the Company's headquarters in Boca Raton,
Florida, where the customer's creditworthiness is reviewed. The Company utilizes
a proprietary credit scoring system initially developed by Fair Isaac to assist
it in assessing a customer's creditworthiness. Among the factors taken into
account in this scoring system are an applicant's credit bureau score (assigned
by one of the major credit reporting bureaus to all persons with credit
histories), job and residential stability, the automobile payment as a
percentage of income, the type of automobile, a positive payment history on
other loans, an acceptable level of derogatory credit and the amount of a
customer's downpayment, which must be at least 10% of the purchase price of the
automobile. The Company's senior underwriting management regularly reviews
credit decisions made by the Company's Loan buyers to ensure uniformity in
underwriting standards.
In addition to the applicant's credit appraisal, the Company also takes
into account relevant information about the automobile being acquired. The
Company currently does not finance automobiles that are more than five model
years old or that have in excess of 75,000 odometer miles. Currently, the
maximum term of any Loan purchased by the Company is 60 months; a shorter
maximum term may be applied based on the year and mileage of the automobile.
These criteria are subject to change from time to time as circumstances warrant.
The Loans must be secured by a first priority lien on the automobile. In
addition, each Loan requires the borrower to maintain physical damage insurance
covering the financed automobile. The Company may, nonetheless, suffer a loss
upon theft of or physical damage to any financed automobile if the borrower
fails to maintain insurance as required by the Loan and is unable to pay for
repairs to or replacement of the automobile or is otherwise unable to fulfill
his obligations under the Loan. The Company believes that its objective
underwriting criteria enable it to evaluate effectively the creditworthiness of
Non-Prime Consumers and the adequacy of the financed automobile as security for
a Loan. See Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Loan Loss and Delinquency Experience" for a numerical
analysis of the Company's Loan loss and delinquency experience.
Approval and Funding Statistics
From the Company's inception on October 1, 1994 through December 31, 1997,
the Company reviewed 225,781 applications, of which 29.65% were approved or
conditionally approved and 9.11% were funded. Conditionally approved
applications are applications by Non-Prime Consumers whose underlying credit is
generally acceptable to the Company but with respect to which the Company
requires a modification of terms (typically monthly payment levels) prior to
final credit approval.
Portfolio Acquisition Underwriting
The Company's Portfolio Acquisition Program seeks to establish on-going
relationships with Third-Party Originators from which the Company will be able
to purchase select portions of their Loan portfolio. The Company considers the
most important factor in establishing such a relationship to be the Third-Party
Originator's underwriting criteria. The Company focuses on purchasing Loans from
a Third-Party Originator whose credit scoring and other underwriting guidelines
would produce obligors whose credit characteristics match those of the Company's
Dealer-originated obligors as closely as possible. As of the filing of this
Annual Report, the Company has approved nine Third-Party Originators as repeat
participants in the Portfolio Acquisition Program.
Management values each Loan in a portfolio based on a proprietary pricing
matrix, which determines whether the Company is willing to pay an amount
representing, for example, a 1.0% or 4.0% discount to the value of the Loans.
While the Company normally acquires portfolios at some discount, in some
instances, because of the high quality of the portfolio, it will pay par for a
portfolio. Management does not generally pay the Third-Party Originator a
premium for a portfolio, although after costs such as brokerage fees, the
Company's total acquisition cost may slightly exceed the face value of the
purchased Loans. The Company's expenses necessary to generate Portfolio
Acquisition Program
<PAGE>
Loans, however, have been generally lower than those incurred to generate Loans
through Direct Dealers Originations or Strategic Alliances.
Contract Servicing and Administration; Collection Policy
Since its inception, the Company has contracted with an outside servicer to
perform all of the servicing functions relating to its Servicing Portfolio,
including collection, customer service and management information systems
("MIS") functions. In July 1997, the Company began a staged transition of the
daily management of its Servicing Portfolio from the outside servicer to its
in-house servicing and collection division in Jacksonville, Florida. The Company
is now performing all collection functions with respect to its Servicing
Portfolio and expects to begin performing customer service and MIS functions in
the second quarter of 1998. The Company's outside servicer is assisting in this
transition. The Company believes the potential benefits from developing an
in-house servicing and collection capability include: (i) improved portfolio
performance through self-management of all aspects of its operations; and (ii)
enhanced access to portfolio data, resulting in improved management reporting.
Although there can be no assurances, management believes that portfolio
performance will continue to improve as the Company completes its transition to
in-house servicing and collections.
Management Information Systems
The Company currently uses computer systems and software provided by an
outside servicer to automate Loan originations and servicing but expects to
transition to its own computer system in the second quarter of 1998. The Company
is in the process of installing in its Boca Raton, Florida and Jacksonville,
Florida facilities the Consumer Loan Asset Backed Security System ("CLASS") for
the underwriting and servicing of its Servicing Portfolio. CLASS is a
fully-integrated finance company software platform composed of separate modules
integrating loan origination, loan servicing, operational accounting and loan
securitization functions. The Company's advanced computer systems will provide
the Company with the ability to track all Loan details and identify trends among
customers. This information will provide dynamic credit analysis capabilities,
thereby refining the credit underwriting process and reducing the chance that
Loans will be purchased from unacceptably higher risk customers. The Company
believes that the CLASS software platform is year 2000 compliant.
Servicing Portfolio Profile
Loan Statistical Profile
The table below sets forth an analysis of Loans purchased by the Company
from inception through the dates specified. The Company has increased the number
of Loans in its portfolio since its inception while maintaining a consistent
profile of key Loan parameters.
<PAGE>
<TABLE>
<CAPTION>
As of
--------------------------------------------------------------------------------------------------------------------
Dec.31, Mar.31, Jun.30, Sep.30, Dec.31, Mar.31, Jun.30, Sep.30, Dec.31, Mar.31, Jun.30, Sep.30, Dec.31,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumulative
number of
Loans
purchased 300 1,095 2,015 3,018 3,886 5,071 6,557 8,423 10,675 13,553 17,382 21,589 26,078
Cumulative
average Loan
amount
funded $11,986 $11,626 $11,578 $12,025 $12,121 $12,023 $11,942 $11,913 $11,999 $12,026 $11,826 $11,842 $11,925
Weighted
average initial
annual
percentage
rate 17.83% 18.38% 18.43% 18.35% 18.31% 18.41% 18.50% 18.63% 18.67% 18.80% 18.97% 19.04% 19.01%
Weighted
average initial
term
(months) 54.6 52.1 51.9 52.3 52.5 52.0 53.6 53.7 51.7 53.6 53.3 53.3 53.4
Cumulative
average initial
yield 21.17% 21.73% 21.78% 21.56% 21.45% 21.50% 21.68% 21.75% 21.80% 21.51% 21.25% 21.06% 20.87%
</TABLE>
New vs. Used Automobile Loans
The Company prefers to finance used automobiles because of the significant
depreciation on new automobiles relative to used automobiles, which has a
disproportionately negative impact on recoveries if a new automobile is
repossessed, and the fact that the Company is permitted to charge higher
interest rates under certain state laws on the purchase of used automobile
Loans. The following table illustrates the composition of the new and used
automobile collateral represented in the Servicing Portfolio:
(As of December 31, 1997)
--------------------------------------------
Percentage
Percentage of Total
of Total Number Number
Principal Principal of of
Balance Balance Loans Loan
(in thousands)
New.......... $ 61,209 26.98% 4,381 20.98%
Used......... 165,637 73.02% 16,505 79.02%
-------- ------- ------- -----
Total.... $226,846 100.00% 20,886 100.00%
======== ======= ======= ======
Geographic Distribution of Loans
As of December 31, 1997, the Company purchased Loans from Dealers in 29
states and the aggregated Loan balance of the three states having the largest
concentrations of business of the Company totaled 51% of the Servicing Portfolio
compared to 65% of the Servicing Portfolio as of December 31, 1996. The Company
intends to continue to increase its volume of business in the states in which it
currently operates and to expand into additional states.
<PAGE>
The list below indicates the geographic distribution of Loans outstanding
as of December 31, 1997 based upon the location of the Dealer originating the
Loan:
<TABLE>
<CAPTION>
Principal Percentage of Number of
Balance Principal Balance Active Loans
<S> <C> <C> <C>
Georgia...................... $ 58,205 25.66% 5,217
North Carolina............... 37,682 16.61 3,182
Florida...................... 20,597 9.08 2,108
Texas........................ 16,563 7.30 1,296
South Carolina............... 16,442 7.25 1,533
Virginia..................... 11,541 5.09 1,005
California................... 9,303 4.10 961
Tennessee.................... 6,458 2.85 507
Pennsylvania................. 5,562 2.45 761
Maryland..................... 4,715 2.08 403
New Jersey................... 3,803 1.68 279
New York..................... 3,196 1.41 240
All other states (1)......... 32,779 14.44 3,394
-------- ------ ------
Total..................... $226,846 100.00% 20,886
======== ====== ======
- ------------------------
<FN>
(1) No state other than those listed represents more than 1% of the Servicing
Portfolio.
</FN>
</TABLE>
Securitization Program
The Company currently funds its purchases of Loans primarily through a
two-step asset securitization program consisting of (i) the securitized
warehousing of all of its Loans through their daily sale (the "Revolving
Securitization") to a bankruptcy-remote master trust (the "Master Trust")
financed by a revolving credit facility with First Union (the "Master
Securitization Credit Facility"), followed by (ii) the transfer of such
warehoused Loans from time to time by the Master Trust to a discrete trust
("Permanent Securitizations"), thereby creating additional availability of
capital from the Master Trust.
Specifically, pursuant to the Revolving Securitization, the Company sells
Loans that it has purchased from Dealers on a daily basis to a special-purpose
subsidiary, which then sells the Loans to the Master Trust in exchange for cash
and certain residual interests in future excess cash flows from the Master
Trust. The Master Trust, to date, has issued two classes of investor
certificates: "Class B Certificates," which are variable funding (i.e.,
revolving) certificates bearing interest at floating rates, and "Class C
Certificates," representing a portion of the residual interest of the Company's
special-purpose subsidiary in future excess cash flows from the Master Trust
after required payments to the holders of the Class B certificates, deposits of
funds to a restricted cash account as a reserve for future Loan losses, which
provides additional credit enhancement for the holders of the Class B
Certificates, and payment of certain other expenses and obligations of the
Master Trust. First Union currently owns 100% of the outstanding Class B
Certificates in connection with its role as lender under the Master
Securitization Credit Facility. See Note 13, Related Party Transactions, for a
discussion of relationships with First Union. Collectively, the restricted cash
account and the Class C Certificate portion of Loan principal that collateralize
the Master Trust are components of the Company's cash spread accounts ("Cash
Spread Accounts"), over-collateralization accounts ("Over-Collateralization
Accounts") and excess spread receivables ("Excess Spread Receivables" or "ESRs")
reflected cumulatively on the balance sheet as Retained Interest in
Securitizations.
Since the Company's inception through March 31, 1998, the Master Trust has
transferred an aggregate of $277.4 million of its receivables through Permanent
Securitizations effected pursuant to one private placement and three public
offerings of asset-backed securities. Payment of principal of, and interest on,
$252.4 million of the securities issued in such transactions is insured by
payment guarantees issued by Financial Security Assurance Inc. ("FSA"), and such
securities are rated AAA and Aaa by Standard and Poor's Rating Group ("S&P") and
Moody's Investors Service
<PAGE>
("Moody's"), respectively. The proceeds of each Permanent Securitization
transaction were applied by the Master Trust to repayment of the outstanding
balance of the Class B Certificates. Since such time, the Master Trust has
issued additional beneficial interests in Loans purchased by the Master Trust,
as evidenced by the Class B Certificates, to finance its purchase of Loans from
the Company. The Company's securitization program requires additional Permanent
Securitizations (or other forms of refinancing) to be consummated in the future
in order to refinance periodically amounts outstanding under such Class B
Certificates.
The Company has acted as master servicer for the Loans sold to each of the
trusts. As master servicer the Company is eligible to receive monthly fees at
base rates of 2.0% per annum from the Permanent Securitization trusts and 4.0%
per annum from the Master Trust, plus certain late fees and prepayment charges
received on the securitized Loans. All collection functions with respect to the
Loans included in the Master Trust and the Permanent Securitization trusts are
performed by the Company.
The Company relies in large part on cash flow from the Master Trust to
support its operations. Since the Master Trust's interest rates under the
Revolving Securitization are floating and the interest rates charged on the
Loans (which are generally at or near the maximum rates permitted by applicable
state laws) are fixed, increases in the interest rates incurred with respect to
the Class B Certificates could have a material adverse effect both on cash flows
from the Master Trust and on the Company's net income, thereby adversely
affecting the Company's financial condition and results of operations. In order
to mitigate the negative impact of rising interest rates, the Master Trust has
entered into interest rate swap agreements, which have the effect of fixing the
rates charged on a portion of the Master Trust's indebtedness. Although these
agreements provide the Master Trust (and therefore the Company) some protection
against rising interest rates, these agreements also reduce the benefits to the
Master Trust (and therefore to the Company) when interest rates decline below
the rates set forth in such agreements. In addition, upon refinancing of Loans
through Permanent Securitizations, the interest spread with respect to such
refinanced Loans may be fixed.
<PAGE>
Flow Chart of Two-Step Securitization Program
The diagram below (which omits certain intermediate steps) generally
illustrates the Company's securitization of a Loan:
[GRAPHIC OMITTED]
<PAGE>
Competition
The Non-Prime Consumer credit market is highly fragmented, consisting of a
few national and many regional and local competitors. Existing and potential
competitors include well-established financial institutions, such as commercial
banks, credit unions, savings and loan associations, small loan companies,
leasing companies and captive finance companies owned by automobile
manufacturers and others. Many of these financial institutions do not
consistently solicit business in the Non-Prime Consumer credit market. The
Company believes that captive finance companies generally focus on new car
financing and direct their marketing efforts to the Non-Prime Consumer market
only when inventory control and/or production scheduling requirements of their
parent organization dictate a need to enhance sales volumes, and then exit the
market once such sales volumes are satisfied; recently, however, both Ford Motor
Credit Company and General Motors Acceptance Corporation have established
Non-Prime Consumer finance companies. The Company also believes that regulatory
oversight and capital requirements imposed by governmental agencies have limited
the activities of many banks and savings and loan associations in the Non-Prime
Consumer credit market. As a result, the Non-Prime Consumer credit market is
primarily serviced by smaller finance companies that solicit business when and
as their capital resources permit. Due to the lack of major, consistent
financing sources and the absence of significant barriers to entry, many
companies have entered this market in recent years, including well-capitalized
public companies. Recent entrants include General Electric Capital Corporation,
whose indirect finance program consists of relationships with several small,
regional independent Non-Prime Consumer automobile finance companies. In
addition, Mellon Bank Corporation, KeyCorp, Southern National Corp. and
Household International Inc. have all recently devoted resources to the
Non-Prime Consumer market. In addition, there have been several independent
finance companies that have also recently entered the market.
The Company believes that no one competitor or group of competitors has a
dominant presence in the Non-Prime Consumer market segment of "B-," "C+" and "C"
credit consumers. The Company's strategy is designed to capitalize on the lack
of a major national financing source in this market niche.
Regulation
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. As of December 31, 1997, the
Company had contractual relationships with Dealers located in 29 states and,
accordingly, the laws and regulations of such states govern the Company's
operations. Most states in which the Company purchases Loans (i) limit the
interest rate, fees and other charges that may be imposed by, or prescribe
certain other terms of, the Loans that the Company purchases and (ii) define the
Company's right to repossess and sell collateral. In addition, the Company is
required to be licensed or registered to conduct its finance operations in 19 of
the 29 states in which the Company has contractual relationships with Dealers
and Third-Party Originators. As the Company expands its operations into other
states, it will be required to comply with the laws of such states.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in automobile financing. Some of the federal laws and regulations include the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z and the Soldiers' and Sailors' Civil Relief Act.
In addition, the Federal Trade Commission ("FTC") has adopted a limitation
on the holder-in-due-course rule which may have the effect of subjecting persons
who finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses that the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare, complete and display a Buyer's Guide that explains
the warranty coverage for such automobiles. The Credit Practices Rules of the
FTC impose additional restrictions on sales contract provisions and credit
practices.
Certain states in which the Company operates have adopted automobile retail
installment sale acts or variations thereof. Certain states have adopted the
Uniform Consumer Credit Code, subject to certain variations. This law and
similar laws in the other states in which the Company purchases Loans regulate,
among other things, the interest rate,
<PAGE>
fees and other charges and terms and conditions of such Loans. These laws also
impose restrictions on consumer transactions and require disclosures in addition
to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply. In addition, certain
states impose plain-language restrictions on the textual provisions of
automobile retail installment sales contracts in the context of consumer credit
transactions. Furthermore, certain states or municipalities require that a
creditor provide a purchaser of an automobile with a foreign-language
translation of the entire motor vehicle retail installment sale contract if the
contract was negotiated in a language other than English. The plain-language and
foreign-language laws impose specific liabilities on creditors who fail to so
comply.
The laws of certain states grant to the purchasers of automobiles certain
rights of rescission under so-called "lemon laws." Under such statutes,
purchasers of automobiles may be able to seek recoveries from, or assert
defenses against, the Company.
In the event of default by an obligor, the Company has all the remedies of
a secured party under the Uniform Commercial Code ("UCC"), except where
specifically limited by other state laws. The remedies of a secured party under
the UCC include the right to repossession by self-help means, unless such means
would constitute a breach of the peace. In the event of default by the obligor,
some jurisdictions require that the obligor be notified and be given time in
which to cure the default prior to repossession. In addition, courts have
applied general equitable principles to secured parties pursuing repossession or
litigation involving deficiency balances.
The UCC and other state laws require a secured party who has repossessed
collateral to provide an obligor with reasonable notice of the date, time and
place of any public sale and/or the date after which any private sale of the
collateral may be held. The obligor has the right to redeem the collateral prior
to actual sale.
The proceeds from the resale of financed automobiles generally will be
applied first to the expenses of repossession and resale and then to the
satisfaction of the Loan. A deficiency judgment can be sought in most states
subject to satisfaction of statutory procedural requirements by the secured
party and certain limitations as to the initial sale price of the automobiles.
Certain state laws require the secured party to remit the surplus to any holder
of a lien with respect to the automobiles or, if no such lienholder exists, the
UCC requires the secured party to remit the surplus to the former owner of the
financed automobiles.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including federal bankruptcy laws and related state
laws, may interfere with or affect the ability of the Company to recover
collateral or enforce a deficiency judgment.
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. Adverse changes in the laws or
regulations to which the Company's business is subject, or in the interpretation
thereof, could have a material adverse effect on the Company's business. Because
the Company generally charges the highest finance charges permitted by law,
reductions in statutory maximum rates could directly impair the Company's
profitability.
Banking Regulation
As part of the First Union Alliance, an affiliate of First Union (the
"First Union Partner") has acquired an indirect equity stake in the Company
through the Company's principal stockholder, National Auto Finance Company, L.P.
To facilitate the First Union Partner's compliance with applicable banking laws,
regulations and orders (collectively, the "Banking Laws"), the Company has
agreed that it will engage solely in activities that are permissible for
national banks as determined by Banking Laws in effect from time to time. For
example, the Company is subject to the supervision and examination of the Office
of the Comptroller of the Currency (the "OCC"), one of the principal regulatory
bodies having jurisdiction over First Union and the First Union Partner. The OCC
has reviewed the First Union Strategic Alliance and the terms thereof, and the
OCC's written approval was required in order for the First Union Strategic
Alliance to be consummated. If the First Union Partner determines that any
proposed activities of the Company are impermissible for national banks, such
affiliate has the right to prevent the Company from engaging in such activities.
<PAGE>
Management does not believe, however, that the Banking Laws will impact
significantly the manner in which the Company intends to conduct or expand its
business or product and service offerings although there can be no assurance
that the banking laws will not have such an effect.
<PAGE>
Employees
At December 31, 1997, the Company had 164 full- and part-time employees in
the following areas: executive/administration (13), sales (24), finance (12),
operations (38), MIS (7) and servicing (70), none of whom was represented by a
union.
Item 2. Properties.
The Company's principal executive offices, where its centralized
underwriting function is conducted, are located at 621 N.W. 53rd Street, Boca
Raton, Florida 33487. The Company currently leases approximately 18,000 square
feet of office space at that location. The Company's servicing operations are
located at 10302 Deerwood Park Boulevard, Jacksonville, Florida 32257, where the
Company currently leases approximately 44,000 square feet of office space at
that location. The Company believes its properties are adequate for its
currently anticipated future growth.
Item 3. Legal Proceedings.
The Company may be involved from time to time in routine litigation
incidental to its business. The Company believes that it is not, however, a
party to any pending litigation that is likely to have a material adverse effect
on its financial condition or results of operations.
Item 4. Submission of Matter to a Vote of Security Holders.
No matters were submitted during the fourth quarter of 1997 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information.
In connection with the initial public offering (the "Initial Public
Offering") of the Company's common stock, par value $.01 per share (the "Common
Stock"), in January 1997, the Common Stock was accepted for quotation in the
National Association of Securities Dealers Automated Quotation System - National
Market System ("NASDAQ-NMS"). The Common Stock is quoted in NASDAQ-NMS under the
symbol "NAFI."
Set forth below is the range of high and low bid quotations reported in
NASDAQ-NMS for the period from January 30, 1997 (the date on which trading
commenced) through and including December 31, 1997:
Common Stock Market Prices
--------------------------------------------------
1st Q* 2nd Q 3rd Q 4th Q
----- ----- ----- -----
High $9.875 $7.625 $7.50 $7.50
Low $7.00 $5.50 $6.125 $2.375
*January 30 - March 31, 1997
(b) Holders.
As of April 10, 1998, there were approximately 25 registered holders of the
Common Stock.
<PAGE>
(c) Dividends.
The Company has never paid cash dividends and has no present intention of
paying cash dividends on the Common Stock. Pursuant to the Revolving Credit
Agreement dated as of September 29, 1997, between the Company, BankBoston, N.A.
and the other financial institutions parties thereto, as amended, (the
"BankBoston Agreement"), the Company is not permitted to pay dividends to the
holders of its Common Stock. Similarly, pursuant to the Securities Purchase
Agreement dated December 22, 1997, by and among the Company, The 1818 Mezzanine
Fund, L.P, P.C. Investment Company, Progressive Investment Company, Inc. and
Manufacturers Life Insurance Company (U.S.A.), as amended (the "December 1997
Securities Purchase Agreement"), and the Securities Purchase Agreement dated
March 22, 1998, by and between the Company and The Structured Finance High Yield
Fund L.L.C. (the "March 1998 Securities Purchase Agreement" and collectively,
with the December 1997 Securities Purchase Agreement, the "Securities Purchase
Agreements"), the Company's ability to pay dividends in excess of $250,000 to
holders of the Company's Common Stock in any twelve-month period is restricted.
(d) Recent sales of unregistered securities.
Pursuant to the Securities Purchase Agreements, the Company issued and sold
$40 million aggregate principal amount of Senior Subordinated Notes and related
warrants exercisable for 1,038,924 shares of Common Stock in December 1997 and
$20 million aggregate principal amount of Senior Subordinated Notes and related
warrants exercisable for 593,761 shares of Common Stock in March 1998. In each
case the warrants were sold as a unit with the Senior Subordinated Notes for the
aggregate principal amount of the Senior Subordinated Notes. Each warrant is
exercisable for one share of Common Stock at an exercise price of $.01 per
share. In addition, pursuant to the December 1997 Securities Purchase Agreement,
the Company sold 1,904,762 shares of Common Stock at a purchase price of $5.25
per share. None of the sales of securities involved a public offering and each
was effected pursuant to Section 4(2) of the Securities Act of 1933. Each of the
purchasers of the foregoing securities was either an investment fund, an
insurance company or an affiliate of an insurance company. In addition, in
October 1997, the Company issued 100,000 shares of Common Stock to FSA Portfolio
Management Inc. ("FSA Portfolio") pursuant to an Investment Agreement between
the Company and FSA Portfolio for certain non-cash consideration specified in
the agreement. The shares were issued pursuant to Section 4(2) of the Securities
Act of 1933.
<PAGE>
Item 6. Selected Financial Data.
The income statement data for the years ended December 31, 1994, 1995, 1996
and 1997 and the balance sheet data as of December 31, 1994, 1995, 1996 and 1997
are derived from, and are qualified by reference to, the audited financial
statements of the Company (and from inception through January 29, 1997, its
predecessor). The following financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statement and notes
thereto included elsewhere in this filing.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994
(dollars in thousands except per share data)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Securitization related income (loss) $ (323) $ 13,564 $ 7,367(1) $ --
Servicing income 3,437 866 219 --
Interest income 817 258 11 32
Other income 214 103 214(3) 95
----------- ----------- ------------- -----------
Total revenue 4,145 14,791 7,811 127
----------- ----------- ------------- -----------
External servicing expenses 3,355 1,291 371 6
Internal servicing expenses 2,589 -- -- --
Interest expense 1,638 1,204 498 78
Salaries and employee benefits 6,346 3,634 1,666 223
Direct loan acquisition expenses 3,591 1,924 562(2) 22
Depreciation and amortization 743 492 183 7
Other operating expenses 3,602 1,755(2) 1,250(2) 266(3)
----------- ----------- ------------- -----------
Total expenses 21,864 10,300 4,530 602
----------- ----------- ------------- -----------
Income (loss) before income taxes and
extraordinary item (17,719) 4,491 3,281 (475)
Income taxes -- -- -- --
----------- ----------- ------------- -----------
Income (loss) before extraordinary item (17,719) 4,491 3,281 (475)
Extraordinary loss (4) (720) -- -- --
----------- ----------- ------------- -----------
Net income before preferred stock dividends (18,439) 4,491 3,281 (475)
Preferred stock dividends (148) -- -- --
----------- ----------- ------------- -----------
Net income (loss) available for common
stockholders $ (18,587) $ 4,491 $ 3,281 $ (475)
=========== =========== =========== ===========
PER SHARE DATA:
Loss per common share before extraordinary item - $ (2.52)
basic
Extraordinary item (0.10)
-----------
Loss per common share - basic $ (2.62)
===========
Loss per common share before extraordinary item - $ (2.52)
diluted
Extraordinary item (0.10)
-----------
Loss per common share - diluted $ (2.62)
===========
Weighted average shares outstanding - Basic 7,087,000
Weighted average shares outstanding - Diluted 7,087,000
PROFORMA SHARE DATA (UNAUDITED):
Income (loss) before income taxes $ -- $ 4,491 $ 3,281 $ (475)
Income taxes -- 1,689 1,066 --
----------- ----------- ------------- -----------
Pro Forma net income $ -- $ 2,802 $ 2,215 $ (475)
=========== =========== =========== ===========
PRO FORMA NET INCOME PER SHARE:
Basic $ -- 0.66 0.52 (5) (0.11)
Diluted $ -- 0.66 0.52 (5) (0.11)
PRO FORMA WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (6)
Basic -- 4,230 4,230 4,230
Diluted -- 4,230 4,230 4,230
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995 1994
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash $ 26,647 $ 5,066 $ 824 $ 1,590
Retained interest in securitizations 31,569 23,404 10,313 25
Total assets 64,875 31,201 12,003 5,800
Senior subordinated debt 34,546 12,000 -- --
Junior subordinated debt 1,940 7,122 7,457 5,324
Total long-term debt 36,486 19,122 7,457 5,324
Total liabilities 41,581 21,650 8,556 5,775
Mandatorily redeemable preferred stock 2,336 -- -- --
Partners' preferred equity -- 2,295 482 48
Partners' equity -- 7,256 2,965 (23)
Stockholders' equity $ 20,958 $ -- $ -- $ --
OTHER DATA:
Number of Loans purchased during period 15,403 6,789 3,586 300
Principal balance of Loans purchased
during period $187,383 $ 84,981 $ 45,972 $ 3,820
Cumulative number of Loans purchased 26,078 10,675 3,886 300
Cumulative principal balance of Loans
purchased $322,156 $134,773 $ 49,792 $ 3,820
Number of outstanding Loans at end of
period 20,886 9,063 3,586 300
Principal balance of the Servicing Portfolio
at end of period $226,846 $102,852 $ 43,145 $ 3,800
Delinquencies as a percentage of the
Servicing Portfolio (7) 9.75% 7.95% 5.45% 0.00%
Repossession inventory as a percentage
of the Servicing Portfolio (8) 2.18% 2.20% 1.28% 0.00%
Net charge-offs during the period
as a percentage of the
average Servicing Portfolio (9) 6.34% 4.17% 2.76% 0.00%
</TABLE>
<PAGE>
- -------------------
(1) Includes $639,000 of gains on sales of Loans purchased between October 12,
1994 and January 16, 1995 and sold to the Master Trust on January 16, 1995.
(2) Expenses relating to originating a Loan such as Dealer incentive payments,
travel and entertainment costs for the Dealer Relation Managers,
advertising and printing costs for Loan documents and Dealer manuals have
been reclassified as direct loan acquisition expenses from other operating
expenses to conform with current year presentation.
(3) Other income in 1995 and other expenses in 1994 include a $182,000 loan
loss provision, representing 5.0% of the $3.6 million of Loans funded
during the three months ended December 31, 1994. The reserve was reversed
when the Loans were sold to the Master Trust on January 15, 1995.
Subsequently, all reserves are accounted for by the Master Trust as Loans
are sold to the trust on a daily basis.
(4) Extraordinary item due to early extinguishment of $12,000,000 aggregate
principal amount of senior subordinated notes (the "Morgan Notes") held by
certain trusts and accounts managed by Morgan Guaranty and Trust Company of
New York in December 1997.
(5) Includes approximately $0.15 per share attributable to gain on sales of
Loans purchased between October 12, 1994 and January 16, 1995, sold to the
Master Trust on January 16, 1995.
(6) Shares outstanding are pro forma for all periods other than the year ended
December 31, 1997. The number of shares utilized represents the number of
shares granted to the Company's predecessor, National Auto Finance Company
L.P. in conjunction with the Reorganization (as defined herein) and Initial
Public Offering on January 29, 1997.
(7) Represents the principal amount of Loans more than 30 days past due as a
percentage of the principal balance of the Servicing Portfolio at end of
period.
(8) Represents the outstanding principal balance of Loans in respect of
financed automobiles that were repossessed by the Company and were held as
inventory at end of period as a percentage of the Servicing Portfolio at
end of period.
(9) Net charge-offs include the remaining principal balance of Loans written
off, after the application of the net proceeds from the liquidation of the
repossessed automobiles.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following management's discussion and analysis should be read in
conjunction with the preceding "Selected Financial Data" and the Company's
Consolidated Financial Statements and the notes thereto and the other financial
data included elsewhere in this Annual Report on Form 10-K. The ratios and
percentages provided below are calculated using detailed financial information
contained in the Company's Financial Statements, the notes thereto and the other
financial data included under Item 8 of this Annual Report on Form 10-K.
Overall
The Company is a consumer finance company engaged in the business of
purchasing, financing, securitizing and servicing non-prime automobile Loans.
The Company currently finances its purchases of Loans primarily through a
two-step asset securitization program that involves (i) the securitized
warehousing of substantially all of its Loans through their daily sale to the
Master Trust pursuant to the Revolving Securitization followed by (ii) the
transfer of such warehoused Loans from time to time through Permanent
Securitizations. In connection with the securitization of the Loans sold by the
Company, the Company is required to establish and maintain certain credit
enhancements to support the timely payment of interest and principal on the
bonds and notes issued to investors by the securitization trusts, which credit
enhancements include, among other things, funding and maintaining spread
accounts, which are monies held on deposit ("Cash Spread Accounts"), and
maintaining a residual interest in the pools of receivables held by such
securitization trusts ("Over-Collateralization Accounts"). The following
discussion summarizes the effect of the Company's securitization activities on
its revenues, expenses and cash flows.
Revenues. In January 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). Since
then, the Company has undertaken a continuing process of refining the
assumptions and methodologies used to measure the fair value of its Retained
Interest in Securitizations based upon the historical performance of its Loan
portfolio. Most recently, this process of refinement has resulted in changes to
certain assumptions and methodologies previously employed in each of the first
three quarters of fiscal 1997. Specifically, the Company has increased the
cumulative net loss estimate from 7.0% in fiscal 1996 to 12.88% in fiscal 1997
and increased the
<PAGE>
discount rate applied to present value the Company's Retained Interest in
Securitizations from 11% in fiscal 1996 to 14% in fiscal 1997. The increase in
the cumulative net loss estimate results primarily from an increase in default
rates expected to be experienced over the life of the Loans, lower expected
recovery rates on the underlying collateral and changes in prepayment speeds,
compared to the rates of such items estimated in earlier periods. The increase
in discount rate results from an increase in the perceived market rate of return
commensurate with the risk inherent in the cash flow projected to be derived
from such assets. These changes in assumptions and methodologies are a
significant factor in the loss incurred by the Company for the year ended
December 31, 1997. See "--Results of Operations."
The Company anticipates that these refinements and changes in methodologies
will also require a restatement of the results of operations of each of the
first, second and third quarters of 1997 to allocate the effects of the
adjustment derived therefrom appropriately throughout such quarters.
The Company receives monthly payments from the securitization trusts in
cash as a fee paid for the Company's servicing of the Loans. Servicing income is
recognized when earned and typically offsets the direct expenses the Company
incurs in connection with the servicing of the Servicing Portfolio. Finally, the
Company also earns interest income on its cash investments (including the Cash
Spread Accounts) and from Loans it temporarily holds for sale pending their
securitization. Unlike many of its competitors, the Company earns only a nominal
amount of interest on Loans held for sale because the Company securitizes
substantially all of its Loans on a daily basis and, therefore, generally
recognizes a higher level of gain on sales of Loans than such competitors.
Distributions of Cash from Securitizations. When the Company securitizes
Loans, it is required to establish and maintain credit enhancements on a
trust-specific basis to support the timely payment of interest and principal on
the notes issued to investors by such securitization trusts, which credit
enhancements include, among other things, funding and maintaining the Cash
Spread Accounts and maintaining the Over-Collateralization Accounts. The Cash
Spread Accounts are funded through initial cash deposits by the Company, plus a
portion of the excess cash flows from the Loans (that is, the difference between
cash received by the relevant trust and its interest and principal payments on
the asset-backed securities and trust expenses). Once the funds in the Cash
Spread Accounts meet specified levels (which may be increased if the performance
of the relevant Loan pool deteriorates), any subsequent excess cash flows
thereafter will be released to the Company on a monthly basis. Any remaining
cash in the Cash Spread Accounts after the asset-backed securities have been
paid in full also will be released to the Company. The amount of excess cash
available for distribution to the Company will be affected by the Servicing
Portfolio's actual loss and prepayment experience. See Note 3 to the Financial
Statements - Retained Interest in Securitizations.
<PAGE>
The table below sets forth certain information relating to the Company's
Loan purchasing activities:
Year Ended December 31,
---------------------------------
1997 1996 1995
-------- -------- -------
(dollars in thousands)
Number of Loans purchased.............. 15,403 6,789 3,586
Principal balance of Loans purchased... $187,383 $84,981 $45,972
Principal amount of Loans funded(1).... 182,900 80,956 43,505
Securitization related income (loss)... (323) 13,564 7,367(2)
Servicing income....................... 3,437 866 219
- ------------------------
(1) Amount funded represents the price at which the Company purchases a Loan
from a Dealer or Third-Party Originator (i.e., the amount actually paid to a
Dealer or Third-Party Originator), calculated as the principal of the Loan
purchased less the Dealer Discount.
(2) Includes $639,000 of gain on sales of Loans acquired between October 12,
1994 and January 16, 1995 and sold to the Master Trust on January 16, 1995.
Results of Operations
The Company reported a net loss available to common shareholders of $18.6
million for the year ended December 31, 1997, compared to $2.8 million and $2.2
million of net income available to common shareholders (including the pro forma
impact of income taxes of $1.7 million and $1.1 million, respectively) for the
years ended December 31, 1996 and 1995, respectively. The loss in 1997 is
primarily the result of: (a) the impact of changes in assumptions relating to
the calculation of gain on sale of loans and the valuation of Retained Interest
in Securitizations, including an increase in estimated cumulative net losses
from 7% in 1996 to 12.88% in 1997 and an increase in
<PAGE>
the discount rate applied to present value the Company's Retained Interest in
Securitizations from 11% in 1996 to 14% in 1997; (b) the present valuing at
December 31, 1997, in conjunction with the implementation of SFAS No. 125 on
January 1, 1997, of the Company's Spread Accounts, that include the Cash Spread
Accounts and Over-Collateralization Accounts and is a component of the Company's
Retained Interest in Securitizations; (c) start-up and duplicative expenses in
the aggregate amount of $2.6 million in 1997, associated with the Company's
transition from an outside servicer to in-house servicing, including the opening
of a 44,000-square-foot service center in Jacksonville, Florida; (d) the
expensing in 1997 of $720,000 relating to the early extinguishment of certain
senior subordinated debt; and (e) the expensing in 1997 of $700,000 relating to
the modification of certain terms of payment guarantee agreements with the
Company's securitized trusts insurer.
Securitization Related Income (Loss)
The Company's Loan purchasing and servicing operations expanded
significantly during the year ended December 31, 1997, compared to the years
ended December 31, 1996 and 1995. The Company purchased 15,403 Loans, having a
principal balance of $187.4 million, during the year ended December 31, 1997,
compared to 6,789 Loans, having a principal balance of $85.0 million, for the
year ended December 31, 1996 and 3,586 Loans having a principal balance of $46.0
million for the year ended December 31, 1995. These Loan purchases consisted of
10,354 Loans purchased from Dealers ($140.9 million principal balance) and 5,049
Loans purchased from Third-Party Originators ($46.5 million principal balance)
during the year ended December 31, 1997. This compares to 6,324 Loans purchased
from Dealers ($80.2 million principal balance) and 465 Loans purchased from
Third-Party Originators ($4.8 million principal balance) during the year ended
December 31, 1996 and 3,586 Loans purchased from Dealers ($46.0 million
principal balance) during the year ended December 31, 1995. For the year ended
December 31, 1997, the Company recognized a securitization related loss of
$323,000. Notwithstanding a 120% increase in dollar volume of Loans purchased
during the year ended December 31, 1997, gain on sale of Loans decreased due to
a $21.5 million pre-tax adjustment to Retained Interest in Securitizations
resulting from the reasons described in "-Overall-Revenues" above.
The Company's gain on sale model includes an amount equal to an estimate of
cumulative net losses to be experienced with respect to the Loans securitized.
Significant changes in such cumulative net loss estimate will result in
adjustments to the carrying value of Retained Interest in Securitizations. In
1997, the Company experienced significant servicing and collection problems with
the Servicing Portfolio, which the Company believes resulted primarily from
deficiencies in the servicing and collection performance of its outside
servicer. The Company believes that these performance deficiencies are largely
responsible for the increase in delinquency and net loss experience of the
Servicing Portfolio throughout the year ended December 31, 1997. In response
<PAGE>
thereto, the Company's estimates for Loan losses were increased to 12.0% as of
October 1, 1997, and 12.88% as of December 31, 1997, compared to 7.0% for the
year ended December 31, 1996. The Company began assuming collections
responsibility for Loans more than 30 days past due in July 1997, and assumed
responsibility for collections of the entire Servicing Portfolio on October 1,
1997. Since initiating self-management of collections in July 1997, the
outstanding principal balance of Loans that were more than 30 days past due has
decreased to 9.7% of the Company's Servicing Portfolio as of December 31, 1997,
from 10.1% as of June 30, 1997 and was 8.18% as of February 28, 1998. Although
there can be no assurances, management believes that this improvement will
continue as the Company completes its transition to in-house servicing and
collections later in the second quarter of 1998.
Servicing Income
The Company receives a servicing fee in cash of approximately 4.0% of the
principal amount of the Loans sold to the Master Trust and 2.0% for the
principal amount of the Loans subsequently sold to the Permanent
Securitizations, which typically offsets actual servicing expenses incurred by
the Company. This income is recognized when earned. Servicing income for the
years ended December 31, 1997, 1996 and 1995 was $3.4 million, $866,000 and
$219,000, respectively. The growth in servicing income was attributable to the
increase in the size of the Servicing Portfolio.
Other Income
Other income consists of interest income on cash investments (including the
Cash Spread Accounts), other income and finance charges earned. The other income
for the years ended December 31, 1997, 1996 and 1995 was $1.0 million, $361,000
and $225,000, respectively. The increase in other income in 1997 was primarily
attributable to interest earned on the net proceeds of the Company's Initial
Public Offering, pending utilization thereof.
Total Expenses
The Company reported total expenses for the years ended December 31, 1997,
1996 and 1995 of $21.9 million, $10.3 million and $4.5 million, respectively.
These expenses consisted primarily of interest expense on long-term indebtedness
including the Company's senior subordinated notes, salaries and employee
benefits, direct Loan acquisition expenses and servicing expenses. Total
expenses, as a percentage of the average principal balance of the Servicing
Portfolio, decreased from 19.2% as of December 31, 1995 to 13.7% as of December
31, 1997.
<PAGE>
External servicing expenses for the years ended December 31, 1997, 1996 and
1995 were $3.3 million, $1.3 million and $371,000, respectively. Servicing costs
consisted primarily of a monthly fee to an outside servicer for each active Loan
and the cost of vendor's single interest ("VSI") insurance maintained by the
Company. Servicing fees paid to the Company's outside servicer for the years
ended December 31, 1997, 1996 and 1995 were $2.8 million, $1.1 million and
$326,000, respectively. The increase in servicing expenses primarily reflected
the growth in the Servicing Portfolio. The Company's Servicing Portfolio grew
from a $43.1 million Servicing Portfolio, representing 3,586 outstanding loans
as of December 31, 1995, to a $102.9 million Servicing Portfolio, representing
9,063 outstanding Loans, as of December 31, 1996, and further to a $226.8
million Servicing Portfolio, representing 20,886 outstanding Loans, as of
December 31, 1997. The Company will continue to pay its outside servicer fees
during the period of transition to the full servicing and MIS operations, which
is expected to be completed later in the second quarter of 1998. Thereafter,
servicing expenses will decline but will be partially replaced by internal
servicing expenses.
The Company has assumed responsibility for collecting all of its Loans, and
anticipates assuming responsibility for all other servicing of its Loans and MIS
operations in the second quarter of 1998. Internal servicing expenses consisted
primarily of salaries and other operating expenses totaling $2.6 million for the
year ended December 31, 1997. In addition, the Company capitalized approximately
$336,000 of costs related to construction of the service center and development
of software during the year ended December 31, 1997. The Company commenced
operations in its own internal servicing during July 1997 and had hired 74
employees as of December 31, 1997. The internal servicing expenses will continue
to grow as the transition to in-house servicing continues.
Interest expense for the years ended December 31, 1997, 1996 and 1995 was
$1.6 million, $1.2 million and $498,000, respectively. The increase in interest
expense on debt for each year resulted from the increasing long-term debt
balances of the Company.
Salaries and employee benefits for the years ended December 31, 1997, 1996
and 1995 were approximately $6.3 million, $3.6 million and $1.7 million,
respectively. The increase in each of the years resulted from the number of
full-time employees, excluding employees involved in internal servicing whose
salaries and employee benefits expenses are reported as internal servicing
expenses, increasing from 38 as of December 31, 1995, to 67 as of December 31,
1996, and to 90 as of December 31, 1997. The increase in the number of employees
resulted from the growth in the number of Loans purchased and serviced by the
Company. These expenses consisted primarily of salaries and wages, performance
incentives, employee benefits and payroll taxes. The Company
<PAGE>
expects that its number of full-time employees will continue to increase
commensurate with the growth of the Company.
Direct Loan acquisition expenses for the years ended December 31, 1997,
1996 and 1995 were $3.6 million, $1.9 million and $562,000, respectively. These
expenses consisted primarily of Dealer incentives, fees paid to Strategic
Alliance partners, broker fees, credit information fees and telephone expenses.
The expenses have increased as a result of the increase in the number of Loans
acquired by the Company over these three periods.
Other operating expenses for the years ended December 31, 1997, 1996 and
1995 were $3.6 million, $1.8 million and $1.2 million, respectively. These
expenses consisted primarily of telecommunications, travel, professional fees,
insurance expenses and MIS expenses. The increase in other operating expenses
primarily reflects the growth in the number of Loans purchased and serviced by
the Company, the hiring of additional personnel and other costs associated with
the growth of the Company.
Extraordinary Item
The Company expensed the remaining balance of deferred financing costs of
approximately $720,000 associated with the placement of the Morgan Notes due to
the early extinguishment of that debt in December 1997.
Loan Loss and Delinquency Experience
Loan losses and Loan prepayments are continuously monitored on an overall
portfolio and month-of-purchase static pool basis. Pursuant to the requirements
of SFAS No. 125, the Company reviews its actual Loan loss experience in
conjunction with its quarterly revaluation of the carrying value of Retained
Interest in Securitizations. Charge-off policies are based upon an
account-by-account review of delinquent Loans by the Company. The Trusts
generally charge off a Loan at the time its related collateral is liquidated,
although certain Loans may be charged off sooner if management deems them to be
uncollectable.
<PAGE>
The following table summarizes the Company's loan loss experience:
As of December 31,
----------------------------------------
1997 1996 1995
--------- -------- --------
(dollars in thousands)
Average Servicing Portfolio during
period.............................. $158,737 $769,025 $23,565
Gross charge-offs...................... 17,355 6,313 1,447
Liquidation proceeds from
repossessed assets.................. (7,294) (3,435) (797)
-------- -------- -------
Net charge-offs........................ $ 10,061 $ 2,878 $ 650
======== ======== =======
Net charge-offs as a percentage of
average Servicing
Portfolio........................... 6.34% 4.17% 2.76%
======== ======== =======
In 1997, the Company experienced significant servicing and collection
problems with the Servicing Portfolio, which the Company believes resulted
primarily from serious deficiencies in the servicing and collection performance
of its outside servicer. The Company believes that these performance
deficiencies are largely responsible for the Servicing Portfolio's delinquency
ratio increasing from 8.0% at December 31, 1996 to 10.1% at June 30, 1997,
which, in turn, caused an event of default in April 1997 under the Company's
Insurance and Indemnity Agreement with Financial Security Assurance Inc. ("FSA")
with respect to the 1995 Permanent Securitization and the failure to satisfy
certain FSA performance tests with respect to the 1995 and 1996 Permanent
Securitizations. (See further discussion in "--Liquidity and Capital
Resources"). The Company began assuming collections responsibility for Loans
more than 30 days past due in July 1997, and assumed responsibility for
collections of the entire Servicing Portfolio on October 1, 1997, although it
continues to use its outside servicer for customer service and MIS functions.
The Company expects to begin customer service and MIS operations later in the
second quarter of 1998. During the transition period when its outside servicer
continues to provide customer service and MIS services for the Servicing
Portfolio, the Company will experience increased costs and will not have
complete self-management of the quality and timeliness of servicing efforts.
<PAGE>
Prior to July 1997, the Company had not serviced or collected Loans and
therefore continues to be subject to the inherent risks associated with
initiating new operations, such as unforeseen operational, financial and
management problems. There can be no assurance that the Company will be able to
service and collect the Servicing Portfolio on a cost effective and timely basis
or that future delinquency and loss ratios will not increase.
The gain on sales of Loans the Company recognizes from the sale of Loans to
the Master Trust, and the cash flow from its securitizations are substantially
dependent on the Servicing Portfolio's delinquency and loss performance.
Increase in delinquencies and losses may result in: (i) increased capital and/or
credit enhancement requirements for securitizations; (ii) reductions in cash
flow to the Company; and (iii) additional violations of Permanent Securitization
performance tests. Consequently, the Company's failure to effectively service
and collect the Servicing Portfolio could have a material adverse effect on the
Company's financial condition, results of operations and cash flows. See Note 3
to the Financial Statements - Retained Interest in Securitizations.
Since October 1994, the Company has maintained, at its own expense,
supplemental VSI insurance that protects the Company's interest in Loan
collateral against uninsured physical damage (including total loss) in instances
where neither the automobile nor the borrower can be found.
<PAGE>
The Company considers a Loan to be delinquent if the borrower fails to make
any payment substantially in full on or before the due date as specified by the
terms of the Loan. The Company typically initiates contact with borrowers whose
payments are not received by the fifth day following the due date. The following
table summarizes the delinquency and repossession experience with respect to the
Servicing Portfolio:
As of December 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
(dollars in thousands)
Period of delinquency
31 to 60 days ........................ $14,316 $6,104 $2,148
61 to 90 days ........................ 3,458 1,596 157
91 days or more ...................... 4,343 487 46
------- ------ ------
Total delinquencies .................... $22,117 $8,187 $2,351
======= ====== ======
Total delinquencies as a percentage
of the Servicing Portfolio ........... 9.75% 7.95% 5.45%
Principal balance of Loans related to
repossession inventory................ $ 4,935 $2,266 $ 553
Repossession inventory as a percentage
of the Servicing Portfolio............ 2.18% 2.20% 1.28%
Management believes that the payment practices of Non-Prime Consumers are
partially a function of seasonality. Because Non-Prime Consumers typically have
low disposable incomes, they frequently tend to fall behind in payments on their
Loans during the early winter months, when the holiday season generates demands
for their limited disposable income and when these borrowers encounter
weather-related work slow-downs. As a result, absent unforeseen circumstances,
<PAGE>
management expects delinquencies to be highest in the first calendar quarter and
the fourth calendar quarter of each year. Generally, there is a 60 to 120-day
lag between initial delinquency and charge-off.
The Company monitors historical loss experience on an overall portfolio
basis and on a static pool basis. Loans acquired and sold to the Master Trust in
each calendar month are segregated into individual static pools. The Company
considers a pool of Loans to be "seasoned" when it has been aged for an average
of 18 to 24 months. Actual pool losses are compared to the estimates for net
losses, and adjustments to the carrying value of Retained Interest in
Securitizations for the effect of any additional losses will be reflected in the
current period earnings.
<PAGE>
The following tables summarize the vintage static pools of the Company's
Servicing Portfolio for all Loans purchased by the Company from inception
through the period ending September 30, 1997, and include net loss data through
December 31, 1997 for Loans for which collateral has been liquidated:
PERIOD OF ORIGINATION
Cumulative Net Losses as Percentage of Original
Principal Balance of Loans Sold During Period
<TABLE>
<CAPTION>
Months
From 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Origination 1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3 0.00% 0.00% 0.00% 0.00% 0.05% 0.00% 0.00% 0.04% 0.00% 0.00% 0.00% 0.02%
4 0.00% 0.00% 0.00% 0.03% 0.17% 0.00% 0.00% 0.04% 0.01% 0.02% 0.17% 0.02%
5 0.00% 0.07% 0.00% 0.19% 0.21% 0.10% 0.10% 0.16% 0.00% 0.06% 0.43% 0.07%
6 0.05% 0.14% 0.27% 0.43% 0.70% 0.39% 0.31% 0.45% 0.25% 0.23% 0.93% 0.22%
7 0.05% 0.24% 0.67% 0.88% 0.96% 0.60% 0.63% 0.79% 0.61% 0.58% 1.40%
8 0.31% 0.86% 1.42% 1.24% 1.05% 0.80% 1.14% 1.06% 1.21% 1.19% 1.89%
9 0.47% 1.34% 1.98% 2.18% 1.57% 1.38% 1.73% 1.92% 1.89% 1.90% 2.58%
10 0.51% 1.70% 2.40% 2.35% 2.28% 1.81% 2.70% 2.59% 2.55% 2.34%
11 1.08% 1.73% 2.62% 2.71% 2.40% 2.00% 3.29% 3.36% 3.40% 2.84%
12 1.36% 2.52% 3.14% 3.11% 3.08% 2.43% 4.34% 3.65% 3.69% 3.45%
13 1.75% 3.04% 3.37% 3.60% 3.48% 3.35% 5.19% 4.47% 4.02%
14 1.72% 3.39% 3.71% 3.58% 3.69% 3.60% 5.58% 5.04% 4.53%
15 3.12% 3.90% 3.99% 4.13% 4.24% 4.42% 6.00% 5.38% 5.12%
16 3.21% 4.20% 4.27% 4.60% 4.58% 4.71% 6.50% 5.95%
17 3.80% 4.52% 4.49% 4.98% 5.36% 5.38% 6.89% 6.37%
18 4.45% 4.70% 5.01% 5.14% 5.52% 5.80% 7.19% 6.84%
19 4.55% 4.94% 5.35% 5.49% 6.09% 6.68% 7.52%
20 4.91% 5.18% 5.75% 5.96% 6.43% 6.95% 7.85%
21 4.91% 5.77% 6.13% 6.46% 6.65% 7.16% 8.25%
22 5.05% 5.75% 6.84% 6.76% 7.10% 7.60%
23 5.05% 6.24% 7.44% 7.02% 7.51% 8.09%
24 5.79% 6.34% 7.75% 7.10% 8.06% 8.24%
25 5.78% 7.01% 8.28% 7.78% 8.34%
26 6.20% 7.30% 8.52% 8.37% 8.62%
27 6.80% 7.65% 8.66% 8.63% 8.82%
28 7.15% 8.00% 9.08% 8.71%
29 7.49% 9.02% 9.31% 8.86%
30 8.06% 9.15% 9.36% 8.92%
31 8.23% 9.73% 9.57%
32 9.07% 9.90% 9.60%
33 9.07% 10.08% 9.89%
34 9.61% 10.07%
35 9.89% 10.28%
36 10.38% 10.59%
37 11.44%
38 11.48%
39 11.81%
</TABLE>
<PAGE>
Liquidity and Capital Resources
General
Since inception, the Company has funded its operations and the growth of
its Loan purchasing activities primarily through six sources of capital: (i)
cash flows from operating activities; (ii) proceeds from securitization
transactions; (iii) cash flows from servicing fees; (iv) proceeds from the
issuance of indebtedness; (v) capital contributions of certain affiliates of the
Company; and (vi) proceeds from the Company's Initial Public Offering and
subsequent private issuances of Common Stock.
The Company's primary uses of cash are to fund: (i) Spread Accounts; (ii)
securitizations; (iii) Loan purchases; (iv) debt service; (v) issuance costs of
asset securitizations; and (vi) operating expenses.
Net cash used in operating activities increased by $18.3 million from $7.1
million in fiscal 1996 to $25.4 million in fiscal 1997, principally due to
increased operating expenses resulting from the growth of the Company, an
increase in the initial cash deposit to the Cash Spread Accounts for the 1997
Permanent Securitization, the change in the credit enhancement requirements of
the Company's other securitization facilities and the increase in the volume of
Loans purchased. The $4.1 million increase in cash used in operations from
fiscal 1995 to fiscal 1996 was principally due to the increase in the volume of
Loans purchased.
Net cash used in investing activities increased by $1.1 million from
$377,000 in fiscal 1996 to $1.5 million in fiscal 1997, principally due to
purchases of furniture and equipment for the Company's service center. Net cash
flows from investing activities were relatively consistent in fiscal 1996 and
fiscal 1995.
Net cash provided by financing activities increased by $36.6 million from
1997 to 1996. Such increase was primarily the result of the proceeds received
from the Company's Initial Public Offering and subsequent issuances of Common
Stock and debt, including but not limited to $40 million of senior subordinated
notes in December 1997 and its indebtedness under the BankBoston Agreement. Net
cash provided by financing activities increased in fiscal 1996 from fiscal 1995
due to proceeds received from additional debt.
The Company is required to maintain a minimum equity position in the
Revolving Securitization of 10.0% of the net serviced receivables. This equity
currently consists of cash invested by the Company and over-collateralization in
the form of Dealer Discounts related to the principal balance of Loans. As of
December 31, 1997, the Company had a 10.01% equity investment in the Revolving
Securitization.
As of December 31, 1997, the Company retained approximately $16.7 million
of ESRs, approximately $6.0 million of Cash Spread Accounts and approximately
$8.8 million of Over-Collateralization Accounts, which combined represent the
$31.6 million shown on the balance sheet as Retained Interest in
Securitizations, representing 49% of the total assets of the Company. The value
of these assets would be reduced in the event of a future material increase in
the Loan loss or prepayment experience relative to the amounts previously
estimated by the Company.
<PAGE>
As of December 31 ,1997, the principal amount owed by the Company on its
junior subordinated notes (the "Junior Subordinated Notes") was approximately $2
million (including $39,000 of accrued interest), which bear interest at an
annual rate of 8.0%, and the principal amount owed by the Company on its senior
subordinated notes (the "Senior Subordinated Notes") was $40.0 million. The
Senior Subordinated Notes, which mature in December 2004, bear interest at an
annual rate of 11.875% for the first three years, and increase thereafter. On
March 22, 1998, the Company issued an additional $20 million aggregate principal
amount of senior subordinated notes pursuant to the March 1998 Securities
Purchase Agreement. Such notes have the same terms as the Senior Subordinated
Notes issued in December 1997.
As of September 29, 1997, the Company entered into the BankBoston
Agreement, a three-year, $10.0 million revolving credit facility secured by
Loans. Originally, the BankBoston Agreement permitted the Company to use up to
$8.0 million of that credit facility for working capital. The working capital
portion of the line is no longer available to the Company, and has been repaid
in full. In addition, at December 31, 1997, the Company was in violation of the
BankBoston Agreement's Minimum Quarterly Net Income and Minimum Debt Service
Coverage covenants. The Company cannot continue to borrow in the future under
the BankBoston Agreement unless such covenant breaches are waived. At April 24,
1998, there were no borrowings outstanding under the BankBoston Agreement.
The Company's future liquidity and financial condition, and its ability to
finance the growth of its business and to repay or refinance its indebtedness,
will depend substantially on distributions of excess cash flow from the Master
Trust and Permanent Securitization trusts. The Company's agreements with FSA
provide that each Permanent Securitization trust must maintain specified levels
of cash in its Cash Spread Account during the life of the trust. These spread
accounts are funded initially out of beginning deposits and are funded
thereafter with excess cash flow from the Loan pool. During each month, excess
cash flow distributable to the Company from all Permanent Securitization trusts
is first used to replenish any Cash Spread Account deficiencies and then is
distributed to the Company. The timing and amount of distributions of excess
cash from securitization trusts varies based on a number of factors, including
loan delinquencies, defaults and net losses, the rate of disposition of
repossession inventory and recovery rates, the age of Loans in the portfolio,
prepayment experience and required spread account levels. A deterioration of the
Company's Loan delinquencies, defaults or net losses, or a build-up in
repossession inventory could reduce excess cash available to the Company. There
can be no assurance that in the future the Company will not experience an
interruption in its receipt of excess cash flows, which could adversely affect
the Company's financial condition, results of operations and cash flows.
Each Permanent Securitization trust has certain portfolio performance tests
relating to levels of delinquency, defaults and net losses on the Loans in such
trust ("Maintenance Tests"). Portfolio performance tests require that the Loan
portfolio of each Permanent Securitization trust have: (i) an average
delinquency rate less than a specified percentage; (ii) a cumulative default
rate less than specified percentages that vary based on the aging of the
relevant trust's Loan pool; and (iii) a cumulative net loss less than specified
percentages that vary based on the aging of the relevant trust's Loan pool. If
any Permanent Securitization Loan portfolio fails to satisfy any of these tests,
the amount of cash required to be retained in the Cash Spread Account related to
such securitization trust will be increased to an amount generally equal to 7.0%
of the then outstanding balance held by the securitization trust. Certain
portfolio performance tests were not met at various times in 1997 with respect
to the Permanent Securitization trusts formed in November 1995 and November
1996, resulting in an additional $2.1 million of total cash being required to be
retained in the Cash Spread Accounts related to such Permanent Securitization
trust until the violation of such performance tests are cured. As of December
31, 1997, a total of $1.5 million of such additional $2.1 million had been
accumulated in the Cash Spread Accounts of such trusts, in lieu of being
distributed to the Company. FSA has modified its portfolio performance test for
such trusts for the period through June 1998, which has resulted in higher
thresholds to trigger further violations of such tests.
Upon the occurrence of a Permanent Securitization failing to meet portfolio
performance tests of the nature described above but at significantly higher
levels (an "Insurance Agreement Event of Default"), the Company will be in
default under its insurance agreements with FSA. Upon an Insurance Agreement
Event of Default, FSA may: (i)
<PAGE>
permanently suspend distributions of cash flow to the Company from the related
securitization trust and all other FSA-insured trusts until the asset-backed
securities have been paid in full; (ii) capture all excess cash flows from
performing FSA-insured trusts; (iii) increase its premiums; and (iv) replace the
Company as servicer with respect to all FSA-insured trusts. In April 1997, the
Permanent Securitization trust formed in November 1995 experienced an Insurance
Agreement Event of Default. In October 1997, the Company entered into an
agreement with FSA that: (i) permanently waived the April 1997 Insurance
Agreement Event of Default, thereby permitting distributions of excess cash
flows to the Company; (ii) modified the portfolio performance tests described
above to increase the thresholds through June 1998 for the Permanent
Securitization trusts formed in November 1995 and 1996; (iii) increased the
amount required to be retained in the Cash Spread Account related to the
November 1995 and 1996 trust to an amount generally equal to 11% of the then
outstanding balance held by the securitization trust if the modified portfolio
performance tests are not met; (iv) required the Company to cause the Cash
Spread Account for each FSA-insured securitization trust to be
cross-collateralized to the Spread Accounts established in connection with each
of its other FSA-insured securitization trusts; (v) permitted the Company to
enter into the $10.0 million BankBoston Agreement; (vi) provided that FSA would
consider providing credit enhancement for the Company's next Permanent
Securitization; and (vii) resulted in the issuance of 100,000 shares of Common
Stock to FSA in October 1997 . As a result of the aforementioned
cross-collateralization, the excess cash flow from a performing FSA-insured
trust may be required to be used to support negative cash flow from, or to
replenish a deficient Cash Spread Account in connection with, a nonperforming
FSA-insured securitization trust, thereby further restricting excess cash flow
available to the Company. If excess cash flow from all FSA-insured
securitization trusts is not sufficient to replenish all these Cash Spread
Accounts, no cash flow would be available to the Company for that month. The
Company's right to service the Loans sold in FSA-insured securitizations is
generally subject to the discretion of FSA. Accordingly, there can be no
assurance that the Company will continue as servicer for such Loans and receive
related servicing fees. Additionally, there can be no assurance that there will
not be additional Insurance Agreement Events of Default in the future, or that,
if such events of default occur, waivers will be available.
In January and February 1998, certain modified portfolio performance tests
were not met with respect to the Permanent Securitization trusts formed in
November 1995, November 1996 and July 1997, resulting in the Company being
required to retain an additional amount of $3.6 million over the $2.1 million
previously required to be retained in the Cash Spread Accounts related to such
Permanent Securitization trusts until the violation of such modified performance
tests are cured. As of February 28, 1998, a total of $2.0 million of the total
$5.7 million in increased spread account funding requirements had been
accumulated in the Cash Spread Accounts of such trusts, in lieu of being
distributed to the Company.
The following is a table showing the portfolio performance tests by trust
as of February 28, 1998:
<TABLE>
<CAPTION>
Delinquency Test Default Test Loss Test
----------------------------- ----------------------------- -----------------------------
Actual Maintenance Insurance Actual Maintenance Insurance Actual Maintenance Insurance
------ ----------- --------- ------ ----------- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95-1 10.49 10.00 12.00 18.11 20.00 25.00 8.36 10.50 12.00
96-1 11.49 9.75 12.00 20.76 20.00 25.00 8.35 10.00 12.00
97-1 8.51 8.25 11.00 20.17 18.00 25.00 8.70 8.00 11.00
98-1 4.54 8.25 11.50 3.23 18.00 25.00 0.00 8.00 12.20
8.00 12.20
</TABLE>
<PAGE>
Any increase in limitations on cash flow available to the Company from
Permanent Securitization trusts, the Company's inability to obtain any necessary
waivers from FSA or the termination of servicing arrangements could materially
adversely affect the Company's financial condition, results of operations and
cash flows.
The Company, at December 31, 1997, was in violation of the Minimum
Consolidated Net Worth and Adjusted Interest Expense covenants contained in the
December 1997 Securities Purchase Agreement pursuant to which it issued
$40,000,000 aggregate principal amount of Senior Subordinated Notes. The Minimum
Consolidated Net Worth covenant requires that the Company maintain Consolidated
Net Worth (as defined) of not less than (a) $25,890,000 plus (b) on a cumulative
basis commencing with the first fiscal quarter ending March 31, 1998, 50% of net
income (if positive) for each fiscal quarter plus (c) 100% of the net proceeds
from any public offering or private placement of common stock. The Adjusted
Interest Expense covenant requires generally that the sum of the Company's Net
Income (as defined), Consolidated Total Interest Expense (as defined) and income
and franchise taxes divided by its Consolidated Total Interest Expense (as
defined) for each period of four fiscal quarters ending December 31, 1997 and
thereafter be at least 1.4:1. In addition, the Company is default under the
corresponding covenants contained in the March 1998 Securities Purchase
Agreement. The Company is in the process of seeking waivers of the breach of
such covenants. If such waivers are not obtained, the holders of the
indebtedness represented thereby may declare a default and accelerate the
payment of the principal amount of such indebtedness.
The Company, at December 31, 1997, was in violation of the Minimum
Quarterly Net Income and Minimum Debt Service Coverage covenants contained in
the BankBoston Agreement. The Company is in the process of seeking a waiver of
such covenant breaches and can not continue to borrow in the future under the
BankBoston Agreement unless such covenant breaches are waived. The Company
experienced an acceleration in the use of cash during fiscal 1997 compared to
fiscal 1996, due, in large part, to six factors: (i) an increase in the volume
of Loans purchased from Dealers; (ii) a higher volume of Loans purchased from
Third-Party Originators; (iii) a decrease in the average Dealer Discount; (iv)
costs associated with the implementation of the Company's internal servicing and
the corresponding overlap of costs between the Company's internal servicing and
its outside servicer; (v) an increase in the initial cash deposit to the spread
account required as a credit enhancement for the Permanent Securitization
completed in July 1997; and (vi) a change in the credit support requirements of
the Company's other securitization facilities, which has resulted in, and may
continue in the future to result in, additional capital of the Company being
maintained in the spread accounts of its Permanent Securitizations. This
acceleration has continued in 1998.
The Company's business requires substantial cash to support the funding of
Cash Spread Accounts for its securitizations, issuance costs of its asset
securitizations, operating expenses, tax payments, debt service and other cash
requirements. These cash requirements increase as the number of Loans purchased
and serviced by the Company increase. Historically, the Company has operated on
a negative operating cash flow basis and its negative operating cash flow is
expected to continue for the foreseeable future. The Company has funded its
negative operating cash flows principally through borrowings under its secured
financing facilities, issuances of subordinated debt and sales of equity
securities. The Company believes cash currently on hand should be sufficient to
meet the Company's cash requirements and to fund its operations through the
third quarter of 1998, assuming the Company completes regular securitizations
during that period and its lenders under the Securities Purchase Agreements do
not accelerate their indebtedness. Thereafter, the Company will be required to
issue additional debt or equity, which could dilute the interests of
stockholders of the Company. There can be no assurance that the Company will
have access to the capital markets in the future for debt or equity issuances or
for securitizations, or that financing through borrowings or other means will be
available on terms acceptable to the Company. The Company's inability to access
the capital markets or obtain financing on acceptable terms could have a
material adverse effect on the Company's financial condition, results of
operations and cash flows.
<PAGE>
Fourth Quarter Adjustments
During the fourth quarter, the Company reduced securitization related
income (loss by) $20.3 million to adjust Retained Interest in Securitizations
and/or securitization related income (loss) at December 31, 1997. Additionally,
the Company recorded an extraordinary loss of $720,000 related to the write-off
of deferred financing costs associated with the Morgan Notes that were repaid in
the fourth quarter.
Inflation
Increases in the rate of inflation of prices in the U.S. economy generally
result in higher interest rates. Typically, higher interest rates result in a
decrease in the Company's net interest margins and a corresponding decrease in
the Company's gain on sale revenue for a given Loan amount; to the extent not
offset by increases in the volume of Loans purchased, inflation can therefore
lead to decreases in the Company's profitability.
Year 2000
The Company currently uses computer systems and software provided by an
outside servicer to automate Loan originations and servicing but expects to
transition to its own computer system in the second quarter of 1998. The Company
is in the process of installing in its Boca Raton, Florida and Jacksonville,
Florida facilities the Consumer Loan Asset Backed Security System (CLASS) for
the underwriting and servicing of its Loan portfolio. CLASS is a
fully-integrated finance company software platform composed of separate modules
integrating loan origination, loan servicing, operational accounting and loan
securitization functions. The Company believes that the CLASS software platform
is year 2000 compliant. The Company is also in the process of installing a
financial accounting software package, which the Company believes to be Year
2000 compliant. There can be no assurance, however, that software
incompatibility with the year 2000 on the part of the Company or any of its
significant suppliers will not have a material adverse effect on the Company.
<PAGE>
Item 8. Financial Statements.
Page
Independent Auditors' Report ..................................... 32
Consolidated Balance Sheets as of December 31, 1997 and 1996...... 33
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995................................ 34
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.................... 35
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995................................ 36
Notes to Consolidated Financial Statements........................ 38
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
National Auto Finance Company, Inc.
We have audited the accompanying consolidated balance sheets of National Auto
Finance Company, Inc. and subsidiaries (formerly National Auto Finance Company,
L.P. and subsidiaries) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Auto Finance Company, Inc. and subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1997 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," in 1997.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 3, 4
and 14 to the consolidated financial statements, in 1997 the Company suffered
losses from operations, experienced an Insurance Agreement Event of Default with
respect to its securitizations, and at December 31, 1997 was in violation of
various covenants related to its borrowings. Such matters raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
April 15, 1998
Fort Lauderdale, Florida
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 26,467 $ 5,066
Retained interests in securitizations, at fair value 31,569 23,404
Furniture, fixtures and equipment 2,262 515
Deferred financing costs 2,539 1,849
Related party receivables 155 --
Other assets 1,883 367
-------- --------
Total assets $ 64,875 $ 31,201
======== ========
LIABILITIES:
Accounts payable and accrued expenses $ 3,260 $ 1,771
Due to National Auto Finance Corporation -- 178
Accrued interest payable-related parties 39 144
Accrued interest payable-senior subordinated notes 132 339
Accrued interest payable-notes 50 --
Junior subordinated notes-related parties 1,940 7,122
Senior subordinated notes 34,546 12,000
Notes payable 1,614 96
-------- --------
Total liabilities 41,581 21,650
-------- --------
Mandatorily redeemable preferred stock series A- $0.01 par value; $1,000 stated
value; 1,000,000 shares authorized; 2,295 shares outstanding; redeemable in
January 2005, stated at
redemption value 2,336 --
STOCKHOLDERS' EQUITY:
Common stock-$0.01 par value; 20,000,000 shares authorized;
9,030,762 shares outstanding 90 --
Paid-in-capital 34,417 --
Accumulated deficit (13,549) --
Equity of predecessor entity 9,551 --
-------- --------
Total stockholders' equity 20,958 9,551
-------- --------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity $ 64,875 $ 31,201
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Securitization related income (loss) $ (323) $ 13,564 $ 7,367
Servicing Income 3,437 866 219
Interest income 817 258 11
Other income 214 103 214
-------- -------- --------
Total revenue 4,145 14,791 7,811
-------- -------- --------
EXPENSES:
External servicing expenses 3,355 1,291 371
Internal servicing expenses 2,589 -- --
Interest expense 1,638 1,204 498
Salaries and employee benefits 6,346 3,634 1,666
Direct loan acquisition expenses 3,591 1,924 562
Depreciation and amortization 743 492 183
Other operating expenses 3,602 1,755 1,250
-------- -------- --------
Total expenses 21,864 10,300 4,530
-------- -------- --------
Income (loss) before income taxes and extraordinary item (17,719) 4,491 3,281
Income taxes -- -- --
-------- -------- --------
Income (loss) before extraordinary item (17,719) 4,491 3,281
Extraordinary loss due to early extinguishment of debt (720) -- --
-------- -------- --------
Net income (loss) before preferred stock dividends (18,439) 4,491 3,281
Preferred stock dividends (148) -- --
-------- -------- --------
Net income (loss) available for common shareholders $(18,587) $ 4,491 $ 3,281
======== ======== ========
PER SHARE DATA:
Loss per common share before extraordinary item - basic $ (2.52)
Extraordinary item (0.10)
--------
Loss per common share - basic $ (2.62)
========
Loss per common share before extraordinary item - diluted $ (2.52)
Extraordinary item (0.10)
--------
Loss per common share - diluted $ (2.62)
========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 7,087
Diluted 7,087
PRO FORMA SHARE DATA (UNAUDITED):
Income before income taxes $ -- $ 4,491 $ 3,281
Income taxes $ -- 1,689 1,066
-------- -------- --------
Pro Forma net income $ -- $ 2,802 $ 2,215
======== ======== ========
PRO FORMA NET INCOME PER COMMON SHARE:
Basic $ -- $ 0.66 $ 0.52
Diluted $ -- $ 0.66 $ 0.52
PRO FORMA WEIGHTED AVERAGE:
NUMBER OF SHARES OUTSTANDING
Basic -- 4,230 4,230
Diluted -- 4,230 4,230
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
[OBJECT OMITTED]
NATIONAL AUTO FINANCE COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Equity of
Common Paid-in Accumulated Predecessor
Stock Capital Deficit Entity Total
----- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1994 $ $ $ $ 25 $ 25
--------- --------
Contribution 141 141
Net income 3,281 3,281
--------- --------
Balance as of December 31, 1995 3,447 3,447
Contributions 1,613 1,613
Net income 4,491 4,491
--------- --------
Balance as of December 31, 1996 9,551 9,551
Net income from January 1, 1997
through reorganization on January 29, 1997 526 526
Assets retained by partnership (31) (31)
--------- --------
Balance as of January 29, 1997 10,046 10,046
Exchange of predecessor equity for stock
in connection with reorganization on
January 29, 1997 42 7,709 (10,046)(1) (2,295)
Deferred income taxes recorded in connection
with reorganization (5,416) (5,416)
Issuance of 496,000 shares of Common Stock in
exchange for deferred interest on Senior
Subordinated Notes 5 164 169
Issuance of 2,300,000 shares of common stock
in initial public offering, net of costs 23 16,817 16,840
Issuance of 100,000 shares of common stock to
Financial Security Assurance Inc. for certain
waivers relating to Permanent Securitizations 1 699 700
Issuance of 1,904,762 shares of common stock 19 9,138 9,157
Issuance of 1,038,924 Warrants to purchase
Common Stock in connection with the
issuance of Senior Subordinated Notes 5,454 5,454
Dividends on mandatorily redeemable preferred stock (148) (148)
Net loss subsequent to reorganization (13,549) (13,549)
-------- --------- -------- ------- -------
Balance as of December 31, 1997 $ 90 $ 34,417 $ (13,549) $ 0 $20,958
======== ========= ========= ======= =======
</TABLE>
- ----------------
(1) $2,295 of such amount was attributed to mandatorily redeemable preferred
stock.
See accompanying notes to consolidated financial statements.
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOW OPERATING ACTIVITIES:
Net income (loss) $ (18,439) $ 4,491 $ 3,281
Adjustments to reconcile net income (loss) to net cash used in
Operating activities:
Securitization related income (loss) 323 (13,564) (7,367)
Depreciation expense 223 137 38
Purchases of loans held for sale (182,898) (77,865) (43,146)
Proceeds from transfer of loans to Master Trust 182,898 77,865 41,774
Cash flows from Retained Interest released to Company 10,095 4,937 5,479
Cash deposits to Spread Accounts (18,564) (4,630) (3,369)
Amortization and write-off of deferred financing costs 1,024 355 144
Amortization of deferred placement costs 254 167 --
Changes in other assets and liabilities:
Other assets (1,516) (378) (324)
Accounts payable and accrued expenses 1,489 1,481 97
Accrued interest payable-related parties (105) (388) 454
Accrued interest payable-senior subordinated notes
and other notes (157) 339 --
--------- --------- ---------
Net cash used in operating activities (25,373) (7,053) (2,939)
CASH FLOW FROM INVESTING ACTIVITIES:
Fixed assets purchased (1,524) (377) (297)
Due from National Auto Finance Corporation -- -- 99
--------- --------- ---------
Net cash used in investing activities (1,524) (377) (198)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from junior subordinated notes-related parties -- 700 2,337
Principal Payments on junior subordinated notes-related parties (5,182) (997) (104)
Proceeds from notes payable 1,018 -- --
Proceeds from senior subordinated notes 37,834 11,172 --
Principal payments on senior subordinated notes (12,000) -- --
Proceeds from BankBoston revolving credit facility 7,996 -- --
Principal payment on BankBoston revolving credit facility (8,000) -- --
Principal payments on capital leases (33) (41) --
Payment of mandatorily redeemable preferred stock dividends (107) -- --
Proceeds from initial public offering 17,615 (775) --
Proceeds from issuance of common stock, net 9,157 -- --
Preferred equity partners' contributions -- 1,613 141
Due to National Auto Finance Corporation -- -- (3)
--------- --------- ---------
Net cash provided by financing activities 48,298 11,672 2,371
--------- --------- ---------
Net increase/decrease in cash and cash equivalents 21,401 4,242 (766)
Cash and cash equivalents in beginning of period 5,066 824 1,590
--------- --------- ---------
Cash and cash equivalents at end of period $ 26,467 $ 5,066 $ 824
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ -- $ --
========= ========= =========
Cash paid for interest $ 1,656 $ 1,253 $ --
========= ========= =========
</TABLE>
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
NON-CASH FINANCING ACTIVITIES:
Offering costs deferred in 1996 transferred to paid-in capital in 1997 $ 775 $ 0 $ 0
Accrued mandatorily redeemable preferred stock dividends 41 0 0
Conversion of deferred interest on senior debt to Common Stock
and paid-in capital 169 0 0
Conversion of predecessor entity capital to mandatorily redeemable
preferred stock 2,295 0 0
Conversion of predecessor entity capital to common stock and paid-in
Capital 7,225 0 0
Deferred income taxes from reorganization considered
reduction in paid-in capital 5,416 0 0
Income earned in 1997 prior to reorganization included in
paid-in capital 526 0 0
Issuance of 1,038,924 Warrants in conjunction with senior
subordinated debt considered paid-in capital 5,454 0 0
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Organization and Summary of Significant Accounting Policies
(a) Organization and Business
National Auto Finance Company, Inc. (the "Company") is a consumer
finance company specializing in the business of purchasing, financing,
securitizing and servicing Loans originated primarily by
manufacturer-franchised Dealers in the sale of new and used
automobiles, light duty trucks and passenger vans ("automobiles").
Through its Loan purchases, the Company provides indirect financing to
Non-Prime Consumers. The Company serves as a source of financing for
Dealers, allowing them to sell automobiles to customers who otherwise
might not be able to obtain financing from more traditional sources.
The Company's headquarters is located in Boca Raton, Florida.
National Auto Finance Company, L.P., a Delaware limited partnership
(the "National Auto Partnership") was organized in October 1994 and
conducted the business of the Company until January 29, 1997. On that
day, in connection with the closing of the Company's Initial Public
Offering (the "Offering"), the assets and certain liabilities of the
National Auto Partnership were transferred to the Company in exchange
for all of the Common Stock then outstanding and all of the preferred
stock of the Company then outstanding (the "Reorganization"). The
Company then issued 2,300,000 shares of stock to the public in the
underwritten Initial Public Offering. The reorganization was accounted
for in a manner similar to a pooling of interests since the Company
and National Auto Partnership were under common control at the time of
reorganization.
(b) Summary of Significant Accounting Policies
A description of the significant accounting policies that are followed by
the Company is presented below:
(i) Principles of Consolidation
The consolidated financial statements reflect the operations of the
National Auto Partnership and subsidiaries for 1995, 1996 and an
approximate one-month period of January 1997 and National Auto Finance
Company, Inc. and subsidiaries for the eleven months ended December
1997. All significant inter-company accounts and transactions have
been eliminated in consolidation.
<PAGE>
(ii) Cash and Cash Equivalents
The Company considers money market funds and all other highly liquid
debt instruments purchased with an original maturity of less than
three months to be cash equivalents.
(iii) Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost less accumulated
depreciation and amortization. Owned properties are depreciated on a
straight-line basis over their useful lives. Capital lease assets are
amortized on a straight-line basis over the lesser of their estimated
useful lives or their lease terms.
(iv) Securitization of Loans and Retained Interest in Securitizations
Effective January 1, 1997, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS No. 125). Under SFAS
No. 125, an entity recognizes only assets it controls and liabilities
it has incurred, discontinues recognition of assets only when control
has been surrendered, and discontinues recognition of liabilities only
when they have been extinguished.
Loans that are purchased by the Company are sold on a daily basis in a
two-step securitization program as described in Note 3. Gains or
losses are recognized (1) upon transfer of Loans to the Master Trust
(Note 3) based upon the amount of cash received upon transfer of such
Loans generally equal to the Company's purchase price of the Loan and
(2) an estimate of the Company's residual interest in the Master Trust
(which constitute a portion of Retained Interest in Securitizations).
The value of the Company's residual interest in the Master Trust is
determined by estimating the fair value of amounts to be received from
the Master Trust and the subsequent "Permanent Securitizations" (Note
3).
The Retained Interest in Securitizations is classified as a trading
security for financial reporting purposes with changes in fair value
either credited or charged to the statement of operations.
The Company is aware of a limited market for the purchase or sale of
its Over-Collateralization Accounts (a portion of its Retained
Interest in Securitizations), but is not aware of an active market for
the purchase or sale of the other components of its Retained Interest
in Securitizations (ESRs and Cash Spread Accounts) and accordingly,
the Company has determined the estimated fair value of the Retained
Interest in Securitizations at December 31, 1997 by the following
process:
<PAGE>
1. The Company has estimated the timing and amount of cash flows to
be received from Loans transferred to each securitization trust
based upon assumptions relating to estimates of defaults, loss
severity, prepayments and normal principal and interest
amortization (cash-in);
2. The Company has calculated the timing and amount of the total
remaining principal and interest to be paid to the securitization
investors given the assumptions noted above and the contractual
requirements of each securitization;
3. The Company has estimated the total amount to be paid by each
securitization trust for servicing, insurance and other costs and
the timing of such payments;
4. The estimated cash payments described in (2) and (3) above have
been subtracted from the estimated cash-in to determine the
estimated Excess Spread Receivable (ESR) for each month.
5. The Company has estimated the required Cash Spread Account
balance (Note 3) for each securitization trust for each period
given the requirements of each trust and the impact of the
assumptions noted above. The Company then calculated the amount
of Excess Spread Receivable to be added to the Cash Spread
Account or the amount of Cash Spread Account to be released to
the Company each month.
6. The estimated amount of cash available to the Company as
described in (5), represents the Company's estimate of the
"cash-out" of the securitization.
7. The fair value of cash-out over the remaining life of the
securitization has been determined by discounting the estimated
cash-out at a rate management believed an investor would require
for a stream of cash flows with similar risk characteristics.
8. The fair value of cash-out for each securitization trust was
compared to the Retained Interest in Securitizations for each
securitization trust. Adjustments to fair value or impairments
are charged to securitization related income (loss).
<PAGE>
Assumptions used to value the Retained Interests in Securitizations at
December 31, 1997 were as follows:
Weighted average cumulative net loss rate 12.88%
Weighted average cumulative prepayment rate 20.89%
Discount rate 14.00%
Level of required Cash Spread Account 7% to 11%
Rate of interest on Cash Spread Account 5.50%
Weighted average yield on Loans 19.01%
Weighted average yield on bonds and notes
held by securitization investors 6.15%
Principal balance of Loans at
December 31, 1997 $226,846,000
Principal balance of bonds and notes at
December 31, 1997 $217,113,000
(v) Deferred Financing Costs
Costs incurred in connection with certain borrowings are capitalized
and are being amortized on a straight-line basis over the term of the
debt.
(vi) Stock-Based Compensation
The Company accounts for stock-based compensation to employees using
the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25.
(vii) Income Taxes
Prior to January 29, 1997, the Company's operations were conducted
through the National Auto Partnership. As such, no provision or
benefit for income taxes was recorded since the responsibility for
income taxes passed through to, and was reportable by the individual
partners.
<PAGE>
Subsequent to the Reorganization, income taxes are accounted for under
the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A deferred tax valuation
allowance is provided to the extent that it is more likely than not
that deferred tax assets will not be realized.
(viii) Servicing
Servicing fees are reported as income when earned. Servicing expenses
are charged to expense as incurred. External servicing expenses
include charges paid to third parties for servicing related charges.
Internal servicing expense include costs, including salaries,
associated with the Company's service center.
(ix) Use of Estimates
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expense. The most significant of the
estimates relate to the calculations and modeling underlying the
valuation of the Retained Interest in Securitizations and the related
gain on sales of Loans. Actual results could differ from these
estimates.
(x) Reclassifications
Certain reclassifications have been made to prior year amounts to
conform with the 1997 presentation.
(c) New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. SFAS No. 130 requires that
all items to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement with equal
prominence as other financial statements. Such information will be
presented by the Company beginning with the quarter ended March 31, 1998.
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS No. 131"), which is effective
for financial statements for years beginning after December 15, 1997. SFAS
No. 131 established standards for the way that public business enterprises
report information about operating segments, based upon how the enterprise
defines such segments. The Company is required to report operating segment
information, to the extent such segments are defined, beginning with the
year ended December 31, 1998.
Adopting of the aforementioned accounting standards is not expect to have a
material impact on the Company's financial position, results of operations
or liquidity.
(2) Loss Per Common Share (EPS)
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards SFAS No. 128, "Earnings per Share" ("SFAS No. 128")
with previous periods restated. SFAS No. 128 establishes standards for
computing and presenting earnings per share, simplifies the standards
previously found in APB No. 15, "Earnings Per Share," and makes them
comparable to international EPS standards.
Loss per common share for 1997 is calculated as follows:
Weighted Average
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
(In thousands, except per share amount)
Loss before preferred stock dividends
and ex$raordinary item $ (17,719)
Extraordinary item (720)
---------
Loss before extraordinary item $ (18,439) 7,087 $(2.52)
(148) 7,087 (0.10)
--------- ----- ------
Loss attributable to common
stockholders $(18,587) 7,087 $(2.62)
========= ===== ======
Inclusion of 379,000 options and 1,038,924 warrants outstanding at December
31, 1997 would have an anti-dilutive
<PAGE>
effect on the net loss for the year for diluted EPS, thus, such common
stock equivalents are excluded from the calculation.
Pro Forma earnings per share for 1996 and 1995 are based upon the 4,230,000
shares of Common Stock acquired by the National Auto Partnership in
conjunction with the Reorganization.
(3) Retained Interest in Securitizations
Retained Interest in Securitizations were as follows at December 31, 1997,
1996 and 1995:
December 31,
-------------------------
1997 1996 1995
------ ------ ------
(dollars in thousands)
Spread Accounts............. $14,846 $8,221 $ 5,173
Excess Spread Receivable.... 16,723 15,183 5,140
------- ------ -------
$31,569 $23,404 $10,313
======= ======= =======
The Company currently funds its purchases of Loans primarily through asset
securitization program consisting of (i) the securitized warehousing of all
of its Loans through their daily sale ("Revolving Securitization") to a
bankruptcy-remote master trust ("Master Trust") pursuant to the Revolving
Securitization, followed by (ii) the transfer of such warehoused Loans from
time to time by the Master Trust to a discrete trust ("Permanent
Securitizations"), thereby creating additional availability of capital from
the Master Trust.
Specifically, pursuant to the Revolving Securitization, the Company sells
Loans that it has purchased from Dealers on a daily basis to a
special-purpose subsidiary, which then sells the Loans to the Master Trust
in exchange for cash and certain residual interests in future excess cash
flows from the Master Trust. The Master Trust, to date, has issued two
classes of investor certificates: "Class B Certificates," which are
variable funding (i.e., revolving) certificates bearing interest at
floating rates, and "Class C Certificates," representing a portion of the
residual interest of the Company's special-purpose subsidiary in future
excess cash flows from the Master Trust after required payments to the
holders of the Class B certificates, deposits of funds to a restricted cash
account as a reserve for future Loan losses which provides additional
credit enhancement for the holders of the Class B Certificates and payment
of certain other expenses and obligations of the Master Trust. First Union
currently owns 100% of the outstanding Class B Certificates. (See Note 13 -
Related Party Transactions, for a discussion of relationships with First
Union.) Collectively, the restricted cash account and the Class C
Certificate portion of Loan principal (Over-Collateralization Accounts)
that collateralize the Master Trust are the components of the Spread
Accounts. The Spread Accounts and ESRs are reflected collectively on the
balance sheet as Retained Interest in Securitizations.
<PAGE>
Periodically the Master Trust transfers Loans and Spread Account balances
to Permanent Securitizations in exchange for cash, which is used to repay
the Class B Certificates. Debt securities representing interests in the
Permanent Securitizations are sold to Third-Party investors, who are repaid
from cash flows from the Loan receivables in the applicable Permanent
Securitization. Excess Spread Receivables and return of Spread Accounts
attributable to such Loans flow from the Permanent Securitization to the
Company to the extent such funds are available.
Under the financial structures the Company has used to date in its
securitizations, certain excess cash flows generated by the Loans are
retained in the Spread Accounts within the securitization trusts to provide
liquidity and credit enhancement. While the specific terms and mechanics of
the Spread Accounts can vary depending on each transaction, the Company's
agreements with FSA, the financial guaranty insurer that has provided
credit enhancements in connection with the Company's securitizations,
generally provide that the Company is not entitled to receive any excess
cash flows unless the level of certain Spread Account balances, comprised
of cash and generally a 9% interest in the principal balance of the Loans
in the trust (the "Over-Collateralization Accounts"), have been attained
and/or the delinquency or losses related to the Loans in the pool are below
certain predetermined levels. Additionally, the Company is required to
maintain a minimum equity position in the Revolving Securitization of 10.0%
of the net serviced receivables. This equity currently consists of cash
invested by the Company and over-collateralization in the form of Dealer
Discount related to the principal balance of Loans. As of December 31,
1997, the Company had a 10.01% equity investment in the Revolving
Securitization.
In the event delinquencies or losses on the Loans exceed such levels
("Trigger Events"), the terms of the securitization may: (i) require
increased Cash Spread Account balances to be accumulated for the particular
pool; (ii) restrict the distribution to the Company of excess cash flows
associated with the pool in which asset-backed securities are insured by
FSA; and (iii) in certain circumstances, require the transfer of servicing
on some or all of the Loans in FSA-insured pools to another servicer. The
imposition by FSA of any of these conditions could materially adversely
affect the Company's liquidity and financial condition by delaying the
timing of cash flows to the Company, thus reducing the value of the
Retained Interest in Securitizations. Certain portfolio performance tests
were not met at various times in 1997 with respect to the Permanent
Securitization trusts formed in November 1995 and November 1996, resulting
in additional cash being required to be retained in the Spread Accounts
related to such Permanent Securitization trusts until the violation of such
performance tests are cured.
Upon the occurrence of a Permanent Securitization failing to meet portfolio
performance tests of the nature described above but at significantly higher
levels (an Insurance Agreement Event of Default), the Company will be in
default under its insurance agreements with FSA. Upon an Insurance
Agreement Event of Default, FSA may: (i) permanently suspend distributions
of cash flow to the Company from the related securitization trust and all
other FSA-insured trusts until the asset-backed securities have been paid
in full; (ii) capture all excess cash flows from performing FSA-insured
trusts; (iii) increase its premiums; and (iv) replace the Company as
servicer with respect to all FSA-insured trusts. In April 1997, the
Permanent Securitization trust formed in November 1995 experienced an
Insurance Agreement Event of Default. In October 1997, the Company entered
into an agreement with FSA that: (i) permanently waived the Insurance
Agreement Event of Default; (ii) modified the portfolio performance tests
described above to increase the thresholds through June 1998 for the
Permanent Securitization trusts formed in November 1995 and 1996 (temporary
revisions); (iii) increased the amount required to be retained in the
Spread Account related to the November 1995 and 1996 trust to an amount
generally equal to 11% of the then outstanding balance held by the
securitization trust if the modified portfolio performance tests are not
met; (iv) required the Company to cause the Spread Account for each
FSA-insured securitization trust to be cross-collateralized to the Spread
Accounts established in connection with each of its other FSA-insured
securitization trusts; (v) permitted the Company to enter into the $10.0
million BankBoston Agreement; (vi) provided that FSA would consider
providing credit enhancement for the Company's next Permanent
Securitization; and (vii) provided for the issuance of 100,000 shares of
Common Stock to FSA. In consideration for
<PAGE>
such agreement, the Company issued 100,000 shares of Common Stock to FSA
and reduced gain on sale by $700,000 in 1997. As a result of the
aforementioned cross-collateralization, the excess cash flow from a
performing FSA-insured trust may be required to be used to support negative
cash flow from, or to replenish a deficient Spread Account in connection
with, a non-performing FSA-insured securitization trust, thereby further
restricting excess cash flow available to the Company. If excess cash flow
from all FSA-insured securitization trusts is not sufficient to replenish
all these Spread Accounts, no cash flow would be available to the Company
for that month. The Company's right to service the Loans sold in
FSA-insured securitizations is generally subject to the discretion of FSA.
Accordingly, there can be no assurance that the Company will continue as
servicer for such Loans and receive related servicing fees. Additionally,
there can be no assurance that there will not be additional Insurance
Agreement Events of Default in the future, or that, if such events of
default occur, waivers will be available. At February 28, 1998, the Company
would have been in violation of certain Insurance Agreement Events of
Default if the temporary revisions had not been in effect. If the Company
does not meet such requirements in 1998, the carrying value of the
Company's Retained Interest in Securitizations would be materially impacted
in a negative manner.
In addition, any increase in limitations on cash flow available to the
Company from Permanent Securitization trusts, the Company's inability to
obtain any necessary waivers from FSA or the termination of servicing
arrangements could materially adversely affect the Company's financial
condition, results of operations and cash flows.
At December 31, 1997, the Company was in violation of certain covenants
with respect to the Master Trust, including specifically, the covenant that
the Master Trust maintain certain interest rate hedging agreements and
covenants related to allowable repossession and recovery limits. The
Company is in the process of seeking a waiver of such covenant breaches and
modification of certain terms of the Master Trust to permit availability
under the Master Trust.
During the years ended December 31, 1997, 1996, and 1995, the following
activity took place with respect to securitizations:
December 31, December 31, December 31,
1997 1996 1995
----------- ----------- -----------
(dollars in thousands)
Principal balance of Loans sold... $187,383 $84,981 $45,972
======== ======= =======
Weighted average coupon rate on
Loans sold during the period..... 19.24% 18.88% 18.30%
====== ====== ======
(4) Senior Subordinated Debt
In December 1997, the Company completed a private placement (the "December
Private Placement") of $10
<PAGE>
million in Common Stock and $40 million principal amount of Senior
Subordinated Notes with detachable Warrants. The December Private Placement
of the $10 million in Common Stock resulted in the issuance of 1,904,762
shares in the aggregate of the Company's Common Stock at $5.25 per share.
Additionally, a representative of each of two of the Senior Subordinated
Debt lenders who were also stock purchasers was elected to the Board of
Directors. The principal amount of the Senior Subordinated Notes is due in
December 2004 and the Senior Subordinated Notes bear interest at 11.875%
per annum for the first three years, 12.875% per annum for year four,
13.875% per annum for year five, and 14.875% per annum thereafter, with
interest payable quarterly. In connection with the December Private
Placement, the Company issued detachable Warrants with a ten-year life,
exercisable into Common Stock of the Company at $0.01 per share. The fair
value of such Warrants was estimated to be based upon a share value of
$5.25 for a total of $5.4 million. Such amount is recorded as a discount to
the related debt and additional paid-in capital, and is being amortized
over the life of the debt using the interest method. The effective interest
rate, including the value of the warrants is approximately 15%.
The Company, at December 31, 1997, was in violation of the Senior
Subordinated Notes' Minimum Consolidated Net Worth and Adjusted Interest
Expense covenants. The Minimum Consolidated Net Worth covenant requires
that the Company maintain Consolidated Net Worth of not less than (a)
$25,890,000 plus (b) on a cumulative basis commencing with the first fiscal
quarter ending March 31, 1998, 50% of net income (if positive) for each
fiscal quarter plus (c) 100% of the net proceeds from any public offering
or private placement of common stock. The Adjusted Interest Expense
covenant requires generally that the sum of the Company's Net Income (as
defined) Consolidated Total Interest Expense (as defined) and income and
franchise taxes divided by its Consolidated Total Interest Expense (as
defined) for each period of four fiscal quarters ending December 31, 1997
and thereafter be at least 1.4:1. In addition, the Company is default under
the corresponding covenants contained in the March 1998 Securities Purchase
Agreement. The Company is in the process of seeking waivers of the breach
of such covenants. If such waivers are not obtained, the holders of the
indebtedness represented thereby may declare a default and accelerate the
payment of the principal amount of such indebtedness.
In December 1997, in connection with the consummation of the December
Private Placement (as described above), the Company repaid the $12 million
senior subordinated notes held by J.P. Morgan Investment Management, Inc.
on behalf of certain institutional investors (the "Morgan Notes"). Interest
expensed on the Morgan Notes for the year ended December 31, 1997 and 1996
was $1.2 million and $581,000, respectively. In connection with the
repayment of such debt in 1997, the Company recorded an extraordinary item
for the write-off of related deferred financing costs of $720,000. Prior to
the Company's Initial Public Offering (Offering) in January, 1997, the
Morgan Notes had a 3% deferred interest coupon that accrued interest on a
compounded basis and was payable in August, 2006, but was converted into
496,000 shares of common stock upon consummation of the Initial Public
Offering. Accrued interest at that date was $169,000. Such amount was
recorded as common stock and additional paid-in capital.
<PAGE>
Notes Payable
Notes payable at December 31, are as follows:
1997 1996
------ ------
(In thousands)
Revolving $1.5 million line of credit with First
Union dated August 25, 1997; matures March,
2001; interest payable monthly at LIBOR +
2.5% (8.47% at December 31, 1997); total
interest expense during 1997 was $18,000 $1,018 --
Capital lease for equipment dated August 20,
1997; matures November 2001; interest at 7.05% 279 --
Revolving $10.0 million revolving credit facility
with BankBoston for purchase of Loans, matures
September 2000; interest payable monthly at
the greater of the prime rate of the federal
funds rate plus .50% (8.5% at December 31, 1997);
total interest expense during 1997 was $96,000 254 --
Other 63 96
------ ------
$1,614 $ 96
====== ======
At December 31, 1997, the Company was in violation of the BankBoston
Agreement's Minimum Quarterly Net Income and Minimum Debt Service Coverage
Covenants. The Company cannot continue to borrow in the future under the
BankBoston Agreement unless such covenant breaches are waived.
(5) Description of Capital Stock
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 1,000,000 shares of preferred stock, par value $0.01
per share, issuable in series (the "Preferred Stock").
<PAGE>
Common Stock
The holders of Common Stock will be entitled to receive dividends when and
as dividends are declared by the Board of Directors of the Company out of
funds legally available therefor, provided that if any shares of the
Preferred Stock are outstanding at the time, the payment of dividends on
the Common Stock or other distributions may be subject to the declaration
and payment of full cumulative dividends on outstanding shares of Preferred
Stock. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of Common Stock
are not entitled to preemptive, conversion or subscription rights.
In the event of liquidation, dissolution or winding-up of the Company, the
holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution
rights of the Preferred Stock, if any, outstanding.
Preferred Stock
The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of
Preferred Stock and to fix the designation, preferences, powers and
relative, participating, optional and other rights, qualifications,
limitations and restrictions thereof including, without limitation, the
dividend rate, voting rights, conversion rights, redemption price and
liquidation preference per series of Preferred Stock. Any series of
Preferred Stock so issued may rank senior to the Common Stock with respect
to the payment of dividends or amounts to be distributed upon liquidation,
dissolution or winding up. The existence of authorized but unissued
Preferred Stock may enable the Board of Directors to render more difficult
or to discourage an attempt to obtain control of the company by means of a
merger, tender offer, proxy contest or otherwise. For example, if in the
due exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal is not in the Company's best interests,
the Board of Directors could cause shares of Preferred Stock to be issued
without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group. The issuance of
shares of Preferred Stock pursuant to the Board of Directors' authority
described above could decrease the amount of earnings and assets available
for distribution to holders of Common Stock and adversely affect the rights
and powers, including voting rights, of such holders and may have the
effect of delaying, deferring or preventing a change in control of the
Company.
The Board of Directors has adopted a Certificate of Designation of the
Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred
Stock"). The terms of 2,295 outstanding shares of Series A Preferred Stock
are 7% cumulative dividend, payable quarterly; callable at stated value
plus accrued dividends at the option of the Company; non-voting, except
under certain circumstances; and mandatory redemption at stated value in
January 2005. The Company has accrued approximately $41,000 and paid
$107,000 in preferred stock dividends as of December 31, 1997.
<PAGE>
(6) Other Operating Expenses
Other operating expenses consisted of the following:
For the Year Ended December 31,
-----------------------------------------
1997 1996 1995
------ ------- -------
(in thousands)
Professional fees............ $1,037 $ 181 $ 151
Rent expenses................ 367 215 94
Travel and entertainment..... 387 68 260
Management fees.............. 540 480 342
Other........................ 1,271 811 403
------ ------- -------
Total..................... $3,602 $ 1,755 $ 1,250
====== ======= =======
Management fees represent fees paid to National Financial Companies LLC
("National Financial") for operational, legal, administrative and other
services provided to the Company and its predecessors under a management
agreement that expires on December 21, 2015. (See note 13.)
(7) Commitments and Contingencies
Future minimum rental payments under various office and equipment leases as
of December 31, 1997 are as follows:
Year Ending Operating Capital
December 31, Leases Leases Total
------------ --------- ------- -------
(in thousands)
1998......................... $ 913 $ 83 $ 996
1999......................... 893 90 983
2000......................... 887 95 982
2001......................... 806 72 878
2002......................... 738 -- 738
Thereafter................... 461 -- 461
------ ------- -------
Total lease commitment.... $4,698 $ 340 $ 5,038
====== ======= =======
<PAGE>
Capital leases are included as a component of notes payable. Rent expense
was $367,000, $214,000 and $94,000 in 1997, 1996 and 1995, respectively.
(8) Income Taxes
The Company had no current income tax provision in 1997 due to its loss
incurred for tax purposes.
Pro Forma adjustments for income taxes represent the difference between
historical income taxes and income taxes that would have been reported had
the Partnerships filed income tax returns as taxable "C" corporations 1996
and 1995.
For the Year Ended December 31,
-------------------------------
1996 1995
------------- ----------------
(in thousands)
Pro forma income tax adjustments
(unaudited):
Federal................... $1,527 $ 963
State and local........... 162 103
------ -------
1,689 1,066
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities as of December 31,
1997 were:
Deferred tax assets (in thousands):
Securitized assets sold for financial statement
Purposes, financed for income tax purposes $ 43
Net operating loss carryforward 1,543
------
Total gross deferred tax assets 1,586
Less valuation allowance (1,457)
------
Total deferred tax assets 129
------
<PAGE>
Deferred tax liabilities:
Other 129
------
Net deferred tax asset $ --
======
As of December 31, 1997, the Company had a $4.1 million net operating loss
for income tax purposes, which will expire in 2012.
The actual provision for income taxes for 1997 and pro forma income taxes
for 1996 and 1995 differ from the amounts computed by applying federal
statutory rates to income before income taxes and extraordinary item due
to:
For the Year Ended December 31,
-------------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Provision benefit computed at
Federal statutory rate of 34%.... $(6,269) $ 1,527 $ 1,115
State income taxes, net of federal
tax benefit...................... (669) 162 119
Change in deferred tax asset valuation
allowance........................ 1,457 - (178)
Deferred income liability recorded in
conjunction with the
reorganization.................. 5,416
Other.............................. 65 - 10
------ ------- -------
$ - $ 1,689 $ 1,066
====== ======= =======
(9) Employee Benefit Plans
The Company adopted a 401(k) profit sharing plan (the "Plan") in August,
1996 that is intended to be a tax-qualified defined-contribution plan. All
employees of the Company, other than employees who work less than
<PAGE>
1,000 hours per year, are eligible to participate in the Plan once they
have completed six months of continuous service.
A participating employee may contribute up to 15% of his or her
compensation, with a current maximum contribution of $10,000 to the Plan on
a pretax basis. The Company may make a matching contribution to each
employee's account based on the amount of pretax contributions made by the
employee.
Currently, the Company is allocating a 50% match of the first 6%
contributed by the employee, subject to certain legal limitations imposed
on tax-qualified plans. Matching contributions by the Company are made
regardless of profits and are allocated only to qualified participants on a
monthly basis. Compensation expense related to the Plan was $75,000 and
$21,000 in 1997 and 1996, respectively.
Contributions to the Plan are invested in a variety of funds as directed by
the Plan participants. All pretax employee contributions to the Plan are
100% vested and matching contributions by the Company are vested at 20% per
annum over a five-year period from the date the employee joined the Plan.
All active employees that had completed 1,000 hours of service as of August
30, 1996 were invited to join the Plan and have matching-contribution
vested rights predated to their date of employment.
Generally, employees may not receive distributions from the Plan until
their retirement, death, certain disability or termination of employment.
Loans are prohibited by the Plan, although distributions for certain
hardship purposes are allowed in accordance with tax regulations
promulgated under the Internal Revenue Code. All distributions from the
Plan are made in the form of a single lump-sum distribution.
(10) Stock Option Plan
In 1996, the Board of Directors of the Company adopted a share incentive
plan (the "1996 Share Incentive Plan"). The 1996 Share Incentive Plan
provides for the granting of certain benefits in any one or a combination
of (i) stock options, (ii) stock appreciation rights, (iii) stock awards,
(iv) performance awards and (v) stock units. The aggregate number of shares
of Common Stock that may be subject to such benefits, including stock
options, is 500,000 shares of Common Stock (subject to adjustment in the
event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spin-off, combination
of shares, exchange of shares, dividend in-kind or other like change in
capital structure or distribution).
Through the end of 1997, stock options with respect to an aggregate of
379,000 shares of Common Stock were granted under the 1996 Share Incentive
Plan to fifteen key employees and five directors at the fair market value
at the date of grant and subsequently reduced in December, 1997 to $5.25
per share (which exceeded the market price of the stock at that date). All
employee stock options vest one-third immediately, one-third in 1998 and
one-third in 1999, and director stock options vest in 1998. All stock
options expire 10 years from the date of grant.
<PAGE>
A summary of stock option activity under the Plan is as follows:
Shares Price Per Share
------ ---------------
Balance, December 31, 1996...... 0 -- --
Granted..................... 421,000 $ 3.25 to $ 5.25
Exercised................... 0 -- --
Cancelled................... (42,000) $ 5.25 to $ 5.25
--------
Balance, December 31, 1997...... 379,000
========
The Company accounts for stock-based compensation plans under the intrinsic
value method. The following presents, on a pro forma basis, net loss and
net loss per common share assuming the Company utilized the fair value
method of SFAS 123. The fair value of the options was estimated at date of
grant using a Black-Scholes option pricing model with the following
assumptions for 1997: weighted-average risk-free interest rate of 5.0%,
volatility factor of the expected market price of the Company's Common
Stock of 64.37, and expected option lives of ten years. Fair value
calculations assume no dividends will be paid on the Company's Common
Stock.
(Dollars in thousands, except per share data)
Basic Diluted
Pro forma net loss.............. $(19,029)
Pro forma net loss per common share:
Before extraordinary gain... $(2.58) $(2.58)
Extraordinary item.......... (0.10) (0.10)
------ ------
Net loss.................... $(2.68) $(2.68)
====== ======
The weighted average fair value of options granted during 1997 was $1.95.
The employee turnover factor for 1997 was none.
(11) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
- The carrying amounts of cash and cash equivalents have approximate
fair value because of the short maturity of these instruments.
<PAGE>
- Retained interests in securitizations are stated at fair value.
- The fair value of Junior Subordinated Notes determined at the present
value of expected future cash flows discounted an approximate interest
rate for such borrowing based on a spread above actual yield on senior
debt was $1,450 and $5,388 at December 31, 1997 and 1996,
respectively. The book value of such debt was $1,940 and $7,122 at
December 31, 1997 and 1996, respectively.
- The fair value of Senior Subordinated Notes and notes payable is
determined as the present value of expected future cash flows
discounted at the interest rate currently offered to the Company,
which approximates rates currently offered for Loans of similar terms
to companies with comparable credit risk. The carrying amount
approximates fair value.
(12) Related Party Transactions
National Financial Companies LLC (National Financial or NFC)
The Company is party to a management agreement and a service agreement
pursuant to which NFC provides operational, financial, legal, accounting,
management, advisory and other administrative services relating to the
management, business operations, assets and interests of the Company. The
Company pays a fixed fee of $540,000 per year, plus other fees, costs and
expenses, to National Financial for such services. The Company believes
that the terms of the management agreement and the service agreement are as
favorable as could have been obtained from an unaffiliated Third-Party for
comparable services. The Company, with board approval, may from time to
time request that National Financial augment the services provided by
National Financial, or its successors or assigns, under the management
agreement and service agreement to the Company and, accordingly, the
Company would pay additional fees for those services. The terms of any such
agreement would be, however, on terms the Company considers as favorable as
could have been obtained from an unaffiliated Third-Party for comparable
services. Amounts paid to NFC were $884,000, $603,000 and $460,000 in 1997,
1996 and 1995, respectively; $333,000 of the amount paid in 1997 was for
services as described below. Gary L. Shapiro, Chairman and Chief Executive
Officer of the Company is the Chairman and Chief Executive Officer and a
principal owner of National Financial and National Auto Finance Corporation
("National Auto"), the general partner of the National Auto Partnership.
Keith B. Stein, Vice Chairman, Treasurer and a director of the Company, is
a managing director of National Financial, and an executive officer of
National Auto.
During 1997, NFC provided various services related to the December Private
Placement. NFC received $333,000 in fees and reimbursements related to such
services, which was treated as a cost of the offerings.
Junior Subordinated Notes
The Junior Subordinated Notes are payable to certain affiliates on January
31, 2002, and accrue interest at eight percent per annum. Such debt is
subordinated to all other debt of the Company.
<PAGE>
Interest expense recognized for this debt for the years ending December 31,
1997, 1996 and 1995 was $201,000, $580,000 and $482,000 respectively.
Senior Subordinated Debt
As discussed in Note 4, in conjunction with the issuance of Senior
Subordinated Debt and Common Stock in December, 1997, representatives of
each of the stock purchasers, who were also lenders of Senior Subordinated
Debt, were elected to the Board of Directors.
Pro -Travel and InfoTech
The Company uses the services of Pro-Travel, Inc. ("Pro-Travel"), a travel
agency, for its travel needs. Pro-Travel is a privately-held corporation,
98% owned by Mr. Shapiro and his wife. All fees charged by Pro-Travel are
at rates comparable to those charged by unrelated third-party providers.
The Company intends to continue using Pro-Travel for its travel needs.
Further, in 1997, the Company used the services of InfoTech Professionals
of South Florida, Inc. ("InfoTech"), an employment placement agency, for
the retention of certain of the Company's MIS personnel. Mr. Shapiro is a
majority stockholder of InfoTech, a privately-held corporation. In 1997,
the Company paid InfoTech approximately $31,200 in placement agency fees.
The Company believes that the fees charged by InfoTech were at rates
comparable to those charged by unrelated third-party providers.
First Union National Bank of North Carolina (First Union)
The Company has entered into an agreement with First Union and certain of
its affiliates (the "First Union Strategic Alliance") whereby First Union
receives a fee from the Company for each referral of sub-prime borrowers to
the Company that results in purchase of a Loan. Fees paid to First Union
under this arrangement were approximately $400,000, $137,000 and $6,000 in
1997, 1996 and 1995, respectively.
The Company's referral agreement with First Union has a three-year term
that currently terminates in April 2000. Subject to the consent of First
Union, the referral agreement may be renewed in April of each year for an
additional year, such that, after its renewal, the remaining term of the
referral agreement continues to be three years. The Company and First Union
have agreed to allow First Union up to and including May 15, 1998 to notify
the Company of First Union's renewal or non-renewal of the referral
agreement for an additional year. Further, First Union may, however,
terminate the referral agreement upon, among other things, a "change of
control" of the Company as defined in the referral agreement. In the event
the referral agreement is terminated, the Company may, however, continue
the relationships it has established with First Union-related Dealers. In
addition, the referral agreement precludes the Company from purchasing
Loans from First Union-related Dealers through other Strategic Alliances in
the same geographic areas as those covered by the First Union Strategic
Alliance. If the First Union Strategic Alliance is terminated or if the
Company is unable to form additional significant Strategic Alliances, the
Company's
<PAGE>
financial condition, results of operations and cash flows may be materially
adversely affected. For the year ended December 31, 1997, approximately 43%
of the Loans the Company purchased were attributable to the First Union
Strategic Alliance.
As part of the First Union Alliance, an affiliate of First Union (the
"First Union Partner") has acquired an indirect equity stake in the Company
through the Company's primary stockholder, National Auto Finance Company,
L.P. To facilitate the First Union Partner's compliance with applicable
banking laws, regulations and orders (collectively, the "Banking Laws"),
the Company has agreed that it will engage solely in activities that are
permissible for national banks as determined by Banking Laws in effect from
time to time. For example, the Company is subject to the supervision and
examination of the Office of the Comptroller of the Currency (the "OCC"),
one of the principal regulatory bodies having jurisdiction over First Union
and the First Union Partner. The OCC has reviewed the First Union Strategic
Alliance and the terms thereof, and the OCC's written approval was required
in order for the First Union Strategic Alliance to be consummated. If the
First Union Partner determines that any proposed activities of the Company
are impermissible for national banks, such affiliate has the right to
prevent the Company from engaging in such activities. Management does not
believe, however, that the Banking Laws will impact significantly the
manner in which the Company intends to conduct or expand its business or
product and service offerings although there can be no assurance that the
banking laws will not have such an effect.
First Union has also served as underwriting and placement agent related to
the Company's securitizations. Underwriting fees paid and expense
reimbursements related to securitizations were approximately $425,000,
$392,000 and $382,000 in 1997, 1996 and 1995, respectively.
First Union also owns 100% of the Class B or Senior Certificates related to
the Master Trust. Such investment aggregated $96.0 million at December 31,
1997.
First Union acted as placement agent related to the December Private
Placement for which First Union received fees and expense reimbursements of
$1.7 million.
First Union received a fee of $25,000 in 1997 in conjunction with
negotiation of amendments to the Company's Master Trust Agreement at
December 31, 1997. As described in Note 5, the Company has a note payable
to First Union with an outstanding balance of $1.0 million as of December
31, 1997 related to equipment financing.
(13) Subsequent Events
In January 1998, the Company completed a $93.6 million Permanent
Securitization of its Loans. In connection with the securitization, $85.2
million of notes rated AAA by S&P and Aaa by Moody's were issued.
In March, the Company completed the March Private Placement of $20 million
principal amount of Senior Subordinated Notes with detachable warrants with
the SFHY Fund, an investment fund sponsored by The Prudential Life
Insurance Company of America. Those Notes, which mature in seven years,
bear interest at
<PAGE>
11.875% per annum for the first three years, 12.875% in year four, 13.875%
in year five, and 14.875% in years six and seven. In connection with the
placement of those notes, the Company issued 593,761 detachable Warrants
with a ten-year maturity, exercisable into Common Stock of the Company at
$0.01 per share.
In March 1998, the Company entered into the U.S. Bank Strategic Alliance.
As part of that Strategic Alliance, the Company will serve as a non-prime
automobile financing source for U.S. Bank's extensive automobile dealer
network. U.S. Bank is currently the fifteenth largest financial institution
in the United States and has a dealer network of approximately 2,500
dealers in 20 Western and Mid-Western states.
(14) Liquidity and Going Concern
In 1997, the Company suffered losses from operations, experienced an
Insurance Agreement Event of Default with respect to its securitizations,
and was in violation of various covenants related to its borrowings. Such
matters raise a substantial doubt about the Company's ability to continue
as a going concern.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers
Certain information concerning the executive officers and directors of the
Company as of April 24, 1998 is set forth below:
Name Age Position with the Company
- ---- --- -------------------------
Gary L. Shapiro... 48 Chairman of the Board and Chief Executive Officer
Keith B. Stein.... 40 Vice Chairman, Chief Financial Officer, Treasurer
and Director
Roy E. Tipton..... 44 President and Director
William G. Magro.. 48 Executive Vice President, Chief Operating Officer and
President of the Financial Services Division
Timothy W. Carter. 47 Senior Vice President, Portfolio Acquisitions
Kevin G. Adams.... 41 Senior Vice President, Finance
Stephen L. Topp... 49 Vice President, Loan Originations
Joel B. Ronkin.... 30 Vice President, Secretary and General Counsel
Melissa J. Grimm.. 37 Vice President and Controller
Brent E. Wombolt.. 39 Vice President, Financial Services Division
James E. Shuler... 37 Vice President, Collections
Joseph P. Donlan.. 51 Director
Stephen L. Gurba.. 41 Director
<PAGE>
Peter Offermann... 53 Director
Morgan M. Schuessler 62 Director
David W. Young.... 55 Director
Gary L. Shapiro has been the Chairman of the Board and the Chief Executive
Officer of the Company since its founding in October 1994. Mr. Shapiro is also
Chairman of the Compensation Committee of the Board of Directors of the Company.
Mr. Shapiro has also been the Chairman and Chief Executive Officer of National
Financial and its predecessor for more than five years. Mr. Shapiro served as a
partner in the firm of Mailman, Ross, Toyes and Shapiro, Certified Public
Accountants, from November 1973 to March 1982. In 1981, Mr. Shapiro founded
National Machine Tool Finance Corporation ("National Tool"), a machine tool
finance company. He served as President of National Tool until 1990.
Keith B. Stein has been the Chief Financial Officer of the Company since
February 19, 1998, Vice Chairman, Treasurer and a Director of the Company since
January 1997, and was Secretary of the Company from October 1994 to June 1997
and Executive Vice President of the Company from October 1994 to January 1997.
Mr. Stein has been a Managing Director of National Financial since January 1995.
Mr. Stein served from March 1993 to September 1994 as Senior Vice President,
Secretary and General Counsel of WestPoint Stevens Inc., a textile company,
after having served the same company from October 1992 to February 1993 in the
capacity of Acting General Counsel and Secretary. From May 1989 to February
1993, Mr. Stein was associated with the law firm of Weil, Gotshal & Manges LLP.
Mr. Stein has served as a director of DVL, Inc., a public company engaged in the
real estate finance business, since September 1996.
Roy E. Tipton has been the President of the Company since October 1994 and
a Director of the Company since January 1997. Mr. Tipton served from April 1992
to May 1994 as the President of Stanford Automotive Financial Company, an
automobile finance company. Mr. Tipton served from April 1991 to April 1992 as a
Regional Manager of Primus Auto Company, an automobile finance company. Mr.
Tipton served in several capacities at each of Ford Motor Credit Company from
June 1975 to September 1986 and at Omni Financial Services of America, Inc.
("OFSA") from September 1986 to April 1991.
William G. Magro has been the Chief Operating Officer of the Company since
January 1998, Executive Vice President of the Company since October 1994 and
President of the Financial Services Division of the Company since September
1997. Mr. Magro served from January 1985 to August 1994 as a Director of
Collection and Client Services for OFSA. Mr. Magro served from January 1972 to
December 1984 as a Collection Supervisor and a Dealer Relations Supervisor at
General Motors Acceptance Corp.
Timothy W. Carter has been the Senior Vice President, Portfolio
Acquisitions of the Company since January 1998, Senior Vice President --
Planning and Development of the Company from June 1997 to January 1998 and
served as Vice President--Planning and Development from February 1996 to June
1997. Mr. Carter served from July 1991 to February 1996 as the Director of
Development of OFSA. Mr. Carter held various positions with OFSA from March 1988
to July 1991.
Kevin G. Adams has been the Senior Vice President, Finance since February
1998 and was Vice President and Chief Financial Officer of the Company from
October 1994 through January 1998. Mr. Adams served from December 1992 to
October 1994 as Vice President--Finance of National Financial. Mr. Adams served
from September 1983 to June 1992 as Vice President and Chief Financial Officer
of National Tool.
<PAGE>
Stephen L. Topp has been the Vice President, Loan Originations of the
Company since January 1998 and Vice President--Operations of the Company from
April 1997 to January 1998. Mr. Topp served as the Assistant Vice
President--Sales Finance in the automobile finance division of First Union
National Bank of Tennessee from January 1994 to March 1997. Mr. Topp served from
January 1990 to July 1993 as Senior Financial Services Manager of Nissan Motors
Acceptance Corporation, an automobile finance company. Mr. Topp held various
positions with OFSA from 1987 through 1989.
Joel B. Ronkin has been the Vice President, Secretary and General Counsel
of the Company since June 1997. From August 1992 to June 1997, Mr. Ronkin was
associated with the law firm of Steel Hector & Davis LLP. In that capacity, Mr.
Ronkin's practice primarily focused on the representation of automotive
companies.
Melissa J. Grimm has been the Vice President and Controller of the Company
since February 1998 and Controller since December 1996. Ms. Grimm served as Vice
President and Assistant Controller with Citizens Federal Bank from October 1986
to July 1996.
Brent E. Wombolt has been the Vice President, Financial Services Division
of the Company since February 1998 and Assistant Vice President, Customer
Service of the Company from May 1997 to January 1998. Mr. Wombolt held various
positions with First Merchants Acceptance Corporation from March 1995 through
July 1996. Mr. Wombolt held various positions with OFSA from December 1984
through February 1995.
James E. Shuler has been the Vice President, Collections of the Company
since February 1998 and from May 1996 to February 1998 held various positions
with the Company. Mr. Shuler was employed by TranSouth Financial Service, a
consumer finance company, from September 1994 to February 1998. Mr. Shuler held
various positions with OFSA from August 1988 to September 1994.
Joseph P. Donlan has been a Director of the Company since December 1997.
Mr. Donlan has held a number of positions with Brown Brothers Harriman & Co.
("Brown Brothers") since 1970, and is currently co-manager of The 1818 Mezzanine
Fund L.P., a $250 million private equity fund. Prior to his current position,
Mr. Donlan was the Manager of Brown Brothers' USBanking Department with
responsibility for managing five banking groups engaged in international trade
finance, domestic commercial finance, financial advisory service and private
placement activities.
Stephen L. Gurba has been a Director of the Company since June 1997. Mr.
Gurba has been a managing director and partner of National Financial for the
past five years. Since January 1995, Mr. Gurba has served as President and Chief
Executive Officer of National Defense Company L.L.C and its subsidiary, Bulova
Technologies L.L.C. ("Bulova"), which manufacture precision components for
military and commercial applications. Since September 1992, Mr. Gurba has also
served as the Chief Executive Officer of Environmental Systems & Services, Inc.,
which is now a division of Bulova. From January 1993 to December 1994, Mr. Gurba
served as President and Chief Executive Officer of National Manufacturing
Corporation, a manufacturer of ammunition for defense applications.
Peter Offermann has been a Director of the Company since January 1997 and
is Chairman of the Audit Committee and a member of the Compensation Committee of
the Board of Directors of the Company. Since January 1995, Mr. Offermann has
served as Executive Vice President and Chief Financial Officer of TLC Beatrice
International Holdings, Inc.,
<PAGE>
a food manufacturing and distribution business. Since May 1994, Mr. Offermann
has been President of Offermann Financial Inc., a provider of strategic
financial advice. From 1968 to April 1994, Mr. Offermann held a number of
positions with Bankers Trust Company and its affiliates, including Manager
Director of BT Investment Partners, Inc. from October 1992 to May 1994, Managing
Director of BT Securities Corporation from October 1991 to October 1992 and
Managing Director of Bankers Trust Company from 1986 to October 1991. Since
April 1996, Mr. Offermann has served as a Director of Jan Bell Marketing, Inc.,
a jewelry distribution company.
Morgan M. Schuessler has been a Director of the Company since April 1997
and is a member of the Audit Committee and the Compensation Committee of the
Board of Directors of the Company. Mr. Schuessler has been the Executive Vice
President--Finance and Chief Financial Officer of WestPoint Stevens Inc., a
textile company, since April 1993. From April 1982 to March 1993, Mr. Schuessler
was employed by Dixie Yarns, Inc., a textile company, most recently as its
Senior Vice President and Chief Financial Officer.
David W. Young has been a Director of the Company since December 1997. Mr.
Young has served since June 1995 as the Chief Investment Officer of The
Progressive Corporation. The Progressive Corporation is a $4.8 billion property
and casualty company. Prior to that time, Mr. Young served as Senior Managing
Director of Progressive Partners from July 1988 to June 1995. Prior to joining
Progressive Partners in 1988, Mr. Young was a Vice President with Salomon
Brothers, Inc. from November 1983 to July 1988.
Election of Directors
Pursuant to the Certificate of Incorporation and By-laws of the Company,
the Board of Directors consists of such number of directors as the Board of
Directors determines from time to time. The number of directors of the Board of
Directors is set at nine and currently consists of eight directors. The
directors are divided into three classes. The initial term of office of the
first class of directors ("Class I Directors") expired at the Annual Meeting of
the Company's stockholders in June 1997 and such directors were re-elected at
that meeting for a three-year term expiring at the Annual Meeting of the
Company's stockholders in 2000. The initial term of office of the second class
of directors ("Class II Directors") and the third class of directors ("Class III
Directors") will expire at the Annual Meeting of the Company's stockholders in
1998 and 1999, respectively. The terms of office of each class of directors are
staggered so that the terms of no more than one class of directors will expire
in any one year. At each Annual Meeting of stockholders, the directors elected
to succeed those whose terms then expire are elected for a term of office to
expire at the third succeeding Annual Meeting of stockholders, with each
director holding office until his or her successor is duly elected and
qualified, or until his or her earlier resignation or removal. The number of
Class I Directors currently is set at three directors consisting of Mr. Shapiro,
Chairman and Chief Executive Officer of the Company, Mr. Stein, Vice Chairman,
Chief Financial Officer and Treasurer of the Company, and Mr. Offermann. The
number of Class II Directors currently is set at three directors consisting of
Mr. Tipton, President of the Company, Mr. Gurba and one vacancy, which The
Structured Finance High Yield Fund LLP has the right to designate for nomination
pursuant to rights granted to it under the March 1998 Securities Purchase
Agreement . The number of Class III Directors is currently set at three
directors consisting of Mr. Donlan, Mr. Schuessler and Mr. Young.
Messrs. Donlan and Young were named to the Company's Board of Directors in
December 1997. Messrs. Donlan and Young were named as directors pursuant to
certain rights to nominate directors granted to The 1818 Mezzanine Fund, L.P.
(the "1818 Fund") and Progressive Investment Company (and an affiliate thereof)
(collectively, "Progressive"), respectively, under the December 1997 Securities
Purchase Agreement. The Structured Finance High Yield Fund, LLP has similar
rights to designate a nominee to the Board of Directors under the March 1998
Securities
<PAGE>
Purchase Agreement. In conjunction with Messrs. Donlan and Young being elected
to the Board of Directors, Mr. Shapiro was redesignated from a Class I Director
to a Class III Director.
Section 16(a) Beneficial Ownership Reporting Compliance
In 1997, all stock ownership reports to be filed by officers and directors
of National Auto Finance Company, Inc. were filed timely.
<PAGE>
Item 11. Executive Compensation
The following table sets forth information concerning total compensation
earned by or paid to the Company's Chief Executive Officer and to the four other
most highly compensated executive officers of the Company employed as of
December 31, 1997 (the "named executive officers") during fiscal 1997 and 1996
for services rendered to the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
---------------------------------------- ------------
Other
Annual Securities All Other
Compen- Underlying Compensa-
Name and Principal Position Year(1) Salary Bonus sation Options/SARs tion
- --------------------------- ---- ------ ----- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Shapiro (3) 1997 $ -- $ -- $-- 27,500 $ --
Chief Executive Officer 1996 -- -- -- -- --
Roy E. Tipton 1997 155,000 68,750 (4) 65,000 25,000(5)
President 1996 130,000 59,131 (4) -- --
William G. Magro 1997 130,000 55,000 (4) 35,000 30,077(6)
Executive Vice President 1996 110,571 40,839 (4) -- 11,041(6)
Chief Operating Officer and
President of the Financial
Services Division
Kevin G. Adams 1997 115,000 75,000 (4) 27,000 --
Senior Vice President, 1996 95,000 35,630 (4) -- --
Finance
<PAGE>
Stephen R. Stack(7) 1997 115,000 45,000 (4) 28,000 --
Senior Vice President- 1996 105,000 35,251 (4) -- --
Sales and Marketing
- -------------------
<FN>
(1) Information with respect to fiscal years prior to 1996 is not reported due
to the fact that the Company first became a reporting company pursuant to
the Exchange Act on January 29, 1997.
(2) Bonuses for Messrs. Tipton, Magro and Stack for services rendered in a
given year are determined by the Compensation Committee of the Board. These
bonuses are paid by the end of March of the year following the awarding of
bonuses. See "--Employment Agreements."
(3) No compensation was received directly from the Company in 1997 and 1996.
The Company, however, paid fees and costs to National Financial, pursuant
to a management and service agreement, for the rendering of various
services in support of the Company's operations. Mr. Shapiro is a principal
owner and the Chairman and Chief Executive Officer of National Financial.
(4) Reflects immaterial amounts that, in the aggregate, are below reportable
thresholds with respect to 401(k) contributions made by the Company in
accordance with the Company's 401(k) Plan and reimbursement for certain
monthly automobile expenses.
(5) Reflects a bonus for the execution by Mr. Tipton of an extension of his
employment contract with the Company.
(6) Reflects amounts paid to Mr. Magro for relocation expenses in 1997 and
1996, respectively.
(7) Mr. Stack resigned his position with the Company effective April 16, 1998.
</FN>
</TABLE>
No stock appreciation rights were awarded to, earned by or paid to the named
executive officers during the fiscal year ended December 31, 1997.
Director Compensation
Directors who are also employees of the Company (including Gary L. Shapiro,
Chairman of the Board of Directors, who controls National Financial, an entity
that receives certain fees and expenses in connection with management services
provided to the Company (see Item 13 "Certain Relationships and Related
Transactions SYMBOL 45 \f "Symbol" \s 10Management and Service Agreements"))
receive no extra compensation or retainer fees for their service as members of
the Board of Directors or any committee thereof. Independent non-employee
directors of the Company receive an annual
<PAGE>
retainer of $10,000. In addition, each independent non-employee director
receives $1,000 for each meeting of the Board of Directors attended and $500 for
each meeting of a committee attended, plus, in each case, expenses incident to
attendance at such meetings. Stock options exercisable for shares of Common
Stock are granted to independent non-employee directors of the Company pursuant
to the Company's 1996 Share Incentive Plan in order to provide such directors an
opportunity to acquire a proprietary interest in the Company through automatic,
non-discretionary awards of Common Stock, and thus to create in such directors
an increased interest in and a greater concern for the welfare of the Company.
The purchase price of the Common Stock covered by such options was set at the
fair market value of such Common Stock on the date of grant, and when such
option shares were repriced, the purchase price was set at least at the fair
market value of the Common Stock on the date of such repricing. These options
are fully exercisable on the first anniversary of the date of grant. In 1997,
the Company granted to each independent non-employee director of the Company
stock options to acquire 10,000 shares of Common Stock.
Employment Agreements
The Company employs each of Roy E. Tipton, President and William G. Magro,
Executive Vice President and Chief Operating Officer and President of the
Financial Services Division, and, prior to his resignation, employed Stephen R.
Stack, Senior Vice President--Sales and Marketing, pursuant to employment
agreements.
Effective September 16, 1995, the Company entered into a three-year
employment agreement with Roy E. Tipton, President of the Company. In December
1997, Mr. Tipton's agreement was extended for one additional year through
December 31, 1999. Mr. Tipton's annual salary was $155,000 in 1997 and will be
$200,000 in 1998 and $240,000 in 1999. Mr. Tipton will receive from the Company
an incentive bonus based upon the achievement of certain performance goals and
payable on or before March 31 of each of 1999 and 2000. Pursuant to Mr. Tipton's
agreement, the incentive bonus is computed as the lesser of a prescribed
fraction of the Company's net annual pre-tax income and (i) in 1998, $117,000,
and (ii) in 1999, $146,250.
Effective July 1, 1996, the Company entered into a three-year employment
agreement with William G. Magro, Executive Vice President of the Company. In
connection with Mr. Magro's promotion to President of the Financial Services
Division of the Company, effective May 17, 1997, Mr. Magro's employment
agreement was amended and now expires on December 31, 2000. Accordingly, as of
that date, Mr. Magro's annual base salary in 1997 was increased to $130,000.
Additionally, Mr. Magro's annual salary will be $140,000 in 1998, $150,000 in
1999, and $175,000 in 2000. Mr. Magro will receive from the Company an incentive
bonus based upon the achievement of certain performance goals and payable on or
before March 31 of each of 1999, 2000 and 2001. Pursuant to Mr. Magro's
agreement, the incentive bonus is computed as the lesser of a prescribed
fraction of the Company's net annual pre-tax income and (i) in 1998, $84,000,
(ii) in 1999, $90,000 and (iii) in 2000, $105,000.
Effective December 30, 1996, the Company entered into a three-year
employment agreement with Stephen R. Stack, Senior Vice President of Sales and
Marketing of the Company. Mr. Stack's annual salary was $115,000 in 1997 and he
received a bonus from the Company of $45,000 for 1997. Mr. Stack's employment
agreement terminated upon his resignation from the Company effective April 16,
1998.
Pursuant to their employment agreements, each of Messrs. Tipton and Magro
may participate in any stock option and benefit plans adopted by the Company or
its successors. In addition, each of such individuals has agreed to maintain the
confidentiality of the Company's proprietary information and, during the term of
his agreement, and up to six months after
<PAGE>
termination of employment at the discretion of the Company, not to compete
directly or indirectly with the business of the Company.
In the event that Messrs. Tipton and Magro is terminated for "cause" (as
defined in the employment agreements), he will be entitled to receive all
accrued by unpaid base salary, benefits and other compensation and, under
certain circumstances, an additional payment or payments equal to his base
salary for a twelve-month period. In the event that Mr. Tipton ceases to be
employed by the Company due to disability, he will be entitled to receive all
accrued but unpaid base salary, benefits and other compensation and an
additional payment or payments equal to his base salary for a twelve-month
period. In the event that Mr. Magro ceases to be employed by the Company due to
disability, he will be entitled to receive all accrued but unpaid base salary,
benefits and other compensation and an additional payment or payments equal to
his base salary for a three-month period. Each of Messrs. Tipton and Magro may
also terminate his employment for Good Reason (as defined in the employment
agreements). In such event, such individual will be entitled to receive an
amount equal to the remaining unpaid balance of his base salary for the full
remaining term of his agreement and Mr. Magro will receive an amount equal to
his base salary for a six-month period. Additionally, Mr. Tipton has the right
to terminate his employment agreement, upon one hundred twenty (120) days
written notice, in the event that the Company retains a Chief Executive Officer
(other than Mr. Tipton or Mr. Shapiro) during the term of his employment
Agreement.
Option Grants
The following table sets forth stock options granted in 1997 to each of the
Company's executive officers named in the Summary Compensation Table. The
Company did not issue any stock appreciation rights. The table also sets forth
the hypothetical gains that would exist for the options at the end of their
ten-year terms for the executive officers named in the Summary Compensation
Table at assumed compound rates of stock appreciation of 0%, 5% and 10%. The
actual future value of the options will depend on the market value of the
Company's Common Stock. All of the exercise prices of the options listed in the
chart below reflect the re-pricing of those options to $5.25 per share by the
Company's Board of Directors in December 1997.
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
-----------------------------------
Percent
of Total
Number of Options/
Securiti SARs Potential Realizable Value
Underlying Granted Exercise at Assumed Annual Rates
Options/ Employees or Base of Stock Price Appreciation
SARs in Fiscal Price Expiration For Option Term(a)
Name Granted (Year) ($/Sh) Date 5%($) 10%($)
- --------------------- -------- ---- ---- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Shapiro 27,500 0.09% $5.25 1/29/07 $ 90,797 $230,097
Roy E. Tipton 50,000 1.71% 5.25 1/29/07 165,085 418,357
15,000 0.05% 5.25 9/11/07 49,525 125,507
William G. Magro 35,000 1.19% 5.25 1/29/07 115,559 292,850
Kevin G. Adams 27,000 0.09% 5.25 1/29/07 89,146 225,913
Stephen R. Stack 28,000 0.10% 5.25 1/29/07 92,448 234,280
</TABLE>
(a) These amounts, based on assumed appreciation rates of 5% and 10%, the rates
prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of the Company's
stock price.
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized upon exercise in 1997 by the
Company's named executive officers. The table also sets forth the number of
shares covered by exercisable and unexercisable options held by such executives
on December 31, 1997 and the aggregate gains that would have been realized had
these options been exercised on December 31. 1997, even though these options
were not exercised, and the unexercisable options could not have been exercised,
on December 31, 1997. The Company did not issue stock appreciation rights.
FY-End Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options/SARs at FY- Money Options/SAR at Fiscal
End (a) ($) Year End (a) ($)
Name Exercisable Unexercisable Exercisable Unexercisable
Gary L. Shapiro 9,167 18,333 $ -- $--
Roy E. Tipton 21,667 43,333 -- --
William G. Magro 11,667 23,333 -- --
Kevin G. Adams 9,000 18,000 -- --
Stephen R. Stack 9,333 18,667 -- --
(a) None of the options were in the money as of December 31, 1997.
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Board of Directors formed the Compensation Committee in June 1997.
Since that time, Gary L. Shapiro, Chairman and Chief Executive Officer of the
Company, and directors Peter Offermann and Morgan M. Schuessler have served as
members of the Compensation Committee. Joseph P. Donlan became a member in
December 1997. Since the formation of the Compensation Committee, Mr. Shapiro
served as Chairman of the Compensation Committee. The Company has entered into a
management agreement and a services agreement with National Financial in which
the Company pays fees and costs to National Financial for services it provides
the Company. See Item 13 "Certain Relationships and Related
Transactions-Management and Services Agreements." Mr. Shapiro is the Chairman
and Chief Executive Officer and a principal owner of National Financial, and Mr.
Stein is a managing director of National Financial. Mr. Shapiro is the general
partner of The S Associates Limited Partnership (the "S Associates"), which is a
limited partner of the National Auto Partnership, the largest stockholder of the
Company.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998, by (i) each person
who is known by the Company to own beneficially 5.0% or more of the Common
Stock; (ii) each director of the Company, (iii) each of the named executive
officers; and (iv) all directors and executive officers as a group. Unless
otherwise indicated, the Company believes all persons listed have sole voting
power and investment power with respect to such shares.
Name and Address Number of
of Beneficial Ownership (1)(2) Shares Percent
National Auto Finance Company L.P. (3)...... 4,230,000 46.8%
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487
The Progressive Investment Company, Inc..... 1,506,480 16.0%
401 Theodore Fremd Avenue
Rye, New York 10580
The 1818 Mezzanine Fund, L.P................ 1,177,475 12.5%
59 Wall Street
New York, New York 10005
The Structured Finance High Yield Fund, LLC 593,671 6.2%
One Gateway Center
Newark, New Jersey 07102
Morgan Guaranty Trust Company of New York,
as trustee (4)............................ 496,000 5.5%
522 Fifth Avenue
New York, New York 10036
Gary L. Shapiro (5) (6)..................... 20,334 *
Keith B. Stein (5).......................... 49,333 *
Roy E. Tipton (5)........................... 48,833 *
William G. Magro............................ 33,334 *
Tim W. Carter............................... 12,000 *
Stephen R. Stack............................ 18,667 *
Stephen L. Topp............................. 8,834 *
Kevin G. Adams.............................. 18,000 *
<PAGE>
Joel B. Ronkin.............................. 5,000 *
Melissa J. Grimm............................ 5,000 *
Brent E. Wombolt............................ 7,500 *
James E. Shuler............................. 7,500 *
Stephen L. Gurba (5)........................ -- *
Peter Offermann............................. 6,000 *
Morgan M. Schuessler........................ -- --
Joseph P. Donlan (7)........................ -- --
David W. Young (8).......................... -- --
All directors and executive officers
as a group (17 persons)................. 240,335 2.6%
- -------------------
* Represents less than 1.0%
(1) The business address of each of the directors and current executive
officers listed in the table above is c/o National Auto Finance Company,
Inc., 621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487.
(2) Except as otherwise indicated, includes total number of shares outstanding
and the number of shares that each person has the right to acquire within
60 days from March 31, 1998 through the exercise of options or warrants and
excludes shares that each person has the right to acquire after 60 days
from March 31, 1998 through the exercise of options.
(3) The general partner of the National Auto Partnership is National Auto
Finance Corporation ("National Auto"). National Auto holds a 1.0% general
partner interest in the National Auto Partnership. Mr. Shapiro owns capital
stock of National Auto. The limited partners of the National Auto
Partnership include, among others, S Associates, the First Union Partner,
Stephen L. Gurba, Keith B. Stein, Roy E. Tipton, William G. Magro, Stephen
R. Stack and Kevin G. Adams. Mr. Shapiro owns all of the outstanding
capital stock of the general partner of S Associates. The First Union
Partner holds a vested 15.0% limited partner economic interest in the
National Auto Partnership. The remaining limited partners of the National
Auto Partnership hold the balance of the limited partner economic
interests. The First Union Partner may earn up to an additional 34.0%
limited partner economic interest (or an aggregate of approximately 49.0%
when added to the First Union Partner's current vested economic limited
partner interest), thus diluting the other limited partners but not
diluting the public stockholders of the Company, over a period of time
expiring on January 31, 1999 (the "Adjustment Period") based upon various
factors specified in the National Auto Partnership agreement, including the
overall performance of the First Union Strategic Alliance and the total
market value of the company over the Adjustment Period. Except for the
First Union Partner, each limited partner of the National Auto Partnership
has the right to vote on certain matters specified in the National Auto
Partnership agreement commensurate with each such limited partner's
respective economic limited partner interest. In accordance with the
National Auto Partnership agreement, the consent of the First Union Partner
is generally required before the National Auto Partnership may take certain
fundamental actions. The Company and First Union have agreed to allow First
Union up to and including May 15, 1998 to notify the Company of First
Union's renewal or non-renewal of the referral agreement for an
<PAGE>
additional year.
(4) Includes shares held by Morgan Guaranty Trust Company of New York, as
trustee of each of the Commingled Pension Trust Fund (Multi-market Special
Investment Fund II) of Morgan Guaranty Trust Company of New York and the
Multi-market Special Investment Trust Fund of Morgan Guaranty Trust Company
of New York and as investment manager and agent for an institutional
investor.
(5) Excludes shares held by the National Auto Partnership. Each such person
disclaims beneficial ownership with respect to such shares.
(6) NovaCorporation, of which Mr. Shapiro and certain of his family members
directly and indirectly hold 50.0% of the capital stock, hold 2,000 shares
of Common Stock.
(7) Mr. Donlan is the co-manager of the 1818 Mezzanine Fund, L.P., which holds
761,905 shares of the Company's Common Stock and Warrants to purchase
415,570 shares of the Company's Common Stock at $0.01 per share.
(8) Mr. Young is the Chief Investment Officer of The Progressive Investment
Company, Inc., which holds 1,142,857 shares of the Company's Common Stock
and Warrants to purchase 363,623 shares of the Company's Common Stock at
$0.01 per share.
Item 13. Certain Relationships and Related Transactions
General
The Company, from time to time, has entered into transactions with certain
of its principals, stockholders and entities in which they have an interest. The
Company believes that each such transaction has been on terms no less favorable
to the Company than could have been obtained in a transaction with an
independent third party.
Reorganization
The National Auto Partnership and Auto Credit Clearinghouse L.P. ("ACCH
Partnership") were organized in October 1994 and September 1995, respectively,
and conducted the business of the Company until January 29, 1997. On that day,
in connection with the closing of the Company's Initial Public Offering, (i) the
assets and liabilities of the ACCH Partnership were transferred to the National
Auto Partnership, (ii) the ACCH Partnership was dissolved, and (iii) immediately
thereafter
<PAGE>
the assets and liabilities of the National Auto Partnership were transferred to
the Company in exchange for all of the Common Stock then outstanding and all of
the preferred stock of the Company then outstanding (the "Reorganization").
Directors and executive officers of the Company had a direct and material
interest in certain transactions that constituted the Reorganization as
described below. The Company believes that the terms of such transactions were
as favorable as those that could have been obtained from an unaffiliated third
party.
First Union
The National Auto Partnership
The First Union Partner is a limited partner of the National Auto
Partnership and holds a vested 15.0% limited partner economic interest in the
National Auto Partnership. The First Union Partner may earn up to an additional
34.0% limited partner economic interest (or an aggregate of approximately 49.0%
when added to the First Union Partner's current vested economic interest), thus
diluting the other limited partners but not the public stockholders of the
Company, over a period of time expiring on January 31, 1999, based upon various
factors, including the overall performance of the First Union Strategic Alliance
and the total market value of the Company.
The National Auto Partnership Agreement provides, in part, that upon the
certain named events (collectively, the "Put Events"), the First Union Partner
has the right to cause the National Auto Partnership to redeem the First Union
Partner interest. The Put Events include: (i) the withdrawal of National Auto
from the National Auto Partnership or the addition of one or more persons as
general partners thereof (except that such withdrawal and subsequent addition
are not considered a Put Event if any of National Auto, Gary Shapiro or Edgar A.
Otto is in control of the then general partner of the National Auto
Partnership), (ii) any ownership exchanges which have specified tax consequences
with respect to National Auto, (iii) any merger, consolidation or other
reorganization of the National Auto Partnership or its business (except that no
Put Event will be deemed to have occurred if there is not a change in the
business of the National Auto Partnership or the substantive terms of the
National Auto Partnership Agreement and the First Union Partner's interests in
the National Auto Partnership are not adversely affected), (iv) the
classification of the National Auto Partnership as an association taxable as a
corporation or a publicly traded partnership, (v) December 2002, (vi) subject to
certain exceptions, a transfer of partner interests which, when added to all
prior transfers, if any, represents aggregate changes in ownership of more than
29.0% of the total partner interest and (vii) the existence of a regulatory
requirement that prevents the First Union Partner from owning its ownership
interest in the National Auto Partnership. The Partnership Agreement provides,
further, that upon the National Auto Partnership's receipt from the First Union
Partner of a put notice pursuant to which First Union requests redemption of its
interest in the National Auto Partnership, National Auto has the right to (i)
dissolve the National Auto Partnership, (ii) sell or exchange 100% of the
interests of the National Auto Partnership, (iii) sell or exchange 100.0% of the
property of the National Auto Partnership or (iv) offer publicly the equity
securities of the National Auto Partnership. Upon receipt from the First Union
Partner of a put notice, the National Auto Partnership may redeem the First
Union Partner's interest in shares of Common Stock or in such other form of
consideration as may be agreed upon.
The First Union Strategic Alliance
Pursuant to the Company's referral agreement with First Union, First Union
causes First Union Auto Finance to (i) introduce the Company to the
approximately 3,400 Dealers throughout twelve states and the District of
Columbia with which First Union Auto Finance has an existing relationship and
(ii) refer on an exclusive basis to the Company certain Non-Prime Consumer
credit applications for Loans received from such Dealers. In consideration for
such services, First Union receives
<PAGE>
a fee on each Loan purchased by the Company as a result of the First Union
Strategic Alliance. Pursuant to the referral agreement, funded Loan referrals
are without recourse to First Union. The parties are, however, liable to each
other for any breach of their respective presentations, warranties, covenants
and indemnities. The term of the referral agreement is for a period of three
years that currently terminates in April 2000. Subject to the consent of First
Union, the referral agreement may be renewed in April of each year for an
additional year, such that, after each renewal, the remaining term of the
referral agreement continues to be three years. The Company and First Union have
agreed to allow First Union up to and including May 15, 1998 to notify the
Company of First Union's renewal or non-renewal of the referral agreement for an
additional year. First Union may terminate the referral agreement upon, among
other things, a "change of control" of the Company. In the event the referral
agreement is terminated, the Company, may, however, continue the relationships
it has established with First Union-related Dealers. In addition, the referral
agreement precludes the Company from purchasing Loans from First Union-related
Dealers through other Strategic Alliances in the same geographic areas as those
covered by the First Union Strategic Alliance.
Lending
First Union National Bank of North Carolina, a subsidiary of First Union
Corporation, is the sole holder of the Class B Certificates that relate to the
Revolving Securitization. Additionally, First Union National Bank of Florida, a
subsidiary of First Union Corporation, has agreed to lend the Company up to $1.5
million for furniture and equipment purchases for the Company's service center
and the Company's corporate headquarters.
Placement Agent and Underwriting
First Union Capital Markets Corp. ("FUCMC"), a wholly-owned subsidiary of
First Union Corporation has served as placement agent for the Morgan Notes and
the Senior Subordinated Notes. FUCMC has also privately placed and acted as
underwriter for a public offering of asset-backed securities of the Company in
connection with the Company's securitization transactions and may continue to
act as placement agent or underwriter for the Company's future securitization
and financing activities.
Registration Rights
Pursuant to a registration rights agreement with the Company, the First
Union Partner was granted certain rights with respect to the registration under
the Securities Act of Common Stock distributed to it by the National Auto
Partnership (no such distribution has been made as of the date of this Form
10-K).
Under the registration rights agreement, the First Union Partner can, in
certain circumstances, require the Company to effect up to two registrations of
any or all of the First Union Partner's share of Common Stock. The Company is
not required to honor such request to register shares of Common Stock if the
request is made within 90 days of a firm commitment underwritten public offering
or before the expiration of any lock-up period required by the underwriters in
connection therewith.
<PAGE>
In addition, if the Company proposes to file a registration statement under
the Securities Act with respect to an offering by the Company, in certain
circumstances the First Union partner can exercise piggy-back registration
rights to request participation in the offering. The Company is not required to
honor, in full, any such request to register shares of Common Stock if such
request would reduce the number or amount of securities to be issued by the
Company in any such offering to an amount which, in the opinion of the Board of
Directors of the Company, is below that which is necessary and in the best
interests of the Company. Furthermore, if an underwritten offering and the
underwriter delivers a written opinion that marketing considerations require a
limitation on the number of securities to be sold, then the First Union
Partner's piggyback registration rights shall be reduced pro rata to the extent
necessary to comply with the underwriter's recommendations.
Senior Subordinated Indebtedness
General
In December 1997, the Company completed the December Private Placement of
$10 million in common stock and $40 million principal amount of Senior
Subordinated Notes with detachable Warrants. The private placement of the $10
million in Common Stock resulted in the issuance of 761,905 shares of the
Company's Common Stock, to the 1818 Fund., and 1,142,857 shares of the Company's
Common Stock to Progressive. The Senior Subordinated Notes, which mature in
seven years, bear interest at 11.875% per annum for the first three years, and
increase to 12.875% in year four, 13.875% on year five and 14.875% in years six
and seven. In connection with the December Private Placement of the Senior
Subordinated Notes, the Company issued detachable Warrants with a ten-year
maturity, exercisable into Common Stock of the Company at $0.01 per share. The
Senior Subordinated Notes and Warrants were purchased by the 1818 Fund,
Progressive and Manufacturers Life Insurance Company (USA) ("ManuLife"). In
connection with the December Private Placement, the 1818 Fund and Progressive
are entitled to nominate, collectively, two individuals to the Company's Board
of Directors. The 1818 Fund and Progressive did nominate two individuals to the
Company's Board of Directors, and, accordingly, on December 22, 1997, Joseph P.
Donlan and David W. Young were elected as Class III Board members with terms
expiring at the Company's Annual Meeting in 1999.
Registration Rights
Pursuant to a registration rights agreement, the Company has granted the
1818 Fund, Progressive, ManuLife, the First Union Partner, FSA and others
certain rights with respect to the registration under the Securities Act of
Common Stock held by it. Under the registration rights agreement, the other
entities can, in certain circumstances, require the Company to effect up to two
registrations of any or all of the their shares of Common Stock. The Company is
not required to honor such request to register shares of Common Stock if the
request is made within 90 days of a firm commitment underwritten public offering
or before the expiration of any lock-up period required by the underwriters in
connection therewith.
In addition, if the Company proposes to file a registration statement (other
than a Registration Statement on Form S-4 or S-8 or any successor forms to such
Forms) under the Securities Act with respect to an offering by the Company, in
certain circumstances the 1818 Fund and Progressive, among others, can exercise
incidental registration rights to request participation in the offering. The
Company is not required to honor any such request to register shares of Common
Stock if, in an underwritten offering, the underwriter(s) have advised the
Company in writing that the number of shares requested by the 1818 Fund and
Progressive to be registered exceeds the number of securities that can be sold
in such offering within an acceptable price range.
<PAGE>
Junior Subordinated Indebtedness
During 1994, Gary L. Shapiro, Edgar A. Otto and Stephen L. Gurba loaned
$1,525,000, $3,675,000 and $123,733, respectively, to the Company. During 1995,
Messrs. Shapiro and Otto loaned $539,000 and $342,000, respectively, to the
Company. During 1995, Nova Financial Corporation and Nova Corporation, each of
which is a privately-held corporation controlled by Messrs. Shapiro and Otto,
loaned $100,000 and $1,115,000, respectively, to the Company. During 1996, Nova
Corporation loaned $700,000 to the Company. All of such loans were made on a
junior subordinated basis and in exchange for the Junior Subordinated Notes.
Each of the Junior Subordinated Notes bears interest at a rate of 8.0% per annum
payable quarterly in arrears and matures on December 20, 2004. During 1996, the
Company repaid $511,000 and $461,000 to Messrs. Shapiro and Otto, respectively.
In January 1997, a portion of the Company's proceeds from the Initial Public
Offering were used to repay $2,594,186, $1,302,131, $1,122,361, $90,018 and
$72,754 to Mr. Otto, Nova Corporation, Mr. Shapiro, Mr. Gurba and Nova Financial
Corporation, respectively. As of December 31, 1997, the Company owed
approximately $2.0 million (including $39,000 of accrued and unpaid interest) on
the Junior Subordinated Notes. The Company believes that the terms of each of
the Junior Subordinated Notes are as favorable as could have been obtained from
an unaffiliated third party.
Management and Service Agreements
The Company is party to a management agreement and a service agreement
pursuant to which National Financial provides operational, financial, legal,
accounting, management, advisory and other administrative services relating to
the management, business operations, assets and interests of the Company. The
Company pays a fixed fee of $540,000 per year, plus other fees, costs and
expenses, to National Financial for such services. The Company believes that the
terms of the management agreement and the service agreement are as favorable as
could have been obtained from an unaffiliated third party for comparable
services. The Company, with board approval, may from time to time request that
National Financial augment the services provided by National Financial, or its
successors or assigns, under the management agreement and service agreement to
the Company and, accordingly, the Company would pay additional fees for those
services. The terms of any such agreement would be, however, on terms the
Company considers as favorable as could have been obtained from an unaffiliated
third party for comparable services. Each of Gary L. Shapiro and Keith B. Stein
is a member of and an executive officer of National Financial, an executive
officer of National Auto and a director and officer of the Company.
National Auto holds a 1% general partner interest in the National Auto
Partnership. A majority of the outstanding capital stock of National Auto is
owned collectively by Messrs. Shapiro and Otto. The limited partners of the
National Auto Partnership include, among others, the S Associates, the O
Associates, the First Union Partner, Keith B. Stein, Roy E. Tipton, William G.
Magro, Stephen R. Stack and Kevin G. Adams. Messrs. Stein, Tipton, Magro, Stack
and Adams are all executive officers of the Company, and Messrs. Stein and
Tipton are directors of the Company. Mr. Shapiro, who is Chairman of the Board
and Chief Executive Officer of the Company, is the trustee of a trust that owns
all of the outstanding capital stock of the general partner of S Associates. Mr.
Otto owns all of the outstanding capital stock of the general partner of O
Associates. The remaining limited partners of the National Auto Partnership,
which include members of the management and employees of the Company, hold the
balance of the limited partner economic interests.
<PAGE>
Pro-Travel and InfoTech
The Company uses the services of Pro-Travel, a travel agency, for its travel
needs. Pro-Travel is a privately-held corporation, 98% owned by Mr. Shapiro and
his wife. All fees charged by Pro-Travel are at the customary rates charged by
other third-party providers. The Company intends to continue using Pro-Travel
for its travel needs.
Further, in 1997, the Company used the services of InfoTech Professionals of
South Florida, Inc., an employment placement agency, for the retention of
certain of the Company's MIS personnel. Mr. Shapiro is a majority stockholder of
InfoTech, a privately-held corporation. In 1997, the Company paid InfoTech
approximately $31,200 in placement agency fees. The Company believes that the
fees charged by InfoTech were at rates comparable to those charged by unrelated
third-party providers.
Software Sublicense Agreement
The Company sublicenses the right to use the CLASS software platform from
Pinnacle Portfolio Services LLC ("Pinnacle"), which is controlled by Messrs.
Shapiro, Gurba and Stein, directors of the Company. The Company paid Pinnacle a
$1.00 fee for the sublicense and assumed Pinnacle's obligation to pay
approximately $862,500 in licensing fees to BNI, Inc. ("BNI"), the licensor of
the CLASS system. Pinnacle has agreed that, in the event that it generates
revenues through its use, if any, of the licensed programs, it will pay the
Company, quarterly in arrears, 2% of its gross revenues until the Company has
received $432,000 from Pinnacle (representing approximately 50% of the total
licensing fees due to BNI under the license agreement). In addition, in the
event there is a change in ownership of the Company (as defined in the
sublicense agreement), the party undergoing the change in ownership will be
obligated to pay BNI a transfer fee of $375,000.
Indebtedness of Management
In 1997, the Company loaned Mr. Magro $100,000, pending the sale of his home
residence in Palm Beach County in connection with his relocation to Jacksonville
to manage the Company's Financial Services Division. As part of Mr. Magro's
agreement to relocate to Jacksonville, the Company agreed to forgive all or a
portion of that loan based on the sale price of Mr. Magro's residence. Mr. Magro
sold his residence in March 1998 and paid the Company $59,146 towards the
principal owed on the $100,000 Loan. Accordingly, $40,854 of the Loan was
forgiven by the Company.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
a) Exhibits
Number Description Method of Filing
- ------ ----------- ----------------
3.1 Certificate of Incorporation of the Company.(1)
3.1-1 Certificate of the Designations, Preferences and Rights of the Series A
Preferred Stock of the Company.(3)
3.2 By-laws of the Company.(1)
4.1 Certificate of Common Stock.(4)
4.2-1Promissory Note, dated October 31, 1994, payable by National Auto Finance
Company L.P. to the order of Gary L. Shapiro.(1)
4.2-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance L.P. to the order of Gary L. Shapiro.(3)
4.3 Promissory Note, dated October 6, 1994, payable by National Auto Finance
Company L.P. to the order of Edgar A. Otto.(1)
4.3-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance Company L.P. to the order of Edgar A. Otto.(3)
<PAGE>
4.4 Promissory Note, dated November 8, 1994, payable by National Auto Finance
Company L.P. to the order of Stephen L. Gurba.(1)
4.4-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by national Auto Finance Company L.P. to the order of Stephen L. Gurba.(3)
4.5 Promissory Note, dated March 27, 1995, payable by National Auto Finance
Company L.P. to the order of Nova Financial Corporation.(1)
4.5-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance Company L.P. to the order of Nova Financial
Corporation.(3)
4.6 Promissory Note, dated May 1, 1995, payable by National Auto Finance
Company L.P. to the order of Nova Corporation.(1)
4.6-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance Company L.P. to the order of Nova Corporation.(3)
4.7 Securities Purchase Agreement (the "Securities Purchase Agreement") by and
among National Auto Finance Company, Inc., The 1818 Mezzanine Fund, L.P.,
PC Investment Company, Progressive Investment Company, Inc., and
Manufacturers Life Insurance Company (U.S.A.) dated December 22, 1997.(5)*
4.7-1Waiver and Amendment No. 1 to the Securities Purchase Agreement, dated
March 27, 1998, by and among National Auto Finance Company, Inc., The 1818
Mezzanine Fund, L.P., PC Investment Company, Progressive Investment
Company, Inc. and Manufacturers Life Insurance Company.(5)*
<PAGE>
4.8 Form of Senior Subordinated Promissory Note issued pursuant to the
Securities Purchase Agreement.(5)*
4.9 Form of Warrant to Purchase Shares of Common Stock of National Auto Finance
Company, Inc. issued pursuant to the Securities Purchase Agreement.(5)*
4.10 Agreement, dated March 27, 1998, by and between National Auto Finance
Company, Inc. and The Structured Finance High Yield Fund, LLC.(5)*
4.11 Senior Subordinated Promissory Note, dated March 27, 1998, executed by
National Auto Finance Company, Inc. in favor of The Structured Finance High
Yield Fund, LLC, in the amount of $20,000,000.00.(5)*
4.12 Warrant, issued March 27, 1998, executed by National Auto Finance Company,
Inc.(5)*
10.1 Second Amended and Restated Agreement of Limited Partnership of NatAuto
Finance Company L.P., dated as of September 1, 1995, by and among National
Auto Finance Corporation, The S Associates Limited Partnership, The O
Associates Limited Partnership, Stephen L. Gurba, Craig Schnee, Roy E.
Tipton, Blane H. MacDonald, Michael B. Colley, Irwin I. Kent, William G.
Magro, Kevin G. Adams, Kamala R. Chapman, Keith B. Stein, Colleen S.
McMillen, Richard H. Steffer, Tim Rooney, Lynn Dunham-Sirota and IronBrand
Capital, LLC.(1)
10.1-1First Amendment to Second Amended and Restated Partnership Agreement,
dated December 1, 1996.(3)
<PAGE>
10.2 1996 Share Incentive Plan.(3)
10.3 401(k) Plan.(1)
10.4 Employment Agreement, dated as of July 1, 1996, between National Auto
Finance Company, Inc. and William G. Magro.(3)
10.4-1 First Amendment to Employment Agreement, dated as of May 27, 1997,
between National Auto Finance Company, Inc. and William G. Magro.(5)
10.5 Employment Agreement, dated as of September 16, 1995, between National Auto
Finance Company, Inc. and Roy E. Tipton.(3)
10.5-1 First Amendment to Employment Agreement, Dated as of December 16, 1997,
between National Auto Finance Company, Inc. and Roy E. Tipton.(5)
10.6 Employment Agreement, dated as of October 19, 1995, between National Auto
Finance Company, Inc. and Blane H. McDonald.(3)
10.7 Employment Agreement, dated as of December 31, 1996, between National Auto
Finance Company, Inc. and Stephen R. Stack.(3)
10.8 Receivables Purchase Agreement, dated as of December 8, 1994, by and
between National Auto Finance Company L.P., as Seller, and NAFCO Funding
Trust, as Purchaser.(1)
<PAGE>
10.9 Promissory Note, dated December 8, 1994, payable by NAFCO Funding Trust to
the order of National Auto Finance Company L.P.(1)
10.10NAFCO Auto Receivables Master Trust Pooling and Administration Agreement,
dated as of December 8, 1994, among NAFCO Funding Trust, as Transferor,
National Auto Finance Company L.P., as the Administrator, and Bankers Trust
Company, as Trustee.(1)
10.10-1 Consent and Amendment, dated as of July 2, 1996, to NAFCO Auto
Receivables Master Trust Pooling and Administration Agreement, dated as of
December 8, 1994, among NAFCO Funding Trust, as Transferor, National Auto
Finance Company L.P., as the Administrator, and Bankers Trust Company, as
Trustee.(5)*
10.11Series 1994-R, Class B Supplement, dated as of December 8, 1994, to the
Pooling and Administration Agreement, dated as of December 8, 1994, among
NAFCO Funding Trust, as Transferor, National Auto Finance Company L.P., as
the Administrator, and Bankers Trust Company, as Trustee.(1)
10.12Trust Agreement, dated as of October 5, 1994, between National Auto
Finance Corporation and Bankers Trust.(1)
10.13First Amendment and Restated Trust Agreement of NAFCO Funding Trust, dated
as of December 8, 1994, between National Auto Finance Company L.P., as
Depositor, The Chase Manhattan Bank (USA), as Owner Trustee and Gary L.
Shapiro and Edgar A. Otto, as Co-Trustees.(1)
10.14Amended and Restated Servicing Agreement, dated as of December 5, 1994, by
and between World Omni Financial Corp. and National Auto Finance Company
L.P.(1)
<PAGE>
10.14-1 Amendment to Amended and Restated Servicing Agreement, dated as of
September 6, 1995, by and among World Omni Financial Corp. and National
Auto Finance Company L.P.(5)*
10.14-2 Second Amendment to Amended and Restated Servicing Agreement, dated as
of June 24, 1997, by and between Omni Financial Services of America, Inc.,
as assignee of World Omni Financial Corp., and National Auto Finance
Company, Inc., as assignee of National Auto Finance Company L.P.(5)*
10.14-3 Third Amendment to the Amended and Restated Servicing Agreement, dated
as of September 12, 1997, by and between Omni Financial Services of
America, Inc. and National Auto Finance Company, Inc.(5)*
10.14-4 Fourth Amendment to the Amended and Restated Servicing Agreement, dated
as of October 12, 1997, by and between Omni Financial Services of America,
Inc.(5)*
10.14-5 Supplement to the Amended and Restated Servicing Agreement, dated as of
December 5, 1994, as amended as of October 1, 1995, between World Omni
Financial Corp. ("WOFC"), as Servicer, and National Auto Finance Company
L.P., dated as of November 21, 1995 by and between Omni Financial Services
of America, Inc., as assignee of WOFC ("Servicer") and NAFCO.(1)
10.14-6 Supplement to the Amended and Restated Servicing Agreement, dated as of
December 5, 1994, as amended as of October 1, 1995, between World Omni
Financial Corp. (WOFC) and National Auto Finance Company L.P. (NAFCO),
dated as of November 13, 1996 by and between Omni Financial Services of
America, Inc., as assignee of WOFC, and NAFCO.(2)
10.14-7 Supplement to Amended and Restated Servicing Agreement, December 5,
1994, as amended as of October 1, 1995 and November 13, 1996, dated as of
July 23, 1997, by and between Omni Financial Services of America, Inc. and
National Auto Finance Company, Inc.(5)*
<PAGE>
10.14-8 Supplement to Amended and Restated Servicing Agreement, dated as of
December 5, 1994, as amended as of October 1, 1995, June 24, 1997 and July
21, 1997 and supplemented as of November 21, 1995, November 13, 1996, July
12, 1997 and September 19, 1997, by and between Omni Financial Services of
America, Inc. and National Auto Finance Company, Inc.(5)*
10.15Certificate Purchase Agreement, dated as of December 8, 1994, among NAFI
Funding Trust, National Auto Finance Company L.P., as Initial Administrator
and First Union National Bank of North Carolina.(1)
10.16Management Agreement, dated as of December 29, 1994, by and between
National Auto Finance Company L.P. and National Auto Finance
Corporation.(1)
10.16-1 First Amendment of Management Agreement, dated as of January 1, 1996, by
and between National Auto Finance Company L.P., Auto Credit Clearinghouse
L.P. and National Auto Finance Corporation.(1)
10.16-2 Second Amendment to Management Agreement, dated as of January 1, 1997,
by and among National Auto Finance Corporation, National Auto Finance
Company, Inc., National Auto Finance Company, L.P. and National Financial
Companies LLC.(5)*
10.17Services Agreement, dated as of December 29, 1994, by and between National
Auto Finance Corporation and National Financial Corporation.(1)
10.17-1 First Amendment to Services Agreement, dated as of January 1, 1996, by
and between National Auto Finance Corporation and National Financial
Corporation.(1)
<PAGE>
10.17-2 Second Amendment to Services Agreement, dated as of January 1, 1997, by
and between National Auto Finance Corporation, National Auto Finance
Company, Inc. and National Financial Companies LLC.(5)*
10.18Pooling and Servicing Agreement, dated as of October 1, 1995, by and among
National Financial Auto Funding Trust, as Transferor, National Auto Finance
Company L.P., as Master Servicer, and Harris Trust and Savings Bank, as
Trustee.(1)
10.19Assignment Agreement, dated as of October 1, 1995, between Bankers Trust
Company, as Trustee, and National Financial Auto Funding Trust.(1)
10.20Transfer Agreement No. 1, dated as of October 1, 1995, between National
Financial Auto Funding Trust and Harris Trust and Savings Bank.(1)
10.21Insurance and Indemnity Agreement, dated as of November 21, 1995, among
Financial Security Assurance, Inc., National Financial Auto Funding Trust
and National Auto Finance Company L.P.(1)
10.22Indemnification Agreement, dated as of November 21, 1995, among Financial
Security Assurance Inc., National Financial Auto Funding Trust and First
Union Capital Markets Corp.(1)
10.23Master Spread Account Agreement, dated as of November 21, 1995, among
National Financial Auto Funding Trust, Financial Security Assurance Inc.
and Harris Trust and Savings Bank, as Trustee and as Collateral Agent.(1)
10.24Financial Guaranty Insurance Policy (Policy No.: 50522-N), together with
Endorsement No. 1 thereto, dated November 13, 1996, issued by Financial
Security Assurance Inc. in favor of
<PAGE>
Harris Trust and Savings Bank, as trustee for the benefit of the
Certificate Holders.(1)
10.25Custodial Agreement, dated as of November 21, 1995, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company L.P., as Master Servicer.(1)
10.26Amendment, dated as of November 21, 1995, to the First Amended and
Restated Trust Agreement of NAFCO Funding Trust, dated as of December 8,
1994, among National Auto Finance Company L.P., as Depositor, The Chase
Manhattan Bank (USA), as Owner Trustee, and Gary L. Shapiro, Edgar Otto A.
and Andrew Stidd, as Co-Trustees.(1)
10.27 Form of Indemnification Agreement.(4)
10.28Assignment and Assumption Agreement, dated as of October 7, 1996, between
National Auto Finance Company, Inc. and National Auto Finance Company
L.P.(1)
10.29Pooling and Servicing Agreement, dated as of October 21, 1996, by and
among National Financial Auto Funding Trust, as Transferor, National Auto
Finance Company L.P., as Servicer, and Harris Trust and Savings Bank, as
Trustee.(2)
10.30Purchase and Contribution Agreement, dated as of October 21, 1996, by and
between National Auto Finance Company L.P. and National Financial Auto
Funding Trust.(2)
10.31Assignment Agreement, dated as of October 21, 1996, between Bankers Trust
Company and National Financial Auto Funding Trust II.(2)
<PAGE>
10.32Master Spread Account Agreement, dated as of November 13, 1996, among
National Financial Auto Funding Trust, Financial Security Assurance Inc.
and Harris Trust and Savings Bank, as Trustee and Collateral Agent.(2)
10.33Insurance and Indemnity Agreement, dated as of November 13, 1996, among
Financial Security Assurance Inc., National Financial Auto Funding Trust
and National Auto Finance Company L.P.(2)
10.34Sale Agreement, dated as of October 21, 1996, by and between National
Financial Auto Funding Trust and National Financial Auto Funding Trust
II.(2)
10.35Transfer Agreement No. 1, dated as of November 13, 1996, by National
Financial Auto Funding Trust as Transferor to Harris Trust and Savings
Bank, as Trustee, pursuant to a Pooling and Servicing Agreement, dated as
of October 21, 1996.(2)
10.36Form of Financial Guaranty Insurance Policy issued by Financial Security
Assurance Inc.(2)
10.37Agreement, dated as of June 16, 1997, by and between CTC Investments II
Limited and National Auto Finance Company, Inc.(5)*
10.37-1 First Amendment to Lease Agreement dated June 16, 1997 by and between
CTC Investments II Limited and National Auto Finance Company, Inc. dated
October 1, 1997.(5)*
<PAGE>
10.38Referral Agreement, dated as of April 15, 1996, by and between First Union
National Bank of North Carolina and Auto Credit Clearinghouse L.P.(4)
10.39Trust Agreement, dated as of July 21, 1997, between National Financial
Auto Funding Trust and Wilmington Trust Company, as trustee.(5)*
10.40Indenture, dated as of June 29, 1997, by and between National Auto Finance
1997-1 Trust and Harris Trust and Savings Bank as Trustee.(5)*
10.41Sale and Servicing Agreement, dated as of June 29, 1997, by and among
National Auto Finance 1997-1 Trust, as Seller, National Financial Auto
Finance 1997-1 Trust, National Auto Finance Company, Inc. as Servicer, and
Harris Trust and Savings Bank, as Trust Collateral Agent and Back-up
Servicer.(5)*
10.42Financial Guaranty Insurance Policy, dated as of July 23, 1997, delivered
by Financial Security Assurance, Inc.(5)*
10.43Purchase and Contribution Agreement, dated June 29, 1997, by and between
National Auto Finance Company, Inc. and National Financial Auto Funding
Trust.(5)*
10.44Sale Agreement, dated as of June 29, 1997, by and between National
Financial Auto Funding Trust II and National Financial Auto Funding
Trust.(5)*
10.45Indemnification Agreement, dated as of July 23, 1997, by and among
Financial Security Assurance Inc., National Finance Auto Funding Trust and
First Union Capital Markets Corp.(5)*
<PAGE>
10.46Amendment No. 1 dated 1997, by and among National Financial Auto Funding
Trust, Financial Security Assurance Inc., Harris Trust and Savings Bank, as
collateral agent, and National Auto Finance Company, Inc. to Master Spread
Account Agreement dated as of November 21, 1995 and Master Spread Account
Agreement dated as of November 13, 1996, in each case among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as trustee and as collateral agent.(5)*
10.47Amendment No. 1 dated October 1, 1997, among Financial Security Assurance
Inc., National Financial Auto Funding Trust and National Auto Finance
Company, Inc. to Insurance and Indemnity Agreement dated as of November 21,
1995 and Insurance and Indemnity Agreement dated as of November 13, 1996 in
each case among Financial Security Assurance Inc., National Financial Auto
Funding Trust and National Auto Finance Company, Inc.(5)*
10.48Amendment to First Amended and Restated Trust Agreement dated as of
December 8, 1994 among National Auto Finance Company, Inc., the Trustee,
and the Co-Trustees, and Section 10.03 of the Trust Agreement dated as of
December 8, 1995 among National Auto Finance Company, Inc., the Trustee and
the Co-Trustees, made as of October 1, 1997 among National Auto Finance
Company, Inc., The Chase Manhattan Bank Delaware, as Trustee of National
Financial Auto Funding Trust II and National Financial Auto Funding Trust
II and the co-trustee of such trusts.(5)*
10.49Investment Agreement dated as of October 1, 1997 by and between National
Auto Finance Company, Inc. and FSA Portfolio Management, Inc.(5)*
10.50Revolving Credit Agreement dated as of September 29, 1997 among National
Auto Finance Company, Inc. and BankBoston, N.A., for itself and as agent
for the other lending institutions named therein.(5)*
<PAGE>
10.50-1 Amendment Agreement No. 1 to Revolving Credit Agreement dated October 1,
1997 by and between National Auto Finance Company, Inc. and BankBoston,
N.A. and the other lending institutions party thereto and BankBoston, N.A.,
as agent for itself and other banking institutions.(5)*
10.50-2 Amendment Agreement No. 2 to Revolving Credit Agreement dated December
19, 1997 by and between National Auto Finance Company, Inc. and BankBoston,
N.A. and the other lending institutions party thereto and BankBoston, N.A.,
as agent for itself and other banking institutions.(5)*
10.50-3 Amendment Agreement No. 3 to the Revolving Credit Agreement, dated March
19, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
and the other lending institutions party thereto.(5)*
10.50-4 Amendment Agreement No. 4 to the Revolving Credit Agreement, dated March
27, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
and the other lending institutions party thereto.(5)*
10.51Trademark Collateral Security and Pledge Agreement dated as of September
29, 1997, between National Auto Finance Company, Inc. and BankBoston, N.A.,
for itself and other banking institutions.(5)*
10.52Pledge Agreement made as of September 29, 1997 by and among National Auto
Finance Company, Inc., National Chartered Auto Corporation and BankBoston,
N.A.(5)*
10.53Note dated as of September 29, 1997 payable by National Auto Finance
Company, Inc. to BankBoston, N.A., as agent.(5)*
10.54Lease Agreement dated October 1996, by and between CanPro Investments Ltd.
and National Auto Finance Company L.P.(5)*
<PAGE>
10.55Master Lease Agreement between National Auto Finance Company, Inc. and
Nova Corporation, dated September 1, 1995.(5)*
10.56Lease Agreement dated November 8, 1996 by and between CanPro Investments,
Ltd. and National Auto Finance Corporation L.P.(5)*
10.57Lease Agreement dated April 8, 1996, by and between CanPro Investments
Ltd. and National Auto Financial Corporation or its assignee Auto Credit
Clearinghouse.(5)*
10.58Software License, Support and Usage Agreement dated as of February 14,
1997 by and between BNI, Inc. and National Auto Finance Company L.P.(5)*
10.58-1 First Amendment to Software License, Support and Usage Agreement dated
as of December 15, 1997 by and between BNI, Inc. and National Auto Finance
Company L.P.(5)*
10.59Software Sublicense, Support and Usage Agreement dated as of February 17,
1997, by and between Pinnacle Portfolio Services LLC and National Auto
Finance Company, Inc.(5)*
10.60Consent and Amendment, dated as of September 25, 1997, between National
Financial Auto Funding Trust, National Auto Finance Company, Inc., First
Union National Bank and Bankers Trust Company, as Trustee of National
Financial Auto Receivables Master Trust.(5)*
<PAGE>
10.61Security Agreement, dated as of September 29, 1997, between National Auto
Finance Company, Inc. and BankBoston, N.A., as agent for itself and other
banking institutions.(5)*
10.62[Intentionally Omitted.]
10.63Amendment, dated as of September 25, 1997, to Pooling and Servicing
Agreements, dated as of October 1, 1995 and October 21, 1996, each among
National Financial Auto Funding Trust, National Auto Finance Company, Inc.,
as successor to National Auto Finance Company L.P., and Harris Trust and
Savings Bank, as trustee.(5)*
10.64Waiver letter of Financial Assurance Inc., dated as of September 25, 1997,
to National Auto Finance Company, Inc. and National Financial Auto Funding
Trust.(5)
10.65[Intentionally Omitted.]
10.66Insurance and Indemnity Agreement, among Financial Security Assurance Inc.,
National Auto Finance 1997-1 Trust, National Financial Auto Funding Trust
and National Auto Finance Company, Inc., dated as of July 23, 1997.(5)*
10.67Master Spread Account Agreement, dated as July 23, 1997, among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*
10.68Custodial Agreement, dated as of July 23, 1997, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company, Inc., as servicer.(5)*
<PAGE>
10.69$1.5 million Promissory Note, dated as of August 25, 1997, payable by
National Auto Finance Company, Inc. to First Union National Bank.(5)
10.70Security Agreement, dated as of August 25, 1997, delivered by National
Auto Finance Company, Inc. to First Union National Bank.(5)*
10.71Loan Agreement, dated as of August 25, 1997, by and between First Union
National Bank and National Auto Finance Company, Inc.(5)
10.72 Voting Agreement by and among The 1818 Mezzanine Fund, L.P., PC Investment
Company, Progressive Investment Company, Inc. and National Auto Finance
Company, L.P dated December 22, 1997.(5)
10.73 Restated Registration Rights Agreement, dated March 27, 1998, by and among
National Auto Finance Company, Inc. and Certain Investors.(5)*
10.74 Junior Subordination Agreement, dated as of March 27, 1998, among
BankBoston, N.A., The 1818 Mezzanine Fund, L.P., PC Investment Company,
Manufacturers Life Insurance Company (U.S.A.), Nova Financial Corporation,
Nova Corporation, The Structured Finance High Yield Fund, LLC and National
Auto Finance Company, Inc.(5)*
10.75 Indenture, dated as of December 15, 1997, by and between National Auto
Finance 1998-1 Trust and Harris Trust and Savings Bank at Trustee.(5)*
<PAGE>
10.76Sale and Servicing Agreement, dated as of December 15, 1997, by and among
National Auto Finance 1998-1 Trust, as Seller, National Financial Auto
Finance 1998-1 Trust, National Auto Finance Company, Inc. as Servicer, and
Harris Trust and Savings Bank, as Trust Collateral Agent and Back-up
Servicer.(5)*
10.77 Insurance and Indemnity Agreement, among Financial Security Assurance
Inc., National Auto Finance 1998-1 Trust, National Financial Auto Funding
Trust and National Auto Finance Company, Inc., dated as of January 20,
1998.(5)*
10.78 Master Spread Account Agreement, dated as January 20, 1998, among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*
10.79 Custodial Agreement, dated as of January 20, 1998, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company, Inc., as servicer.(5)*
10.80 Sale Agreement, dated as of December 15, 1997, by and between National
Financial Auto Funding Trust Il and National Financial Auto Funding
Trust.(5)*
10.81 Trust Agreement, dated as of December 15, 1997, between National Financial
Auto Funding Trust and Wilmington Trust Company.(5)*
10.82 Purchase and Contribution Agreement, dated December 15, 1997, by and
between National Auto Finance Company, Inc. and National Financial Auto
Funding Trust.(5)*
10.83 Assignment Agreement, dated as of December 15, 1997, between Bankers Trust
Company and National Financial Auto Funding Trust II.(5)*
<PAGE>
10.84 Indemnification Agreement, dated as of January 20, 1998, by and among
Financial Security Assurance Inc., National Financial Auto Funding Trust
and First Union Capital Markets Corp.(5)*
10.85 Amendment, dated as of January 20, 1998, by and among National Financial
Auto Funding Trust, Financial Security Assurance Inc., Harris Trust and
Savings Bank, as collateral agent, and National Auto Finance Company, Inc.
to Master Spread Account Agreement dated as of November 21, 1995, Master
Spread Account Agreement dated as of November 13, 1996, and Master Spread
Account Agreement dated as of July 23, 1997 in each case among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as trustee and as collateral agent.(5)*
10.86 Referral Agreement, dated as of February 26, 1998, by and between U.S.
Bank, N.A. and Auto Credit Clearinghouse, a division of National Auto
Finance Company, Inc.(5)*
11.1 Earnings Per Share.(5)
<PAGE>
23.1 Consent of KPMG Peat Marwick LLP.(5)
27.1 Financial Data Schedule.(5)
- ------------------
* Filed in the form executed.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-13667) as filed with the Securities and Exchange
Commission on October 8, 1996.
(2) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1/A (Registration No. 333-13667) as filed with the
Securities and Exchange Commission on November 25, 1996.
(3) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement on Form S-1/A (Registration No. 333-13667) as filed with the
Securities and Exchange Commission on January 9, 1997.
(4) Incorporated by reference to the Company's Amendment No. 3 to Registration
Statement on Form S-1/A (Registration No. 333-13667) as filed with the
Securities and Exchange Commission on January 28, 1997.
(5) Filed herewith.
Reports on Form 8-K
On November 26, 1997, the Company filed a Form 8-K announcing its revised
third quarter and nine month earnings release for the periods ended September
30, 1997.
On December 22, 1997, the Company filed a Form 8-K announcing: (1) the
private placement of $10 million in common stock and $40 million principal
amount of Senior Subordinated Notes with detachable warrants; and (2) that the
Company reset the exercise price of all director, officer and employee stock
options to $5.25 per share.
No other reports on Form 8-K were filed in the fourth quarter of 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATIONAL AUTO FINANCE COMPANY, INC.
April 30, 1998 By: /s/ Keith B. Stein
---------------------------------------
Name: Keith B. Stein
Title: Vice Chairman, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Gary L. Shapiro Chief Executive Officer April 30, 1998
Gary L. Shapiro and Chairman of the Board
(principal executive officer)
/s/ Keith B. Stein Vice Chairman, Chief Financial April 30, 1998
Keith B. Stein Officer, Treasurer and Director
(principal financial officer)
/s/ Kevin G. Adams Senior Vice President, Finance April 30, 1998
Kevin G. Adams (principal accounting officer)
/s/ Joseph P. Donlan Director April 30, 1998
Joseph P. Donlan
/s/ Stephen L. Gurba Director April 30, 1998
Stephen L. Gurba
/s/ Peter Offermann Director April 30, 1998
Peter Offermann
/s/ Morgan M. Schuessler Director April 30, 1998
Morgan M. Schuessler
/s/ Roy E. Tipton Director April 30, 1998
Roy E. Tipton
/s/ David W. Young Director April 30, 1998
David W. Young
<PAGE>
EXHIBIT INDEX
Exhibits
Number Description Method of Filing
- ------ ----------- ----------------
3.1 Certificate of Incorporation of the Company.(1)
3.1-1 Certificate of the Designations, Preferences and Rights of the Series A
Preferred Stock of the Company.(3)
3.2 By-laws of the Company.(1)
4.1 Certificate of Common Stock.(4)
4.2-1Promissory Note, dated October 31, 1994, payable by National Auto Finance
Company L.P. to the order of Gary L. Shapiro.(1)
4.2-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance L.P. to the order of Gary L. Shapiro.(3)
4.3 Promissory Note, dated October 6, 1994, payable by National Auto Finance
Company L.P. to the order of Edgar A. Otto.(1)
4.3-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance Company L.P. to the order of Edgar A. Otto.(3)
<PAGE>
4.4 Promissory Note, dated November 8, 1994, payable by National Auto Finance
Company L.P. to the order of Stephen L. Gurba.(1)
4.4-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by national Auto Finance Company L.P. to the order of Stephen L. Gurba.(3)
4.5 Promissory Note, dated March 27, 1995, payable by National Auto Finance
Company L.P. to the order of Nova Financial Corporation.(1)
4.5-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance Company L.P. to the order of Nova Financial
Corporation.(3)
4.6 Promissory Note, dated May 1, 1995, payable by National Auto Finance
Company L.P. to the order of Nova Corporation.(1)
4.6-1Amended and Restated Promissory Note, dated as of January 3, 1997, payable
by National Auto Finance Company L.P. to the order of Nova Corporation.(3)
4.7 Securities Purchase Agreement (the "Securities Purchase Agreement") by and
among National Auto Finance Company, Inc., The 1818 Mezzanine Fund, L.P.,
PC Investment Company, Progressive Investment Company, Inc., and
Manufacturers Life Insurance Company (U.S.A.) dated December 22, 1997.(5)*
4.7-1Waiver and Amendment No. 1 to the Securities Purchase Agreement, dated
March 27, 1998, by and among National Auto Finance Company, Inc., The 1818
Mezzanine Fund, L.P., PC Investment Company, Progressive Investment
Company, Inc. and Manufacturers Life Insurance Company.(5)*
<PAGE>
4.8 Form of Senior Subordinated Promissory Note issued pursuant to the
Securities Purchase Agreement.(5)*
4.9 Form of Warrant to Purchase Shares of Common Stock of National Auto Finance
Company, Inc. issued pursuant to the Securities Purchase Agreement.(5)*
4.10 Agreement, dated March 27, 1998, by and between National Auto Finance
Company, Inc. and The Structured Finance High Yield Fund, LLC.(5)*
4.11 Senior Subordinated Promissory Note, dated March 27, 1998, executed by
National Auto Finance Company, Inc. in favor of The Structured Finance High
Yield Fund, LLC, in the amount of $20,000,000.00.(5)*
10.1 Warrant, issued March 27, 1998, executed by National Auto Finance Company,
Inc.(5)*
10.1 Second Amended and Restated Agreement of Limited Partnership of NatAuto
Finance Company L.P., dated as of September 1, 1995, by and among National
Auto Finance Corporation, The S Associates Limited Partnership, The O
Associates Limited Partnership, Stephen L. Gurba, Craig Schnee, Roy E.
Tipton, Blane H. MacDonald, Michael B. Colley, Irwin I. Kent, William G.
Magro, Kevin G. Adams, Kamala R. Chapman, Keith B. Stein, Colleen S.
McMillen, Richard H. Steffer, Tim Rooney, Lynn Dunham-Sirota and IronBrand
Capital, LLC.(1)
10.1-1First Amendment to Second Amended and Restated Partnership Agreement,
dated December 1, 1996.(3)
<PAGE>
10.2 1996 Share Incentive Plan.(3)
10.3 401(k) Plan.(1)
10.4 Employment Agreement, dated as of July 1, 1996, between National Auto
Finance Company, Inc. and William G. Magro.(3)
10.4-1 First Amendment to Employment Agreement, dated as of May 27, 1997,
between National Auto Finance Company, Inc. and William G. Magro.(5)
10.5 Employment Agreement, dated as of September 16, 1995, between National Auto
Finance Company, Inc. and Roy E. Tipton.(3)
10.5-1 First Amendment to Employment Agreement, Dated as of December 16, 1997,
between National Auto Finance Company, Inc. and Roy E. Tipton.(5)
10.6 Employment Agreement, dated as of October 19, 1995, between National Auto
Finance Company, Inc. and Blane H. McDonald.(3)
10.7 Employment Agreement, dated as of December 31, 1996, between National Auto
Finance Company, Inc. and Stephen R. Stack.(3)
10.8 Receivables Purchase Agreement, dated as of December 8, 1994, by and
between National Auto Finance Company L.P., as Seller, and NAFCO Funding
Trust, as Purchaser.(1)
<PAGE>
10.9 Promissory Note, dated December 8, 1994, payable by NAFCO Funding Trust to
the order of National Auto Finance Company L.P.(1)
10.10NAFCO Auto Receivables Master Trust Pooling and Administration Agreement,
dated as of December 8, 1994, among NAFCO Funding Trust, as Transferor,
National Auto Finance Company L.P., as the Administrator, and Bankers Trust
Company, as Trustee.(1)
10.10-1 Consent and Amendment, dated as of July 2, 1996, to NAFCO Auto
Receivables Master Trust Pooling and Administration Agreement, dated as of
December 8, 1994, among NAFCO Funding Trust, as Transferor, National Auto
Finance Company L.P., as the Administrator, and Bankers Trust Company, as
Trustee.(5)*
10.11Series 1994-R, Class B Supplement, dated as of December 8, 1994, to the
Pooling and Administration Agreement, dated as of December 8, 1994, among
NAFCO Funding Trust, as Transferor, National Auto Finance Company L.P., as
the Administrator, and Bankers Trust Company, as Trustee.(1)
10.12Trust Agreement, dated as of October 5, 1994, between National Auto
Finance Corporation and Bankers Trust.(1)
10.13First Amendment and Restated Trust Agreement of NAFCO Funding Trust, dated
as of December 8, 1994, between National Auto Finance Company L.P., as
Depositor, The Chase Manhattan Bank (USA), as Owner Trustee and Gary L.
Shapiro and Edgar A. Otto, as Co-Trustees.(1)
10.14Amended and Restated Servicing Agreement, dated as of December 5, 1994, by
and between World Omni Financial Corp. and National Auto Finance Company
L.P.(1)
<PAGE>
10.14-1 Amendment to Amended and Restated Servicing Agreement, dated as of
September 6, 1995, by and among World Omni Financial Corp. and National
Auto Finance Company L.P.(5)*
10.14-2 Second Amendment to Amended and Restated Servicing Agreement, dated as
of June 24, 1997, by and between Omni Financial Services of America, Inc.,
as assignee of World Omni Financial Corp., and National Auto Finance
Company, Inc., as assignee of National Auto Finance Company L.P.(5)*
10.14-3 Third Amendment to the Amended and Restated Servicing Agreement, dated
as of September 12, 1997, by and between Omni Financial Services of
America, Inc. and National Auto Finance Company, Inc.(5)*
10.14-4 Fourth Amendment to the Amended and Restated Servicing Agreement, dated
as of October 12, 1997, by and between Omni Financial Services of America,
Inc.(5)*
10.14-5 Supplement to the Amended and Restated Servicing Agreement, dated as of
December 5, 1994, as amended as of October 1, 1995, between World Omni
Financial Corp. ("WOFC"), as Servicer, and National Auto Finance Company
L.P., dated as of November 21, 1995 by and between Omni Financial Services
of America, Inc., as assignee of WOFC ("Servicer") and NAFCO.(1)
10.14-6 Supplement to the Amended and Restated Servicing Agreement, dated as of
December 5, 1994, as amended as of October 1, 1995, between World Omni
Financial Corp. (WOFC) and National Auto Finance Company L.P. (NAFCO),
dated as of November 13, 1996 by and between Omni Financial Services of
America, Inc., as assignee of WOFC, and NAFCO.(2)
10.14-7 Supplement to Amended and Restated Servicing Agreement, December 5,
1994, as amended as of October 1, 1995 and November 13, 1996, dated as of
July 23, 1997, by and between Omni Financial Services of America, Inc. and
National Auto Finance Company, Inc.(5)*
<PAGE>
10.14-8 Supplement to Amended and Restated Servicing Agreement, dated as of
December 5, 1994, as amended as of October 1, 1995, June 24, 1997 and July
21, 1997 and supplemented as of November 21, 1995, November 13, 1996, July
12, 1997 and September 19, 1997, by and between Omni Financial Services of
America, Inc. and National Auto Finance Company, Inc.(5)*
10.15Certificate Purchase Agreement, dated as of December 8, 1994, among NAFI
Funding Trust, National Auto Finance Company L.P., as Initial Administrator
and First Union National Bank of North Carolina.(1)
10.16Management Agreement, dated as of December 29, 1994, by and between
National Auto Finance Company L.P. and National Auto Finance
Corporation.(1)
10.16-1 First Amendment of Management Agreement, dated as of January 1, 1996, by
and between National Auto Finance Company L.P., Auto Credit Clearinghouse
L.P. and National Auto Finance Corporation.(1)
10.16-2 Second Amendment to Management Agreement, dated as of January 1, 1997,
by and among National Auto Finance Corporation, National Auto Finance
Company, Inc., National Auto Finance Company, L.P. and National Financial
Companies LLC.(5)*
10.17Services Agreement, dated as of December 29, 1994, by and between National
Auto Finance Corporation and National Financial Corporation.(1)
10.17-1 First Amendment to Services Agreement, dated as of January 1, 1996, by
and between National Auto Finance Corporation and National Financial
Corporation.(1)
<PAGE>
10.17-2 Second Amendment to Services Agreement, dated as of January 1, 1997, by
and between National Auto Finance Corporation, National Auto Finance
Company, Inc. and National Financial Companies LLC.(5)*
10.18Pooling and Servicing Agreement, dated as of October 1, 1995, by and among
National Financial Auto Funding Trust, as Transferor, National Auto Finance
Company L.P., as Master Servicer, and Harris Trust and Savings Bank, as
Trustee.(1)
10.19Assignment Agreement, dated as of October 1, 1995, between Bankers Trust
Company, as Trustee, and National Financial Auto Funding Trust.(1)
10.20Transfer Agreement No. 1, dated as of October 1, 1995, between National
Financial Auto Funding Trust and Harris Trust and Savings Bank.(1)
10.21Insurance and Indemnity Agreement, dated as of November 21, 1995, among
Financial Security Assurance, Inc., National Financial Auto Funding Trust
and National Auto Finance Company L.P.(1)
10.22Indemnification Agreement, dated as of November 21, 1995, among Financial
Security Assurance Inc., National Financial Auto Funding Trust and First
Union Capital Markets Corp.(1)
10.23Master Spread Account Agreement, dated as of November 21, 1995, among
National Financial Auto Funding Trust, Financial Security Assurance Inc.
and Harris Trust and Savings Bank, as Trustee and as Collateral Agent.(1)
10.24Financial Guaranty Insurance Policy (Policy No.: 50522-N), together with
Endorsement No. 1 thereto, dated November 13, 1996, issued by Financial
Security Assurance Inc. in favor of
<PAGE>
Harris Trust and Savings Bank, as trustee for the benefit of the
Certificate Holders.(1)
10.25Custodial Agreement, dated as of November 21, 1995, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company L.P., as Master Servicer.(1)
10.26Amendment, dated as of November 21, 1995, to the First Amended and
Restated Trust Agreement of NAFCO Funding Trust, dated as of December 8,
1994, among National Auto Finance Company L.P., as Depositor, The Chase
Manhattan Bank (USA), as Owner Trustee, and Gary L. Shapiro, Edgar Otto A.
and Andrew Stidd, as Co-Trustees.(1)
10.27 Form of Indemnification Agreement.(4)
10.28Assignment and Assumption Agreement, dated as of October 7, 1996, between
National Auto Finance Company, Inc. and National Auto Finance Company
L.P.(1)
10.29Pooling and Servicing Agreement, dated as of October 21, 1996, by and
among National Financial Auto Funding Trust, as Transferor, National Auto
Finance Company L.P., as Servicer, and Harris Trust and Savings Bank, as
Trustee.(2)
10.30Purchase and Contribution Agreement, dated as of October 21, 1996, by and
between National Auto Finance Company L.P. and National Financial Auto
Funding Trust.(2)
10.31Assignment Agreement, dated as of October 21, 1996, between Bankers Trust
Company and National Financial Auto Funding Trust II.(2)
<PAGE>
10.32Master Spread Account Agreement, dated as of November 13, 1996, among
National Financial Auto Funding Trust, Financial Security Assurance Inc.
and Harris Trust and Savings Bank, as Trustee and Collateral Agent.(2)
10.33Insurance and Indemnity Agreement, dated as of November 13, 1996, among
Financial Security Assurance Inc., National Financial Auto Funding Trust
and National Auto Finance Company L.P.(2)
10.34Sale Agreement, dated as of October 21, 1996, by and between National
Financial Auto Funding Trust and National Financial Auto Funding Trust
II.(2)
10.35Transfer Agreement No. 1, dated as of November 13, 1996, by National
Financial Auto Funding Trust as Transferor to Harris Trust and Savings
Bank, as Trustee, pursuant to a Pooling and Servicing Agreement, dated as
of October 21, 1996.(2)
10.36Form of Financial Guaranty Insurance Policy issued by Financial Security
Assurance Inc.(2)
10.37Agreement, dated as of June 16, 1997, by and between CTC Investments II
Limited and National Auto Finance Company, Inc.(5)*
10.37-1 First Amendment to Lease Agreement dated June 16, 1997 by and between
CTC Investments II Limited and National Auto Finance Company, Inc. dated
October 1, 1997.(5)*
<PAGE>
10.38Referral Agreement, dated as of April 15, 1996, by and between First Union
National Bank of North Carolina and Auto Credit Clearinghouse L.P.(4)
10.39Trust Agreement, dated as of July 21, 1997, between National Financial
Auto Funding Trust and Wilmington Trust Company, as trustee.(5)*
10.40Indenture, dated as of June 29, 1997, by and between National Auto Finance
1997-1 Trust and Harris Trust and Savings Bank as Trustee.(5)*
10.41Sale and Servicing Agreement, dated as of June 29, 1997, by and among
National Auto Finance 1997-1 Trust, as Seller, National Financial Auto
Finance 1997-1 Trust, National Auto Finance Company, Inc. as Servicer, and
Harris Trust and Savings Bank, as Trust Collateral Agent and Back-up
Servicer.(5)*
10.42Financial Guaranty Insurance Policy, dated as of July 23, 1997, delivered
by Financial Security Assurance, Inc.(5)*
10.43Purchase and Contribution Agreement, dated June 29, 1997, by and between
National Auto Finance Company, Inc. and National Financial Auto Funding
Trust.(5)*
10.44Sale Agreement, dated as of June 29, 1997, by and between National
Financial Auto Funding Trust II and National Financial Auto Funding
Trust.(5)*
10.45Indemnification Agreement, dated as of July 23, 1997, by and among
Financial Security Assurance Inc., National Finance Auto Funding Trust and
First Union Capital Markets Corp.(5)*
<PAGE>
10.46Amendment No. 1 dated 1997, by and among National Financial Auto Funding
Trust, Financial Security Assurance Inc., Harris Trust and Savings Bank, as
collateral agent, and National Auto Finance Company, Inc. to Master Spread
Account Agreement dated as of November 21, 1995 and Master Spread Account
Agreement dated as of November 13, 1996, in each case among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as trustee and as collateral agent.(5)*
10.47Amendment No. 1 dated October 1, 1997, among Financial Security Assurance
Inc., National Financial Auto Funding Trust and National Auto Finance
Company, Inc. to Insurance and Indemnity Agreement dated as of November 21,
1995 and Insurance and Indemnity Agreement dated as of November 13, 1996 in
each case among Financial Security Assurance Inc., National Financial Auto
Funding Trust and National Auto Finance Company, Inc.(5)*
10.48Amendment to First Amended and Restated Trust Agreement dated as of
December 8, 1994 among National Auto Finance Company, Inc., the Trustee,
and the Co-Trustees, and Section 10.03 of the Trust Agreement dated as of
December 8, 1995 among National Auto Finance Company, Inc., the Trustee and
the Co-Trustees, made as of October 1, 1997 among National Auto Finance
Company, Inc., The Chase Manhattan Bank Delaware, as Trustee of National
Financial Auto Funding Trust II and National Financial Auto Funding Trust
II and the co-trustee of such trusts.(5)*
10.49Investment Agreement dated as of October 1, 1997 by and between National
Auto Finance Company, Inc. and FSA Portfolio Management, Inc.(5)*
10.50Revolving Credit Agreement dated as of September 29, 1997 among National
Auto Finance Company, Inc. and BankBoston, N.A., for itself and as agent
for the other lending institutions named therein.(5)*
<PAGE>
10.50-1 Amendment Agreement No. 1 to Revolving Credit Agreement dated October 1,
1997 by and between National Auto Finance Company, Inc. and BankBoston,
N.A. and the other lending institutions party thereto and BankBoston, N.A.,
as agent for itself and other banking institutions.(5)*
10.50-2 Amendment Agreement No. 2 to Revolving Credit Agreement dated December
19, 1997 by and between National Auto Finance Company, Inc. and BankBoston,
N.A. and the other lending institutions party thereto and BankBoston, N.A.,
as agent for itself and other banking institutions.(5)*
10.50-3 Amendment Agreement No. 3 to the Revolving Credit Agreement, dated March
19, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
and the other lending institutions party thereto.(5)*
10.50-4 Amendment Agreement No. 4 to the Revolving Credit Agreement, dated March
27, 1998, by and among National Auto Finance Company, Inc. BankBoston, N.A.
and the other lending institutions party thereto.(5)*
10.51Trademark Collateral Security and Pledge Agreement dated as of September
29, 1997, between National Auto Finance Company, Inc. and BankBoston, N.A.,
for itself and other banking institutions.(5)*
10.52Pledge Agreement made as of September 29, 1997 by and among National Auto
Finance Company, Inc., National Chartered Auto Corporation and BankBoston,
N.A.(5)*
10.53Note dated as of September 29, 1997 payable by National Auto Finance
Company, Inc. to BankBoston, N.A., as agent.(5)*
10.54Lease Agreement dated October 1996, by and between CanPro Investments Ltd.
and National Auto Finance Company L.P.(5)*
<PAGE>
10.55Master Lease Agreement between National Auto Finance Company, Inc. and
Nova Corporation, dated September 1, 1995.(5)*
10.56Lease Agreement dated November 8, 1996 by and between CanPro Investments,
Ltd. and National Auto Finance Corporation L.P.(5)*
10.57Lease Agreement dated April 8, 1996, by and between CanPro Investments
Ltd. and National Auto Financial Corporation or its assignee Auto Credit
Clearinghouse.(5)*
10.58Software License, Support and Usage Agreement dated as of February 14,
1997 by and between BNI, Inc. and National Auto Finance Company L.P.(5)*
10.58-1 First Amendment to Software License, Support and Usage Agreement dated
as of December 15, 1997 by and between BNI, Inc. and National Auto Finance
Company L.P.(5)*
10.59Software Sublicense, Support and Usage Agreement dated as of February 17,
1997, by and between Pinnacle Portfolio Services LLC and National Auto
Finance Company, Inc.(5)*
10.60Consent and Amendment, dated as of September 25, 1997, between National
Financial Auto Funding Trust, National Auto Finance Company, Inc., First
Union National Bank and Bankers Trust Company, as Trustee of National
Financial Auto Receivables Master Trust.(5)*
<PAGE>
10.61Security Agreement, dated as of September 29, 1997, between National Auto
Finance Company, Inc. and BankBoston, N.A., as agent for itself and other
banking institutions.(5)*
10.62[Intentionally Omitted.]
10.63Amendment, dated as of September 25, 1997, to Pooling and Servicing
Agreements, dated as of October 1, 1995 and October 21, 1996, each among
National Financial Auto Funding Trust, National Auto Finance Company, Inc.,
as successor to National Auto Finance Company L.P., and Harris Trust and
Savings Bank, as trustee.(5)*
10.64Waiver letter of Financial Assurance Inc., dated as of September 25, 1997,
to National Auto Finance Company, Inc. and National Financial Auto Funding
Trust.(5)
10.65[Intentionally Omitted.]
10.66Insurance and Indemnity Agreement, among Financial Security Assurance Inc.,
National Auto Finance 1997-1 Trust, National Financial Auto Funding Trust
and National Auto Finance Company, Inc., dated as of July 23, 1997.(5)*
10.67Master Spread Account Agreement, dated as July 23, 1997, among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*
10.68Custodial Agreement, dated as of July 23, 1997, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company, Inc., as servicer.(5)*
<PAGE>
10.69$1.5 million Promissory Note, dated as of August 25, 1997, payable by
National Auto Finance Company, Inc. to First Union National Bank.(5)
10.70Security Agreement, dated as of August 25, 1997, delivered by National
Auto Finance Company, Inc. to First Union National Bank.(5)*
10.71Loan Agreement, dated as of August 25, 1997, by and between First Union
National Bank and National Auto Finance Company, Inc.(5)
10.72 Voting Agreement by and among The 1818 Mezzanine Fund, L.P., PC Investment
Company, Progressive Investment Company, Inc. and National Auto Finance
Company, L.P dated December 22, 1997.(5)
10.73 Restated Registration Rights Agreement, dated March 27, 1998, by and among
National Auto Finance Company, Inc. and Certain Investors.(5)*
10.74 Junior Subordination Agreement, dated as of March 27, 1998, among
BankBoston, N.A., The 1818 Mezzanine Fund, L.P., PC Investment Company,
Manufacturers Life Insurance Company (U.S.A.), Nova Financial Corporation,
Nova Corporation, The Structured Finance High Yield Fund, LLC and National
Auto Finance Company, Inc.(5)*
10.75 Indenture, dated as of December 15, 1997, by and between National Auto
Finance 1998-1 Trust and Harris Trust and Savings Bank at Trustee.(5)*
<PAGE>
10.76Sale and Servicing Agreement, dated as of December 15, 1997, by and among
National Auto Finance 1998-1 Trust, as Seller, National Financial Auto
Finance 1998-1 Trust, National Auto Finance Company, Inc. as Servicer, and
Harris Trust and Savings Bank, as Trust Collateral Agent and Back-up
Servicer.(5)*
10.77 Insurance and Indemnity Agreement, among Financial Security Assurance
Inc., National Auto Finance 1998-1 Trust, National Financial Auto Funding
Trust and National Auto Finance Company, Inc., dated as of January 20,
1998.(5)*
10.78 Master Spread Account Agreement, dated as January 20, 1998, among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as Trustee and as Collateral Agent.(5)*
10.79 Custodial Agreement, dated as of January 20, 1998, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company, Inc., as servicer.(5)*
10.80 Sale Agreement, dated as of December 15, 1997, by and between National
Financial Auto Funding Trust Il and National Financial Auto Funding
Trust.(5)*
10.81 Trust Agreement, dated as of December 15, 1997, between National Financial
Auto Funding Trust and Wilmington Trust Company.(5)*
10.82 Purchase and Contribution Agreement, dated December 15, 1997, by and
between National Auto Finance Company, Inc. and National Financial Auto
Funding Trust.(5)*
10.83 Assignment Agreement, dated as of December 15, 1997, between Bankers Trust
Company and National Financial Auto Funding Trust II.(5)*
<PAGE>
10.84 Indemnification Agreement, dated as of January 20, 1998, by and among
Financial Security Assurance Inc., National Financial Auto Funding Trust
and First Union Capital Markets Corp.(5)*
10.85 Amendment, dated as of January 20, 1998, by and among National Financial
Auto Funding Trust, Financial Security Assurance Inc., Harris Trust and
Savings Bank, as collateral agent, and National Auto Finance Company, Inc.
to Master Spread Account Agreement dated as of November 21, 1995, Master
Spread Account Agreement dated as of November 13, 1996, and Master Spread
Account Agreement dated as of July 23, 1997 in each case among National
Financial Auto Funding Trust, Financial Security Assurance Inc. and Harris
Trust and Savings Bank, as trustee and as collateral agent.(5)*
10.86 Referral Agreement, dated as of February 26, 1998, by and between U.S.
Bank, N.A. and Auto Credit Clearinghouse, a division of National Auto
Finance Company, Inc.(5)*
11.1 Earnings Per Share.(5)
<PAGE>
23.1 Consent of KPMG Peat Marwick LLP.(5)
27.1 Financial Data Schedule.(5)
- ------------------
* Filed in the form executed.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-13667) as filed with the Securities and Exchange
Commission on October 8, 1996.
(2) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1/A (Registration No. 333-13667) as filed with the
Securities and Exchange Commission on November 25, 1996.
(3) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement on Form S-1/A (Registration No. 333-13667) as filed with the
Securities and Exchange Commission on January 9, 1997.
(4) Incorporated by reference to the Company's Amendment No. 3 to Registration
Statement on Form S-1/A (Registration No. 333-13667) as filed with the
Securities and Exchange Commission on January 28, 1997.
(5) Filed herewith.
SECURITIES PURCHASE AGREEMENT
By and Among
NATIONAL AUTO FINANCE COMPANY, INC.,
THE 1818 MEZZANINE FUND, L.P.,
PC INVESTMENT COMPANY,
PROGRESSIVE INVESTMENT COMPANY, INC.
and
MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
------------------------------
Dated December 22, 1997
------------------------------
<PAGE>
Table of Contents
Page
ARTICLE 1 DEFINITIONS.................................................1
1.1 Definitions.................................................1
1.2 Accounting Terms; Financial Covenants......................15
ARTICLE 2 PURCHASE AND SALE..........................................16
2.1 Purchase and Sale of Senior Subordinated Notes,
Warrants and Shares........................................16
2.2 Fees.......................................................16
2.3 Closing....................................................17
ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO CLOSE........................................17
3.1 Representations and Warranties True........................17
3.2 Compliance with this Agreement.............................17
3.3 Officer's Certificate......................................18
3.4 Secretary's Certificate....................................18
3.5 Documents..................................................18
3.6 Purchase Permitted by Applicable Laws; Legal Investment....18
3.7 Opinion of Counsel.........................................18
3.8 Approval of Counsel to the Purchaser.......................18
3.9 Consents and Approvals.....................................18
3.10 No Material Adverse Change.................................19
3.11 Employment Agreements......................................19
3.12 Registration Rights Agreement..............................19
3.13 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries.......................................19
3.14 Market Conditions..........................................19
3.15 No Default or Breach.......................................19
3.16 Fees.......................................................19
3.17 Morgan.....................................................19
3.18 Termination of Other Registration Rights Agreements........20
3.19 Credit Agreement Waiver....................................20
3.20 Simultaneous Purchases.....................................20
3.21 Subordination..............................................20
3.22 National Auto Finance Company, L.P.........................20
3.23 Confirmation from Nasdaq National Market...................20
ARTICLE 4 CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE ........................................21
4.1 Representations and Warranties True........................21
i
<PAGE>
Page
4.2 Compliance with this Agreement.............................21
4.3 Approval of Counsel to the Company.........................21
4.4 Consents and Approvals.....................................21
4.5 Amendments of Registration Rights Agreements...............21
4.6 Credit Agreement Waiver....................................21
4.7 General Partner's Certificate..............................22
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
THE COMPANY................................................22
5.1 Corporate Existence and Power..............................22
5.2 Corporate Authorization; No Contravention..................22
5.3 Governmental Authorization; Third Party Consents...........23
5.4 Binding Effect.............................................23
5.5 No Legal Bar...............................................23
5.6 Litigation.................................................24
5.7 No Default or Breach.......................................24
5.8 Title to Properties........................................24
5.9 Financial Condition; No Undisclosed Liabilities............24
5.10 No Material Adverse Change.................................25
5.11 Investment Company.........................................25
5.12 Subsidiaries...............................................25
5.13 Capitalization.............................................25
5.14 Solvency...................................................26
5.15 Private Offering...........................................26
5.16 Broker's, Finder's or Similar Fees.........................26
5.17 Full Disclosure............................................26
5.18 Anti-Dilution Protection...................................27
5.19 Registration Rights Agreements.............................27
5.20 Labor Relations............................................27
5.21 ERISA and Employee Benefit Plans...........................27
5.22 Environmental Matters......................................28
5.23 Taxes......................................................28
5.24 Patents, Trademarks, Etc...................................29
5.25 Potential Conflicts of Interest............................30
5.26 Trade Relations............................................30
5.27 Indebtedness...............................................30
5.28 Material Contracts.........................................30
5.29 Insurance..................................................31
5.30 Projections................................................31
5.31 Commission Documents.......................................31
5.32 Lending Activities.........................................31
ii
<PAGE>
Page
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER..............................................32
6.1 Existence and Power........................................32
6.2 Authorization; No Contravention............................32
6.3 Binding Effect.............................................32
6.4 No Legal Bar...............................................33
6.5 Purchase for Own Account...................................33
6.6 Investment Company.........................................34
6.7 Broker's, Finder's or Similar Fees.........................34
ARTICLE 7 INDEMNIFICATION............................................34
7.1 Indemnification by the Company.............................34
7.2 Notification...............................................35
7.3 Registration Rights Agreement..............................36
ARTICLE 8 PRE-CLOSING AFFIRMATIVE COVENANTS..........................36
8.1 Operation of Company.......................................36
8.2 Exclusivity................................................36
ARTICLE 9 AFFIRMATIVE COVENANTS......................................36
9.1 Financial Statements.......................................36
9.2 Certificates; Other Information............................37
9.3 Preservation of Corporate Existence........................38
9.4 Payment of Obligations.....................................38
9.5 Compliance with Laws.......................................38
9.6 Notices....................................................39
9.7 Issue Taxes................................................39
9.8 Reservation of Shares......................................39
9.9 Inspection.................................................40
9.10 Board Representation; Visitation Rights....................41
9.11 Registration and Listing...................................42
9.12 Use of Proceeds............................................42
9.13 Payment of Notes...........................................43
9.14 Sale of Company............................................43
9.15 Allocation for Tax Purposes................................43
9.16 Information on Internal Rate of Return.....................43
ARTICLE 10 NEGATIVE AND FINANCIAL COVENANTS...........................44
10.1 Minimum Consolidated Net Worth.............................44
10.2 Adjusted Interest Expense..................................44
10.3 Consolidations and Mergers.................................44
10.4 Transactions with Affiliates...............................45
10.5 No Inconsistent Agreements.................................45
10.6 Limitation on Indebtedness.................................45
iii
<PAGE>
Page
10.7 Limitation on Liens........................................46
10.8 Investments................................................47
10.9 Limitations on Restricted Payments.........................48
10.10 Dispositions of Assets.....................................48
10.11 Future Issuances of Preferred Stock........................49
10.12 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries.......................................49
10.13 Line of Business...........................................49
10.14 Vehicle Loan Policy........................................49
ARTICLE 11 DEFAULTS AND REMEDIES......................................49
11.1 Events of Default..........................................49
11.2 Acceleration...............................................51
ARTICLE 12 SUBORDINATION..............................................52
12.1 Definitions................................................52
12.2 General....................................................53
12.3 Limitation on Payment and Remedies.........................53
12.4 Subordination Upon Certain Events..........................55
12.5 Payments and Distributions Received........................55
12.6 Subrogation................................................55
12.7 Relative Rights............................................56
12.8 Subordination May Not Be Impaired by the Company...........56
12.9 Payments...................................................56
12.10 Section Not to Prevent Events of Default...................56
12.11 Defense to Enforcement.....................................56
12.12 Further Covenants..........................................57
12.13 Freedom of Dealing.........................................57
12.14 Subordinated Indebtedness Voting Rights....................57
12.15 Subordinated Indebtedness Unsecured........................58
12.16 Modification or Sale of the Subordinated Indebtedness......58
12.17 Termination of Subordination...............................58
12.18 Notices to Holders of Senior Indebtedness..................59
ARTICLE 13 PREPAYMENT.................................................59
ARTICLE 14 MISCELLANEOUS..............................................59
14.1 Survival of Provisions.....................................59
14.2 Notices....................................................60
14.3 Successors and Assigns.....................................61
14.4 Assignments................................................62
14.5 Amendment and Waiver.......................................63
14.6 Counterparts...............................................64
14.7 Headings...................................................64
iv
<PAGE>
14.8 Determinations.............................................64
14.9 Governing Law..............................................64
14.10 Jurisdiction...............................................64
14.11 Severability...............................................65
14.12 Rules of Construction......................................65
14.13 Remedies...................................................65
14.14 Entire Agreement...........................................65
14.15 Attorneys' Fees............................................65
14.16 Publicity..................................................66
14.17 Expenses...................................................66
EXHIBITS
Exhibit A Form of Senior Subordinated Note
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion of Weil, Gotshal & Manges
Exhibit E Form of Legal Opinion of In-House Counsel
SCHEDULES
Schedule 2.1A List of Purchasers and Principal Amount
Schedule 2.1B List of Purchasers and Warrants
Schedule 2.1C List of Purchasers and Shares
Schedule 5.10 Material Adverse Change
Schedule 5.13 Capitalization Matters
Schedule 5.21 ERISA
Schedule 5.25 Potential Conflicts of Interest
Schedule 5.27 Indebtedness
Schedule 5.28 Material Contracts
Schedule 5.29 Insurance
Schedule 5.30 Projections
Schedule 5.32(b) Current Policies Regarding Purchase of
Retail Installment Vehicle Loans
Schedule 10.4 Transactions with Affiliates
Schedule 10.7 Liens
Schedule 10.8A Investments
v
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of December 22, 1997,
by and among NATIONAL AUTO FINANCE COMPANY, INC., a corporation organized under
the laws of Delaware (the "Company"), THE 1818 MEZZANINE FUND, L.P., a limited
partnership organized under the laws of Delaware (the "Fund"), PC INVESTMENT
COMPANY, a corporation organized under the laws of Delaware ("PCI"), PROGRESSIVE
INVESTMENT COMPANY, INC., a corporation organized under the laws of Delaware
("Progressive," and together with PCI, the "Progressive Entities"), and
MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.), a corporation organized under the
laws of Michigan ("ML," and together with the Fund and the Progressive Entities,
the "Purchasers").
WHEREAS, the Company proposes to issue and sell (A) to the
Fund, PCI and ML (i) Senior Subordinated Promissory Notes with a final maturity
of December 22, 2004 in the aggregate principal amount of $40,000,000.00 (the
"Senior Subordinated Notes" and, together with all notes issued in connection
with the substitution, replacement or transfer thereof, the "Notes") and (ii)
1,038,924 detachable warrants (the "Warrants") exercisable immediately to
purchase initially 1,038,924 shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), at an exercise price of $.01 per share and
(B) to the Fund and Progressive, 1,904,762 shares (the "Shares") of the
Company's Common Stock, in each case upon the terms and subject to the
conditions set forth in this Agreement.
In consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"BBH & Co." means Brown Brothers Harriman and Co., a New York
limited partnership.
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any
obligation of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of the Notes, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock (or equivalent ownership interests in a Person not a
corporation) whether now outstanding or hereafter issued, including, without
limitation, all common stock and preferred stock and any rights, warrants or
options to purchase such Person's capital stock.
"Closing" has the meaning assigned to that term in Section
2.3.
"Closing Date" has the meaning assigned to such term in
Section 2.3.
"Closing Price" means, for any day, the last reported sale
price or, in case no such sale takes place on such day, the highest reported bid
quotation for the Common Stock, in either case as reported on Nasdaq's automatic
quotation system.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning assigned to that term in the
first Whereas clause.
"Consolidated Net Worth" means, as of the date of
determination with respect to any Person, the consolidated stockholders' equity
(excluding any reductions resulting from mergers accounted for as a
pooling-of-interests in accordance with GAAP) of such Person and its
Subsidiaries, determined in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, as of the date
of determination with respect to the Company, the Consolidated Net Worth of the
Company plus the aggregate amount of Junior Subordinated Indebtedness of the
Company minus the total book value of all assets of the Company and its
Subsidiaries properly classified as intangible assets under GAAP.
<PAGE>
"Consolidated Total Interest Expense" means for any period,
the aggregate amount of (a) interest scheduled to be paid or accrued by the
Company and its Subsidiaries during such period on all Funded Debt of the
Company and its Subsidiaries outstanding during all or any part of such period,
whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of Capital
Lease Obligations plus (b) the net amount payable (or minus the net amount
receivable) under Rate Hedging Agreements during such period (whether or not
actually paid or received during such period) plus (c) dividends to be paid or
declared by the Company and its Subsidiaries during such period on all shares of
Preferred Stock and its Subsidiaries outstanding during all or any part of such
period.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty or other obligation (each a "primary obligation") of another
Person (the "primary obligor"), whether or not contingent, including, without
limitation, any agreement (a) to purchase, repurchase or otherwise acquire any
such primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor in respect of any such primary obligation or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of such primary obligor, or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor in respect
thereof to make payment of such primary obligation, or (d) otherwise to assure
or hold harmless the owner of any such primary obligation against loss or
failure or inability to perform in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof.
"Contractual Obligations" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Credit Agreement" means the Revolving Credit Agreement, dated
as of September 29, 1997, among the Company, the financial institutions party
thereto (the "Banks") and BankBoston, N.A., a national banking association, as
agent for the Banks (the "Agent"), as well as the notes, security documents and
other agreements entered into in connection therewith, each as amended,
supplemented or modified from time to time in accordance with its terms and
including any extensions, replacements, refinancings or refundings thereof,
whether with same or different lenders and/or agents and evidenced by one or
more agreements.
<PAGE>
"Current Market Price" has the meaning assigned such term in
the Warrants.
"Current Policies Regarding Purchase of Retail Installment
Vehicle Loans" means the Company's policies regarding the origination and
purchase of such retail installment car loans in the form of Schedule 5.32(b)
hereto, as such policies may be amended, restated, supplemented, or otherwise
modified from time to time.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Disposition" means any sale, lease, transfer or other
disposition by the Company or its Subsidiaries of their properties, assets,
rights, licenses and franchises to any Person (including, without limitation,
dispositions in exchange for similar assets and properties and commonly referred
to as "asset swaps").
"EBIT" shall mean, with respect to any Person for any period,
the sum of (a) Net Income for such period (excluding therefrom, to the extent
included in determining Net Income, any items of extraordinary gain (or loss),
including net gains (or losses) on sale of assets other than asset sales in the
ordinary course of business), (b) Consolidated Total Interest Expense deducted
from revenue in determining such Net Income and (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income.
All references contained herein to EBIT of the Company shall be to the EBIT of
the Company and its Subsidiaries, determined on a consolidated basis.
"Environment" means navigable waters, waters of the contiguous
zone, ocean waters, natural resources, surface waters, ground water, drinking
water supply, land surface, subsurface strata, ambient air, both inside and
outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
"Environmental Claims" means any notification, whether direct
or indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any of its Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of its Subsidiaries, or the operations or property of any
predecessor of the Company or any of its Subsidiaries, is or may be implicated
in or subject to any claim, Requirement of Law, hearing, notice, agreement or
evaluation by any Governmental Authority or any other Person.
"Environmental Compliance Costs" means any expenditures,
costs, assessments or expenses (including any expenditures, costs, assessments
or expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether
<PAGE>
direct or indirect, necessary to cause the operations, real property, assets,
equipment or facilities owned, leased, operated or used by the Company or any of
its Subsidiaries to be in compliance with any and all requirements, as in effect
at the Closing Date, of Safety and Environmental Laws, principles of common law
concerning pollution, protection of the Environment or health and safety, or
Permits issued pursuant to Safety and Environmental laws; provided, however,
that Environmental Compliance Costs do not include expenditures, costs,
assessments or expenses necessary in connection with normal maintenance of such
real property, assets, equipment or facilities or the replacement of equipment
in the normal course of events due to ordinary wear and tear.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" has the meaning assigned such term in
Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission hereunder.
"Existing Junior Subordinated Indebtedness" shall mean the
Junior Subordinated Indebtedness of the Company existing as of the date hereof
and evidenced by the Gurba Note, NFC Note, Nova Note, Otto Note and Shapiro
Note.
"Existing Securitization Transaction" means the securitization
program in existence as of the Closing Date comprised of the Company's sale,
assignment, pledge or contribution of some of its Vehicle Loans to a Special
Purpose Subsidiary as part of a securitization of such Vehicle Loans.
"Financials" has the meaning assigned to that term in Section
5.9.
"Fiscal Year" means the fiscal year for the Company. As of the
date of this Agreement, the fiscal year for the Company ends December 31.
"FSA Registration Rights Agreement" means the Registration
Rights Agreement, dated October 1, 1997, between the Company and FSA Portfolio
Management, Inc.
"Fund" has the meaning assigned to that term in the preamble
of this Agreement.
"Funded Debt" means with respect to any Person and as at any
date of determination thereof, without duplication, (a) all Indebtedness of such
Person as at such date for money borrowed, (b) the principal component of all
Capital Lease Obligations, (c) all Indebtedness for the deferred purchase price
of property or services represented by a note or other security (other than in
respect of any trade
<PAGE>
payable) or other Indebtedness arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), and
(d) all Indebtedness of such Person secured by a purchase money mortgage or
other lien to secure all or part of the purchase price of property subject to
such mortgage or lien.
"GAAP" means generally accepted United States accounting
principles in effect from time to time.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Gurba Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P., to
Stephen L. Gurba in the aggregate principal amount, as of July 1, 1997, of
$34,387 and maturing on January 31, 2002, as assigned to, and assumed by the
Company, including the same as such may be amended, supplemented or modified
from time to time in accordance with its terms and the terms hereof.
"Hazardous Substance" means any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or waste, petroleum or petroleum-derived substance
or waste, radioactive substance or waste, or any constituent of any such
substance or waste, or any other substance regulated under or defined by any
Safety and Environmental Law.
"Holder" means the Purchasers and any subsequent transferee or
transferees of Notes, Warrants, Warrant Shares or Shares, as reflected on the
books and records of the Company, other than a transferee who has acquired
Notes, Warrants, Warrant Shares or Shares that have been the subject of a
distribution pursuant to a registered public offering, or, in the case of Notes,
Warrants, Warrant Shares or Shares, a transferee who has acquired such Notes,
Warrants, Warrant Shares or Shares after such securities have been sold pursuant
to Rule 144 under the Securities Act or otherwise distributed under
circumstances not requiring a legend.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indebtedness" means as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all obligations to pay the
deferred purchase
<PAGE>
price of property or services, except trade accounts payable and accrued
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps and similar agreements under which payments are obligated to
be made, whether periodically or upon the happening of a contingency, (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations under Capital Lease Obligations, (g) all indebtedness secured by
any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is non-recourse to the credit of that Person, and (h) any Contingent
Obligation.
"Intercompany Indebtedness" means Indebtedness of the Company
to any Subsidiary, directly or indirectly, wholly owned by the Company and
Indebtedness of any Subsidiary of the Company to the Company or another
Subsidiary of the Company.
"Interim Financials" has the meaning assigned to such term in
Section 5.9.
"Investment" means (i) the acquisition (whether for cash,
property, services, securities or otherwise) of Capital Stock, bonds, notes,
debentures, partnership or other ownership interests or other securities of any
other Person or any agreement to make any such acquisition; and (ii) the making
of any advance, loan or other extension of credit to, any Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person, but
excluding any accounts receivable created in the ordinary course of business).
"Junior Securities" has the meaning assigned to such term in
Section 12.1.
"Junior Subordinated Indebtedness" shall mean Indebtedness
that is expressly subordinated and made junior to the payment and performance in
full of the Notes, has a Stated Maturity later than December 19, 2004, and is
evidenced as such by a written instrument containing subordination provisions in
form and substance approved by the holders of a majority in interest of the
aggregate principal amount of the Notes whose consent shall not be unreasonably
withheld; provided that any such subordination provisions shall be deemed
reasonable so long as the holder of the Junior Subordinated Indebtedness agrees
to be subordinated to the Notes at least to the same extent as the Existing
Junior Subordinated Indebtedness is subordinated to the Notes pursuant to the
Junior Subordination Agreement (except that nothing contained in this proviso
shall be deemed to permit the Stated Maturity of any such Junior Subordinated
Indebtedness to be earlier than December 20, 2004). Notwithstanding anything to
the contrary contained in the foregoing, however, Junior Subordinated
<PAGE>
Indebtedness shall be deemed to include the Existing Junior Subordinated
Indebtedness even though the Stated Maturity of such Indebtedness is January 31,
2002. The fact that the Stated Maturity of the Existing Junior Subordinated
Indebtedness is January 31, 2002 shall not be deemed to be a violation of the
terms of this Agreement.
"Junior Subordination Agreement" means the Junior
Subordination Agreement, dated as of the date hereof, among the Purchasers, Bank
Boston, N.A., a national banking association, as agent for the Banks, other
"Senior Creditors" identified on the signature pages thereto and "Subordinating
Creditors" as identified on Schedule I thereto, including the same as such may
be amended, supplemented or modified from time to time.
"Liabilities" has the meaning assigned to such term in Section
5.9.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock or equity related
preferences), including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, any
interest of a lessor under a capital lease, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Material Adverse Effect" has the meaning assigned to such
term in Section 3.10.
"ML" has the meaning assigned to that term in the preamble of
this Agreement.
"Morgan Note Purchase Agreement" means the Note Purchase
Agreement, dated as of August 9, 1996, among the Company as successor by
assumption to National Auto Finance Company, L.P. and the "Purchasers"
identified on the signature pages thereto, including the same as such may be
amended, supplemented or modified from time to time.
"Morgan Registration Rights Agreement" means the Registration
Rights Agreement, dated August 9, 1996, among the Company as successor by
assumption to National Auto Finance Company, L.P. and the "Investors" identified
on Schedule I thereto.
"Nasdaq" means the National Market System of Nasdaq Stock
Market.
"Net Income" shall mean for any period, the net income (loss)
of any Person, determined in accordance with GAAP, after deducting all operating
expenses, provisions for taxes and reserves and all other proper deductions in
accordance with GAAP. All references contained herein to the Net Income of the
Company shall be
<PAGE>
to the Net Income of the Company and its Subsidiaries, determined on a
consolidated basis.
"Net Sale Proceeds" means with respect to any Disposition, the
aggregate amount of all cash payments received by the Company or its
Subsidiaries, directly or indirectly, in connection with such Disposition,
whether at the time thereof or after such Disposition under deferred payment
arrangements or Investments entered into or received in connection with such
Disposition, minus the aggregate amount of any reasonable and customary legal,
accounting, regulatory, title and recording tax expenses, transfer taxes,
commissions and other fees and expenses paid at any time by the Company or its
Subsidiaries in connection with such Disposition, and minus any cash income
taxes payable by the Company and its Subsidiaries in connection with such
Disposition. For purposes of this paragraph, the Company shall not be deemed to
have received any amounts held in escrow by a third party in connection with a
Disposition until the time, and only to the extent, such amounts are released to
the Company.
"NFC Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P. to
Nova Financial Corporation in the aggregate principal amount, as of July 1,
1997, of $27,789 and maturing on January 31, 2002, as assigned to, and assumed
by the Company, including the same as such may be amended, supplemented or
modified from time to time in accordance with its terms and the terms hereof.
"Notes" has the meaning assigned to that term in the first
Whereas clause.
"Nova Note" means the Amended and Restated Promissory Note,
issued by National Auto Finance Company, L.P. to Nova Corporation in the
aggregate principal amount, as of July 1, 1997, of $497,383 and maturing on
January 31, 2002, as assigned to, and assumed by, the Company, including the
same as such may be amended, supplemented or modified from time to time in
accordance with its terms and the terms hereof.
"NYSE" means the New York Stock Exchange, Inc.
"Omni" means Omni Financial Services of America, Inc., as
assignee of World Omni Financial Corporation, a Florida corporation.
"Omni Agreement" means the Fourth Amendment to the Amended and
Restated Servicing Agreement, dated as of October 12, 1997, by and between Omni
Financial Services of America, Inc. and National Auto Finance Company, Inc.
"Otto Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P. to
Edgar Otto in the aggregate principal amount, as of July 1, 1997, of $980,895
and maturing on
<PAGE>
January 31, 2002, as assigned to, and assumed by, the Company, including the
same as such may be amended, supplemented or modified from time to time in
accordance with its terms and the terms hereof.
"PCI" has the meaning assigned to that term in the preamble of
this Agreement.
"Permit" means any license, permit, exemption, consent,
waiver, authorization, right, order or approval of, and required registration
with, any Governmental Authority.
"Permitted Liens" has the meaning assigned to that term in
Section 10.7.
"Permitted Refinancing Indebtedness" means Junior Subordinated
Indebtedness issued in exchange for, or the net proceeds of which are used to
extend, refinance, replace, defease or refund any other Junior Subordinated
Indebtedness of the Company permitted to be incurred under this Agreement, but
only to the extent that such Indebtedness does not shorten the Stated Maturity
(or weighted average life to maturity) of such Indebtedness.
"Permitted Securitization Transaction" means (a) the Existing
Securitization Transaction and (b) any similar transaction (including any whole
loan sales or similar transactions in the ordinary course of business) hereafter
entered into by the Company or any of its Subsidiaries provided that at the time
such similar transaction is consummated no Default or Event of Default shall
have occurred and be continuing or would occur immediately after giving effect
thereto.
"Person" means any individual, firm, corporation, division,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
"Predecessor Financials" has the meaning assigned to that term
in Section 5.9.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holders thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Progressive" has the meaning assigned to that term in the
preamble of this Agreement.
"Progressive Entities" has the meaning assigned to that term
in the preamble of this Agreement.
<PAGE>
"Proxy Statement" has the meaning assigned to that term in
Section 8.3.
"Public Offering" means the sale in any offering by the
Company or any of its Subsidiaries of their Capital Stock pursuant to a
registration statement on Form S-1, Form S-3 or otherwise under the Securities
Act.
"Purchase Price" shall mean the Unit Purchase Price plus the
Stock Purchase Price.
"Purchaser Shares" means, with respect to the Fund and the
Progressive Entities, the sum of the shares of Common Stock initially issuable
upon exercise of the Warrants (subject to any adjustments pursuant to the terms
thereof) plus the Shares and, with respect to ML, the shares of Common Stock
initially issuable upon exercise of the Warrants (subject to any adjustments
pursuant to the terms thereof) in each case issued thereto pursuant to this
Agreement.
"Purchasers" has the meaning assigned to that term in the
preamble of this Agreement.
"Rate Hedging Agreements" means any written agreements
evidencing Rate Hedging Obligations.
"Rate Hedging Obligations" means any and all obligations of
the Company or any of its Subsidiaries, whether direct or indirect and whether
absolute or contingent, at any time created, arising, evidenced or acquired
(including all renewals, extensions, modifications and amendments thereof and
all substitutions therefor), in respect of: (a) any and all agreements,
arrangements, devices and instruments designed or intended to protect at least
one of the parties thereto from the fluctuations of interest rates, exchange
rates or forward rates applicable to such party's assets, liabilities or
exchange transactions, including without limitation dollar-denominated or cross
currency interest rate exchange agreements, forward rate currency or interest
rate options, puts and warrants and so-called "rate swap" agreements; and (b)
any and all cancellations, buy-backs, reversals, terminations or assignments of
any of the foregoing.
"Registration Rights Agreement" means the Registration Rights
Agreement substantially in the form attached hereto as Exhibit C, as the same
may be amended or modified from time to time in accordance with its terms.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into or through the indoor or outdoor Environment or into, through or
out of any property, including the movement of Hazardous Substances through or
in the air, soil, surface water, ground water or property.
<PAGE>
"Remedial Action" means all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Safety and Environmental Laws to (i) clean up, remove, treat, cover or in
any other way adjust Hazardous Substances in the indoor or outdoor Environment;
(ii) prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
"Requirements of Law" means, as to any Person, any law,
treaty, rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Restricted Payment" means (a) any dividend (or other
distribution of evidences of Indebtedness, assets or other property) on any
share of the Company's or any Subsidiary's Capital Stock (except dividends
payable solely in shares of their Capital Stock or dividends paid to the Company
or a wholly-owned Subsidiary of the Company by a wholly-owned direct or indirect
Subsidiary of the Company) or (b) any payment by the Company or any of its
Subsidiaries on account of the direct or indirect purchase, redemption,
retirement or other acquisition of (i) any shares of the Company's or any such
Subsidiary's Capital Stock (except (x) the Warrants and (y) shares acquired upon
the conversion, exchange or exercise thereof into or for other shares of their
Capital Stock), or (ii) any Indebtedness of the Company or any such Subsidiary
prior to any date set forth for mandatory repayment or redemption of principal
or interest thereon; provided, however, that this clause (ii) shall not apply to
(w) Indebtedness incurred pursuant to the Notes, (x) Senior Indebtedness, (y)
Indebtedness that is pari passu in right of payment to the Notes, to the extent
that the Company offers to purchase, redeem or retire the Notes pro rata with
such pari passu Indebtedness or (z) Permitted Refinancing Indebtedness in
respect of Junior Subordinated Indebtedness (other than Existing Junior
Subordinated Indebtedness)).
"Safety and Environmental Laws" means all Requirements of Law
relating to pollution, protection of the Environment, public or worker health
and safety, or the emission, discharge, release or threatened release of
Hazardous Substances into the Environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C.
ss. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 121 et seq., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 et seq., the Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 et
seq., the Safe Drinking Water Act, 42 U.S.C. ss. 300f et seq., the Oil
<PAGE>
Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq., and analogous legislation and
regulation by any Governmental Authority.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Senior Default" has the meaning assigned to such term in
Section 12.1.
"Senior Event of Default" has the meaning assigned to such
term in Section 12.1.
"Senior Indebtedness" has the meaning assigned to such term in
Section 12.1.
"Senior Payment Default" has the meaning assigned to such term
in Section 12.1.
"Senior Subordinated Notes" has the meaning assigned to such
term in the first Whereas clause.
"Series A Preferred Stock" means the Company's Series A
Preferred Stock, $.01 par value per share.
"Shapiro Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P. to
Gary L. Shapiro in the aggregate principal amount of $436,846 and maturing on
January 31, 2002, as assigned to, and assumed by, the Company, including the
same as such may be amended, supplemented or modified from time to time in
accordance with its terms and the terms hereof.
"Shares" has the meaning assigned to such term in the first
Whereas clause, as the same may be adjusted appropriately for any stock
dividend, stock split, reclassification or other similar event.
"Solvent" means, as to any Person, that the fair saleable
value on a going concern basis of the assets and property of such Person and its
Subsidiaries, taken as a whole, is, on the date of determination, greater than
the total amount of liabilities (including contingent and unliquidated
liabilities) of such Person as of such date and that, as of such date, such
Person is able to pay all liabilities of such Person as such liabilities mature.
In computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed as the amount which, in light of all the facts
and circumstances existing at such time, represents the amount that is probable
to become an actual or matured liability.
<PAGE>
"Special Purpose Subsidiary" means any special purpose entity
including, without limitation, a wholly-owned Subsidiary of the Company or
trust, established in connection with a Permitted Securitization Transaction.
"Stated Maturity" means, with respect to any Junior
Subordinated Indebtedness, the date on which the payment of the principal
thereon is due and payable, including pursuant to any mandatory redemption
provision.
"Stock Purchase Price" has the meaning assigned to such term
in Section 2.1(b).
"Stock Purchasers" means, collectively, the Fund and
Progressive.
"Subordinated Indebtedness" has the meaning assigned to such
term in Section 12.1.
"Subsidiary" means, with respect to any Person, a corporation
or other entity of which 50% or more of the voting power for the election of
directors under ordinary circumstances is exercisable, directly or indirectly,
by such Person; provided that the term Subsidiary shall not include a Special
Purpose Subsidiary.
"Tax" or "Taxes" means all federal, state, county, local,
foreign and other taxes (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll-related and property taxes, import duties and
other governmental charges and assessments), whether or not measured in whole or
in part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"Temporary Cash Investment" means any Investment in (i)
marketable direct or guaranteed obligations of the United States of America that
mature within one (1) year from the date of purchase by the Company; (ii) demand
deposits in, or certificates of deposit, bankers acceptances and time deposits
of United States banks having total assets in excess of $1,000,000,000; and
(iii) securities commonly known as "commercial paper" issued by a corporation
organized and existing under the laws of the United States of America or any
state thereof that at the time of purchase have been rated and the ratings for
which are not less than "P 1" by Moody's Investors Services, Inc., or not less
than "A 1" by Standard and Poor's.
"Total Indebtedness" shall mean Funded Debt of the Company and
its Subsidiaries on a consolidated basis less Junior Subordinated Indebtedness.
<PAGE>
"Transaction Documents" has the meaning assigned to that term
in Section 5.17.
"Unit Purchase Price" has the meaning assigned to that term in
Section 2.1(a).
"Vehicle Loan" means a motor vehicle installment sales
contract assigned to the Company that is secured by title to, security interests
in, or liens on a motor vehicle under applicable provisions of the motor vehicle
or other similar law of the jurisdiction in which the motor vehicle is title and
registered by the purchaser at the time the contract is originated or purchased.
"Voided Payment" has the meaning assigned to that term in
Section 12.17.
"Warrants" has the meaning assigned to that term in the first
Whereas clause.
"Warrant Shares" has the meaning assigned to that term in
Section 5.13.
1.2 Accounting Terms; Financial Covenants. All accounting
terms used herein not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with sound accounting practice.
The term "sound accounting practice" shall mean such accounting practice as, in
the opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis. If any changes in
accounting principles are hereafter occasioned by promulgation of rules,
regulations, pronouncements or opinions by or are otherwise required by the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions),
and any of such changes results in a change in the method of calculation of, or
affects the results of such calculation of, any of the financial covenants,
standards or terms found herein, then the parties hereto agree to enter into and
diligently pursue in good faith negotiations in order to amend such financial
covenants, standards or terms so as to reflect fairly and equitably such
changes, with the desired result that the criteria for evaluating the Company's
financial condition and results of operations shall be the same as nearly as
practicable after such changes as if such changes had not been made.
<PAGE>
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale of Senior Subordinated Notes, Warrants
and Shares.
(a) Subject to the terms and conditions set
forth herein, the Company agrees that it will issue to each of the Fund, PCI and
ML, and each of the Fund, PCI and ML agrees that it will acquire from the
Company, at the Closing, (i) the principal amounts of the Senior Subordinated
Notes set forth opposite the name of such Purchaser on Schedule 2.1A hereto,
with such Senior Subordinated Notes being substantially in the form attached
hereto as Exhibit A, appropriately completed in conformity herewith and (ii)
Warrants to purchase initially the number of shares of Common Stock set forth
opposite the name of such Purchaser on Schedule 2.1B hereto, with such Warrants
being substantially in the form attached hereto as Exhibit B, for its portion of
the aggregate purchase price of $40,000,000 (the "Unit Purchase Price") set
forth next to such Purchaser's name on Schedule 2.1A, in cash, by wire transfer
of immediately available funds to an account designated in a notice delivered to
such Purchasers not later than two Business Days prior to the Closing Date.
(b) Subject to the terms and conditions set
forth herein, the Company agrees that it will issue to the Stock Purchasers, and
each Stock Purchaser agrees that it will acquire from the Company, at the
Closing, the number of shares of Common Stock set forth opposite the name of
such Stock Purchaser on Schedule 2.1C hereto, for its portion of the aggregate
purchase price of $10,000,000 (the "Stock Purchase Price") set forth next to
such Stock Purchaser's name on Schedule 2.1C, in cash, by wire transfer of
immediately available funds to an account designated in a notice delivered to
such Purchasers not later than two Business Days prior to the Closing Date.
2.2 Fees. The Company hereby agrees that it will pay to the
Fund, PCI and ML, at the Closing, a facility fee of $400,000 (less any portion
thereof previously paid by the Company to such Purchasers), payable $160,000 to
the Fund, $140,000 to PCI and $100,000 to ML, and an equity placement fee of
$300,000, payable $257,142.75 to the Fund and $42,857.25 to Progressive, in each
case in cash by wire transfer of immediately available funds to an account
designated in a notice delivered to the Company not later than two Business Days
prior to the Closing Date. At the Company's option, by notice to the Fund, PCI,
Progressive and ML at least two Business Days prior to the Closing Date, such
facility fee and placement fee may be paid by each such Purchaser by deducting
such amount from the Unit Purchase Price.
<PAGE>
2.3 Closing.
The purchase and issuance of the Senior Subordinated Notes,
the Warrants and the Shares shall take place at the closing (the "Closing") to
be held at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue
of the Americas, New York, New York 10019-6064 on December 19, 1997, at 10:00
a.m., New York City time, or on such other date and at such other time as the
Purchasers and the Company may mutually agree (the "Closing Date"). At the
Closing, subject to the terms and conditions set forth herein, the Company shall
sell the Senior Subordinated Notes and the Warrants to the Fund, PCI and ML by
delivering to the Fund, PCI and ML, the Senior Subordinated Notes and the
Warrants registered in the names of such Purchasers, with appropriate issue
stamps, if any, affixed at the expense of the Company, free and clear, upon
issuance, of any Lien (other than as may be created by such Purchasers), and
such Purchasers shall, severally and not jointly, purchase the Senior
Subordinated Notes and the Warrants for the Unit Purchase Price. At the Closing,
subject to the terms and conditions set forth herein, the Company shall sell the
Shares to the Stock Purchasers by delivering to the Stock Purchasers the Shares
registered in the name of the Stock Purchasers, with appropriate issue stamps,
if any, affixed at the expense of the Company, free and clear, upon issuance, of
any Lien (other than as may be created by the Stock Purchasers), and the Stock
Purchasers shall, severally and not jointly, purchase the Shares for the Stock
Purchase Price.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Senior
Subordinated Notes, the Warrants and the Shares, as the case may be, to pay the
Purchase Price therefor at the Closing, and to perform any of their obligations
hereunder in respect of transactions contemplated to occur on the Closing Date
shall be subject to the satisfaction or waiver of the following conditions on or
before the Closing Date:
3.1 Representations and Warranties True. The representations
and warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects (unless any representation or warranty is
qualified by its terms as to materiality, in which case such representation or
warranty shall be true and correct) at and as of the Closing Date, as if made at
and as of such date.
3.2 Compliance with this Agreement. The Company shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
<PAGE>
3.3 Officer's Certificate. The Purchasers shall have received
a certificate, dated the Closing Date and signed by the Chief Executive Officer,
Vice Chairman or Chief Financial Officer of the Company, certifying that the
conditions set forth in Sections 3.1 and 3.2 hereof have been satisfied on and
as of such date.
3.4 Secretary's Certificate. The Purchasers shall have
received a certificate, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, attaching a good standing certificate from
the Delaware Secretary of State with respect to the Company, and certifying the
correctness of attached copies of the certificate of incorporation and by-laws
of the Company and resolutions of the Board of Directors of the Company
approving this Agreement and the transactions contemplated hereby.
3.5 Documents. The Purchasers shall have received copies of
such documents as they reasonably may request in connection with the sale of the
Senior Subordinated Notes, the Warrants and the Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to the
Purchasers.
3.6 Purchase Permitted by Applicable Laws; Legal Investment.
The acquisition of and payment for the Senior Subordinated Notes, the Warrants
and the Shares and the consummation of the transactions contemplated hereby (a)
shall not be prohibited by any applicable law or governmental regulation, (b)
shall not subject the Purchasers to any penalty or, in their reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation and (c) shall be permitted by the laws and regulations
of the jurisdictions to which they are subject.
3.7 Opinion of Counsel. The Purchasers shall have received the
opinion of Weil, Gotshal & Manges LLP, counsel to the Company, dated the Closing
Date, substantially in the form attached hereto as Exhibit D. The Purchasers
shall have received the opinion of in-house counsel to the Company, dated the
Closing Date, substantially in the form of the attached hereto as Exhibit E.
3.8 Approval of Counsel to the Purchaser. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Purchasers, as to their form and substance.
3.9 Consents and Approvals. All consents, waivers, exemptions,
authorizations (including, without limitation, stockholder approval), or other
actions by, or notices to, or filings with, Governmental Authorities and other
Persons necessary or required in connection with the execution, delivery or
performance by the Company or enforcement against the Company of this Agreement
or any other Transaction Document shall have been obtained and be in full force
and effect, and the Purchasers shall have been furnished with appropriate
evidence thereof.
<PAGE>
3.10 No Material Adverse Change. Since December 31, 1996,
except as disclosed in Schedule 5.10, there shall have been no change, that has,
or would have, a material adverse effect on the assets, business, properties,
operations or financial or other condition of the Company and its Subsidiaries,
taken as a whole (a "Material Adverse Effect"), nor shall any such change be
threatened.
3.11 Employment Agreements. Each of Roy E. Tipton and William
G. Magro shall have duly executed and delivered employment agreements with the
Company, the terms and conditions of which are reasonably acceptable to the
Purchasers.
3.12 Registration Rights Agreement. The Company shall have
duly executed and delivered to the Purchasers the Registration Rights Agreement.
3.13 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries. No amendments to the certificate of incorporation or
by-laws of the Company as in effect on the date hereof shall have been effected.
3.14 Market Conditions. On or prior to the Closing Date, (a)
trading in securities generally on the NYSE shall not have been suspended or
limited or minimum or maximum prices shall not have been generally established
on such exchange, or additional material governmental restrictions, not in force
on the date of this Agreement, shall not have been imposed upon trading in
securities generally by such exchange or by order of the Commission or any court
or other Governmental Authority, (b) a general banking moratorium shall not have
been declared by either federal or New York State authorities or (c) any
material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall not have
occurred.
3.15 No Default or Breach. The Company shall not be or have
been in Default under this Agreement, any of the other Transaction Documents or
any Indebtedness and, after giving effect to the transactions contemplated
hereby and thereby, the Company will not be in Default under any of the
Transaction Documents or any Indebtedness.
3.16 Fees. The Company shall have paid or shall concurrently
pay to the Fund, PCI, Progressive and ML the fees provided for in Section 2.2
hereof.
3.17 Morgan. The Company shall have delivered to the
Purchasers, in form and substance reasonably satisfactory to the Purchasers,
evidence that the Indebtedness incurred under the Morgan Note Purchase Agreement
has been repaid in full by the Company.
<PAGE>
3.18 Termination of Other Registration Rights Agreements. The
Company shall have delivered to the Purchasers, in form and substance reasonably
satisfactory to the Purchasers, evidence of termination of each of the Morgan
Registration Rights Agreement, the FSA Registration Rights Agreement and Article
VI of the Second Amended and Restated Agreement of Limited Partnership, dated as
of September 1, 1995, of National Auto Finance Company, L.P., and each party to
such agreements shall have executed and delivered the Registration Rights
Agreement.
3.19 Credit Agreement Waiver. The Company shall have delivered
to the Purchasers, in form and substance reasonably satisfactory to the
Purchasers, a waiver of any provisions of the Credit Agreement prohibiting or
otherwise restricting the ability of the Company to enter into and perform its
obligations under this Agreement or any other Transaction Document.
3.20 Simultaneous Purchases. Each Purchaser's obligation to
purchase its agreed upon amount of the Senior Subordinated Notes, the Warrants
and the Shares, as the case may be, is hereby expressly conditioned upon the
other Purchasers simultaneously purchasing their agreed upon amount of the
Senior Subordinated Notes, the Warrants and the Shares, as the case may be.
3.21 Subordination. The Junior Subordination Agreement, dated
as of September 29, 1997, among BankBoston, N.A., Morgan Guaranty Trust Company
of New York, the Company and the other parties named therein shall have been
amended in form and substance reasonably satisfactory to the Purchasers.
3.22 National Auto Finance Company, L.P. The Company shall
have delivered to the Fund and the Progressive Entities, in form and substance
reasonably satisfactory to the Fund and the Progressive Entities, an agreement
duly executed and delivered by National Auto Finance Company, L.P. pursuant to
which it agrees to vote its shares of Common Stock in favor of the Persons to be
nominated to the Company's Board of Directors by each of the Fund and the
Progressive Entities pursuant to the provisions of Section 9.10 hereof.
3.23 Confirmation from Nasdaq National Market. The Company
shall have delivered to the Purchasers, in form and substance reasonably
satisfactory to the Purchasers, written confirmation from The Nasdaq Stock
Market evidencing that no stockholder approval is required in order to close the
transactions contemplated to occur on the Closing Date.
<PAGE>
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Senior
Subordinated Notes, the Warrants and the Shares and to perform any of its other
obligations hereunder in respect of transactions contemplated to occur on the
Closing Date, shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
4.1 Representations and Warranties True. The representations
and warranties of the Purchasers contained in Article 6 hereof shall be true and
correct in all material respects (unless any representation or warranty is
qualified by its terms as to materiality, in which case such representation or
warranty shall be true and correct) at and as of the Closing Date as if made at
and as of such date.
4.2 Compliance with this Agreement. The Purchasers shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
4.3 Approval of Counsel to the Company. All actions and
proceedings hereunder and all documents required to be delivered by the
Purchasers hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Weil, Gotshal & Manges LLP, counsel to the Company, as to their
form and substance.
4.4 Consents and Approvals. All consents, exemptions,
authorizations, waivers or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Purchasers or the Company or
enforcement against the Purchasers of this Agreement shall have been obtained
and be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
4.5 Amendments of Registration Rights Agreements. The parties
to each of the Morgan Registration Rights Agreement, the FSA Registration Rights
Agreement and the Second Amended and Restated Agreement of Limited Partnership,
dated as of September 1, 1995, of National Auto Finance Company, L.P., shall
have agreed to terminate the registration rights granted under each such
agreement and each party to such agreements shall have executed and delivered
the Registration Rights Agreement.
4.6 Credit Agreement Waiver. The Company shall have obtained
a waiver of any provisions of the Credit Agreement prohibiting or otherwise
restricting
<PAGE>
the ability of the Company to enter into and perform its obligations under this
Agreement or any other Transaction Document.
4.7 General Partner's Certificate. The Company shall have
received from each Purchaser a certificate, dated the Closing Date and signed by
the general partner or an appropriate officer of each such Purchaser, certifying
that the conditions set forth in Sections 4.1 and 4.2 hereof have been satisfied
on and as of such date with respect to such Purchaser.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers
as follows:
5.1 Corporate Existence and Power. The Company:
(a) is, and after giving effect to the
transactions contemplated by the Transaction Documents, will be duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization;
(b) has, and after giving effect to the
transactions contemplated hereby, will have (i) full corporate power and
authority and (ii) all Permits to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently, or is currently proposed to be, engaged;
(c) is, and after giving effect to the
transactions contemplated hereby, will be duly qualified as a foreign
corporation, licensed and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification; and
(d) is, and after giving effect to the
transactions contemplated hereby, will be in compliance with (i) its certificate
of incorporation and by-laws or other organizational or governing documents and
(ii) all Requirements of Law;
except, in the case of (b)(ii), (c) or (d)(ii) of this Section 5.1, to the
extent that the failure to do, or be, so would not have a Material Adverse
Effect.
5.2 Corporate Authorization; No Contravention. The
execution, delivery and performance by the Company of this Agreement, the
Registration Rights Agreement, any other Transaction Document and the
transactions contemplated
<PAGE>
hereby and thereby, including without limitation, the issuance of the Senior
Subordinated Notes, the Warrants and the Shares:
(a) is within the Company's corporate power and
authority and has been duly authorized by all necessary corporate action; and
(b) does not, and will not after giving effect to the
transactions contemplated hereby, contravene the terms of the certificate of
incorporation or by-laws or other organizational or governing documents or any
amendment thereof of the Company; and
(c) does not, and will not after giving effect to the
transactions contemplated hereby, violate, conflict with or result in any breach
of, contravention of or the creation of any Lien under, any Contractual
Obligation of the Company or any order or decree directly relating to the
Company.
5.3 Governmental Authorization; Third Party Consents. No
approval, consent, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, is necessary or
required in connection with the execution, delivery or performance by the
Company or enforcement against the Company of this Agreement, the Senior
Subordinated Notes, the Warrants, the Registration Rights Agreement, any other
Transaction Document or the transactions contemplated hereby or thereby, other
than those that have been obtained or made on or prior to the Closing.
5.4 Binding Effect. This Agreement has been duly executed and
delivered by the Company, and at the Closing the Senior Subordinated Notes, the
Registration Rights Agreement, the Warrants and each other Transaction Document
will be duly executed and delivered by the Company, and this Agreement
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, and at the Closing the
Registration Rights Agreement, the Senior Subordinated Notes and the Warrants
will constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
5.5 No Legal Bar. Neither the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, or any other
Transaction Document nor the issuance of or performance of the terms of the
Senior Subordinated Notes or the Warrants will violate any Requirement of Law.
<PAGE>
5.6 Litigation. There are no actions, suits, proceedings,
claims or disputes pending, or to the knowledge of the Company, threatened, at
law, in equity, in arbitration or before any Governmental Authority against the
Company:
(a) with respect to any Transaction Document or any
of the transactions contemplated thereby; or
(b) which would, if adversely determined, (i) have a
Material Adverse Effect or (ii) have a material adverse effect on the ability of
the Company to perform its obligations under this Agreement, the Senior
Subordinated Notes, the Warrants, the Registration Rights Agreement or any other
Transaction Document. No injunction, writ, temporary restraining order, decree
or any order of any nature has been issued by any court or other Governmental
Authority purporting to enjoin or restrain the execution, delivery and
performance of this Agreement, the Senior Subordinated Notes, the Warrants, the
Registration Rights Agreement or any other Transaction Document.
5.7 No Default or Breach. No event has occurred and is
continuing or would result from the incurring of obligations by the Company
under this Agreement, the Registration Rights Agreement or any other Transaction
Document which constitutes a default under or breach of any of the provisions
hereof or of the Notes and no such event will occur or will be continuing
immediately after giving effect to the transactions contemplated hereby. The
Company is not, and after giving effect to the transactions contemplated by the
Transaction Documents will not be, in Default under or with respect to any
Transaction Document in any respect.
5.8 Title to Properties. The Company has, and after giving
effect to the transactions contemplated by the Transaction Documents will have,
good record and marketable title to, or hold leases in full force and effect in
all its real property, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect.
5.9 Financial Condition; No Undisclosed Liabilities. The
Company heretofore has delivered to the Purchasers true and correct copies of
(i) the audited consolidated balance sheets of National Auto Finance Company,
L.P. and its Subsidiaries for the fiscal years ended December 31, 1996 and
December 31, 1995 and the related consolidated statements of income (loss),
partners' capital and cash flows for the years ended December 31, 1996 and
December 31, 1995 and for the period from October 1, 1994 (date of inception) to
December 31, 1994 (the "Predecessor Financials"), (ii) the unaudited pro forma
balance sheet of the Company for the fiscal year ended December 31, 1996 and an
unaudited pro forma statement of income for the year ended December 31, 1996
(the "Financials") and (iii) the unaudited balance sheet of the Company as of
September 30, 1997 and the related statements of income, cash flows and
stockholder's equity, together with notes thereto, for the nine month period
then ended (the "Interim Financials"), certified, as stated in the immediately
following sentence, by the Treasurer or Chief Financial
<PAGE>
Officer of the Company. Except as disclosed therein, the Predecessor Financials,
the Financials and the Interim Financials have been prepared in accordance with
GAAP applied consistently throughout the periods covered thereby (except to the
extent of any inconsistency resulting from the fact that the Company's
predecessor was a limited partnership), and present fairly in all material
respects the financial condition of the Company (or its predecessor, as the case
may be) as of the dates thereof, and the results of operations of the Company
(or its predecessor, as the case may be) for the periods then ended. After
giving effect to the transactions contemplated hereby, will not have any
material direct or indirect Indebtedness or liability, whether known or unknown,
fixed or unfixed, contingent or otherwise, of a kind required by GAAP to be set
forth on a financial statement (collectively "Liabilities"), other than (i)
Liabilities fully and adequately reflected on the Financials and the Interim
Financials, (ii) those incurred since the date of the Interim Financials in the
ordinary course of business and (iii) Liabilities incurred pursuant to the
Senior Subordinated Notes.
5.10 No Material Adverse Change. Except as set forth on
Schedule 5.10, since December 31, 1996, there has not been any material adverse
change, nor to the knowledge of the Company is any such change threatened, in
the assets, business, properties, prospects, operations or financial or other
condition of the Company.
5.11 Investment Company. Neither the Company nor National
Auto Finance Company, L.P. is, and after giving effect to the transactions
contemplated hereby will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
5.12 Subsidiaries. The Company has no Subsidiaries.
5.13 Capitalization. At Closing, after giving effect to the
transactions contemplated hereby, (i) the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock and 1,000,000 shares
of Series A Preferred Stock and (ii) no shares of Common Stock or Series A
Preferred Stock will be held in the Company's treasury. As of the Closing, after
giving effect to the transactions contemplated hereby, 9,030,762 shares of
Common Stock and 2,295 shares of Series A Preferred Stock will be issued and
outstanding. All such shares of Capital Stock of the Company have been duly
authorized and all of the issued and outstanding shares of Common Stock and
Series A Preferred Stock as of the date hereof are fully paid and
non-assessable. The Warrants (assuming all such Warrants are exercised) to be
issued at the Closing will constitute 11.99% of the Common Stock (excluding the
Shares) on a fully diluted basis (assuming exercise, exchange or conversion, as
the case may be, of all options (including options reserved for issuance but not
yet issued), warrants, convertible or exchangeable securities or other Common
Stock equivalents) as of the Closing Date. The Warrants (assuming all such
Warrants are exercised) to be issued at the Closing and the Shares would
constitute, in the aggregate, 27.85% of the Common Stock on a fully diluted
basis (assuming exercise,
<PAGE>
exchange or conversion, as the case may be, of all options (including options
reserved for issuance but not yet issued), warrants, convertible or exchangeable
securities or other Common Stock equivalents) as of the Closing Date. Except as
set forth in Schedule 5.13 or as reserved for issuance in connection with the
exercise of the Warrants and the sale of the Shares, there are no shares of
Capital Stock of the Company reserved for issuance. The Common Stock issuable
upon exercise of the Warrants (the "Warrant Shares") will be duly authorized,
and, when issued against payment therefor, the Warrant Shares will be fully paid
and non-assessable. The Shares are duly authorized and, when issued against
payment therefor, will be fully paid and non-assessable. Except for the Warrants
and as set forth in Schedule 5.13, there are no options, warrants or other
rights to purchase shares of Capital Stock or any other securities of the
Company, nor is the Company obligated in any manner to issue shares of its
Capital Stock or other securities. Except as contemplated hereby and for
relevant state and federal securities laws, there are no restrictions on the
Company's ability to transfer shares of Capital Stock of the Company.
5.14 Solvency. On and as of the Closing, after giving effect
to the transactions contemplated hereby, the Company will be Solvent.
5.15 Private Offering. No form of general solicitation or
general advertising was used by the Company or, to its knowledge, its
representatives in connection with the offer or sale of the Senior Subordinated
Notes, the Warrants or the Shares. No registration of the Senior Subordinated
Notes, the Warrants, the Warrant Shares or the Shares pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws will be
required by the offer, sale or issuance of any such securities pursuant to the
transactions contemplated hereby. The Company agrees that neither it, nor anyone
acting on its behalf, will offer or sell the Senior Subordinated Notes, the
Warrants, the Shares, or any other security in such a manner so as to require
the registration of the Senior Subordinated Notes, the Warrants or the Shares
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws.
5.16 Broker's, Finder's or Similar Fees. Except for the
Company's agreement with First Union Capital Markets which requires the Company
to pay fees totaling $1,400,000, and the Company's agreement with National
Financial Companies LLC which requires the Company to pay fees totaling
$300,000, which fees shall be paid by the Company at Closing, and except for the
facility fee payable to the Purchasers pursuant to Section 2.2 hereof, there are
no brokerage commissions, finder's fees or similar fees or commissions payable
in connection with the offer or sale of the Senior Subordinated Notes, the
Warrants or the Shares contemplated hereby based on any agreement, arrangement
or understanding with the Company, or any action taken by the Company.
5.17 Full Disclosure. No statement by the Company contained
in this Agreement (including all Schedules hereto), the Senior Subordinated
Notes, the Warrants, the Registration Rights Agreement, the Subordination
Agreement or the
<PAGE>
certificates referred to in Sections 3.3 and 3.4 hereof (collectively,
"Transaction Documents") delivered to the Purchasers in connection with the
purchase and sale of the Senior Subordinated Notes, the Warrants and the Shares
at or prior to the Closing contains (or will contain) an untrue statement of a
material fact or omits (or will omit) to state a material fact required to be
stated therein or necessary to make the statements made, in light of the
circumstances in which made, not materially false or misleading.
5.18 Anti-Dilution Protection. No holder of shares of Common
Stock (or securities convertible into or exchangeable or exercisable for any of
the foregoing) has any rights to purchase or receive additional or other
securities upon the occurrence of an event that might dilute such holder's
percentage interest in the Company.
5.19 Registration Rights Agreements. Upon execution of the
amendments referred to in Section 3.21 of this Agreement, the Company will not
be a party to any agreement granting any registration rights to any Person other
than the Registration Rights Agreement.
5.20 Labor Relations. The Company is not engaged in any unfair
labor practice. There is (a) no unfair labor practice complaint pending or, to
the knowledge of the Company, threatened against the Company before the National
Labor Relations Board or any other Governmental Authority and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending or, to the knowledge of the Company, threatened, (b) no
strike, labor dispute, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against the Company and (c) no union representation question
existing with respect to the employees of the Company and, to the knowledge of
the Company, no union organizing activities are taking place.
5.21 ERISA and Employee Benefit Plans.
(a) There are no employee benefit plans or
material employee benefit arrangements, policies or commitments of any type
(including, but not limited to, plans described in section 3(3) of ERISA)
maintained by the Company, or with respect to which the Company has or could
have any direct or indirect liability, other than those described in Schedule
5.21 ("Benefit Plans").
(b) Accurate and complete copies of all plan
text and agreements, the most recent annual report, the most recent annual and
periodic accounting of plan assets, and the most recent actuarial valuation with
respect to each Benefit Plan have been delivered to the Purchasers.
(c) No Benefit Plan is subject to Title IV of
ERISA or section 412 of the Code. No Benefit Plan is a "multiple employer plan"
within the meaning of the Code or ERISA.
<PAGE>
(d) With respect to each Benefit Plan, except as
set forth in Schedule 5.21: (i) if it is intended to qualify under section
401(a) or 403(a) of the Code, such plan so qualifies and has in effect a current
determination letter; (ii) such Benefit Plan has been maintained and
administered at all times in compliance in all material respects with its terms
and applicable laws and regulations; (iii) no event has occurred and there
exists no circumstances under which the Company could incur material liability
under ERISA, the Code or otherwise (other than routine claims for benefits) with
respect to such plan or with respect to any other entity's employee benefit
plan; and (iv) all contributions and premiums due with respect to such plan have
been made on a timely basis.
(e) With respect to each Benefit Plan that is a
"welfare plan" (as defined in ERISA section 3(1)): (i) no such plan provides
medical or death benefits with respect to current or former employees of the
Company beyond their termination of employment (other than as required to avoid
an excise tax under Code section 4980B); and (ii) the Company has complied in
all material respects with the requirements of Code section 4980B.
(f) The consummation of the transactions
contemplated by this Agreement will not: (i) entitle any individual to severance
or termination pay; (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any individual; or (iii) result in the payment
that will be taken into account in determining whether there is an "excess
parachute payment" under Code section 280G(b)(1).
5.22 Environmental Matters. (i) The Company is and has been in
compliance in all material respects with all applicable Safety and Environmental
Laws; (ii) there is no Environmental Claim pending or, to the knowledge of the
Company, threatened against the Company, and there is no civil, criminal or
administrative judgement or notice of violation against the Company pursuant to
Safety and Environmental Laws or principles of common law relating to pollution,
protection of the Environment or health and safety; and (iii) there are no past
or present events, conditions, circumstances, activities, practices, incidents,
agreements, actions or plans which may prevent compliance with Environmental
Laws, or which have given rise to or will give rise to Environmental Claims,
individually or in the aggregate, in excess of $125,000 or to Environmental
Compliance Costs, individually or in the aggregate, in excess of $125,000.
5.23 Taxes.
(a) The Company has timely filed all returns
with respect to Taxes required to be filed through the date hereof in a manner
consistent with prior years and applicable laws and regulations and all such Tax
returns are true and complete in all material respects. The Company timely paid
all Taxes shown on such returns as are due through the date hereof, or that are
claimed or asserted by any taxing authority to be due through the date hereof,
except for those Taxes that are
<PAGE>
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been established. With respect to any period for
which Tax returns have not yet been filed, or for which Taxes are not yet due or
owing, the Company has no liability for Taxes in each case other than Taxes
incurred in the ordinary course of business or for which accruals are reflected
in the Financials or the Interim Financials.
(b) No audit or other proceeding by any court,
taxing authority, or similar person is pending or, to the knowledge of the
Company, threatened with respect to any Taxes due from or with respect to the
operations of the Company, or any Tax return filed by or with respect to the
operations of the Company. No assessment of Taxes is proposed against the
Company or any of its assets.
5.24 Patents, Trademarks, Etc.
(a) The Company owns or has licensed or
otherwise has the right to use all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises and other rights that are material to
the operation of its business as presently conducted or proposed to be
conducted.
(b) The Company owns, licenses or otherwise has
the right to use all computer software, including the source codes thereto, that
is material to the operation of its business as presently conducted or proposed
to be conducted. All computer software owned by the Company, including the
source codes thereto, is free and clear of all Liens (except Permitted Liens),
has not in any material way been divulged to any third party and represents
unique work product to which the Company has good and marketable title. The
Company uses and has used its best efforts to secure and maintain its
intellectual property rights in any and all computer software it owns.
Duplicates of all such computer software, including the source codes thereto,
are at a secure off-site location.
(c) No product, process, method, substance or
other material presently owned, sold, licensed or employed by the Company, or
which the Company contemplates owning, selling, licensing or employing, (i)
infringes upon the patents, trademarks, service marks, copyrights or licenses
that are owned by others or (ii) to the knowledge of the Company, is being
infringed upon by any other Person. No litigation is pending and no claim has
been made against the Company or, to the knowledge of the Company, is
threatened, contesting the right of the Company to own, sell, license or use any
product, process, method, substance or other material presently owned, sold,
licensed or employed by the Company or which the Company intends to acquire an
ownership interest in, sell, license or employ. To the knowledge of the Company,
no patent, invention, device, principle or any statute, law, rule, regulation,
standard or code is pending or proposed which would be reasonably likely to have
a Material Adverse Effect.
<PAGE>
5.25 Potential Conflicts of Interest. To the knowledge of the
Company, except as set forth on Schedule 5.25, no officer, director or Affiliate
of the Company, and no relative or spouse of any such officer, director or
Affiliate: (a) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an officer, director, employee or consultant of,
any Person which is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent or customer of, or lender to or borrower
from, the Company; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company uses in the conduct of its
business; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements arising in the ordinary course
of business.
5.26 Trade Relations. To the knowledge of the Company, there
exists no actual or threatened termination, cancellation or limitation of, or
any adverse modification or change in, the business relationship or business of
the Company, or its business with any customer or any group of customers whose
use of its services are individually or in the aggregate material to the
business of the Company, or with any material supplier, and there exists no
condition or state of facts or circumstances that would have a Material Adverse
Effect or prevent the Company from conducting its business after the
consummation of the transactions contemplated by the Transaction Documents in
substantially the same manner in which it heretofore has been conducted.
5.27 Indebtedness. Schedule 5.27 lists (i) the principal
amount of all Indebtedness of the Company (other than the Senior Subordinated
Notes), (ii) the Liens that relate to such Indebtedness of the Company and that
encumber the assets of the Company and (iii) the name of each lender thereof.
5.28 Material Contracts. Schedule 5.28 lists all contracts,
agreements and commitments of the Company (other than the Transaction Documents)
that are, or are required to be, filed as exhibits to any registration
statement, proxy statement, report or other document filed, or to be filed, by
the Company under the Securities Act or Exchange Act, and which have not, by
their terms, expired or lapsed. All such contracts, agreements and commitments
of the Company are in full force and effect and, to the knowledge of the Company
with respect to other parties thereto, are binding upon the parties thereto in
accordance with their terms. The Company is not in default under any such
contract, agreement or commitment to which it is a party, nor does any condition
exist that with notice or lapse of time or both would constitute a default
thereunder. Except with respect to the Omni Agreement, the Company has no
knowledge of any proposed, pending, or likely cancellation or termination of any
such contract, agreement or commitment.
<PAGE>
5.29 Insurance. Schedule 5.29 sets forth all policies or
binders of fire, liability, workman's compensation, vehicular or other insurance
held by or on behalf of the Company (specifying the insurer, the policy number
of covering note numbers with respect to binders and describing each pending
claim thereunder of more than $10,000, other than any claim arising in the
ordinary course of business under the Company's vendor single interest insurance
policies). To the Company's knowledge, such policies and binders are in full
force and effect. The Company is not in default in any material respect with
respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any claim under such policy or binder in
due and timely fashion.
5.30 Projections. Prior to the date hereof, the Company
delivered to the Purchasers financial projections as set forth in Schedule 5.30
(the "Projections"). The assumptions used in preparation of the Projections were
reasonable when made and continue to be reasonable as of the date hereof and as
of the Closing Date. The Projections have been prepared in good faith and the
Projections give effect to the transactions contemplated by the Transaction
Documents. The Purchasers acknowledge that the Projections contain assumptions
about future events and that actual results during the period or periods covered
may differ from the data and results contained in such Projections.
5.31 Commission Documents. The Company has filed all
registration statements, proxy statements, reports and other documents required
to be filed by it under the Securities Act and the Exchange Act, and all
amendments thereto (collectively, the "Commission Documents"), and the Company
has furnished to the Purchasers correct and complete copies of all Commission
Documents, each as filed with the Commission. Each Commission Document was true
and accurate in all material respects when filed with the Commission and in
compliance in all material respects with the requirements of its respective
report form.
5.32 Lending Activities.
(a) All Vehicle Loans and all advertising,
origination and servicing activities, procedures and materials with regard to
all Vehicle Loans or accounts made, created, acquired, assumed, collected or
serviced by Omni or the Company comply in all material respects with all
applicable federal, state and local laws, ordinances, rules and regulations,
including but not limited to those related to usury, truth-in-lending, consumer
protection, equal credit opportunity, fair debt collection, rescission rights
and disclosures, except where failure to comply would not have a Material
Adverse Effect.
(b) Schedule 5.32(b) hereto completely and
accurately describes the Company's Current Policies Regarding Purchase of Retail
Installment Vehicle Loans as in effect on the date hereof, and all existing
Vehicle Loans comply in all material respects with such policies.
<PAGE>
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and
warrants to, and covenants and agrees with, the Company as follows:
6.1 Existence and Power. Such Purchaser:
(a) is duly organized and validly existing under
the laws of the jurisdiction of its organization; and
(b) has the power and authority to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently, or is currently proposed to be, engaged
and to enter into this Agreement and the other Transaction Documents to which it
is a party and perform its obligations hereunder and thereunder.
6.2 Authorization; No Contravention. The execution,
delivery and performance by such Purchaser of this Agreement and the
Registration Rights Agreement:
(a) is within such Purchaser's power and
authority and has been duly authorized by all necessary partnership or corporate
action, as the case may be;
(b) does not contravene the terms of such
Purchaser's partnership agreement or certificate of incorporation, as the case
may be, or other organizational documents, or any amendment thereof;
(c) will not violate, conflict with or result in
any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of such Purchaser, or any order or decree directly
relating to such Purchaser; and
(d) does not require approval, consent,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person, other than those that have been
obtained or made on or prior to Closing.
6.3 Binding Effect. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Purchaser, and constitutes the legal, valid and binding obligation of such
Purchaser enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
<PAGE>
6.4 No Legal Bar. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement will not violate any
Requirement of Law.
6.5 Purchase for Own Account. The Purchasers acknowledge that
the Company intends to rely on the provisions of Regulation D under the
Securities Act and file a notice on Form D with the Commission and similar
notices with applicable state securities authorities in connection with the
initial issuance and sale of the Senior Subordinated Notes, the Warrants, the
Warrant Shares and the Shares. The Senior Subordinated Notes, the Warrants
(including, for purposes of this Section 6.5, the Warrant Shares) and the Shares
to be acquired, as applicable, by each Purchaser pursuant to this Agreement are
being acquired for its own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of such Purchaser at all times
to sell or otherwise dispose of all or any part of the Senior Subordinated
Notes, the Warrants, the Warrant Shares and the Shares, as the case may be,
under an effective registration statement under the Securities Act, an exemption
from such registration available under the Securities Act, or registration or an
exemption from registration pursuant to any applicable state securities laws,
and subject, nevertheless, to the disposition of such Purchaser's property being
at all times within its control. If such Purchaser should in the future decide
to dispose of any of the Senior Subordinated Notes, the Warrants, the Warrant
Shares or the Shares such Purchaser understands and agrees that it may do so
only in compliance with the Securities Act and applicable state securities laws,
as then in effect, and that stop-transfer instructions to that effect, where
applicable, will be in effect with respect to such securities. If such Purchaser
should decide to dispose of such securities (other than pursuant to its
registration rights under the Registration Rights Agreement), the Purchaser, if
requested by the Company, will have the obligation in connection with such
disposition, at such Purchaser's expense, of delivering an opinion of counsel of
recognized standing in securities law, in connection with such disposition to
the effect that the proposed disposition of such securities would not be in
violation of the Securities Act or any applicable state securities laws and,
assuming such opinion is required and is otherwise appropriate in form and
substance under the circumstances, the Company will accept, and will recommend
to any applicable transfer agent or trustee for such securities that it accept,
such opinion. Such Purchaser agrees to the imprinting, so long as, in the
reasonable opinion of the Company and its counsel (but only in the event a legal
opinion of the type specified in the preceding sentence has not been delivered
to the Company by such Purchaser), required by law of a legend on certificates
representing the Senior Subordinated Notes, the Warrants, the Shares and the
Warrant Shares to the following effect: "THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND
<PAGE>
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES."
6.6 Investment Company. Neither such Purchaser nor any Person
controlling such Purchaser is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
6.7 Broker's, Finder's or Similar Fees. Except as otherwise
set forth in this Agreement, there are no brokerage commissions, finder's fees
or similar fees or commissions payable in connection with the offer or sale of
the Senior Subordinated Notes, the Warrants and the Shares contemplated hereby
based on any agreement, arrangement or understanding with such Purchaser or any
action taken by such Purchaser.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by the Company. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless the Purchasers and their respective Affiliates
(including, without limitation, BBH & Co.) and their respective officers,
directors, agents, employees and partners (each, an "indemnified party") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel) or other liabilities ("Losses") resulting from any breach of any
representation or warranty, covenant or agreement of the Company in the
Transaction Documents or any legal, administrative or other actions (including
actions brought by any equity holders of the Company or derivative actions
brought by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, the Senior
Subordinated Notes, the Warrants, the Registration Rights Agreement, any other
Transaction Document, the transactions contemplated hereby, or any indemnified
party's role therein or in the transactions contemplated hereby; provided,
however, that the Company shall not be liable under this Section 7.1: (a) for
any amount paid in settlement of claims without the Company's consent (which
consent shall not be unreasonably withheld), (b) with respect to Losses arising
solely out of actions brought by the partners of the Fund or Progressive against
an indemnified party or by one indemnified party against another or (c) to the
extent that it is finally judicially determined that such Losses resulted
primarily from the willful misconduct, bad faith or gross negligence of such
indemnified party or a breach of the indemnified party's
<PAGE>
representations in Article 6; provided, further, that if and to the extent that
such indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws. In connection with
the obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees to reimburse each indemnified party for all such
documented expenses (including reasonable fees, disbursements and other charges
of counsel) as they are incurred by such indemnified party; provided, however,
that if an indemnified party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct, bad faith or gross negligence of such indemnified party.
7.2 Notification. Each indemnified party under this Article 7
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such indemnified party in respect of which indemnity
may be sought from the Company under this Article 7, notify the Company in
writing of the commencement thereof. The omission of any indemnified party so to
notify the Company of any such action shall not relieve the Company from any
liability which it may have to such indemnified party other than pursuant to
this Article 7 or, unless, and only to the extent that, such omission results in
the Company's forfeiture of substantive rights or defenses. In case any such
action or other proceeding shall be brought against any indemnified party and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that any indemnified party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action or proceeding in which both the Company and an
indemnified party is, or is reasonably likely to become, a party, such
indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, any conflict
or potential conflict exists between the Company and such indemnified party that
would make such separate representation advisable; provided, however, that in no
event shall the Company be required to pay fees and expenses under this Section
7 for more than one firm of attorneys in any jurisdiction in any one legal
action or group of related legal actions. The Company shall not, without the
consent of the indemnified party (which consent shall not be unreasonably
withheld), consent to the entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation or which requires action other than the
payment of money by the Company. The rights accorded to indemnified parties
hereunder shall be in addition to any rights that any indemnified party may have
at common law, by separate agreement or otherwise.
<PAGE>
7.3 Registration Rights Agreement. Notwithstanding anything to
the contrary in this Article 7, the indemnification and contribution provisions
of the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or offers or sales made
thereunder.
ARTICLE 8
PRE-CLOSING AFFIRMATIVE COVENANTS
8.1 Operation of Company. From and after the date hereof
through the Closing, the Company shall not enter into any transaction or take
any action other than in the ordinary course of business, except that the
Company may enter into such transactions and take such other actions outside of
the ordinary course of business, in each case as may be specifically approved in
writing by the Purchasers.
8.2 Exclusivity. From the date hereof through the earlier of
the Closing Date or January 31, 1998, the Company shall not enter into
discussions or negotiations with any Persons other than the Purchasers in
respect of any transaction similar in nature to any transaction contemplated by
this Agreement; provided, however, that the Company may have discussions or
negotiations with a potential "underwriter" (as defined in Section 2(11) of the
Securities Act) in connection with a Public Offering by the Company.
ARTICLE 9
AFFIRMATIVE COVENANTS
Until the payment of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest under this Agreement, including, without limitation, all expenses and
amounts due at such time in respect of indemnity obligations under Article 7
(except with respect to Sections 9.1(c), 9.7, 9.8, 9.9(a), 9.9(b), 9.10, 9.11
and 9.14, which shall survive in accordance with the terms thereof), the Company
hereby covenants and agrees (a) with the Purchasers, with respect to all of this
Article 9, and (b) with all other Holders, with respect to all of this Article 9
except Sections 9.1(c), 9.9, 9.10 and 9.14 that, unless the Purchasers or such
other Holders, as the case may be, waives compliance in writing:
9.1 Financial Statements. The Company shall deliver to the
Purchasers and any other Holder:
(a) as soon as available, but not later than
ninety (90) days after the end of each fiscal year of the Company, a copy of the
audited consolidated balance sheet of the Company and its Subsidiaries as of the
end of such year and the
<PAGE>
related consolidated statements of income and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
year, all in reasonable detail and accompanied by a management summary and
analysis of the operations of the Company and its Subsidiaries for such fiscal
year and by the opinion of a nationally recognized independent public accounting
firm which report shall state that such consolidated financial statements
present fairly in all material respects the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
(except to the extent of any inconsistency resulting solely from the fact that
the Company's predecessor was a limited partnership);
(b) as soon as available and, in any event
within 45 days of each of the first three fiscal quarters of each year
commencing with the fiscal quarter ended March 31, 1998, the unaudited
consolidated balance sheet of the Company and its Subsidiaries, and the related
consolidated statements of income and cash flow for such quarter and for the
period commencing on the first day of the fiscal year and ending on the last day
of such quarter, all certified by an appropriate officer of the Company;
(c) budgets, documentation of material financial
transactions, projections, operating reports, acquisition analyses,
presentations to banks, financial institutions or potential investors,
consultants' reports and such other financial and operating data of the Company
and its Subsidiaries as the Fund or Progressive reasonably may request (any such
information to be subject to the provisions of Section 9.9(b)) (provided that
this Section 9.1(c) shall only require the Company to furnish the information
specified herein to the Purchasers and shall only be binding upon the Company
with respect to each of the Fund, the Progressive Entities and ML so long as the
Fund, the Progressive Entities or ML, as the case may be, holds (i) more than
33% of its or their Purchaser Shares or (ii) any of the Notes);
(d) at any time when it is not subject to
Section 13 or 15(d) of the Exchange Act, upon request, to the Purchasers and any
prospective purchaser of Notes, Warrants, Warrant Shares or Shares, information
of the type that would satisfy the requirement of subsection (d)(4)(i) of Rule
144A (or any similar successor provision) under the Securities Act; and
(e) except as otherwise provided in Section
9.1(a) and (b), promptly after the same are filed, copies of all reports,
statements and other documents filed with the Commission.
9.2 Certificates; Other Information. The Company shall
furnish to the Purchasers and to any other Holder:
(a) concurrently with the delivery of the
financial statements referred to in Section 9.1(a) and (b) above, a certificate
of the Company's Chief Financial Officer stating that, to the best of such
officer's knowledge, there exists no
<PAGE>
Default under or breach of Articles 9 and 10, except as specified in such
certificates; and
(b) concurrently with the delivery of the
financial statements referred to in Sections 9.1(a) and (b) above, a certificate
of an officer of the Company including calculations set forth in reasonable
detail showing the Company's compliance with the financial covenants contained
in Sections 10.1, 10.2 and 10.6.
9.3 Preservation of Corporate Existence. The Company
shall, and shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and
effect its corporate existence and good standing under the laws of its
jurisdiction of incorporation or organization (except (i) in the event that the
Company merges or consolidates into another Person in a transaction in
compliance with Section 10.3 hereof, or (ii) in the event of a merger of wholly
owned Subsidiaries of the Company with or into each other; provided that in each
case the surviving Person shall preserve and maintain in full force and effect
its corporate existence and good standing under the laws of its jurisdiction of
incorporation or organization); and
(b) preserve and maintain in full force and
effect all material rights, privileges, qualifications, licenses and franchises
necessary in the normal conduct of its business.
9.4 Payment of Obligations. The Company shall, and shall cause
each of its Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including without
limitation:
(a) all Tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company or such
Subsidiary;
(b) all lawful claims which the Company and each
of its Subsidiaries are obligated to pay, which are due and which, if unpaid,
might by law become a Lien (other than a Permitted Lien) upon its property
unless the same are being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP are being maintained by the Company or
such Subsidiary; and
(c) all payments of principal and interest when
due (giving effect to any grace periods relating thereto) on Indebtedness.
9.5 Compliance with Laws. The Company shall comply, and shall
cause each of its Subsidiaries to comply, in all material respects with its
articles or certificate of incorporation and by-laws or other organizational or
governing documents and all Requirements of Law and with the directions of any
Governmental
<PAGE>
Authority having jurisdiction over it or its business, except such as to which
such failure to comply would not have a Material Adverse Effect.
9.6 Notices. Upon knowledge of the Chief Executive Officer,
the President, the Chairman, the Vice Chairman, any Executive Vice-President or
the Chief Financial Officer of the Company of the events described below, the
Company shall give prompt written notice (but in any event within 10 days) to
each holder of Notes:
(a) of the occurrence of any Default under, or
breach of, any of the provisions of Articles 9 or 10;
(b) of any (i) material default or event of
default under any Senior Indebtedness, Indebtedness pari passu in respect of
payment with the Notes or any other material Contractual Obligation of the
Company or any of its Subsidiaries, or (ii) material dispute, litigation,
investigation, proceeding or suspension which may exist at any time between the
Company or any of its Subsidiaries and any Governmental Authority; and
(c) Each notice pursuant to this Section 9.6
shall be accompanied by a statement by the Chief Executive Officer, President or
Chief Financial Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company has taken or proposes to
take with respect thereto.
9.7 Issue Taxes. Until the earlier of (x) the exercise of all
of the Warrants and issuance of the Warrant Shares or (y) the expiration of the
Warrants in accordance with their terms, the Company shall pay, or cause to be
paid, all documentary and similar taxes (excluding income or capital gains
taxes) levied under the laws of any applicable jurisdiction in connection with
the initial issuance of the Senior Subordinated Notes, the Warrants, the Warrant
Shares and the Shares and the execution and delivery of the other agreements and
documents contemplated hereby and any modification of the Senior Subordinated
Notes, the Warrants or such other agreements and documents and will hold the
Purchasers harmless, without limitation as to time, against any and all
liabilities with respect to all such taxes.
9.8 Reservation of Shares. Until the earlier of (x) the
exercise of all of the Warrants and the issuance of the Warrant Shares or (y)
the expiration of the Warrants in accordance with their terms, the Company shall
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue or delivery upon exercise of all outstanding
Warrants as provided therein, such number of shares of Common Stock as shall
then be issuable or deliverable upon the exercise of all outstanding Warrants.
Such shares of Common Stock shall, when issued or delivered against payment
therefor in accordance with the terms of the Warrants, be duly and validly
issued and fully paid and non-assessable.
<PAGE>
9.9 Inspection; Confidentiality.
(a) So long as any of the Fund, the Progressive
Entities or ML, as the case may be, holds (i) more than 33% of its or their
Purchaser Shares or (ii) any of the Notes, the Company will permit, and will
cause each of its Subsidiaries to permit, representatives of such Purchaser(s)
to visit and inspect any of its properties, to examine its corporate, financial
and operating records and make copies thereof or abstracts therefrom, and to
discuss its affairs, finances and accounts with their respective directors,
officers and independent public accountants, all at such reasonable times during
normal business hours without interfering with the normal conduct of the
Company's business or operations and as often as may be reasonably requested,
upon reasonable advance notice to the Company. All expenses incurred by each
Purchaser in connection with the foregoing shall be payable by such Purchaser;
provided, however, that if any Default or Event of Default shall have occurred
and be continuing, all such expenses shall be payable by the Company.
(b) Each Purchaser will maintain as confidential
any confidential or proprietary information obtained from the Company pursuant
to Section 9.9(a) or 9.1(c) (other than information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by any of the
Purchasers or any of their representatives), (ii) is available to such Purchaser
on a non-confidential basis from a source other than the Company or its
Subsidiaries, provided that such source was not known by such Purchaser to be
bound by a confidentiality agreement with, or other duty of confidentiality to,
the Company or any of its Subsidiaries, (iii) has been independently developed
by such Purchaser or (iv) which was obtained more than one year prior to such
disclosure), and shall not disclose any information obtained from the Company
pursuant to Section 9.9(a) or 9.1(c) and required to be maintained as
confidential pursuant hereto, except (a) after advising them of the confidential
nature of such information and their responsibility to maintain such
confidentiality, by the Fund to BBH & Co. and its advisors, representatives,
agents, partners and employees who need to know such information to perform
their duties, (b) after advising them of the confidential nature of such
information and their responsibility to maintain such confidentiality, to the
respective advisors, representatives, agents, partners (and their
representatives and advisors) and employees of each Purchaser who need to know
such information to perform their duties, (c) to any prospective transferee of
the Senior Subordinated Notes, the Warrants, the Warrant Shares or the Shares or
of an interest in the Fund, the Progressive Entities or ML or in a successor to
the Fund sponsored by BBH & Co., upon the execution of a confidentiality
agreement in form and substance reasonably satisfactory to the Company, (d) as
may be required by law (including a court order, subpoena or other
administrative order or process) or applicable regulations to which such
Purchaser is or becomes subject, as, and only to the extent, determined by
outside legal counsel and only following, if practicable, prior notice to the
Company (but excluding any obligation of disclosure with respect to information
furnished pursuant to Section 9.1(c) hereof, to the extent arising solely from
the fact that a Purchaser desires to offer or sell all or any part of the Notes,
<PAGE>
Warrants, Warrant Shares or Shares), (e) in connection with any litigation
arising out of or related to this Agreement, (f) to the executive officers of
the Company or any of its Subsidiaries, or (g) with the consent of the Company.
In connection with clauses (a) and (b) of the preceding sentence, it is
understood and agreed that each Purchaser shall be responsible for any breach of
the provisions of this Section 9.9(b) by any of its advisors, representatives,
agents, partners and employees.
9.10 Board Representation; Visitation Rights.
(a) The Company shall at or prior to the Closing
Date cause two vacancies to be created on its Board of Directors (by increasing
the number of members of the Board of Directors or otherwise) and at the Closing
Date shall cause the persons designated by the Fund and the Progressive Entities
to be elected to its Board of Directors. Such designees shall serve until the
annual meeting of stockholders of the Company immediately following the election
of such person to the Board of Directors.
(b) Commencing with the annual meeting of
stockholders of the Company immediately following the election of such persons
to the Board of Directors, and at each annual meeting of stockholders of the
Company thereafter, each of (i) the Fund and (ii) the Progressive Entities shall
be entitled to nominate (in addition to any rights granted to the holders of
Common Stock as set forth in the Company's articles or certificate of
incorporation), from time to time, one director to the Company's Board of
Directors; provided, that each of (i) the Fund and (ii) the Progressive Entities
shall be entitled to nominate a director to the Board of Directors only so long
as the Fund or the Progressive Entities, as the case may be, holds either (x) at
least 50% of the aggregate outstanding principal amount of the Notes initially
issued to such Purchaser(s) or (y) at least 50% of the Purchaser Shares
initially issued to such Purchaser(s). The Company shall cause such nominees of
the Fund and the Progressive Entities to be included in the slate of nominees
recommended by the Board to the Company's stockholders for election as
directors, and the Company shall use its reasonable best efforts to cause the
election of such nominees, including voting all shares for which the Company
holds proxies (excluding any proxy submitted by a stockholder with other
directions) or is otherwise entitled to vote, in favor of the election of such
person.
(c) In the event any such nominee of either the
Fund or the Progressive Entities shall cease to serve as a director for any
reason, other than by reason of such Purchaser(s) not being entitled to nominate
a nominee as provided in Section 9.10(b), the Company shall use its reasonable
best efforts to cause the vacancy resulting thereby to be filled by a nominee of
such Purchaser(s).
(d) In the event that the Board of Directors of
the Company establishes committees from time to time, the nominee of the Fund
shall have the right, upon the Fund's request, to serve on each such committee.
If the Fund (a) is not entitled to nominate a nominee as provided in Section
9.10(b) or (b) elects not to
<PAGE>
nominate its nominee to any such committee, but, in each case the Progressive
Entities are still entitled to nominate a nominee as provided in Section
9.10(b), the nominee of the Progressive Entities shall have the right, upon the
Progressive Entities' request, to serve on each such committee. If the Company
creates any Subsidiaries, each Subsidiary's Board of Directors (and each
committee thereof) shall consist of the same members as the Company's Board of
Directors (and each analogous committee thereof).
(e) So long as the Fund, the Progressive
Entities or ML, as the case may be, owns more than 25% of (i) the aggregate
outstanding principal amount of the Notes initially issued to such Purchaser(s)
or (ii) the number of Purchaser Shares initially issued to such Purchaser(s), in
addition to the rights granted pursuant to Sections 9.10(a) and (b) above, such
Purchaser(s) shall have the right to have a representative attend all regular
and special meetings of the Board of Directors of the Company and its
Subsidiaries and any committees thereof. The visitation rights set forth above
shall include the right to receive the same notice and materials provided to
members of the Board of Directors of the Company and each committee thereto.
9.11 Registration and Listing. If any Warrant Shares require
registration with or approval of any Governmental Authority under any federal or
state or other applicable law before such shares of Common Stock may be issued
or delivered upon exercise of the Warrants, the Company will in good faith and
as expeditiously as possible endeavor to cause such shares of Common Stock to be
duly registered or approved, as the case may be, unless such registration or
approval is required solely because of a breach of such Purchasers'
representation contained in Section 6.5. In the event that, and so long as, the
Common Stock (or any series or class of Capital Stock into which the Common
Stock is reorganized, reclassified, reconstituted or otherwise changed) is
listed on the NYSE or quoted or listed on any other national securities exchange
or Nasdaq, the Company will, if permitted by the rules of such system or
exchange, quote or list and keep quoted or listed on such exchange or Nasdaq,
upon official notice of issuance, the Shares and all Warrant Shares. In
addition, the Company will in good faith and as expeditiously as possible
endeavor to obtain private placement numbers for the Notes, the Purchaser Shares
and the Warrants (or any series or class of Capital Stock into which the
Purchaser Shares are, or may be, reorganized, reclassified, reconstituted or
otherwise changed), as assigned by the CUSIP Service Bureau of Standard & Poor's
Corporation. The covenant provided in this Section 9.11 shall survive until
there are no Holders.
9.12 Use of Proceeds. The proceeds of the Senior Subordinated
Notes, the Warrants and the Shares shall be used by the Company only (a) to fund
the purchase of Vehicle Loans by the Company in the ordinary course of business
and in a manner consistent with past practice (including cash deposits in
connection therewith), (b) for working capital requirements, (c) for general
corporate purposes (including repayment of outstanding borrowings under the $8.0
million principal amount working capital subfacility of the Credit Agreement),
(d) cash deposits in
<PAGE>
connection with Permitted Securitization Transactions, (e) for the repayment of
up to $12,170,958 of Indebtedness of the Company outstanding under the Morgan
Note Purchase Agreement and (f) for the payment of fees and expenses in
connection with the transactions contemplated in the Transaction Documents.
9.13 Payment of Notes. The Company shall pay the principal of,
interest on and other amounts due in respect of, the Notes on the dates and in
the manner provided herein and in the Notes.
9.14 Sale of Company. Until the Purchasers do not hold any
Warrants (whether as a result of exercise or expiration), in the event of a
contemplated sale of all of the Capital Stock of the Company (by way of merger
or otherwise), the Company shall, if requested by the Purchasers, use its
reasonable best efforts to cause such sale transaction to be structured in a
manner that requires the purchaser(s) to purchase the Warrants from the
Purchasers at a price equal to the consideration the Purchasers would have
received had it exercised the Warrants immediately prior to the consummation of
such sale transaction less the exercise price of such Warrants.
9.15 Allocation for Tax Purposes. For purposes of Treasury
Regulation section 1.1273-2(h), the Senior Subordinated Notes and the Warrants
shall be treated as an investment unit. The amount of the Unit Purchase Price
which is allocable to the Senior Subordinated Notes shall equal $36,883,228, and
the amount of the Unit Purchase Price which is allocable to the Warrants shall
equal $3,116,772. The parties hereto shall file all returns and statements in
respect of Taxes in a manner which is consistent with the foregoing allocation.
9.16 Information on Internal Rate of Return. Upon the
occurrence of an event that (i) permits the holders of the Notes to require a
Mandatory Redemption and (ii) that would require the Company to consider the
"internal rate of return" of any of the Purchasers pursuant to the second
paragraph of Section 3.1 of the Notes, each of the Purchasers shall promptly
deliver to the Company, but in any event within 5 Business Days after receiving
a written request, a certificate setting forth in reasonable detail the
calculation of its "internal rate of return," including any documents reasonably
supporting such calculation. The determination of "internal rate of return" set
forth in such certificate, which shall be prepared in good faith, shall be
conclusive and binding on the Company in the absence of manifest error. The
Company shall maintain as confidential any information contained in such
certificate or obtained from the Purchasers in connection with the determination
of the Purchasers "internal rate of return" under terms and conditions
substantially identical to Section 9.9(b) hereof.
<PAGE>
ARTICLE 10
NEGATIVE AND FINANCIAL COVENANTS
Until the payment of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest under this Agreement, including, without limitation, all expenses and
amounts due at such time in respect of indemnity obligations under Article 7
(except with respect to Sections 10.4, 10.13 and 10.14, which shall be binding
upon the Company until the sale by the Purchasers of more than 66% of the
aggregate amount of the Purchaser Shares), the Company covenants and agrees as
follows:
10.1 Minimum Consolidated Net Worth. The Company shall not
permit Consolidated Net Worth for any fiscal quarter to be less than (a)
$25,890,000 plus (b) on a cumulative basis commencing with the fiscal quarter
ending March 31, 1998, fifty percent (50%) of Net Income (if positive) for each
fiscal quarter of the Company and its Subsidiaries ending on and after March 31,
1998 plus (c) one hundred percent (100%) of the proceeds (after payment of the
Company's fees and expenses) received by the Company from any Public Offering or
private placement of Capital Stock after the Closing Date (including the
issuance and sale of the Shares).
10.2 Adjusted Interest Expense. The Company's EBIT divided by
Consolidated Total Interest Expense for each period of four consecutive fiscal
quarters ending December 31, 1997 and thereafter shall be at least 1.4:1.0.
10.3 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except the Company may consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person if:
(a) The corporation or partnership formed by
such consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Company shall be (after giving effect to
such transaction) a Solvent corporation or partnership organized or formed, as
the case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the Company under this Agreement, the Notes, the Warrants
and the Registration Rights Agreement;
(b) immediately after giving effect to such
transaction, (i) no default under the provisions of Articles 9 and 10 exists and
(ii) the corporation or partnership formed by such consolidation or surviving
such merger or the Person which acquires all or substantially all of the assets
of the Company shall not be prohibited from incurring at least $1.00 of
additional Indebtedness without violating any of the provisions of this
Agreement;
<PAGE>
(c) the corporation or partnership formed by or
surviving any such transaction or the Person that acquires all or substantially
all of the assets of the Company shall have a Consolidated Net Worth at least
equal to the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(d) the Company shall have furnished to the
Holders (i) an opinion of outside counsel reasonably satisfactory to the holders
of a majority in interest of the Notes, addressing the matters (other than
solvency) set forth in clause (a) above and (ii) the certificate of the Chief
Financial Officer of the Company to the effect that such transaction has been
consummated in compliance with the foregoing requirements; provided that nothing
in this Section 10.3 shall affect the rights of any holder of the Notes, the
Warrants or the Common Stock under this Agreement, the Notes, the Warrants or
the Registration Rights Agreement.
10.4 Transactions with Affiliates. Except as set forth in
Schedule 10.4 and for payments permitted under Section 10.9, the Company shall
not, and shall not permit any of its Subsidiaries to, enter into any transaction
with any Affiliate of the Company (other than the Company's Subsidiaries) or of
any such Subsidiary (other than the Company), except (i) in the ordinary course
of business and pursuant to the reasonable requirements of the business of the
Company or such Subsidiary, (ii) on terms no less favorable to the Company or
such Subsidiary than those the Company or such Subsidiary would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary and (iii) following the prior approval of a majority
of the members of the Board of Directors of the Company.
10.5 No Inconsistent Agreements. Neither the Company nor any
of its Subsidiaries shall (a) enter into any loan or other agreement after the
date hereof or (b) amend or modify any currently existing loan or other
agreement, which in each case by its terms restricts or prohibits the ability of
the Company to pay the principal of or interest on the Notes or to issue the
Warrant Shares in accordance with the terms of this Agreement and the Warrants;
provided, however, that the foregoing shall not prevent the Company from
entering into loan or other agreements that contain, or any amendment or other
modification to any currently existing credit agreement to provide, restrictions
on the ability of the Company to optionally redeem or prepay the Notes,
following the occurrence of a default or event of default under such agreements.
10.6 Limitation on Indebtedness.
(a) Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, issue, assume or otherwise incur any
Indebtedness, other than: (i) Indebtedness under this Agreement and the Notes,
(ii) Junior Subordinated Indebtedness, (iii) Intercompany Indebtedness, (iv)
Indebtedness under the Credit Agreement or other similar facilities in an amount
not exceeding $100 million, which increases to an amount equal to the product of
the Consolidated Tangible Net Worth
<PAGE>
of the Company multiplied by five multiplied by 0.6, and (v) Senior Indebtedness
(to the extent not incurred under subsection (iv) of this Section 10.6) and
Indebtedness that is pari passu with the Indebtedness incurred under the Notes,
but only to the extent that, in the case of this clause (v), immediately after
giving effect thereto, the ratio of Total Indebtedness to Consolidated Tangible
Net Worth does not exceed 5.0:1.0).
(b) The Company shall not incur any Indebtedness
if such Indebtedness is subordinate or junior in right of payment to Senior
Indebtedness (as defined in Article 12) unless such Indebtedness is pari passu
with the Indebtedness incurred under the Notes or is Junior Subordinated
Indebtedness.
10.7 Limitation on Liens. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (i) Liens in favor of
the Company or its Subsidiaries; (ii) Liens to secure Taxes, assessments and
other governmental charges in respect of obligations not overdue or being
contested in good faith by appropriate proceedings or Liens on properties to
secure claims for labor, material or supplies in respect of obligations not
overdue or being contested in good faith by appropriate proceedings; (iii)
deposits or pledges made in connection with, or to secure payment of, workmen's
compensation, unemployment insurance, old age pensions or other social security
obligations; (iv) Liens on properties in respect of judgments or awards, (a) the
Indebtedness with respect to which is in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the Company
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review or (b) that would not give rise to a Default under
Section 11.1(ix); (v) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens on properties in respect of obligations not
overdue or being contested in good faith by appropriate proceedings; (vi)
encumbrances consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property and defects and irregularities in the
title thereto, landlord's or lessor's liens under leases to which the Company or
a Subsidiary of the Company is a party, and other minor Liens or encumbrances
none of which in the opinion of the Company interferes materially with the use
of the property affected in the ordinary conduct of the business of the Company
and its Subsidiaries, which defects do not individually or in the aggregate have
a materially adverse effect on the business of the Company individually or of
the Company and its Subsidiaries on a consolidated basis; (vii) presently
outstanding Liens listed on Schedule 10.7 hereto; (viii) any Lien on equipment,
software or real property securing Indebtedness incurred or assumed for the sole
purpose of financing all or part of the cost of acquiring such equipment or real
property, provided that such Lien attaches to such asset concurrently with or
within 10 days after the acquisition thereof; (ix) Liens in respect of Senior
Indebtedness permitted to be incurred under Section 10.6 of this Agreement; (x)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds, tenders, bids, leases
<PAGE>
or other obligations of a like nature incurred in the ordinary course of
business by the Company or its Subsidiaries; (xi) Liens on property of a Person
existing at the time such Person becomes a Subsidiary of the Company, its assets
are acquired by a Subsidiary of the Company, or such Person and the Company
merge or consolidate in a transaction in compliance with Section 10.3; provided
that such Liens were in existence prior to the contemplation of such merger,
acquisition or consolidation and do not extend to any assets other than those of
the Person merging or consolidating with the Company; (xii) Liens on property
existing at the time of acquisition thereof by the Company or any of its
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any property other than
that being acquired; (xiii) Liens on cash deposits made for the purpose of
enhancing the credit of Special Purpose Subsidiaries; and (xiv) other Liens
arising in the ordinary course of and incidental to the conduct of the business
of the Company and its Subsidiaries, which in the aggregate do not materially
impair the use of such properties for the purposes for which such properties are
held by the Company or its Subsidiaries, provided that the aggregate amount of
the obligations secured by Liens permitted under this clause (xiv) shall not
exceed $100,000 at any one time outstanding (collectively, "Permitted Liens").
10.8 Investments. Neither the Company nor any of its
Subsidiaries shall make any Investment, except for (i) Investments in Temporary
Cash Investments; (ii) Investments existing as of the date hereof and listed on
Schedule 10.8A; (iii) Investments by the Company in Subsidiaries of the Company
existing on the Closing Date; (iv) Investments consisting of non-cash
consideration received as proceeds of Dispositions permitted by Section 10.10;
(v) Investments consisting of loans and advances to employees for moving,
entertainment and travel (other than ordinary course business expenses) not to
exceed $250,000 in the aggregate at any time outstanding; (vi) Investments in
Special Purpose Subsidiaries formed for the purpose of effectuating Permitted
Securitization Transactions; (vii) purchases of Vehicle Loans consistent with
the Company's Current Policies Regarding Purchase of Retail Installment Vehicle
Loans as in effect from time to time that are made pursuant to good faith bona
fide transactions; (viii) Investments by the Company in Subsidiaries of the
Company engaging in the commercial or consumer finance and/or related service
businesses, all as approved in advance by a majority of the members of the Board
of Directors of the Company and in an amount in any Fiscal Year not in excess of
30% of the Consolidated Net Worth of the Company based on the most recent
audited financial statements of the Company; (ix) Investments by the Company or
its Subsidiaries as a result of the bankruptcy or reorganization of customers,
suppliers, auto dealers and referral salesmen and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business of the Company or its Subsidiaries; (x) Investments
consisting of advances to customers, suppliers, auto dealers and referral
salesmen, in each case if created, acquired or made in the ordinary course of
business, payable or dischargeable in accordance with customary trade terms, and
in accordance with past practice; and (xi) additional Investments not to exceed
$100,000 in the aggregate.
<PAGE>
10.9 Limitations on Restricted Payments. Neither the Company
nor any of its Subsidiaries will declare or make any Restricted Payment, except
that the Company may, so long as no Default or Event of Default shall have
occurred and be continuing or would occur as a result of any such Restricted
Payment, (i) purchase, redeem, retire or otherwise acquire or pay dividends in
respect of shares of the Company's Capital Stock in an amount not to exceed
$250,000 in any 12-month period; (ii) pay dividends to the holders of the
Company's or any Subsidiary's Preferred Stock; (iii) purchase, redeem or retire
Junior Subordinated Indebtedness in exchange for Capital Stock of the Company,
provided that any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock issued in exchange for (A) Existing
Junior Subordinated Indebtedness if issued (x) on or prior to March 31, 1998,
shall have an issue, exchange, exercise or conversion price, as the case may be,
equal to the greater of $5.25 per share (subject to appropriate adjustments for
stock splits, stock dividends and the like) or Current Market Price at the time
a definitive agreement to exchange is entered into or (y) after March 31, 1998,
shall have an issue, exchange, exercise or conversion price, as the case may be,
equal to no less than the Current Market Price at the time a definitive
agreement to exchange is entered into, and (B) Junior Subordinated Indebtedness
(other than the Existing Junior Subordinated Indebtedness) shall be issued at an
issue, exchange, exercise or conversion price, as the case may be, equal to no
less than the Current Market Price at the time a definitive agreement to
exchange is entered into; (iv) purchase, redeem or retire Existing Junior
Subordinated Indebtedness in exchange for cash to the extent that such Existing
Junior Subordinated Indebtedness is purchased, redeemed or retired only at its
stated and scheduled maturity and no sooner; and (v) purchase, redeem or retire
Preferred Stock of the Company (x) in exchange for shares of Common Stock of the
Company, but only so long as such shares of Common Stock are to be issued at a
price no less than the Current Market Price of the Common Stock at the time a
definitive agreement relating to such purchase, redemption or retirement is
executed or (y) with the proceeds of the issuance and sale of additional shares
of Preferred Stock, but only so long as such shares of Preferred Stock are
issued in a transaction approved by a majority of the non-employee directors of
the Company (excluding, however, in all cases, Gary L.
Shapiro).
10.10 Dispositions of Assets. The Company shall not, and shall
not permit any of its Subsidiaries to, make any Disposition (excluding any
transaction made in compliance with Section 10.3 hereof) unless (i) the Company
(or the Subsidiary, as the case may be) receives consideration at the time of
such disposition at least equal to the fair market value of the assets sold or
otherwise disposed of and, in the case of a lease of assets, a lease providing
for rent and other conditions which are no less favorable than the then
prevailing market conditions, (ii) the Company shall apply, or cause a
Subsidiary to apply, the Net Sale Proceeds from such disposition within 180 days
of receipt thereof (A) to make Investments in assets or properties that will be
used in the business of the Company and its Subsidiaries consistent with Section
10.13 hereto or (B) to repay any Indebtedness of the Company, and (iii) no
Default or Event of Default shall have occurred and be
<PAGE>
continuing or would occur as a result of any such Disposition. Notwithstanding
the foregoing sentence, the Company may sell or transfer its assets or
properties in the ordinary course of business consistent with past practice,
including transfers made in a Permitted Securitization Transaction and such
transactions shall not be subject to the conditions set forth in the previous
sentence.
10.11 Future Issuances of Preferred Stock. The Company shall
not, and shall not permit any of its Subsidiaries to, issue any shares of
Preferred Stock unless (i) no Default or Event of Default shall have occurred
and be continuing or would occur as a result of any such issuance; and (ii) if
the shares of Preferred Stock are convertible or exchangeable into shares of the
Company's Common Stock, the conversion or exchange price of such Preferred Stock
shall be no less than 120% of the Current Market Price on the date a definitive
purchase agreement with respect to the issuance of such Preferred Stock is
executed.
10.12 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries. Except with the prior written consent of the Purchasers,
no amendments to the articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries that would adversely affect the Company's
obligation to pay the principal of and interest on the Notes shall be effected.
10.13 Line of Business. The Company shall not, and shall not
permit any of its Subsidiaries to, engage in the conduct of any business other
than the business of the Company and its Subsidiaries in connection with the
purchase and securitization of Vehicle Loans as such businesses exist on the
Closing Date or in other commercial or consumer finance and/or related service
businesses.
10.14 Vehicle Loan Policy. Except with the prior approval of
the majority of the Board of Directors of the Company, the Company shall not
materially modify or amend its Current Policies Regarding Purchase of Retail
Installment Vehicle Loans.
ARTICLE 11
DEFAULTS AND REMEDIES
11.1 Events of Default. An "Event of Default" shall occur if:
(i) the Company shall default in the payment of
any installment of principal of any Note, when and as the same shall become due
and payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) the Company shall default in the payment of
any installment of interest on any Note according to the terms thereof, when and
as the
<PAGE>
same shall become due and payable and such default shall continue for a period
of five days; or
(iii) the Company or any of its Subsidiaries shall
default in the due observance or performance of any covenant to be observed or
performed pursuant to Sections 9.1(a), 9.1(b), 9.8, 9.10 or Article 10 (except
for Sections 10.4 and 10.5) hereof; or
(iv) the Company or any of its Subsidiaries, as
the case may be, shall default in the due observance or performance of any other
covenant, condition or agreement on the part of the Company or any of its
Subsidiaries to be observed or performed pursuant to the terms of this
Agreement, and such default shall continue for 5 days with respect to Sections
10.4 and 10.5 hereof, or 30 days with respect to any such other covenant, in
each case after the earlier of (A) the date the Company obtains knowledge of
such default, or (B) the date written notice thereof shall have been given to
the Company by the holder of any of the Notes; or
(v) any representation, warranty, certification
or statement made by or on behalf of the Company in this Agreement or in any
certificate or other document delivered pursuant hereto shall have been
incorrect in any material respect when made; or
(vi) any (A) default in any payment of principal
of or interest of any Indebtedness (other than Indebtedness under the Credit
Agreement) of the Company or any of its Subsidiaries which Indebtedness has an
aggregate principal amount outstanding equal to or exceeding $1,000,000, and
such default shall continue beyond any applicable grace period or (B) default in
the observance or performance of any other agreement or condition relating to
any such Indebtedness or relating to Indebtedness under the Credit Agreement or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition actually results in the acceleration of such
Indebtedness (including Indebtedness under the Credit Agreement) prior to its
stated maturity; or
(vii) an involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of competent jurisdiction
seeking (a) relief in respect of the Company or any of its Subsidiaries, or of a
substantial part of their property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Company or any of its Subsidiaries, or for a substantial part of their
property or assets, or (c) the winding up or liquidation of the Company or any
of its Subsidiaries; and such proceeding or petition shall continue undismissed
for 60 days, or an order or decree approving or ordering any of the foregoing
shall be entered; or
<PAGE>
(viii) the Company or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (vii) of this
Section 11.1, (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any of its Subsidiaries, or for a substantial part of their property
or assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, or (f) take any action for the purpose of effecting any of
the foregoing; or
(ix) one or more final judgments for the payment of
money in an aggregate amount in excess of $750,000 (to the extent not covered by
insurance) shall be rendered against the Company or any of its Subsidiaries and
the same shall remain in force, undischarged, unstayed, unsatisfied, unvacated
or unbonded for more than 30 days, or any action, which is not quashed or
remains unstayed for a period in excess of fifteen days, shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company or any
of its Subsidiaries to enforce any such judgment; or
(x) the Company or any Subsidiary thereof shall
become unable, admit in writing its inability or fail generally to pay its debts
as they become due.
11.2 Acceleration. If an Event of Default occurs under clauses
(vii) or (viii) of Section 11.1, then the outstanding principal of and all
accrued interest on the Notes and all other amounts owing under this Agreement
and the Notes shall automatically become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are expressly
waived. If any other Event of Default occurs and is continuing, subject to
Section 12.3(d), the holders of 51% of the aggregate principal amount of the
Notes outstanding, by written notice to the Company, may declare the principal
of and accrued interest on the Notes and all other amounts owing under this
Agreement to be due and payable immediately. Upon such declaration, such
principal and interest and other amounts shall become immediately due and
payable. The holders of 51% of the aggregate principal amount of the Notes
outstanding may rescind an acceleration and its consequences if all existing
Events of Default have been cured or waived, except nonpayment of principal or
interest or other amounts that has become due solely because of the
acceleration, and if the rescission would not conflict with any judgment or
decree. Any notice or rescission shall be given in the manner specified in
Section 14.2 hereof.
<PAGE>
ARTICLE 12
SUBORDINATION
The Notes shall at all times be wholly subordinate and junior
in right of payment to all Senior Indebtedness to the extent and in the manner
provided in this Article 12.
12.1 Definitions. As used in this Article 12, the following
terms shall have the following meanings:
"Junior Securities" means any debt or equity securities
distributed to the holders of the Notes, but only if they are subordinated to at
least the same extent as the Subordinated Indebtedness is subordinated to the
Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness.
"Senior Default" shall mean a Senior Payment Default or a
Senior Event of Default.
"Senior Event of Default" shall mean an event of default,
other than a Senior Payment Default, that occurs and is continuing with respect
to Senior Indebtedness that permits the holders thereof to accelerate the
maturity of such Senior Indebtedness.
"Senior Indebtedness" shall mean (i) the principal of and
interest on (including without limitation any interest that accrues after the
commencement of any case, proceeding or other legal action relating to the
bankruptcy, insolvency or reorganization of the Company to the extent such
interest constitutes an allowed claim) (a) all Indebtedness of the Company
(including Indebtedness of others guaranteed by the Company) which is (x) for
money borrowed or (y) evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets of any
kind and (b) amendments, renewals, extensions, modifications and refundings of
any such Indebtedness, whether such Indebtedness described in (a) or (b) is
outstanding on the date hereof or hereafter created, incurred or assumed, but
only if (a) such Indebtedness is permitted to be incurred under Section 10.6 and
(b) the instrument creating or evidencing any such Indebtedness pursuant to
which the same is outstanding expressly provides that such Indebtedness is
superior in right of payment to the Notes, and (ii) any other monetary
obligations of the Company arising out of or in connection with the Indebtedness
described in clause (i) above.
"Senior Payment Default" shall mean an event of default in the
payment of any Senior Indebtedness that occurs and is continuing beyond any
applicable period of grace.
<PAGE>
"Subordinated Indebtedness" shall mean (i) the principal of
and interest on the Notes; and (ii) any other monetary obligations of the
Company arising out of or in connection with this Agreement or the Notes.
12.2 General. Subject to the rights of the holders of the
Subordinated Indebtedness to receive Junior Securities and any distributions
provided in Section 12.4(c), upon the maturity of any Senior Indebtedness by
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid in full in cash, before
any payment is made or provided for on account of the Subordinated Indebtedness
then so due and payable or any Notes issued pursuant to this Agreement are
redeemed.
12.3 Limitation on Payment and Remedies.
(a) Upon receipt by the Company and the holders
of the Notes of a Blockage Notice (as defined below), then unless and until (i)
all Senior Defaults that gave rise to the Blockage Notice shall have been
remedied or effectively waived in writing or shall have ceased to exist or (ii)
the Senior Indebtedness in respect of which such Senior Defaults shall have
occurred shall have been paid in full in cash, no direct or indirect payment (in
cash, property, securities or by set-off or otherwise) of or on account of any
regularly scheduled principal of or interest on the Notes (and specifically
excluding any Optional Redemption or repayment of the Notes), with the exception
of Junior Securities, shall be made during any period prior to the expiration of
the Blockage Period (as defined below).
(b) For purposes of this Agreement, a "Blockage
Notice" is a notice of a Senior Default that in fact has occurred and is
continuing, given to the Company and the holders of the Notes (or their
authorized Agent) by the holders of the requisite principal amount of the Senior
Indebtedness under which such Senior Default has occurred (or their authorized
agent); provided, however, that (i) no such notice shall be effective as a
Blockage Notice if an effective Blockage Notice shall have been given within 360
days (measured as of the commencement date of the prior notice) prior thereto
and (ii) no such notice shall be effective as a Blockage Notice if based upon a
Senior Default that was the basis of a prior effective Blockage Notice and such
Senior Default has not been cured or waived for a period of at least 90 days.
(c) For purposes of this Section 3, a "Blockage
Period" with respect to a Blockage Notice is the period commencing upon the
Company's receipt of such Blockage Notice and having a duration as follows:
(1) 225 days if the Senior Default to which
the Blockage Notice refers is a Senior
Payment Default; or
(2) 180 days if the Senior Default to which
the Blockage Notice refers is a Senior
Covenant Default.
<PAGE>
Upon the expiration or termination of any Blockage Period, the
holders of the Notes shall be entitled to be paid accrued but unpaid interest
then due on the Notes.
(d) As long as any Senior Indebtedness remains
outstanding, upon the occurrence of an Event of Default under this Agreement,
the holders of the Subordinated Indebtedness shall not declare or join in any
declaration of the Notes to be due and payable by reason of such Event of
Default or otherwise take any action against the Company prior to the expiration
of 45 days (a "Remedy Standstill Period") after the written notice of intention
to accelerate on account of the occurrence of such Event of Default, specifying
same (the "Remedy Notice") shall have been given by the holders of the principal
amount of the Subordinated Indebtedness necessary to cause acceleration thereof
to the Company and the holders of the Senior Indebtedness (or their authorized
agent) unless the holders of any Senior Indebtedness shall have caused such
Senior Indebtedness to become due prior to its stated maturity or any Event of
Default pursuant to Section 11.1(vii) or 11.1(viii) of this Agreement shall have
occurred; provided, however, that such Remedy Standstill Period shall be
extended to 150 days from the date of such Remedy Notice if, at the time the
Remedy Standstill Period would otherwise expire, there exists any Senior Default
and an effective Blockage Notice is given in accordance with, and subject to the
limitations of Agreement. Upon the expiration or termination of any Remedy
Standstill Period, the holders of the Notes shall be entitled to exercise any of
their rights with respect to the Notes other than any right to accelerate the
maturity date of the Notes based upon the occurrence of any Event of Default
which has been cured or otherwise remedied during the Remedy Standstill Period.
(e) Notwithstanding the foregoing, any Blockage
Period or Remedy Standstill Period shall be inapplicable or cease to be
effective if an Event of Default pursuant to Section 11.1(vii) or 11.1(viii) of
this Agreement shall have occurred. In addition, any Blockage Period or Remedy
Standstill Period shall cease to be effective if at any time during such period:
(i) 37.5% or more of the assets of the Company are sold or otherwise disposed of
(in one transaction or a series of related transactions) outside of the ordinary
course of business for less than fair value; (ii) payment or any distribution of
any character, whether in cash, securities or other property of the Company
shall be made to or received by any creditor on any Indebtedness which is on the
same level of priority with or junior and subordinate in right of payment to the
Notes or (iii) acceleration of the maturity of any Senior Indebtedness.
Notwithstanding any provision of any instrument evidencing any Subordinated
Indebtedness or any other provisions contained in this Agreement to the
contrary, no holder of Subordinated Indebtedness shall have any right to
accelerate or declare a default under any Subordinated Indebtedness, and no
purported default or acceleration of any Subordinated Indebtedness shall have
any effect, to the extent that such default or acceleration is premised upon the
existence of a default or event of default under the Senior Indebtedness.
<PAGE>
12.4 Subordination Upon Certain Events. Upon the
occurrence of any Event of Default under Sections 11.1(vii) or (viii) of this
Agreement:
(a) Upon any payment or distribution of assets
of the Company to creditors of the Company, holders of Senior Indebtedness shall
be entitled to receive payment in full in cash before the holders of
Subordinated Indebtedness shall be entitled to receive any payment in respect of
the Subordinated Indebtedness, except that the holders of Subordinated
Indebtedness may receive Junior Securities.
(b) Until all Senior Indebtedness is paid in
full in cash, any distribution to which the holders of Subordinated Indebtedness
would be entitled but for this Agreement shall be made to holders of Senior
Indebtedness, as their interests may appear, except that the holders of
Subordinated Indebtedness may receive Junior Securities.
(c) Notwithstanding the foregoing provisions of
this Section 12.4, if payment or delivery by the Company of Junior Securities to
the holders of Subordinated Indebtedness is authorized by an order or decree
giving effect, and stating in such order or decree that effect is given, to the
subordination of the Subordinated Indebtedness to the Senior Indebtedness, and
made by a court of competent jurisdiction in a proceeding under any applicable
bankruptcy or reorganization law, payment or delivery by the Company of such
Junior Securities shall be made to the holders of the Subordinated Indebtedness
in accordance with such order or decree.
12.5 Payments and Distributions Received. If the holders of
the Subordinated Indebtedness shall have received any payment from or
distribution of assets of the Company in respect of the Subordinated
Indebtedness in contravention of the terms of this Article 12 before all Senior
Indebtedness is paid in full in cash, then and in such event such payment or
distribution shall be received and held in trust for and shall be promptly paid
over or delivered to the holders of Senior Indebtedness (or their authorized
agent(s)) in the same form of payment received, with appropriate endorsements,
to the extent necessary to pay all such Senior Indebtedness in full in cash, or
any such assets as collateral for the Senior Indebtedness.
12.6 Subrogation. After all amounts payable under or in
respect of Senior Indebtedness are paid in full in cash, the holders of the
Subordinated Indebtedness shall have the right to be subrogated to the rights of
holders of Senior Indebtedness to receive payments or distributions applicable
to Senior Indebtedness to the extent that distributions otherwise payable to the
holders of the Subordinated Indebtedness have been applied to the payment of
Senior Indebtedness. A distribution made under this Agreement to a holder of
Senior Indebtedness which otherwise would have been made to the holders of the
Subordinated Indebtedness is not, as between the Company and the holders of the
Subordinated Indebtedness, a payment by the Company on Subordinated
Indebtedness.
<PAGE>
12.7 Relative Rights. This Agreement defines the relative
rights of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the Company
and the holders of the Subordinated Indebtedness, the obligation of the Company,
which is absolute and unconditional, to pay principal of and interest (including
default interest) on Subordinated Indebtedness in accordance with its terms;
(ii) effect the relative rights of holders of Subordinated Indebtedness and
creditors of the Company other than holders of Senior Indebtedness; or (iii)
except as expressly provided herein, prevent the holders of Subordinated
Indebtedness from exercising their available remedies upon a Default or Event of
Default, subject to the rights, if any, under this Article 12 of holders of
Senior Indebtedness.
12.8 Subordination May Not Be Impaired by the Company. No
right of any holder of any Senior Indebtedness to enforce the subordination of
the Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Agreement.
12.9 Payments. Subject to Section 12.3, a payment with respect
to principal of or interest on the Subordinated Indebtedness shall include,
without limitation, payment of principal of, and interest on the Subordinated
Indebtedness, any depositing of funds for the defeasance of the Subordinated
Indebtedness and any payment on account of mandatory prepayment or optional
prepayment provisions.
12.10 Section Not to Prevent Events of Default. The failure to
make a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Agreement shall not be construed as preventing the occurrence of an Event of
Default under Article 11 of this Agreement.
12.11 Defense to Enforcement. If the Holder of any Note, in
contravention of the terms of this Article 12, shall commence, prosecute or
participate in any suit, action or proceeding against the Company, then the
Company may interpose as a defense or plea the making of the agreement contained
in this Article 12, and any holder of Senior Indebtedness may intervene and
interpose such defense or plea in its name or in the name of the Company. If the
Holder of any Note, in contravention of the terms of this Agreement, shall
attempt to collect any of the Subordinated Indebtedness or enforce any of its
rights under the Notes or Article 12 of this Agreement, then any holder of
Senior Indebtedness or the Company may, by virtue of this Article 12, restrain
the enforcement thereof in the name of such holders of Senior Indebtedness or in
the name of the Company. If the Holder of any Note, in contravention of the
terms of this Article 12, obtains any cash or other assets of the Company as a
result of any administrative, legal or equitable actions, or otherwise, such
holder agrees forthwith to pay, deliver and assign to the holders of Senior
Indebtedness, with appropriate endorsements, any such cash for application to
Senior Indebtedness and any such other assets as collateral for Senior
Indebtedness.
<PAGE>
12.12 Further Covenants.
(a) Each Holder of Notes agrees, upon request of
a holder of Senior Indebtedness at any time and from time to time, to execute
such other documents or instruments as may reasonably be requested to evidence
of public record or otherwise the senior priority of the Senior Indebtedness as
contemplated hereby.
(b) Each Holder of Notes further agrees to
maintain on its books and records such notations as may reasonably be requested
to reflect the subordination contemplated hereby and to perfect or preserve the
rights of the holders of Senior Indebtedness hereunder.
12.13 Freedom of Dealing. Each Holder of a Note agrees, with
respect to Senior Indebtedness and any and all collateral therefor or guaranties
thereof, that the Company and the holders of Senior Indebtedness may, subject to
the limitations contained in Section 10.6 of this Agreement, agree to increase
the amount of the Senior Indebtedness or otherwise modify the terms of the
Senior Indebtedness, and the holders of Senior Indebtedness may grant extensions
of the time of payment or performance to and make compromises, including
releases of collateral or guaranties, and settlements with the Company and all
other Persons, in each case without the consent of the Holders of the Notes or
the Company and without affecting the agreements of the Holders of the Notes or
the Company contained in this Article 12; provided, however, that nothing
contained in this Section 12.13 shall constitute a waiver of the right of the
Company itself to agree or consent to a settlement or compromise of a claim
which holders of Senior Indebtedness may have against the Company.
12.14 Subordinated Indebtedness Voting Rights. At any meeting
of creditors of the Company or in the event of any case or proceeding, voluntary
or involuntary, for the distribution, division or application of all or part of
the assets of the Company or the proceeds thereof, whether such case or
proceeding be for the liquidation, dissolution or winding up of the Company or
its business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Company for relief under any bankruptcy or reorganization law or any other law
relating to the relief of debtors, readjustment of indebtedness, reorganization,
arrangement, composition or extension or marshaling of assets or otherwise, the
holders of Subordinated Indebtedness shall retain the right to vote and
otherwise act with respect to the Subordinated Indebtedness (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension),
provided that, absent fraud or misrepresentation by the holders of Senior
Indebtedness with respect to the Senior Indebtedness or conduct on the part of
the holders of Senior Indebtedness which would be sufficient to support a claim
of equitable subordination with respect to Senior Indebtedness under
ss.510(c)(1) of the Bankruptcy Code (Title 11 U.S.C.), the holders of
Subordinated Indebtedness shall not vote with respect to
<PAGE>
any such plan or take any other action in any way so as to contest (i) the
validity of any Senior Indebtedness or any collateral therefor or guaranties
thereof, (ii) the relative rights and duties of any holders of any Senior
Indebtedness established in any instruments or agreements creating or evidencing
any of the Senior Indebtedness with respect to any of such collateral or
guaranties or (iii) the obligations and agreements of the holders of
Subordinated Indebtedness set forth in this Article 12.
12.15 Subordinated Indebtedness Unsecured. The holders of the
Subordinated Indebtedness hereby acknowledge and agree that the Subordinated
Indebtedness is unsecured.
12.16 Modification or Sale of the Subordinated Indebtedness.
The holders of Subordinated Indebtedness will not, at any time while this
Agreement is in effect, modify any of the terms of this Article 12, Sections
10.1, 10.2, 10.6, any of the definitions relevant to any of the foregoing, or
any other provision of this Agreement if such amendment, supplement or
modification would impose more restrictive terms on the Company and would have
an adverse effect on the rights and remedies of the holders of the Senior
Indebtedness; nor will the holders of Subordinated Indebtedness sell, transfer,
pledge, assign, hypothecate or otherwise dispose of any or all of the
Subordinated Indebtedness to any person other than a person who agrees in
writing reasonably satisfactory in form and substance to the holders of the
Senior Indebtedness, to become a party hereto and to succeed to the rights and
to be bound by all of the obligations of the holders of the Subordinated
Indebtedness under this Article 12. In the case of any such sale or other
disposition by the holders of Subordinated Indebtedness, the holders of
Subordinated Indebtedness will notify the holders of Subordinated Indebtedness
at least five (5) Business Days prior to the date of any of such intended sale
or other disposition.
12.17 Termination of Subordination. This Article 12 shall
continue in full force and effect, and the obligations and agreements of the
holders of Subordinated Indebtedness and the Company hereunder shall continue to
be fully operative, until all of the Senior Indebtedness shall have been paid or
provided for in full in cash and such provision or payment shall be final and
not avoidable. To the extent that the Company or any guarantor of or provider of
collateral for the Senior Indebtedness makes any payment on the Senior
Indebtedness that is subsequently invalidated, declared to be fraudulent or
preferential or set aside or is required to be repaid to a trustee, receiver or
any other party under any bankruptcy, insolvency or reorganization act, state or
federal law, common law or equitable cause (such payment being hereinafter
referred to as a "Voided Payment"), then to the extent of such Voided Payment,
that portion of the Senior Indebtedness that had been previously satisfied by
such Voided Payment shall be revived and continue in full force and effect as if
such Voided Payment had never been made. In the event that a Voided Payment is
recovered from any holder of Senior Indebtedness, an event of default shall be
deemed to have existed and to be continuing under the applicable Senior
Indebtedness from the date of such holder's initial receipt of such Voided
Payment until the full amount of such Voided Payment is restored to such holder
of
<PAGE>
Senior Indebtedness. During any continuance of any such event of default, this
Agreement shall be in full force and effect with respect to the Subordinated
Indebtedness. To the extent that any holder of Subordinated Indebtedness has
received any payments with respect to the Subordinated Indebtedness subsequent
to the date of any holder's Senior Indebtedness initial receipt of such Voided
Payment and such payments have not been invalidated, declared to be fraudulent
or preferential or set aside or are required to be repaid to a trustee,
receiver, or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, such holder of Subordinated Indebtedness shall be
obligated and hereby agrees that any such payment so made or received shall be
deemed to have been received in trust for the benefit of the holders of Senior
Indebtedness, and the holders of Subordinated Indebtedness hereby agree to pay
to the holders of Senior Indebtedness upon demand, the full amount so received
by the Subordinated Indebtedness during such period of time to the extent
necessary fully to restore to the holders of Senior Indebtedness the amount of
such Voided Payment.
12.18 Notices to Holders of Senior Indebtedness. The holders
of Subordinated Indebtedness shall provide notices required to be given under
this Article 12 to holders of Senior Indebtedness in the manner provided in
Section 14.2 of this Agreement to the addresses of holders of Senior
Indebtedness specified in the Credit Agreement or other documents evidencing any
such Indebtedness.
ARTICLE 13
PREPAYMENT
The Company shall prepay outstanding principal (together with
accrued interest) on the Notes in accordance with the "Mandatory Prepayment"
provisions set forth in Section 3 of the Notes. The Company may prepay
outstanding principal (together with accrued interest) on the Notes only if the
Notes are prepaid in accordance with the "Optional Prepayment" provisions set
forth in Section 4 of the Notes.
ARTICLE 14
MISCELLANEOUS
14.1 Survival of Provisions. All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement, any investigation by or on behalf of the Purchasers or any Affiliate,
acceptance of the Senior Subordinated Notes, Warrants, Shares and Warrant Shares
and payment therefor, payment of the Senior Subordinated Note upon redemption or
otherwise, and exercise of the Warrants.
<PAGE>
14.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier services or personal delivery to the following addresses, or to such
other addresses as shall be designated from time to time by a party in
accordance with this Section 14.2:
(a) if to the Fund:
The 1818 Mezzanine Fund, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Joseph P. Donlan
Telecopier No.: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
(b) if to PCI or Progressive:
401 Theodore Fremd Avenue
Rye, New York 10580
Attention: David W. Young
Telecopier No.: (914) 921-6716
with a copy to:
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Attention: Gerardo C. Orlando, Esq.
Telecopier No.: (216) 696-0740
<PAGE>
(c) if to ML:
c/o ManuLife Financial
73 Tremont Street, Suite 1300
Boston, Massachusetts 02108-3915
Attention: Raymond L. Britt, Jr.
Telecopier No.: (617) 854-4403
with a copy to:
Manufacturers Life Insurance Company
Corporate Law Department
200 Bloor Street East
Toronto, Ontario M4W1ES, Canada
Attention: William Dawson, Esq.
Telecopier No: (416) 926-5657
(d) if to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street
Suite 200
Boca Raton, Florida 33487
Attention: Keith B. Stein
Telecopier No.: (360) 693-0552
with a copy to:
Weil Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attention: Jeremy W. Dickens, Esq.
Telecopier No.: (214) 746-7777
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
to a courier, if delivered by commercial overnight courier service; five
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when confirmation of receipt is acknowledged, if telecopied.
14.3 Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns and
permitted
<PAGE>
transferees of the parties hereto. Except as provided in Articles 7 and 12, no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of this Agreement, the Notes and the Warrants.
14.4 Assignments.
(a) The Company may not assign any of its
rights or obligations under this Agreement (other than in connection with a
transaction permitted pursuant to Section 10.3 hereof) without the written
consent of the Purchasers (prior to Closing) or the holders of a majority (x) in
aggregate principal amount of the Notes outstanding (following Closing) and (y)
of the aggregate number of Purchaser Shares then held by Holders.
(b) Subject to the other limitations contained
in the Notes, the Warrants and herein, including but not limited to Section 6.5,
the Purchasers and any subsequent Holder of Notes, Shares, Warrant Shares or
Warrants may, at any time or from time to time sell, agree to sell or assign to
one or more other Persons who agree to be bound by all of the terms of this
Agreement, all or any portion of the Notes, Warrants, Shares or Warrant Shares.
Subject to the other limitations contained in the Notes and this Agreement,
including but not limited to Section 6.5, in the event of any such sale or
assignment of a Note, upon surrender for exchange of any Note at the office of
the Company designated for notices in accordance with Section 14.2, the Company
shall execute and deliver in exchange therefor, without expense to the holder
(provided the Company shall not be responsible for any transfer taxes in
connection with any such sale or assignment), one or more new Notes in the same
aggregate principal amount as the then unpaid principal amount of the Note so
surrendered as such holder shall specify, dated as of the date to which interest
has been paid on the Note so surrendered (or, if no interest has been paid, the
date of such surrendered Note), in the name of such Person or Persons as may be
designated by such holder in writing, and otherwise of the same form and tenor
as the Note so surrendered for exchange. Subject to the limitation contained in
the Warrants (solely with respect to the Warrants), certificates representing
the Shares or Warrant Shares (solely with respect to the Shares or Warrant
Shares, as applicable) and this Agreement, including but not limited to Section
6.5 hereof, in the event of any sale or assignment of any Warrants, Shares or
Warrant Shares, upon surrender for exchange of any Warrant or certificate
representing any of the Shares or Warrant Shares at the office of the Company
designated for notices in accordance with Section 14.2, the Company shall
execute and deliver in exchange therefor, without expense to the holder
(provided the Company shall not be responsible for any transfer taxes in
connection with any such sale or assignment), one or more Warrants or
certificates representing Shares or Warrant Shares, as applicable, in the same
amount as surrendered as such holder shall specify in the name of such Person or
Persons as may be designated by such holder in writing, and otherwise of the
same form. Every Note, Warrant or certificate representing any Shares or Warrant
Shares surrendered for transfer shall be duly endorsed, or accompanied by a
written instrument of
<PAGE>
transfer duly executed by the holder of such Note, Warrant or certificate
representing any Shares or Warrant Shares or its attorney duly authorized in
writing.
14.5 Amendment and Waiver.
(a) No failure or delay on the part of any
Holder, in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement or the Notes, any waiver of any provision
of this Agreement or the Notes, and any consent to any departure by the Company
from the terms of any provision of this Agreement or the Notes, shall be
effective (i) only if it is made or given in writing and signed by the Company
and the holders of 66% of the aggregate principal amount of the Notes
outstanding, and (ii) only in the specific instance and for the specific purpose
for which made or given. Notwithstanding the foregoing, without the consent of
each holder of a Note affected, an amendment may not:
(1) reduce the rate of or extend the
time for payment of interest on any
Note;
(2) reduce the principal of or extend
the maturity of any Note;
(3) change the time at which any Note
shall or may be prepaid in
accordance with Sections 3 and 4 of
the Notes;
(4) make any Note payable in money other
than that stated in the Notes;
(5) make any change in Article 12 that
adversely affects the rights of any
holder of a Note under Article 12;
or
(6) make any change in the first or
second sentence of this Section
14.5(b).
(c) Any amendment, supplement or modification of
or to any of the terms provided in Article 8, Sections 9.1(c), 9.7, 9.9, 9.10,
9.11, 9.15, 10.4, 10.13 and 10.14 and Article 14, and any definitions in Article
1 relating to such provisions, and any consent to any departure by the Company
from such provisions, shall be effective (i) only if it is made or given in
writing and signed by the Company
<PAGE>
and the Holders of at least 51% of the Purchaser Shares held by Holders, and
(ii) only in the specific instance and for the specific purpose for which made
or given.
(d) In addition to the foregoing, any amendment,
supplement or modification of or to any of the terms provided in Sections 9.8,
9.11 or 9.14, and any consent to any departure by the Company from any such
provisions, shall be effective (i) only if it is made or given in writing and
signed by the Company and the Holders of at least 51% of the Warrants (based on
the number of Warrant Shares issuable upon the exercise of unexercised Warrants)
held by Holders, and (ii) only in the specific instance and for the specific
purpose for which made or given.
(e) Except where notice is specifically required
by this Agreement, no notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances.
14.6 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
14.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
14.8 Determinations. All determinations to be made by the
Company, the Purchasers or any Holder hereunder in its opinion or judgment or
with its approval or otherwise shall be made by it in its sole discretion,
unless otherwise specified herein.
14.9 Governing Law. This Agreement has been negotiated,
executed and delivered in the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
14.10 Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
may be brought in the courts of the State of New York located in New York City
or of the United States of America for the Southern District of New York and
hereby expressly submits to the personal jurisdiction and venue of such courts
for the purposes thereof and expressly waives any claim of improper venue and
any claim that such courts are an inconvenient forum. Each party hereby
irrevocably consents to the service of process of any of the aforementioned
courts pursuant to a contractual provision in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 14.2, such service to
become effective 10 days after such mailing. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY
<PAGE>
WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR
OTHERWISE.
14.11 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
14.12 Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
14.13 Remedies. If a breach of this Agreement, the Notes or
the Warrants by the Company occurs and is continuing, the Purchasers or any
Holder may pursue any available remedy by proceeding at law or in equity to
enforce the performance (including, without limitation, the specific
performance) of any provision of the Notes, the Warrants or this Agreement. The
Purchasers or any Holder may maintain a proceeding even if it does not possess
any of the Notes or Warrants or does not produce any of them in the proceeding.
No remedy is exclusive of any other remedy. All available remedies are
cumulative.
14.14 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto, the Senior Subordinated Notes, the Warrants and
the Registration Rights Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits and schedules
hereto, the Senior Subordinated Notes, the Warrants and the Registration Rights
Agreement supersede all prior agreements and understandings among the parties
with respect to such subject matter.
14.15 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the Notes, the Warrants and the
Registration Rights Agreement or any other document or instrument contemplated
hereby or thereby, or where any provision hereof or thereof is validly asserted
as a defense, the successful
<PAGE>
party shall be entitled to recover reasonable attorneys' fees, charges and
disbursements in addition to any other available remedy.
14.16 Publicity. Except as may be required by applicable law
or a listing agreement with any securities exchange or Nasdaq, no party hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto. If any announcement is
required by law to be made by a party hereto, prior to making such announcement
such party will deliver a draft of such announcement to the other parties and
shall give the other parties an opportunity to comment thereon.
14.17 Expenses. The Company acknowledges and agrees that
whether or not the transactions contemplated hereby are consummated, the Company
shall reimburse the Purchasers for (a) all out-of-pocket expenses of the
Purchasers in connection with any preparation and filing of any notification and
report forms filed in compliance with the HSR Act in connection with the
transactions contemplated hereby and (b) all out-of-pocket expenses, and all
legal fees and expenses of the Purchasers incurred in connection with the
negotiation, execution and delivery of this Agreement and the other Transaction
Documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers or partners
hereunto duly authorized as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By:
Name:
Partner
PROGRESSIVE INVESTMENT COMPANY, INC.
By:
Name:
Title:
PC INVESTMENT COMPANY
By:
Name:
Title:
<PAGE>
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By:
Name:
Title:
<PAGE>
SCHEDULE 2.1A
PRINCIPAL AMOUNT OF SENIOR SUBORDINATED NOTES
PRINCIPAL AMOUNT OF
NAME OF PURCHASER SENIOR SUBORDINATED NOTES
The 1818 Mezzanine Fund, L.P. $16,000,000
PC Investment Company $14,000,000
Manufacturers Life Insurance $10,000,000
Company (U.S.A.)
-------------------
Total: $40,000,000
===================
<PAGE>
WARRANTS
NUMBER OF SHARES OF COMMON STOCK
NAME OF PURCHASER TO BE PURCHASED BY THE WARRANTS
The 1818 Mezzanine Fund, L.P. 415,570
PC Investment Company* 363,623
Manufacturers Life Insurance 259,731
Company (U.S.A.)
----------------
Total: 1,038,924
================
* Immediately following the Closing, PC Investment Company will assign the
Warrants to The Progressive Investment Company, Inc.
<PAGE>
SCHEDULE 2.1C
COMMON STOCK
NAME OF STOCK PURCHASER NUMBER OF SHARES OF COMMON STOCK
The 1818 Mezzanine Fund, L.P. 761,905
Progressive Investment Company, 1,142,857
Inc.
----------------------
Total: 1,904,762
======================
WAIVER AND AMENDMENT NO. 1 TO
THE SECURITIES PURCHASE AGREEMENT
Waiver and Amendment No. 1 (this "Waiver and Amendment"),
dated March 27, 1998, to the Securities Purchase Agreement (as defined below),
by and among National Auto Finance Company, Inc. (the "Company"), The 1818
Mezzanine Fund, L.P. (the "Fund"), PC Investment Company ("PCI"), Progressive
Investment Company, Inc. ("Progressive," and together with PCI, the "Progressive
Entities") and Manufacturers Life Insurance Company (U.S.A.) ("ML," and together
with the Fund and the Progressive Entities, the "Purchasers").
WHEREAS, the parties hereto have previously executed that
certain Securities Purchase Agreement, dated December 22, 1997 (the "Securities
Purchase Agreement"), by and among the Company and the Purchasers; and
WHEREAS, the Company has previously issued (i) that certain
warrant (warrant no. 1) to the Fund to initially purchase 415,570 shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company at
an exercise price of $.01 per share; (ii) that certain warrant (warrant no. 4)
to Progressive to initially purchase 363,623 shares of Common Stock at an
exercise price of $.01 per share; and (iii) that certain warrant (warrant no. 3)
to ML to initially purchase 259,731 shares of Common Stock at an exercise price
of $.01 per share (collectively, the "Purchasers' Warrants"), and the
Purchasers' Warrants provide for adjustments in the number of shares of Common
Stock issuable upon exercise thereof under certain circumstances; and
WHEREAS, the Company proposes to issue and sell to The
Structured Finance High Yield Fund, LLC (the "High Yield Fund") (i) Senior
Subordinated Promissory Notes with a final maturity of December 22, 2004 in the
aggregate principal amount of $20,000,000.00 (the "March Notes") and (ii)
593,671 detachable warrants exercisable immediately to purchase initially
593,671 shares of the Company's Common at an exercise price of $.01 per share
(the "March Warrants"); and
WHEREAS, in connection with the transaction described in the
immediately preceding whereas clause above the Company desires to obtain certain
amendments to the Securities Purchase Agreement and a waiver of certain
anti-dilution provisions contained in the Warrants; and
WHEREAS, all capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Securities
Purchase Agreement.
In consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
A(1) Amendment to Section 1.1. (i) Section 1.1 of the
Securities Purchase Agreement shall be amended by including the following
additional definitions:
"March Holder" means the Purchaser (as defined in the
March Securities Purchase Agreement) and any subsequent transferee or
transferees of the March Notes, March Warrants or March Warrant Shares,
as reflected on the books and records of the Company, other than a
transferee who has acquired the March Notes, March Warrants or March
Warrant Shares that have been the subject of a distribution pursuant to
a registered public offering, or, in the case of March Notes, March
Warrants or March Warrant Shares, a transferee who has acquired such
March Notes, March Warrants or March Warrant Shares after such
securities have been sold pursuant to Rule 144 under the Securities Act
or otherwise distributed under circumstances not requiring a legend.
"March Notes" means the Senior Subordinated
Promissory Notes issued pursuant to the March Securities Purchase
Agreement and replacements thereof.
"March Securities Purchase Agreement" shall mean that
certain Securities Purchase Agreement, dated as of March 27, 1998, by
and between the Company and The Structured Finance High Yield Fund,
LLC, as the same may be amended, supplemented or modified from time to
time in accordance with its terms.
"March Warrants" means the Warrants issued pursuant
to the March Securities Purchase Agreement.
"March Warrant Shares" means the shares of Common
Stock issuable upon exercise of the March Warrants (subject to any
adjustments pursuant to the terms thereof).
(ii) The definition of "Restricted Payment" in Section 1.1 of
the Securities Purchase Agreement shall be amended and restated to read in its
entirety as follows:
<PAGE>
"Restricted Payment" means (a) any dividend (or other
distribution of evidences of Indebtedness, assets or other property) on
any share of the Company's or any Subsidiary's Capital Stock (except
dividends payable solely in shares of their Capital Stock or dividends
paid to the Company or a wholly-owned Subsidiary of the Company by a
wholly-owned direct or indirect Subsidiary of the Company) or (b) any
payment by the Company or any of its Subsidiaries on account of the
direct or indirect purchase, redemption, retirement or other
acquisition of (i) any shares of the Company's or any such Subsidiary's
Capital Stock (except (x) the Warrants and the March Warrants and (y)
shares acquired upon the conversion, exchange or exercise thereof into
or for other shares of their Capital Stock), or (ii) any Indebtedness
of the Company or any such Subsidiary prior to any date set forth for
mandatory repayment or redemption of principal or interest thereon;
provided, however, that this clause (ii) shall not apply to (w)
Indebtedness incurred pursuant to the Notes, (x) Senior Indebtedness,
(y) Indebtedness that is pari passu in right of payment to the Notes,
to the extent that the Company offers to purchase, redeem or retire the
Notes pro rata with such pari passu Indebtedness or (z) Permitted
Refinancing Indebtedness in respect of Junior Subordinated Indebtedness
(other than Existing Junior Subordinated Indebtedness)).
(iii) The definition of "Junior Subordinated Indebtedness" in
Section 1.1 of the Securities Purchase Agreement shall be amended and restated
to read in its entirety as follows:
"Junior Subordinated Indebtedness" shall mean
Indebtedness that is expressly subordinated and made junior to the
payment and performance in full of the Notes, has a Stated Maturity
later than December 22, 2004, and is evidenced as such by a written
instrument containing subordination provisions in form and substance
approved by the holders of a majority in interest of the aggregate
principal amount of the Notes whose consent shall not be unreasonably
withheld; provided that any such subordination provisions shall be
deemed reasonable so long as the holder of the Junior Subordinated
Indebtedness agrees to be subordinated to the Notes at least to the
same extent as the Existing Junior Subordinated Indebtedness is
subordinated to the Notes pursuant to the Junior Subordination
Agreement (except that nothing contained in this proviso shall be
deemed to permit the Stated Maturity of any such Junior Subordinated
Indebtedness to be earlier than December 23, 2004). Notwithstanding
anything to the contrary contained in the foregoing, however, Junior
Subordinated Indebtedness shall be deemed to include the Existing
Junior Subordinated Indebtedness even though the Stated Maturity of
such Indebtedness is January 31, 2002. The fact that the Stated
Maturity of the Existing Junior Subordinated Indebtedness is January
31, 2002 shall not be deemed to be a violation of the terms of this
Agreement.
(2) Amendment to Section 10.6(a). Section 10.6(a) of the
Securities Purchase Agreement shall be amended and restated to read in its
entirety as follows:
<PAGE>
(a) Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, issue, assume or otherwise
incur any Indebtedness, other than: (i) Indebtedness under this
Agreement and the Notes, (ii) Indebtedness under the March Securities
Purchase Agreement and the March Notes, (iii) Junior Subordinated
Indebtedness, (iv) Intercompany Indebtedness, (v) Indebtedness under
the Credit Agreement or other similar facilities in an amount not
exceeding $100 million, which increases to an amount equal to the
product of the Consolidated Tangible Net Worth of the Company
multiplied by five multiplied by 0.6, and (vi) Senior Indebtedness (to
the extent not incurred under subsection (v) of this Section 10.6(a))
and Indebtedness that is pari passu with the Indebtedness incurred
under the Notes and the March Notes, but only to the extent that, in
the case of this clause (vi), immediately after giving effect thereto,
the ratio of Total Indebtedness to Consolidated Tangible Net Worth does
not exceed 5.0:1.0.
(3) Amendment to Section 14.5. Section 14.5 of the Securities
Purchase Agreement shall be amended and restated to read in its entirety as
follows:
(a) No failure or delay on the part of
any Holder, in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
(b) Any amendment, supplement or
modification of or to any provision of this Agreement or the Notes, any
waiver of any provision of this Agreement or the Notes, and any consent
to any departure by the Company from the terms of any provision of this
Agreement or the Notes, shall be effective (i) only if it is made or
given in writing and signed by the Company and the holders of 66% of
the aggregate principal amount of the Notes and March Notes
outstanding, and (ii) only in the specific instance and for the
specific purpose for which made or given. Notwithstanding the
foregoing, without the consent of each holder of a Note affected, an
amendment may not:
(1) reduce the rate of or extend the
time for payment of interest on any
Note;
(2) reduce the principal of or extend
the maturity of any Note;
(3) change the time at which any Note
shall or may be prepaid in
accordance with Sections 3 and 4 of
the Notes;
(4) make any Note payable in money other
than that stated in the Notes;
<PAGE>
(5) make any change in Article 12 that
adversely affects the rights of any
holder of a Note under Article 12;
or
(6) make any change in the first or
second sentence of this Section
14.5(b).
(c) Any amendment, supplement or
modification of or to any of the terms provided in Article 8, Sections
9.1(c), 9.7, 9.9, 9.10, 9.11, 9.15, 10.4, 10.13 and 10.14 and Article
14, and any definitions in Article 1 relating to such provisions, and
any consent to any departure by the Company from such provisions, shall
be effective (i) only if it is made or given in writing and signed by
the Company and holders of at least 51% of the aggregate number of the
Purchaser Shares and March Warrant Shares held by Holders and March
Holders, and (ii) only in the specific instance and for the specific
purpose for which made or given.
(d) In addition to the foregoing, any
amendment, supplement or modification of or to any of the terms
provided in Sections 9.8, 9.11 or 9.14, and any consent to any
departure by the Company from any such provisions, shall be effective
(i) only if it is made or given in writing and signed by the Company
and holders of at least 51% of aggregate number of the Warrants (based
on the number of Warrant Shares issuable upon the exercise of
unexercised Warrants) and the March Warrants (based on the number of
March Warrant Shares issuable upon the exercise of unexercised March
Warrants) held by the Holders and the March Holders (as the case may
be), and (ii) only in the specific instance and for the specific
purpose for which made or given.
(e) Notwithstanding the foregoing, no
amendment, supplement or modification hereunder shall become effective
unless an equivalent amendment, modification or waiver under the March
Securities Purchase Agreement becomes effective simultaneously
therewith.
(f) Except where notice is specifically
required by this Agreement, no notice to or demand on the Company in
any case shall entitle the Company to any other or further notice or
demand in similar or other circumstances.
<PAGE>
B Waiver of Anti-Dilution Adjustment. For purposes of Section
2(a)(ii) of the Purchasers' Warrants, each holder of the Purchasers' Warrants
hereby acknowledges that the Unit Issuance (as defined in the Purchasers'
Warrants) consisting of the March Notes and the March Warrants is fair, from a
financial point of view, to the stockholders of the Company. Accordingly, each
holder of Purchasers' Warrants hereby waives any obligation of the Company to
adjust the Number Issuable (as defined in the Purchasers' Warrants) pursuant to
Section 2(a)(ii) of the Purchasers' Warrants with respect to the issuance and
sale of the March Notes and March Warrants to the High Yield Fund as
contemplated in the March Securities Purchase Agreement.
C Representations and Warranties of the Company. (a) The
Company represents and warrants that this Waiver and Amendment has been duly
authorized, executed and delivered by, and constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
(b) The Company represents and warrants
that, after giving effect to the issuance of the March Notes, the ratio
of Total Indebtedness to Consolidated Tangible Net Worth does not
exceed 5.0:1.0.
D Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in accordance with Section
14.2 of the Securities Purchase Agreement.
E Counterparts. This Waiver and Amendment may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
F Headings. The headings in this Waiver and Amendment are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
G Governing Law. This Waiver and Amendment has been
negotiated, executed and delivered in the State of New York and shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of law.
H Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
<PAGE>
I Publicity. Except as may be required by applicable law or a
listing agreement with any securities exchange or Nasdaq, no party hereto shall
issue a publicity release or announcement or otherwise make any public
disclosure concerning this Waiver and Amendment or the transactions contemplated
hereby, without prior approval by the other parties hereto. If any announcement
is required by law to be made by a party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
J Expenses. The Company acknowledges and agrees that whether
or not the transactions contemplated hereby are consummated, the Company shall
reimburse the Purchasers for all out-of-pocket expenses, and all legal fees and
expenses of the Purchasers incurred in connection with the negotiation,
execution and delivery of this Waiver and Amendment and other related documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
and Amendment to be executed and delivered by their respective officers or
partners hereunto duly authorized as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By:
Name:
Title:
PROGRESSIVE INVESTMENT COMPANY, INC.
By:
Name:
Title:
PC INVESTMENT COMPANY
By:
Name:
Title:
<PAGE>
MANUFACTURERS LIFE INSURANCE COMPANY
(U.S.A.)
By:
Name:
Title:
EXHIBIT A
FORM OF SENIOR SUBORDINATED PROMISSORY NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITH "ORIGINAL
ISSUE DISCOUNT" FOR PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. FOR INFORMATION REGARDING THE "ISSUE PRICE," "ISSUE DATE,"
AMOUNT OF "ORIGINAL ISSUE DISCOUNT," AND "YIELD TO MATURITY" OF THE NOTE,
CONTACT THE CHIEF FINANCIAL OFFICER OF NATIONAL AUTO FINANCE COMPANY, INC. AT
621 N.W. 53RD STREET, SUITE 200, BOCA RATON, FLORIDA 33487, TELEPHONE: (800)
999-7535.
NATIONAL AUTO FINANCE COMPANY, INC.
SENIOR SUBORDINATED PROMISSORY NOTE
DUE DECEMBER , 2004
$_____________ New York, New York
December ___, 1997
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE
COMPANY, INC., a Delaware corporation (the "COMPANY"), promises to pay to the
order of [THE 1818 MEZZANINE FUND, L.P.] [PC INVESTMENT
<PAGE>
COMPANY] [GERLACH & CO., AS NOMINEE FOR MANUFACTURERS LIFE INSURANCE COMPANY
(U.S.A.)] or permitted assigns the principal sum of ____________ dollars
($______________) on December , 2004, with interest thereon from time to time as
provided herein.
PURCHASE AGREEMENT. This Senior Subordinated Promissory
Note (this "NOTE") is issued pursuant to the Securities Purchase Agreement,
dated as of December , 1997, by and among the Company, The 1818 Mezzanine Fund,
L.P., PC Investment Company, The Progressive Investment Company, Inc. and
Manufacturers Life Insurance Company (U.S.A.) (the "PURCHASE AGREEMENT"), and
the holder of this Note is entitled to the benefits of this Note and the
Purchase Agreement and may enforce the agreements contained herein and therein
and exercise the remedies provided for hereby and thereby or otherwise available
in respect hereto and thereto.
The Purchase Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events.
INTEREST. The Company promises to pay interest on
the outstanding principal amount of this Note (i) at the rate of 11.875% per
annum through the third anniversary of the date hereof, (ii) at the rate of
12.875% per annum from the third anniversary through the fourth anniversary of
the date hereof, (iii) at the rate of 13.875% per annum from the fourth
anniversary through the fifth anniversary of the date hereof, and (iv) at the
rate of 14.875% per annum from the fifth anniversary and thereafter (as
applicable for each period, the "BASE INTEREST RATE"). The Company shall pay
interest on the Note quarterly in arrears on each March 31, June 30, September
30 and December 31 of each year or, if any such date shall not be a Business
Day, on the next succeeding Business Day to occur after such date (each date
upon which interest shall be so payable, an "INTEREST PAYMENT DATE"), beginning
on December 31, 1997. Interest on this Note shall be paid by wire transfer of
immediately available funds to an account designated by the holder of this Note.
Interest on this Note shall accrue from the date of issuance until repayment of
the principal and payment of all accrued interest in full. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding
the foregoing provisions of this Section 2, but subject to applicable law, any
overdue principal of and overdue interest on this Note shall bear interest,
payable on demand in immediately available funds, for each day from the date
payment of principal or interest was due to the date of actual payment, at the
rate of interest which is equal to the applicable Base Interest Rate plus 2% per
annum, and, upon and during the continuance of an Event of Default, this Note
shall bear interest, from the date of the occurrence of such Event of Default
until such Event of Default is cured or waived, payable on demand in immediately
available funds, at the rate of interest which is equal to the applicable Base
Interest Rate plus 2% per annum.
2
<PAGE>
MANDATORY REDEMPTION AT THE OPTION OF THE HOLDER.
3.1 CHANGE OF CONTROL. If one or more events
constituting a Prepayment Event shall occur, the holder of this Note shall have
the right, on the date specified in Section 3.2 (the "MANDATORY REDEMPTION
DATE"), to require the Company to redeem (a "MANDATORY REDEMPTION") all (but not
less than all) of the Notes then held by such holder at a price (the "MANDATORY
REDEMPTION PRICE") equal to (i) the following percentage of the outstanding
principal amount of the Note to be prepaid plus (ii) an amount equal to all
accrued and unpaid interest thereon to the Mandatory Redemption Date, in
immediately available funds:
If to be Prepaid During Percentage of
the Period: Principal Amount
- ------------------------ -------------------
December , 1997 to 110.0%
December , 1998
December , 1998 to 107.5%
December , 1999
December , 1999 to 105.0%
December , 2000
December , 2000 100.0%
and thereafter
Notwithstanding anything to the contrary contained herein, in
the event the holder of this Note requires a Mandatory Redemption following a
Change of Control that is a Sale Transaction, the percentage of the Mandatory
Redemption Price that exceeds the aggregate principal amount of and accrued but
unpaid interest on the Notes to be repaid shall be waived or reduced to the
extent that [The 1818 Mezzanine Fund, L.P.'s] [PC Investment Company's]
[Manufacturers Life Insurance Company (U.S.A.)'s] "internal rate of return" on
the Notes and the Warrants issued pursuant to the Purchase Agreement (taking
into account the portion of the Mandatory Redemption Price that exceeds the
aggregate principal amount of and accrued but unpaid interest on the Notes held
by [The 1818 Mezzanine Fund, L.P.] [PC Investment Company] [Manufacturers Life
Insurance Company (U.S.A.)] that have been or are to be prepaid pursuant to this
Section 3 which is not waived) exceeds 25.0%. For purposes of this Note,
"internal rate of return" means, as of the Mandatory Redemption Date, an
internal rate of return calculated by determining the discount rate that equates
the present value of all cash flows of the investment in the Notes and the
Warrants to zero
3
<PAGE>
and which is derived by taking into account (i) the amount invested in the Notes
and the Warrants of the Company by [The 1818 Mezzanine Fund, L.P.] [PC
Investment Company] [Manufacturers Life Insurance Company (U.S.A.)] (as of the
date invested), (ii) the amount of any interest payments on the Notes received
by [The 1818 Mezzanine Fund, L.P.] [PC Investment Company] [Manufacturers Life
Insurance Company (U.S.A.)] (as of the date received), (iii) the amount of any
proceeds received by [The 1818 Mezzanine Fund, L.P.] [PC Investment Company]
[Manufacturers Life Insurance Company (U.S.A.)] upon the sale or other
disposition prior to the Mandatory Redemption Date of all or any portion of the
Notes and the Warrants or the Common Stock issuable upon exercise of the
Warrants (as of the date received), (iv) the Market Price (as defined in the
Warrants) of the Common Stock (assuming exercise of any unexercised Warrants of
the Company held by [The 1818 Mezzanine Fund, L.P.] [PC Investment Company]
[Manufacturers Life Insurance Company (U.S.A.)]) (as of the Mandatory Redemption
Date) and (v) the facility fee received by [the 1818 Mezzanine Fund, L.P.] [PC
Investment Company] [Manufacturers Life Insurance Company (U.S.A.)] pursuant to
Section 2.2 of the Purchase Agreement. For purposes of this Section 3.1, all
references to PC Investment Company shall be deemed to include Progressive
Investment Company, Inc.
3.2 NOTICE. Notice of a Prepayment Event (the
"PREPAYMENT EVENT NOTICE") shall be mailed no more than 10 Business Days after
the occurrence of a Prepayment Event to each holder of Notes, at such holder's
address as it appears on the transfer books of the Company. The date fixed for
each Mandatory Redemption shall be fixed by the Company and shall be no less
than 20 days or more than 40 days after the date of the Prepayment Event Notice.
Notwithstanding the foregoing and Section 3.1 hereof, in the event of the
occurrence of a Prepayment Event of the types set forth in any of clauses (iii)
or (iv) of the definition of "Change of Control," the Prepayment Event Notice
shall be mailed to each holder of Notes no later than 10 Business Days prior to
the consummation of the transaction contemplated by such clause (iii) or (iv),
as the case may be, and the Company shall not be required to pur-
chase any Notes unless such transaction shall be consummated, in which case the
Company shall be required to purchase such Notes immediately prior to the
consummation of such transaction.
3.3 PROVISIONS OF NOTICE. The right of the holders
of Notes to require the Company to effect a Mandatory Redemption shall remain in
effect from the time of the mailing of, until the redemption date set forth in,
the Prepayment Event Notice. The Prepayment Event Notice shall be accompanied by
a copy of the information most recently required to be supplied under Sections
9.1(a) and 9.1(b) of the Purchase Agreement. The Prepayment Event Notice shall
contain all instruments and materials necessary to enable the holder of this
Note to tender this Note pursuant to
4
<PAGE>
this Section 3. The Prepayment Event Notice, which shall govern the terms of the
Mandatory Redemption, shall state:
that a Prepayment Event has
occurred, that each holder of Notes has the right to require
the Company to effect a Mandatory Redemption pursuant to this
Section 3 and that tendered Notes will be redeemed;
the Mandatory Redemption Price and
the date for redemption;
that each holder of Notes may
require the Company to redeem all (but not less than all)
Notes held thereby;
that the Notes redeemed pursuant to
the Mandatory Redemption shall cease to accrue interest after
the designated date for purchase (unless the Company shall
default in the payment of the Mandatory Redemption Price, in
which case the Notes shall not cease to accrue interest after
such date);
such other information respecting
the procedures for effecting the Mandatory Redemption as the
Company shall include and such other information as may be
required by law; and
that (unless otherwise required by
law) any holder of Notes will be entitled to withdraw his or
her election if the Company receives, not later than the close
of business on the third Business Day next preceding the date
scheduled for redemption, facsimile transmission or letter
setting forth the name of such holder, the principal amount of
Notes such holder delivered for redemption and a statement
that such holder is withdrawing his or her election to have
such Notes redeemed.
3.4 REDEMPTION PROCEDURE. The holder of this
Note may elect to require the Company to redeem all (but not less than all) of
the Notes held by such holder pursuant to a Mandatory Redemption by delivery of
written notice thereof to the Company prior to the date fixed for such Mandatory
Redemption. If the holder of this Note so elects, on the date fixed for any
Mandatory Redemption, such holder shall surrender all of the Notes held thereby
to the Company at the place designated in the Prepayment Event Notice. From and
after the Mandatory Redemption Date (i) such Notes shall no longer be deemed
outstanding, (ii) the right to receive interest thereon shall cease to accrue
and (iii) all rights of the holders of such Notes shall cease and terminate,
excepting only the right to receive the Mandatory Redemption Price
5
<PAGE>
therefor; provided, however, that if the Company shall default in the payment of
the Mandatory Redemption Price, the Notes shall thereafter be deemed to be
outstanding and the holders thereof shall have all of the rights of a holder of
Notes until such time as such default shall no longer be continuing or shall
have been waived by holders of at least 66% of the then outstanding principal
amount of the Notes.
OPTIONAL REDEMPTION.
4.1 REDEMPTION BY COMPANY. Except as otherwise
provided herein, the Company shall not have any right to prepay or redeem this
Note. The Company shall have the right, at any time and from time to time at its
sole option and election, to redeem (the "OPTIONAL REDEMPTION") the Notes, in
whole but not in part, on not less than 30 days notice of the date of
redemption, which must be a Business Day (any such date an "OPTIONAL REDEMPTION
DATE") at a price (the "OPTIONAL REDEMPTION PRICE") equal to (i) the following
percentage of the outstanding principal amount of the Notes to be redeemed plus
(ii) an amount equal to all accrued and unpaid interest thereon to the date
fixed for prepayment, whether or not currently payable, to the Optional
Redemption Date, in cash or other immediately available funds:
If redeemed Percentage of Principal
during the period: Amount
- ----------------- ----------------------
December , 1997 to 110.0%
December , 1998
December , 1998 to 107.5%
December , 1999
December , 1999 to 105.0%
December , 2000
December , 2000 and 100.0%
thereafter
Notwithstanding anything to the contrary contained herein, in
the event of the occurrence of any Public Offering prior to December , 2000, the
Company shall have the right, at its sole option and election, to use the
proceeds from such Public Offering(s) to redeem, by delivery of a notice
pursuant to Section 4.2, concurrently with the consummation of such Public
Offering(s), up to an aggregate total amount (whether with the proceeds from one
or more than one Public Offering) of 33-1/3% of the principal amount of the
Notes outstanding on the Closing Date at a
6
<PAGE>
price equal to 100.0% of the outstanding principal amount of the Notes to be
prepaid plus an amount equal to all accrued and unpaid interest thereon to the
date fixed for prepayment, whether or not currently payable, in cash or other
immediately available funds.
Upon the occurrence of an Event of Default under Section
11.1(viii) of the Purchase Agreement, the Company shall be deemed to have
elected to redeem the Notes as provided in this Section 4.1 and shall so redeem
the Notes as provided in this Section 4 (without giving effect to the
immediately preceding paragraph).
4.2 NOTICE. Notice of the Optional Redemption
(the "OPTIONAL REDEMPTION NOTICE") shall be mailed at least 30 days, but not
more than 60 days, prior to the date fixed for redemption to each holder of the
Notes, at such holder's address as it appears on the transfer books of the
Company. In order to facilitate the redemption of the Notes, the Board of
Directors of the Company may fix a record date for the determination of the
Notes to be redeemed, or may cause the transfer books of the Company for the
Notes to be closed, not more than 60 days or less than 30 days prior to the date
fixed for such redemption.
4.3 DEPOSIT OF FUNDS. On the Optional
Redemption Date, the Company shall, and at any time after the Optional
Redemption Notice shall have been mailed and before the date of Optional
Redemption the Company may, deposit for the benefit of the holders of the Notes
the funds necessary for the Optional Redemption with a bank or trust company in
the Borough of Manhattan, The City of New York, having a capital and surplus of
at least $150,000,000. Any moneys so deposited by the Company and unclaimed at
the end of two years from the date designated for the Optional Redemption shall
revert to the general funds of the Company or as otherwise required by law.
After such reversion, any such bank or trust company shall, upon demand, pay
over to the Company such unclaimed amounts and thereupon such bank or trust
company shall be relieved of all responsibility in respect thereof and any
holder of Notes shall look only to the Company for the payment of the Optional
Redemption Price. Any interest accrued on funds deposited pursuant to this
Section 4.3 shall be paid from time to time to the Company for its own account.
4.4 TERMINATION OF RIGHTS. The Optional
Redemption Notice having been given as aforesaid, upon the deposit of funds
pursuant to Section 4.3 in respect of the Notes to be redeemed pursuant to
Section 4.1, notwithstanding that any such Notes themselves shall not have been
surrendered for cancellation, from and after the Optional Redemption Date (i)
the Notes shall no longer be deemed outstanding, (ii) the rights to receive
interest thereon shall cease to accrue and (iii) all rights of the holders of
the Notes shall cease and terminate, excepting only the right to receive the
Optional Redemption Price therefor; provided, however, that if
7
<PAGE>
the Company shall default in the payment of the Optional Redemption Price, the
Notes shall thereafter be deemed to be outstanding and the holders thereof shall
have all of the rights of a holder of Notes until such time as such default
shall no longer be continuing or shall have been waived by holders of at least
66% of the then outstanding principal amount of the Notes.
DEFINITIONS. Capitalized terms not otherwise
defined in this Note shall have the meanings ascribed to them in the Purchase
Agreement. As used in this Note, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"BANKRUPTCY LAW" means Title 11, U.S. Code or any other
federal, state or foreign law for the relief of debtors, as any such laws may be
amended from time to time.
"CHANGE OF CONTROL" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) other than National Auto Finance
Company, L.P., Morgan Guaranty Trust Company, Gary L. Shapiro, Keith B.
Stein, First Union National Bank of North Carolina (or any of its
Affiliates) or the Purchasers (collectively, the "Principal
Stockholders") is or becomes the beneficial owner, directly or
indirectly, of outstanding shares of Capital Stock of the Company,
entitling such Person or Persons to exercise 50% or more of the total
votes entitled to be cast for the election of directors under ordinary
circumstances at a regular or special meeting, or by action by written
consent, of (i) common stockholders of the Company if at least a
majority of the Company's Board of Directors are elected by common
stockholders, and (ii) voting stockholders of the Company in all other
circumstances (the term "beneficial owner" shall be determined in
accordance with Rule 13d-3, promulgated by the Commission under the
Exchange Act);
(ii) A majority of the Board of Directors of the
Company shall consist of Persons other than Continuing Directors. The
term "Continuing Director" shall mean any member of the Board of
Directors of the Company on the Closing Date and any other member of
the Board of Directors who shall be recommended or elected to succeed
or become a Continuing Director by a majority of Continuing Directors
who are then members of the Board of Directors of the Company;
(iii) The stockholders of the Company shall have
approved a recapitalization, reorganization, merger, consolidation,
sale or other disposition
8
<PAGE>
of all or substantially all the assets of the Company (in one
transaction or in a series of related transactions) or similar
transaction, in each case, with respect to which all or substantially
all the Persons who were the respective beneficial owners of the
outstanding shares of Capital Stock of the Company immediately prior to
such recapitalization, reorganization, merger or consolidation,
beneficially own, directly or indirectly, less than 50% of the combined
voting power of the then outstanding shares of Capital Stock of the
Company resulting from such recapitalization, reorganization, merger,
consolidation or similar transaction or obtaining the assets of the
Company; or
(iv) Upon the consummation of any transaction the
result of which is that the Common Stock is not required to be
registered under Section 12 of the Exchange Act and that the holders of
Common Stock do not receive common stock of the Person surviving such
transaction which is required to be registered under Section 12 of the
Exchange Act.
"PREPAYMENT EVENT" means the occurrence of (i) a Change of
Control or (ii) a conveyance, transfer, lease or other disposition (whether in
one transaction or a series of transactions) of all or substantially all of the
assets (wherever acquired) of any division or Subsidiary of the Company (except
for sales in connection with Permitted Securitization Transactions) if such
assets accounted for at least 33% of the Company's Net Income determined by
reference to the most recent audited financial statements of the Company.
"PUBLIC OFFERING" shall mean the sale in any offering by the
Company of its Capital Stock for its own account pursuant to a registration
statement on Form S-1 or otherwise under the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
thereunder.
"SALE TRANSACTION" shall mean a Change of Control pursuant to
subsection (iii) of the definition thereof, provided that the reference
contained therein to 50% shall instead be deemed to be 10%.
SUBORDINATION. This Note is subordinated to certain
Senior Indebtedness. To the extent provided in Article 12 of the Purchase
Agreement, Senior Indebtedness must be paid before this Note may be paid. The
Company, and the holder of this Note by accepting this Note, agree to the
subordination provisions contained in Article 12 of the Purchase Agreement.
EXCHANGE OF NOTES. At the option of the holder of
this Note, this Note may be exchanged for other Notes of like tenor and of a
like aggregate principal amount, upon surrender of this Note at the principal
office of the Company;
9
<PAGE>
provided, however, that the minimum denomination of any Note to be issued in
exchange for this Note shall be at least $3,000,000 and in at least $1,000
increments, unless the transferee of this Note (i) shall have purchased this
Note in a public offering or subsequent to a public offering thereof, (ii) is a
partner or member of the holder of this Note and shall have received this Note
upon the dissolution or liquidation of the holder of this Note or in connection
with a distribution of assets by the holder of this Note, or (iii) is a parent
or subsidiary of the holder of this Note, which in each case the minimum
denomination of any note to be issued in exchange for this Note shall be at
least $1,000.
AMENDMENT. Amendments and modifications of this
Note may be made only in the manner provided in Section 14.5 of the Purchase
Agreement.
GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed, as of the date written below.
NATIONAL AUTO FINANCE COMPANY, INC.
By_____________________________
Name:
Title:
Date: December , 1997
10
EXHIBIT B
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. [_]
WARRANT
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
NATIONAL AUTO FINANCE COMPANY, INC.
THIS IS TO CERTIFY THAT [THE 1818 MEZZANINE FUND, L.P.] [PC
INVESTMENT COMPANY] [GERLACH & CO., AS NOMINEE FOR MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)] or its registered assigns (the "PURCHASER"), is the owner of
______________________ ([______]) Warrants (the "WARRANTS"), each of which
entitles the registered holder thereof to purchase from NATIONAL AUTO FINANCE
COMPANY, INC., a Delaware corporation (the "COMPANY"), one fully paid, duly
authorized and nonassessable share of Common Stock, par value $.01 per share, of
the Company (the "COMMON STOCK"), at any time or from time to time on or before
5:00 p.m., New York City time, on December [__], 2007 (subject to earlier
expiration in certain events), at an exercise price of $.01 per share (the
"EXERCISE PRICE"), all on the terms and subject to the conditions hereinafter
set forth.
<PAGE>
The number of shares of Capital Stock issuable upon exercise
of each such Warrant (the "NUMBER ISSUABLE"), which is initially one (1) share
of Common Stock, is subject to adjustment from time to time pursuant to the
provisions of Section 2 of this Warrant certificate.
Capitalized terms used herein but not otherwise defined shall
have the meanings given them in Section 11 hereof or, if not therein defined, in
the Purchase Agreement.
EXERCISE OF WARRANT. Subject to the last paragraph of this
Section 1, the Warrants evidenced hereby may be exercised, in whole or in part,
by the registered holder hereof at any time or from time to time on or before
5:00 p.m., New York City time, on December [__], 2007, but in any event no later
than the date of the consummation of a Sale Transaction, upon delivery to the
Company at the principal executive office of the Company in the United States of
America, of this Warrant certificate, a written notice stating that such holder
elects to exercise all or any portion of the Warrants evidenced hereby in
accordance with the provisions of this Section 1 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued in connection with such exercise and payment of the
Exercise Price for the shares of Common Stock issuable upon exercise of such
Warrants, which shall be payable, subject to the immediately following
paragraph, (i) in cash, (ii) by a certified or official bank check payable to
the order of the Company or (iii) by the surrender (which surrender shall be
evidenced by cancellation of the number of Warrants represented by any Warrant
certificate presented in connection with a Cashless Exercise (as defined below))
of a Warrant or Warrants (represented by one or more relevant Warrant
certificates), and without the payment of the Exercise Price in cash, in return
for the delivery to the surrendering holder of such number of shares of Common
Stock equal to the product of (x) the number of shares of Common Stock for which
such Warrant is exercisable as of the date of exercise (if the Exercise Price
were being paid in cash) multiplied by (y) the Cashless Exercise Ratio. An
exercise of a Warrant in accordance with clause (iii) is herein called a
"CASHLESS EXERCISE." The "CASHLESS EXERCISE RATIO" shall equal a fraction, the
numerator of which is the excess of the Current Market Price per share of Common
Stock on the date of exercise over the Exercise Price per share as of the date
of exercise and the denominator of which is the Current Market Price per share
of the Common Stock on the date of exercise. Upon surrender of a Warrant
certificate representing more than one Warrant in connection with a Cashless
Exercise, the number of shares of Common Stock deliverable upon a Cashless
Exercise shall be equal to the number of Warrants that the holder specifies is
to be exercised pursuant to a Cashless Exercise multiplied by the Cashless
Exercise Ratio, (collectively, the "WARRANT EXERCISE DOCUMENTATION").
2
<PAGE>
If any holder at the time of the exercise of any Warrants is not a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act or an accredited investor within the meaning of Rule 501 under
the Securities Act such holder of the Warrants will be required to effect the
exercise of the Warrants solely pursuant to the Cashless Exercise Option.
As promptly as practicable, and in any event within five
Business Days after receipt of the Warrant Exercise Documentation, the Company
shall deliver or cause to be delivered (a) certificates representing the number
of validly issued, fully paid and nonassessable shares of Common Stock specified
in the Warrant Exercise Documentation, (b) if applicable, cash in lieu of any
fraction of a share, as hereinafter provided, and (c) if less than the full
number of Warrants evidenced hereby are being exercised, a new Warrant
certificate or certificates, of like tenor, for the number of Warrants evidenced
by this Warrant certificate, less the number of Warrants then being exercised.
Such exercise shall be deemed to have been made at the close of business on the
date of delivery of the Warrant Exercise Documentation so that the Person
entitled to receive shares of Common Stock upon such exercise shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time. No such surrender shall be effective to constitute the
person entitled to receive such shares as the record holder thereof while the
transfer books of the Company for the Common Stock are closed for any purpose
(but not for any period in excess of five days); but any such surrender of this
Warrant certificate for exercise during any period while such books are so
closed shall become effective for exercise immediately upon the reopening of
such books, as if the exercise had been made on the date this Warrant
certificate was surrendered and for the Number Issuable of Common Stock
specified in the Warrant Exercise Documentation and at the Exercise Price.
The Company shall pay all expenses in connection with, and all
taxes and other governmental charges (other than income taxes of the holder)
that may be imposed in respect of, the issue or delivery of any shares of Common
Stock issuable upon the exercise of the Warrants evidenced hereby. The Company
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares
of Common Stock in any name other than that of the registered holder of the
Warrants evidenced hereby.
In connection with the exercise of any Warrants evidenced
hereby, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the
Current Market Price per share of Common Stock on the Business Day which next
precedes the day of exercise. If more than one such Warrant shall be exercised
by the holder thereof at the same time, the number of full shares of Common
Stock issuable on such exercise shall be computed on the basis of the total
number of Warrants so exercised.
3
<PAGE>
ADJUSTMENTS.
ADJUSTMENT OF NUMBER ISSUABLE. The Number Issuable
shall be subject to adjustment from time to time as follows:
In case the Company shall at any time or from time
to time after the Issue Date:
pay a dividend or make a
distribution on the outstanding shares of Common Stock in
Capital Stock of the Company;
subdivide the outstanding shares of
Common Stock into a larger number of shares;
combine the outstanding shares of
Common Stock into a smaller number of shares; or
issue any shares of its Capital
Stock in a reclassification of the Common Stock;
then, and in each such case, the Number Issuable in effect immediately
prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Company) so that the holder of any
Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Capital Stock of the Company which such
holder would have owned or had been entitled to receive upon or by
reason of any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event. An
adjustment made pursuant to this clause (i) shall become effective
retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date
for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of any such
subdivision, combination or reclassification, to the close of business
on the date upon which such corporate action becomes effective.
If after the Issue Date, the Company shall at any
time or from time to time issue or sell (x) shares of Common Stock or
(y) securities convertible into or exchangeable for shares of Common
Stock, or any options, warrants or other rights to acquire shares of
Common Stock (other than (a) shares of Common Stock issued upon
exercise of the Warrants outstanding on the Issue Date and shares
issued as a result of adjustments made under the other provisions of
this Section 2, (b) shares of Common Stock issued pursuant to an
underwritten Public Offering where such shares of Common Stock are
listed on
4
<PAGE>
the New York Stock Exchange, Inc. or quoted or listed on any other
national securities exchange or the National Market System of the
Nasdaq Stock Market or (c) equity securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or
other rights to acquire shares of Common Stock if issued in connection
with an issuance of debt securities as a unit (collectively, a "UNIT
ISSUANCE"), but only to the extent (A) the Company retains a nationally
recognized investment bank, which the Company and the holders of a
majority of the outstanding Warrants mutually approve, to underwrite or
privately place such Unit Issuance, or (B) if the Company and the
holders of a majority of the outstanding Warrants do not agree on an
investment bank under clause (A) hereof, the Company retains a
nationally recognized investment bank to underwrite or privately place
such Unit Issuance, in which case the holders of a majority of the
outstanding Warrants may opt to retain (at the Company's expense) a
nationally recognized investment bank that delivers to the holders of
the outstanding Warrants, if such option is exercised, an opinion that
the Unit Issuance is fair, from a financial point of view, to the
stockholders of the Company) at a price per share that is less than the
Current Market Price per share of Common Stock then in effect as of the
record date or issue date, as the case may be, referred to in the
following sentence (the "RELEVANT DATE") (treating the price per share
of Common Stock, in the case of the issuance of any security
convertible or exchangeable or exercisable into Common Stock as equal
to (x) the sum of the price for such security convertible, exchangeable
or exercisable into Common Stock plus any additional consideration
payable (without regard to any anti-dilution adjustments) upon the
conversion, exchange or exercise of such security into Common Stock
divided by (y) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable security), in
each case, other than issuances or sales for which an adjustment is
made pursuant to another paragraph of this Section 2, then, and in each
such case, the Number Issuable then in effect shall be adjusted by
multiplying the Number Issuable in effect on the day immediately prior
to the Relevant Date by a fraction, (1) the numerator of which shall be
the sum of the number of shares of Common Stock, on a fully diluted
basis, outstanding on the Relevant Date, plus the number of additional
shares of Common Stock issued or to be issued (or the maximum number
into which such convertible or exchangeable securities initially may
convert or exchange or for which such options, warrants or other rights
initially may be exercised), and (2) the denominator of which shall be
the sum of the number of shares of Common Stock, on a fully diluted
basis, outstanding on the Relevant Date, plus the number of shares of
Common Stock which the aggregate consideration for the total number of
such additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for
which such options, warrants or other rights may be exercised plus the
aggregate amount of any additional consideration initially payable upon
5
<PAGE>
conversion, exchange or exercise of such security) would purchase at
the Current Market Price per share of Common Stock on the Relevant
Date. Such adjustment shall be made whenever such shares, securities,
options, warrants or other rights are issued, and shall become
effective retroactively to a date immediately following the close of
business (x) in the case of an issuance to the stockholders of the
Company, as such, on the record date for the determination of
stockholders entitled to receive such shares, securities, options,
warrants or other rights and (y) in all other cases, on the date (the
"ISSUE DATE") of such issuance; provided, that if any convertible or
exchangeable securities, options, warrants, or other rights (or any
portions thereof) which shall have given rise to an adjustment pursuant
to this Section 2(a)(ii) shall have expired or terminated without the
exercise thereof, then the Number Issuable hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the
basis of eliminating from the computation any additional shares of
Common Stock corresponding to such convertible or exchangeable
securities, options, warrants or other rights as shall have expired or
terminated. Solely for purposes of this clause (ii), (I) Common Stock
shall include the Common Stock, par value $.01 per share, of the
Company and each other class of capital stock of the Company that does
not have a preference over any other class of capital stock of the
Company as to dividends or upon liquidation, dissolution or winding up
of the Company and, in each case, shall include any other class of
capital stock of the Company into which such stock is reclassified or
reconstituted and (II) if the provisions of any securities convertible
into or exchangeable for shares of Common Stock or options, warrants or
other rights to acquire shares of Common Stock are amended after the
date of issuance so as to reduce the applicable conversion price,
exchange price or exercise price such amendment shall be deemed to be a
new issuance of such securities.
In case the Company shall at any time or from time
to time after the Issue Date distribute to any holder of shares of its
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the resulting or
surviving corporation and the Common Stock is not changed or exchanged)
cash, evidences of indebtedness of the Company or another issuer,
securities of the Company or another issuer or other assets (excluding
dividends or other distributions of shares of Common Stock or other
Capital Stock for which adjustment is made under Section 2(a)(i) or
dividends or other distributions received by or set aside for the
benefit of the holders of Common Stock pursuant to Section 2(c) below)
or rights or warrants to subscribe for or purchase securities of the
Company (excluding those in respect of which adjustments in the Number
Issuable is made pursuant to Section 2(a)(i) or Section 2(a)(ii)),
then, and in each such case, the Number Issuable then in effect shall
be adjusted by multiplying the Number Issuable in effect immediately
prior to the date of such distribution by a fraction (x) the
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<PAGE>
numerator of which shall be the Current Market Price per share of
Common Stock on the record date referred to below and (y) the
denominator of which shall be such Current Market Price per share of
Common Stock less the then Fair Market Value (as determined in good
faith by the Board of Directors of the Company, a certified resolution
with respect to which shall be mailed to the holder of the Warrants
evidenced hereby) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common Stock
(but such denominator shall in no event be zero). Such adjustment shall
be made whenever any such distribution is made and shall become
effective retroactively to a date immediately following the close of
business on the record date for the determination of stockholders
entitled to receive such distribution.
In case the Company at any time or from time to
time shall take any action which could have a dilutive effect (it being
understood that this Section 2(a)(iv) shall not apply to percentage
dilution) on the number of shares of Common Stock that may be issued
upon exercise of the Warrants, other than an action described in any of
Section 2(a)(i) through 2(a)(iii), inclusive, or Section 2(b), then,
the Number Issuable shall be adjusted in such manner and at such time
as the Board of Directors of the Company reasonably determines to be
equitable under the circumstances (such determination to be evidenced
in a resolution, a certified copy of which shall be mailed to the
holder of the Warrants evidenced hereby).
Notwithstanding anything herein to the contrary, no
adjustment under this Section 2(a) need be made to the Number Issuable
unless such adjustment would require an increase or decrease of at
least 1% of the Number Issuable then in effect. Notwithstanding the
foregoing, any lesser adjustment shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment,
which, together with any adjustment or adjustments so carried forward,
shall amount to an increase or decrease of at least 1% of such Number
Issuable. Any adjustment to the Number Issuable carried forward and not
theretofore made shall be made immediately prior to the exercise of any
Warrants pursuant hereto.
The Company promptly shall deliver to each
registered holder of Warrants at least 20 days prior to effecting any
transaction which would result in an increase or decrease in the Number
Issuable pursuant to this Section 2 a notice thereof, together with a
certificate, signed by the Chief Executive Officer, the Chairman or the
Vice Chairman and by the Chief Financial Officer, Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Company, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was, or will
7
<PAGE>
be, calculated and specifying the increased or decreased Number
Issuable then in effect following such adjustment.
Notwithstanding anything contrary contained in this
Section 2(a), the Company shall be entitled to make such upward
adjustments in the Number Issuable, in addition to those otherwise
required by this Section 2(a), as the Board of Directors of the Company
in their discretion shall determine to be advisable in order that any
stock dividend, subdivision or combination of shares, distribution of
rights or warrants to purchase stock or securities, or distribution of
securities convertible into or exchangeable for Common Stock, hereafter
made by the Company to its shareholders shall not be taxable; provided,
however, that any such adjustment shall be made, as nearly as
practicable, in a manner which treats all holders of Warrants with
similar protections on an equal basis.
REORGANIZATION. In case of any capital
reorganization or other change of outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination) (any of the foregoing, a "TRANSACTION"), the Company, or
any successor, as the case may be, shall execute and deliver to each
holder of the Warrants evidenced hereby, at least 20 days prior to
effecting any of the foregoing Transactions, a certificate that the
holder of each such Warrant then outstanding shall have the right
thereafter to exercise such Warrant into the kind and amount of shares
of stock or other securities (of the Company or another issuer) or
property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock into which such Warrant could have
been exercised immediately prior to such Transaction. Such certificate
shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2
and shall contain other terms identical to the terms hereof. If, in
the case of any such Transaction, the stock, other securities, cash or
property receivable thereupon by a holder of Common Stock includes
shares of stock or other securities of a Person other than (i) the
successor and (ii) other than the Company, which controls or is
controlled by the successor or which, in connection with such
Transaction, issues stock, securities, other property or cash to
holders of Common Stock, then such certificate also shall be executed
by such Person, and such Person shall, in such certificate,
specifically assume the obligations of such successor or purchasing
Person and acknowledge its obligations to issue such stock,
securities, other property or cash to holders of the Warrants upon
exercise thereof as provided above. The provisions of this Section
2(b) similarly shall apply to successive Transactions.
SPECIAL DISTRIBUTIONS. If the holder so elects (in
lieu of an adjustment to the Number Issuable pursuant to Section
2(a)(i) or 2(a)(iii)) by sending a Special Notice to the Company, in
the event that the Company shall declare a dividend
8
<PAGE>
or make any other distribution (including, without limitation, in cash, in
capital stock (which shall include, without limitation, any options, warrants or
other rights to acquire capital stock) of the Company, whether or not pursuant
to a shareholder rights plan, "poison pill" or similar arrangement) in other
property or assets, to holders of Common Stock (a "SPECIAL DISTRIBUTION"), then
the Board of Directors shall set aside the amount of such dividend or
distribution that any holder of Warrants would have been entitled to receive had
it exercised such Warrants prior to the record date for such dividend or
distribution. Upon the exercise of a Warrant evidenced hereby, the holder shall
be entitled to receive, such dividend or distribution that such holder would
have received had such Warrant been exercised immediately prior to the record
date for such dividend or distribution. Prior to any Special Distribution
described in this section 2(c), the Company shall as provided in Section 3
hereof notify each holder (not less than 20 days prior to the occurrence of each
Special Distribution) of its intent to make such Special Distribution and the
holder, if it elects to have such distribution set aside the amount thereof
rather than have an adjustment to the Number Issuable as provided in Sections
2(a)(i) or 2(a)(iii), shall notify the Company by sending a Special Notice three
Business Days prior to the date of any such Special Distribution.
NOTICE OF CERTAIN EVENTS. In case at any time or from time
to time, the Company shall declare any dividend or any other distribution to the
holders of its Common Stock, or shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment to the Number Issuable pursuant to Section 2(a)(i) or (ii) or would
result in a Special Distribution pursuant to Section 2(c) hereof, or there shall
be any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another Person,
or any sale or other disposition of all or substantially all the assets of the
Company, or any Transaction, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, in any one or more
of such cases the Company shall mail to each holder of the Warrants evidenced
hereby at such holder's address as it appears on the transfer books of the
Company, as promptly as practicable but in any event at least 20 days prior to
the applicable date hereinafter specified, a notice stating (a) the date on
which a record is to be taken for the purpose of such dividend, distribution,
rights, warrants or Transaction or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants, or to participate in such Transaction, are to
be determined, (b) the issue date (as defined in Section 2(a)(ii) hereof) or (c)
the date on which such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation winding up or Transaction is expected to
become effective. Such notice also shall specify the date as of which it is
expected that the holders of Common Stock of record shall be entitled to
exchange their Common Stock for shares of stock or other
9
<PAGE>
securities or property or cash deliverable upon such reorganization,
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up.
CERTAIN COVENANTS. The Company covenants and agrees that all
shares of capital stock of the Company which may be issued against payment
therefor upon the exercise of the Warrants evidenced hereby will be duly
authorized, validly issued and fully paid and nonassessable. The Company shall
at all times reserve and keep available for issuance upon the exercise of the
Warrants, such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the exercise of all outstanding
Warrants, and shall take all action required to increase the authorized number
of shares of Common Stock if at any time there shall be insufficient authorized
but unissued shares of Common Stock to permit such reservation or to permit the
exercise of all outstanding Warrants. The Company shall prepare and file, and
cooperate with the holder of the Warrants so that it may prepare and file, in
each case within five Business Days of a request by such holder, notification
and report forms in compliance with the HSR Act, and shall otherwise fully
comply with the requirements of the HSR Act, to the extent required in
connection with the exercise of the Warrants. The Company shall bear all of its
own expenses and all of its own out-of-pocket expenses (including reasonable
attorneys' fees, charges and expenses) and filing fees of [The 1818 Mezzanine
Fund, L.P.] [PC Investment Company (including any Permitted Transferee thereof)]
[Manufacturers Life Insurance Company (U.S.A.) (including any Permitted
Transferee thereof)] (but not any transferee thereof) in connection with any
such preparation and filing.
REGISTERED HOLDER. The person in whose name this Warrant
certificate is registered on the books and records of the Company shall be
deemed the owner hereof and of the Warrants evidenced hereby for all purposes.
The registered holder of this Warrant certificate, in its capacity as such,
shall not be entitled to any rights whatsoever as a stockholder of the Company,
except as herein provided.
TRANSFER OF WARRANTS. Any transfer of the rights represented
by this Warrant certificate shall be subject to the limitations provided herein,
and shall be effected by the surrender of this Warrant certificate, along with
the form of assignment attached hereto, properly completed and executed by the
registered holder hereof, at the principal executive office of the Company in
the United States of America, together with an appropriate opinion letter, if
deemed reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered holder hereof and, in the event of a partial
transfer, in the name of the registered holder hereof, a new Warrant certificate
or certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
10
<PAGE>
Notwithstanding anything to the contrary contained herein, if
any holder of the Warrants desires to sell or otherwise transfer all or any
portion of his Warrants (other than to a Permitted Transferee), such holder
shall first send written notice (the "OFFERING NOTICE") to the Company which
shall state (i) the number of Warrants proposed to be sold or otherwise
transferred (the "OFFERED WARRANTS"), (ii) the proposed purchase price per
Warrant which such holder is willing to accept and (iii) the material terms and
conditions of the proposed sale or transfer. For a period of five Business Days
after delivery of the Offering Notice (the "NOTICE PERIOD"), the Company shall
have the right (but not the obligation) to purchase all but not less than all of
the Offered Warrants at a purchase price equal to the purchase price provided in
the Offering Notice and upon the terms and conditions set forth in the Offering
Notice. Upon delivery of the Offering Notice, such offer shall be irrevocable
unless and until the rights of first offer of the Company provided for herein
shall have been waived or shall have expired. Failure of the Company to respond
within Notice Period shall be deemed a rejection of such offer. If the Company
elects to accept such offer, the Offered Warrants shall be sold or transferred
to the Company in accordance with the terms and conditions provided in the
Offering Notice on the date that is three Business Days following the Company's
acceptance of such offer.
DENOMINATIONS. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered holder hereof a new Warrant certificate or
certificates in such denominations specified by such holder for an aggregate
number of Warrants equal to the number of Warrants evidenced by this Warrant
certificate provided, however, that the Company shall not be required to issue
any Warrants for fractional shares of Common Stock.
REPLACEMENT OF WARRANTS. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant certificate.
GOVERNING LAW. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW.
RIGHTS INURE TO REGISTERED HOLDER. The Warrants evidenced
by this Warrant certificate will inure to the benefit of and be binding upon the
registered
11
<PAGE>
holder hereof and the Company and their respective successors and permitted
assigns. Nothing in this Warrant certificate shall be construed to give to any
Person other than the Company and the registered holder hereof any legal or
equitable right, remedy or claim under this Warrant certificate, and this
Warrant certificate shall be for the sole and exclusive benefit of the Company
and such registered holder.
DEFINITIONS. For the purposes of this Warrant certificate,
the following terms shall have the meanings indicated below:
"BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New York, are
authorized or required by law or executive order to close.
"CURRENT MARKET PRICE" per share shall mean, on any date
specified herein for the determination thereof, (a) the average daily Market
Price of the Common Stock for those days during the period of 15 days, ending on
such date, on which the national securities exchange or market system on which
the Common Stock is primarily traded was open for trading, and (b) if the Common
Stock is not then listed or quoted on any exchange or market system, the Market
Price on such date.
"EXERCISE PRICE" shall have the meaning given it in the first
paragraph of this Warrant certificate.
"FAIR MARKET VALUE" shall mean the amount which a willing
buyer, under no compulsion to buy, would pay a willing seller, under no
compulsion to sell, in an arm's-length transaction.
"HSR ACT" shall mean the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended and the rules and regulations of the
Federal Trade Commission promulgated thereunder.
"ISSUE DATE" shall mean December [__], 1997.
"MARKET PRICE" shall mean, per share of Common Stock, on any
date specified herein: (a) if the Common Stock is then listed or admitted to
trading on any national securities exchange, the closing price of the Common
Stock on such date; (b) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the last sale price of the Common Stock on such date; or
(c) if there shall have been no trading of the Common Stock on such date or if
the Common Stock is not so designated, the average of the reported closing bid
and asked price of the Common Stock, on such date as shown by Nasdaq and
reported by any member firm of the NYSE selected by the Company; or (d) if
neither (a), (b) nor (c) is applicable, the Fair Market Value per
12
<PAGE>
share determined in good faith by the Board of Directors of the Company which
shall be deemed to be Fair Market Value unless holders of at least 33% of Common
Stock issued or issuable upon exercise of the Warrants request that the Company
obtain an opinion of a nationally recognized investment banking firm chosen by
the Company (who shall bear the expense) and reasonably acceptable to such
requesting holders of the Warrants, in which event the Fair Market Value shall
be as determined by such investment banking firm.
"NASDAQ" shall mean the National Market System of the Nasdaq
Stock Market.
"NOTES" shall mean the Senior Subordinated Promissory Notes
issued by the Company pursuant to the Purchase Agreement.
"NUMBER ISSUABLE" shall have the meaning given it in the
second paragraph of this Warrant certificate.
"NYSE" shall mean the New York Stock Exchange, Inc.
"PERMITTED TRANSFEREE" means (i) any Person who is an
"affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended[, and (ii) with respect to The
1818 Mezzanine Fund, L.P., (x) the general partners and limited partners thereof
(each a "PARTNER"), (y) any "affiliate" (as defined in the preceding clause (i))
of a Partner if such Partner is not an individual, and (z) if a Partner is an
individual, a member of such Partner's immediate family, which shall include his
parents, spouse, siblings, children or grand-
children ("FAMILY MEMBERS"), or a trust, corporation or partnership, all of the
beneficial interests in which shall be held by such Partner or one or more
Family Members of such Partner or which would otherwise be an "affiliate" (as
defined in the preceding clause (i)) of such individual; provided, however, that
during the period any such trust, corporation, or partnership holds any right,
title or interest in any Warrants, no Person other than such Partner or one or
more Family Members of such Partner may be or become beneficiaries, stockholders
or limited or general partners thereof].1
"PERSON" shall mean any individual, corporation, limited
liability company, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
- --------
1 This language shall be inserted on the Warrant issued to The 1818 Mezzanine
Fund, L.P.
13
<PAGE>
"PURCHASE AGREEMENT" shall mean that certain Securities
Purchase Agreement, dated as of December [__], 1997, by and among the Company,
The 1818 Mezzanine Fund, L.P., PC Investment Company, The Progressive Investment
Company, Inc. and Manufacturers Life Insurance Company (U.S.A.), as the same may
be amended, supplemented or modified from time to time in accordance with its
terms.
"SALE TRANSACTION" means the merger or consolidation with or
into another Person by the Company (other than a merger or consolidation in
which the Company is the surviving or resulting person) or the completion of a
tender offer and/or acquisition for any and all shares of Common Stock of the
Company; provided that, when entering into such transaction, the Company shall
comply with Section 9.14 of the Purchase Agreement.
"SPECIAL NOTICE" shall mean the notice sent by a holder to the
Company indicating its preference to have any special distribution set aside for
its benefit upon exercise of the Warrant.
"WARRANT EXERCISE DOCUMENTATION" shall have the meaning given
it in Section 1 hereof.
NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the holder of a Warrant, at such
holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States located at
the address designated for notices in the Purchase Agreement, or such other
address as shall have been furnished to the party given or making such notice,
demand or other communication. All such notices and communications shall be
deemed to have been duly given: when delivered by hand, if personally delivered;
when delivered to a courier if delivered by commercial overnight courier
service; and five Business Days after being deposited in the mail, postage
prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant
certificate to be duly executed as of the Issue Date.
NATIONAL AUTO FINANCE COMPANY, INC.
By:_______________________________________
Name:
Title:
14
<PAGE>
FORM OF ASSIGNMENT FORM
(To be executed upon assignment of the Warrants)
The undersigned hereby assigns and transfers this Warrant
certificate to ____________________ whose Social Security Number or Tax ID
Number is _________________ and whose record address is
_________________________ ____________, and irrevocably appoints
________________ as agent to transfer this security on the books of the Company.
Such agent may substitute another to act for such agent.
Signature:
------------------------------------
Signature Guarantee:
------------------------------------
Date: ___________________________
SECURITIES PURCHASE AGREEMENT
By and Between
NATIONAL AUTO FINANCE COMPANY, INC.,
and
THE STRUCTURED FINANCE HIGH YIELD FUND, LLC
------------------------------
Dated March 27, 1998
------------------------------
<PAGE>
Table of Contents
Page
ARTICLE 1
DEFINITIONS................ 1
1.1 Definitions............................................. 1
1.2 Accounting Terms; Financial Covenants................... 16
ARTICLE 2
PURCHASE AND SALE............. 17
2.1 Purchase and Sale of Senior Subordinated Notes and
Warrants................................................ 17
2.2 Fees.................................................... 17
2.3 Closing................................................. 17
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE.................... 18
3.1 Representations and Warranties True..................... 18
3.2 Compliance with this Agreement.......................... 18
3.3 Officer's Certificate................................... 18
3.4 Secretary's Certificate................................. 18
3.5 Documents............................................... 18
3.6 Purchase Permitted by Applicable Laws; Legal Investment. 19
3.7 Opinion of Counsel...................................... 19
3.8 Approval of Counsel to the Purchaser.................... 19
3.9 Consents and Approvals.................................. 19
3.10 No Material Adverse Change.............................. 19
3.11 Intentionally Deleted................................... 19
3.12 Registration Rights Agreement........................... 20
3.13 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries.................................... 20
3.14 Market Conditions....................................... 20
3.15 No Default or Breach.................................... 20
3.16 Fees.................................................... 20
3.17 Side Letter............................................. 20
3.18 Credit Agreement Waiver................................. 20
3.19 Securities Purchase Agreement Waiver.................... 21
3.20 Intentionally Deleted................................... 21
3.21 Subordination........................................... 21
3.22 National Auto Finance Company, L.P...................... 21
ARTICLE 4
CONDITIONS TO THE OBLIGATION
<PAGE>
Page
OF THE COMPANY TO CLOSE ......... 21
4.1 Representations and Warranties True..................... 21
4.2 Compliance with this Agreement.......................... 21
4.3 Approval of Counsel to the Company...................... 22
4.4 Consents and Approvals.................................. 22
4.5 The Registration Rights Agreement....................... 22
4.6 Credit Agreement Waiver................................. 22
4.7 Intentionally Deleted................................... 22
4.8 General Partner's Certificate........................... 22
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY......... 23
5.1 Corporate Existence and Power........................... 23
5.2 Corporate Authorization; No Contravention............... 23
5.3 Governmental Authorization; Third Party Consents........ 24
5.4 Binding Effect.......................................... 24
5.5 No Legal Bar............................................ 24
5.6 Litigation.............................................. 25
5.7 No Default or Breach.................................... 25
5.8 Title to Properties..................................... 25
5.9 Financial Condition; No Undisclosed Liabilities......... 25
5.10 No Material Adverse Change.............................. 26
5.11 Investment Company...................................... 27
5.12 Subsidiaries............................................ 27
5.13 Capitalization.......................................... 27
5.14 Solvency................................................ 27
5.15 Private Offering........................................ 27
5.16 Broker's, Finder's or Similar Fees...................... 28
5.17 Full Disclosure......................................... 28
5.18 Anti-Dilution Protection................................ 28
5.19 Registration Rights Agreements.......................... 29
5.20 Labor Relations......................................... 29
5.21 ERISA and Employee Benefit Plans........................ 29
5.22 Environmental Matters................................... 30
5.23 Taxes................................................... 30
5.24 Patents, Trademarks, Etc................................ 31
5.25 Potential Conflicts of Interest......................... 32
5.26 Trade Relations......................................... 32
5.27 Indebtedness............................................ 32
5.28 Material Contracts...................................... 32
5.29 Insurance............................................... 33
<PAGE>
Page
5.30 Projections............................................. 33
5.31 Commission Documents.................................... 33
5.32 Lending Activities...................................... 34
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER........ 34
6.1 Nature of Purchase...................................... 34
6.2 Source of Funds......................................... 34
ARTICLE 7
INDEMNIFICATION.............. 35
7.1 Indemnification by the Company.......................... 35
7.2 Notification............................................ 36
7.3 Registration Rights Agreement........................... 36
ARTICLE 8
PRE-CLOSING AFFIRMATIVE COVENANTS..... 37
8.1 Operation of Company.................................... 37
8.2 Exclusivity............................................. 37
ARTICLE 9
AFFIRMATIVE COVENANTS........... 37
9.1 Financial Statements.................................... 37
9.2 Certificates; Other Information......................... 39
9.3 Preservation of Corporate Existence..................... 39
9.4 Payment of Obligations.................................. 39
9.5 Compliance with Laws.................................... 40
9.6 Notices................................................. 40
9.7 Issue Taxes............................................. 40
9.8 Reservation of Shares................................... 41
9.9 Inspection.............................................. 41
9.10 Board Representation; Visitation Rights................. 42
9.11 Registration and Listing................................ 43
9.12 Use of Proceeds......................................... 44
9.13 Payment of Notes........................................ 44
9.14 Sale of Company......................................... 44
9.15 Allocation for Tax Purposes............................. 45
9.16 Information on Internal Rate of Return.................. 45
<PAGE>
ARTICLE 10
NEGATIVE AND FINANCIAL COVENANTS...... 45
10.1 Minimum Consolidated Net Worth.......................... 45
10.2 Adjusted Interest Expense............................... 46
10.3 Consolidations and Mergers.............................. 46
10.4 Transactions with Affiliates............................ 47
10.5 No Inconsistent Agreements.............................. 47
10.6 Limitation on Indebtedness.............................. 47
10.7 Limitation on Liens..................................... 48
10.8 Investments............................................. 49
10.9 Limitations on Restricted Payments...................... 50
10.10 Dispositions of Assets.................................. 50
10.11 Future Issuances of Preferred Stock..................... 51
10.12 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries.................................... 51
10.13 Line of Business........................................ 51
10.14 Vehicle Loan Policy..................................... 51
ARTICLE 11
DEFAULTS AND REMEDIES........... 52
11.1 Events of Default....................................... 52
11.2 Acceleration............................................ 53
ARTICLE 12
SUBORDINATION............... 54
12.1 Definitions............................................. 54
12.2 General................................................. 55
12.3 Limitation on Payment and Remedies...................... 55
12.4 Subordination Upon Certain Events....................... 57
12.5 Payments and Distributions Received..................... 58
12.6 Subrogation............................................. 58
12.7 Relative Rights......................................... 58
12.8 Subordination May Not Be Impaired by the Company........ 59
12.9 Payments................................................ 59
12.10 Section Not to Prevent Events of Default................ 59
12.11 Defense to Enforcement.................................. 59
12.12 Further Covenants....................................... 59
12.13 Freedom of Dealing...................................... 60
12.14 Subordinated Indebtedness Voting Rights................. 60
12.15 Subordinated Indebtedness Unsecured..................... 61
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12.16 Modification or Sale of the Subordinated Indebtedness... 61
12.17 Termination of Subordination............................ 61
12.18 Notices to Holders of Senior Indebtedness............... 62
ARTICLE 13
PREPAYMENT................. 62
ARTICLE 14
MISCELLANEOUS............... 63
14.1 Survival of Provisions.................................. 63
14.2 Notices................................................. 63
14.3 Successors and Assigns.................................. 65
14.4 Assignments............................................. 65
14.5 Amendment and Waiver.................................... 66
14.6 Counterparts............................................ 68
14.7 Headings................................................ 68
14.8 Determinations.......................................... 68
14.9 Governing Law........................................... 68
14.10 Jurisdiction............................................ 68
14.11 Severability............................................ 69
14.12 Rules of Construction................................... 69
14.13 Remedies................................................ 69
14.14 Entire Agreement........................................ 69
14.15 Attorneys' Fees......................................... 69
14.16 Publicity............................................... 70
14.17 Expenses................................................ 70
EXHIBITS
Exhibit A Form of Senior Subordinated Note
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion of Weil, Gotshal & Manges
Exhibit E Form of Legal Opinion of In-House Counsel
<PAGE>
SCHEDULES
Schedule 3.10 Material Adverse Change
Schedule 5.10 Material Adverse Event
Schedule 5.13 Capitalization Matters
Schedule 5.21 ERISA and Employee Benefit Plans
Schedule 5.25 Potential Conflicts of Interest
Schedule 5.27 Indebtedness
Schedule 5.28 Material Contracts
Schedule 5.29 Insurance
Schedule 5.30 Projections
Schedule 5.32(b) Current Policies Regarding Purchase of
Retail Installment Vehicle Loans
Schedule 10.4 Transactions with Affiliates
Schedule 10.7 Liens
Schedule 10.8A Investments
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of March 27, 1998, by
and between NATIONAL AUTO FINANCE COMPANY, INC., a corporation organized under
the laws of Delaware (the "Company"), and THE STRUCTURED FINANCE HIGH YIELD
FUND, LLC, a limited liability company organized under the laws of Delaware (the
"Purchaser").
WHEREAS, the Company proposes to issue and sell to the
Purchaser (i) Senior Subordinated Promissory Notes with a final maturity of
December 22, 2004 in the aggregate principal amount of $20,000,000.00 (the
"Senior Subordinated Notes" and, together with all notes issued in connection
with the substitution, replacement or transfer thereof, the "Notes") and (ii)
[593,671] detachable warrants (the "Warrants") exercisable immediately to
purchase initially [593,671] shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), at an exercise price of $.01 per share, in
each case, upon the terms and subject to the conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any
obligation of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the
<PAGE>
right to use) real or personal property, or a combination thereof, which
obligation is required to be classified and accounted for as a capital lease on
a balance sheet of such Person under GAAP and, for the purposes of the Notes,
the amount of any such obligation at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP consistently applied.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock (or equivalent ownership interests in a Person not a
corporation) whether now outstanding or hereafter issued, including, without
limitation, all common stock and preferred stock and any rights, warrants or
options to purchase such Person's capital stock.
"Closing" has the meaning assigned to that term in Section
2.3.
"Closing Date" has the meaning assigned to such term in
Section 2.3.
"Closing Price" means, for any day, the last reported sale
price or, in case no such sale takes place on such day, the highest reported bid
quotation for the Common Stock, in either case as reported on Nasdaq's automatic
quotation system.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning assigned to that term in the
first Whereas clause.
"Consolidated Net Worth" means, as of the date of
determination with respect to any Person, the consolidated stockholders' equity
(excluding any reductions resulting from mergers accounted for as a
pooling-of-interests in accordance with GAAP) of such Person and its
Subsidiaries, determined in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, as of the date
of determination with respect to the Company, the Consolidated Net Worth of the
Company plus the aggregate amount of Junior Subordinated Indebtedness of the
Company minus the total book value of all assets of the Company and its
Subsidiaries properly classified as intangible assets under GAAP.
2
<PAGE>
"Consolidated Total Interest Expense" means for any period,
the aggregate amount of (a) interest scheduled to be paid or accrued by the
Company and its Subsidiaries during such period on all Funded Debt of the
Company and its Subsidiaries outstanding during all or any part of such period,
whether such interest was or is required to be reflected as an item of expense
or capitalized, including payments consisting of interest in respect of Capital
Lease Obligations plus (b) the net amount payable (or minus the net amount
receivable) under Rate Hedging Agreements during such period (whether or not
actually paid or received during such period) plus (c) dividends to be paid or
declared by the Company and its Subsidiaries during such period on all shares of
Preferred Stock and its Subsidiaries outstanding during all or any part of such
period.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty or other obligation (each a "primary obligation") of another
Person (the "primary obligor"), whether or not contingent, including, without
limitation, any agreement (a) to purchase, repurchase or otherwise acquire any
such primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor in respect of any such primary obligation or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of such primary obligor, or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor in respect
thereof to make payment of such primary obligation, or (d) otherwise to assure
or hold harmless the owner of any such primary obligation against loss or
failure or inability to perform in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof.
"Contractual Obligations" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Credit Agreement" means the Revolving Credit Agreement, dated
as of September 29, 1997, among the Company, the financial institutions party
thereto (the "Banks") and BankBoston, N.A., a national banking association, as
agent for the Banks (the "Agent"), as well as the notes, security documents and
other agreements entered into in connection therewith, each as amended,
supplemented or modified from time to time in
3
<PAGE>
accordance with its terms and including any extensions, replacements,
refinancings or refundings thereof, whether with same or different lenders
and/or agents and evidenced by one or more agreements.
"Current Market Price" has the meaning assigned such term in
the Warrants.
"Current Policies Regarding Purchase of Retail Installment
Vehicle Loans" means the Company's policies regarding the origination and
purchase of such retail installment car loans in the form of Schedule 5.32(b)
hereto, as such policies may be amended, restated, supplemented, or otherwise
modified from time to time.
"December Holder" means the Purchasers (as defined in the
December Securities Purchase Agreement) and any subsequent transferee or
transferees of December Notes, December Warrants or December Warrant Shares, as
reflected on the books and records of the Company, other than a transferee who
has acquired December Notes, December Warrants or December Warrant Shares that
have been the subject of a distribution pursuant to a registered public
offering, or, in the case of December Notes, December Warrants or December
Warrant Shares, a transferee who has acquired such December Notes, December
Warrants or December Warrant Shares after such securities have been sold
pursuant to Rule 144 under the Securities Act or otherwise distributed under
circumstances not requiring a legend.
"December Notes" means the Notes issued pursuant to the
December Securities Purchase Agreement and replacements thereof.
"December Purchaser Shares" means the shares (as defined in
the December Securities Purchase Agreement) and the shares of Common Stock
issuable upon exercise of the December Warrants (subject to any adjustments
pursuant to the terms thereof).
"December Securities Purchase Agreement" shall mean that
certain Securities Purchase Agreement, dated as of December 22, 1997, by and
among the Company, The 1818 Mezzanine Fund, L.P., PC Investment Company, The
Progressive Investment Company, Inc. and Manufacturers Life Insurance Company
(U.S.A.), as the same may be amended, supplemented or modified from time to time
in accordance with its terms.
"December Warrants" means the Warrants issued pursuant to the
December Securities Purchase Agreement.
4
<PAGE>
"December Warrants Shares" shall mean the shares of Common
Stock issuable upon exercise of the December Warrants.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Disposition" means any sale, lease, transfer or other
disposition by the Company or its Subsidiaries of their properties, assets,
rights, licenses and franchises to any Person (including, without limitation,
dispositions in exchange for similar assets and properties and commonly referred
to as "asset swaps").
"EBIT" shall mean, with respect to any Person for any period,
the sum of (a) Net Income for such period (excluding therefrom, to the extent
included in determining Net Income, any items of extraordinary gain (or loss),
including net gains (or losses) on sale of assets other than asset sales in the
ordinary course of business), (b) Consolidated Total Interest Expense deducted
from revenue in determining such Net Income and (c) Federal, state and local
income and franchise taxes deducted from revenue in determining such Net Income.
All references contained herein to EBIT of the Company shall be to the EBIT of
the Company and its Subsidiaries, determined on a consolidated basis.
"Environment" means navigable waters, waters of the contiguous
zone, ocean waters, natural resources, surface waters, ground water, drinking
water supply, land surface, subsurface strata, ambient air, both inside and
outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
"Environmental Claims" means any notification, whether direct
or indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any of its Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of its Subsidiaries, or the operations or property of any
predecessor of the Company or any of its Subsidiaries, is or may be implicated
in or subject to any claim, Requirement of Law, hearing, notice, agreement or
evaluation by any Governmental Authority or any other Person.
"Environmental Compliance Costs" means any expenditures,
costs, assessments or expenses (including any expenditures, costs, assessments
or expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether direct
5
<PAGE>
or indirect, necessary to cause the operations, real property, assets, equipment
or facilities owned, leased, operated or used by the Company or any of its
Subsidiaries to be in compliance with any and all requirements, as in effect at
the Closing Date, of Safety and Environmental Laws, principles of common law
concerning pollution, protection of the Environment or health and safety, or
Permits issued pursuant to Safety and Environmental laws; provided, however,
that Environmental Compliance Costs do not include expenditures, costs,
assessments or expenses necessary in connection with normal maintenance of such
real property, assets, equipment or facilities or the replacement of equipment
in the normal course of events due to ordinary wear and tear.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" has the meaning assigned such term in
Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission hereunder.
"Existing Junior Subordinated Indebtedness" shall mean the
Junior Subordinated Indebtedness of the Company existing as of the date hereof
and evidenced by the Gurba Note, NFC Note, Nova Note, Otto Note and Shapiro
Note.
"Existing Securitization Transaction" means the securitization
program in existence as of the Closing Date comprised of the Company's sale,
assignment, pledge or contribution of some of its Vehicle Loans to a Special
Purpose Subsidiary as part of a securitization of such Vehicle Loans.
"Financials" has the meaning assigned to that term in Section
5.9.
"Fiscal Year" means the fiscal year for the Company. As of the
date of this Agreement, the fiscal year for the Company ends December 31.
"Funded Debt" means with respect to any Person and as at any
date of determination thereof, without duplication, (a) all Indebtedness of such
Person as at such date for money borrowed, (b) the principal component of all
Capital Lease Obligations, (c) all Indebtedness for the deferred purchase price
of property or services represented by a note or other security (other than in
respect of any trade payable) or other Indebtedness arising under any
conditional sale or other title retention agreement with respect to property
acquired by
6
<PAGE>
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), and (d) all Indebtedness of such Person secured by a purchase
money mortgage or other lien to secure all or part of the purchase price of
property subject to such mortgage or lien.
"GAAP" means generally accepted United States accounting
principles in effect from time to time.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Gurba Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P., to
Stephen L. Gurba in the aggregate principal amount, as of July 1, 1997, of
$34,387 and maturing on January 31, 2002, as assigned to, and assumed by the
Company, including the same as such may be amended, supplemented or modified
from time to time in accordance with its terms and the terms hereof.
"Hazardous Substance" means any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or waste, petroleum or petroleum-derived substance
or waste, radioactive substance or waste, or any constituent of any such
substance or waste, or any other substance regulated under or defined by any
Safety and Environmental Law.
"Holder" means the Purchaser and any subsequent transferee or
transferees of Notes, Warrants, Warrant Shares or Shares, as reflected on the
books and records of the Company, other than a transferee who has acquired
Notes, Warrants, Warrant Shares or Shares that have been the subject of a
distribution pursuant to a registered public offering, or, in the case of Notes,
Warrants, Warrant Shares or Shares, a transferee who has acquired such Notes,
Warrants, Warrant Shares or Shares after such securities have been sold pursuant
to Rule 144 under the Securities Act or otherwise distributed under
circumstances not requiring a legend.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
7
<PAGE>
"Indebtedness" means as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
and accrued liabilities arising in the ordinary course of business, (d) all
interest rate and currency swaps and similar agreements under which payments are
obligated to be made, whether periodically or upon the happening of a
contingency, (e) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (f) all obligations under Capital Lease Obligations, (g) all
indebtedness secured by any Lien on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall have been
assumed by that Person or is non-recourse to the credit of that Person, and (h)
any Contingent Obligation.
"Intercompany Indebtedness" means Indebtedness of the Company
to any Subsidiary, directly or indirectly, wholly owned by the Company and
Indebtedness of any Subsidiary of the Company to the Company or another
Subsidiary of the Company.
"Interim Financials" has the meaning assigned to such term in
Section 5.9.
"Investment" means (i) the acquisition (whether for cash,
property, services, securities or otherwise) of Capital Stock, bonds, notes,
debentures, partnership or other ownership interests or other securities of any
other Person or any agreement to make any such acquisition; and (ii) the making
of any advance, loan or other extension of credit to, any Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person, but
excluding any accounts receivable created in the ordinary course of business).
"Junior Securities" has the meaning assigned to such term in
Section 12.1.
"Junior Subordinated Indebtedness" shall mean Indebtedness
that is expressly subordinated and made junior to the payment and performance in
full of the Notes, has a Stated Maturity later than December 22, 2004, and is
evidenced as such by a written instrument containing subordination provisions in
form and substance approved by the holders of a majority in interest of the
aggregate principal amount of the Notes whose consent shall not be unreasonably
withheld; provided that any such subordination provisions shall be deemed
reasonable so long as the holder of the Junior Subordinated Indebtedness
8
<PAGE>
agrees to be subordinated to the Notes at least to the same extent as the
Existing Junior Subordinated Indebtedness is subordinated to the Notes pursuant
to the Junior Subordination Agreement (except that nothing contained in this
proviso shall be deemed to permit the Stated Maturity of any such Junior
Subordinated Indebtedness to be earlier than December 22, 2004). Notwithstanding
anything to the contrary contained in the foregoing, however, Junior
Subordinated Indebtedness shall be deemed to include the Existing Junior
Subordinated Indebtedness even though the Stated Maturity of such Indebtedness
is January 31, 2002. The fact that the Stated Maturity of the Existing Junior
Subordinated Indebtedness is January 31, 2002 shall not be deemed to be a
violation of the terms of this Agreement.
"Junior Subordination Agreement" means the Junior
Subordination Agreement, dated as of the date hereof, among the Purchaser, Bank
Boston, N.A., a national banking association, as agent for the Banks, other
"Senior Creditors" identified on the signature pages thereto and "Subordinating
Creditors" as identified on Schedule I thereto, including the same as such may
be amended, supplemented or modified from time to time.
"Liabilities" has the meaning assigned to such term in Section
5.9.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock or equity related
preferences), including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, any
interest of a lessor under a capital lease, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Material Adverse Effect" has the meaning assigned to such
term in Section 3.10.
"Nasdaq" means the National Market System of Nasdaq Stock
Market.
"Net Income" shall mean for any period, the net income (loss)
of any Person, determined in accordance with GAAP, after deducting all operating
expenses, provisions for taxes and reserves and all other proper deductions in
accordance with GAAP. All references contained herein to the Net Income of the
Company shall be to the Net Income of the Company and its Subsidiaries,
determined on a consolidated basis.
"Net Sale Proceeds" means with respect to any Disposition, the
aggregate amount of all cash payments received by the Company or its
Subsidiaries, directly or
9
<PAGE>
indirectly, in connection with such Disposition, whether at the time thereof or
after such Disposition under deferred payment arrangements or Investments
entered into or received in connection with such Disposition, minus the
aggregate amount of any reasonable and customary legal, accounting, regulatory,
title and recording tax expenses, transfer taxes, commissions and other fees and
expenses paid at any time by the Company or its Subsidiaries in connection with
such Disposition, and minus any cash income taxes payable by the Company and its
Subsidiaries in connection with such Disposition. For purposes of this
paragraph, the Company shall not be deemed to have received any amounts held in
escrow by a third party in connection with a Disposition until the time, and
only to the extent, such amounts are released to the Company.
"NFC Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P. to
Nova Financial Corporation in the aggregate principal amount, as of July 1,
1997, of $27,789 and maturing on January 31, 2002, as assigned to, and assumed
by the Company, including the same as such may be amended, supplemented or
modified from time to time in accordance with its terms and the terms hereof.
"Notes" has the meaning assigned to that term in the first
Whereas clause.
"Nova Note" means the Amended and Restated Promissory Note,
issued by National Auto Finance Company, L.P. to Nova Corporation in the
aggregate principal amount, as of July 1, 1997, of $497,383 and maturing on
January 31, 2002, as assigned to, and assumed by, the Company, including the
same as such may be amended, supplemented or modified from time to time in
accordance with its terms and the terms hereof.
"NYSE" means the New York Stock Exchange, Inc.
"Omni" means Omni Financial Services of America, Inc., as
assignee of World Omni Financial Corporation, a Florida corporation.
"Omni Agreement" means the Fourth Amendment to the Amended and
Restated Servicing Agreement, dated as of October 12, 1997, by and between Omni
Financial Services of America, Inc. and National Auto Finance Company, Inc.
"Otto Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P. to
Edgar Otto in the aggregate principal amount, as of July 1, 1997, of $980,895
and maturing on January 31, 2002, as assigned to, and assumed by, the Company,
including the same as such may be
10
<PAGE>
amended, supplemented or modified from time to time in accordance with its terms
and the terms hereof.
"Permit" means any license, permit, exemption, consent,
waiver, authorization, right, order or approval of, and required registration
with, any Governmental Authority.
"Permitted Liens" has the meaning assigned to that term in
Section 10.7.
"Permitted Refinancing Indebtedness" means Junior Subordinated
Indebtedness issued in exchange for, or the net proceeds of which are used to
extend, refinance, replace, defease or refund any other Junior Subordinated
Indebtedness of the Company permitted to be incurred under this Agreement, but
only to the extent that such Indebtedness does not shorten the Stated Maturity
(or weighted average life to maturity) of such Indebtedness.
"Permitted Securitization Transaction" means (a) the Existing
Securitization Transaction and (b) any similar transaction (including any whole
loan sales or similar transactions in the ordinary course of business) hereafter
entered into by the Company or any of its Subsidiaries provided that at the time
such similar transaction is consummated no Default or Event of Default shall
have occurred and be continuing or would occur immediately after giving effect
thereto.
"Person" means any individual, firm, corporation, division,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
"Predecessor Financials" has the meaning assigned to that term
in Section 5.9.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holders thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Proxy Statement" has the meaning assigned to that term in
Section 8.3.
"Public Offering" means the sale in any offering by the
Company or any of its Subsidiaries of their Capital Stock pursuant to a
registration statement on Form S-1, Form S- 3 or otherwise under the Securities
Act.
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"Purchaser Shares" means the shares of Common Stock initially
issuable upon exercise of the Warrants (subject to any adjustments pursuant to
the terms thereof).
"Purchaser" has the meaning assigned to that term in the
preamble of this Agreement.
"Rate Hedging Agreements" means any written agreements
evidencing Rate Hedging Obligations.
"Rate Hedging Obligations" means any and all obligations of
the Company or any of its Subsidiaries, whether direct or indirect and whether
absolute or contingent, at any time created, arising, evidenced or acquired
(including all renewals, extensions, modifications and amendments thereof and
all substitutions therefor), in respect of: (a) any and all agreements,
arrangements, devices and instruments designed or intended to protect at least
one of the parties thereto from the fluctuations of interest rates, exchange
rates or forward rates applicable to such party's assets, liabilities or
exchange transactions, including without limitation dollar-denominated or cross
currency interest rate exchange agreements, forward rate currency or interest
rate options, puts and warrants and so-called "rate swap" agreements; and (b)
any and all cancellations, buy-backs, reversals, terminations or assignments of
any of the foregoing.
"Registration Rights Agreement" means the Registration Rights
Agreement substantially in the form attached hereto as Exhibit C, as the same
may be amended or modified from time to time in accordance with its terms.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into or through the indoor or outdoor Environment or into, through or
out of any property, including the movement of Hazardous Substances through or
in the air, soil, surface water, ground water or property.
"Remedial Action" means all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Safety and Environmental Laws to (i) clean up, remove, treat, cover or in
any other way adjust Hazardous Substances in the indoor or outdoor Environment;
(ii) prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
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"Requirements of Law" means, as to any Person, any law,
treaty, rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Restricted Payment" means (a) any dividend (or other
distribution of evidences of Indebtedness, assets or other property) on any
share of the Company's or any Subsidiary's Capital Stock (except dividends
payable solely in shares of their Capital Stock or dividends paid to the Company
or a wholly-owned Subsidiary of the Company by a wholly-owned direct or indirect
Subsidiary of the Company) or (b) any payment by the Company or any of its
Subsidiaries on account of the direct or indirect purchase, redemption,
retirement or other acquisition of (i) any shares of the Company's or any such
Subsidiary's Capital Stock (except (x) the Warrants and the December Warrants
and (y) shares acquired upon the conversion, exchange or exercise thereof into
or for other shares of their Capital Stock), or (ii) any Indebtedness of the
Company or any such Subsidiary prior to any date set forth for mandatory
repayment or redemption of principal or interest thereon; provided, however,
that this clause (ii) shall not apply to (w) Indebtedness incurred pursuant to
the Notes, (x) Senior Indebtedness, (y) Indebtedness that is pari passu in right
of payment to the Notes, to the extent that the Company offers to purchase,
redeem or retire the Notes pro rata with such pari passu Indebtedness or to the
repayment of the December Notes in accordance with the terms of their terms and
the terms of the December Securities Purchase Agreement or (z) Permitted
Refinancing Indebtedness in respect of Junior Subordinated Indebtedness (other
than Existing Junior Subordinated Indebtedness)).
"Safety and Environmental Laws" means all Requirements of Law
relating to pollution, protection of the Environment, public or worker health
and safety, or the emission, discharge, release or threatened release of
Hazardous Substances into the Environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C.
ss. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 121 et seq., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 et seq., the Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 et
seq., the Safe Drinking Water Act, 42 U.S.C. ss. 300f et seq., the Oil Pollution
Act of 1990, 33 U.S.C. ss. 2701 et seq., and analogous legislation and
regulation by any Governmental Authority.
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"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Senior Default" has the meaning assigned to such term in
Section 12.1.
"Senior Event of Default" has the meaning assigned to such
term in Section 12.1.
"Senior Indebtedness" has the meaning assigned to such term in
Section 12.1.
"Senior Payment Default" has the meaning assigned to such
term in Section 12.1.
"Senior Subordinated Notes" has the meaning assigned to such
term in the first Whereas clause.
"Series A Preferred Stock" means the Company's Series A
Preferred Stock, $.01 par value per share.
"Shapiro Note" means the Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company, L.P. to
Gary L. Shapiro in the aggregate principal amount of $436,846 and maturing on
January 31, 2002, as assigned to, and assumed by, the Company, including the
same as such may be amended, supplemented or modified from time to time in
accordance with its terms and the terms hereof.
"Solvent" means, as to any Person, that the fair saleable
value on a going concern basis of the assets and property of such Person and its
Subsidiaries, taken as a whole, is, on the date of determination, greater than
the total amount of liabilities (including contingent and unliquidated
liabilities) of such Person as of such date and that, as of such date, such
Person is able to pay all liabilities of such Person as such liabilities mature.
In computing the amount of contingent or unliquidated liabilities at any time,
such liabilities will be computed as the amount which, in light of all the facts
and circumstances existing at such time, represents the amount that is probable
to become an actual or matured liability.
"Special Purpose Subsidiary" means any special purpose entity
including, without limitation, a wholly-owned Subsidiary of the Company or
trust, established in connection with a Permitted Securitization Transaction.
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"Stated Maturity" means, with respect to any Junior
Subordinated Indebtedness, the date on which the payment of the principal
thereon is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" has the meaning assigned to such
term in Section 12.1.
"Subordinated Notes" means the Senior Subordinated Notes and
the December Notes.
"Subsidiary" means, with respect to any Person, a corporation
or other entity of which 50% or more of the voting power for the election of
directors under ordinary circumstances is exercisable, directly or indirectly,
by such Person; provided that the term Subsidiary shall not include a Special
Purpose Subsidiary.
"Tax" or "Taxes" means all federal, state, county, local,
foreign and other taxes (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll-related and property taxes, import duties and
other governmental charges and assessments), whether or not measured in whole or
in part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"Temporary Cash Investment" means any Investment in (i)
marketable direct or guaranteed obligations of the United States of America that
mature within one (1) year from the date of purchase by the Company; (ii) demand
deposits in, or certificates of deposit, bankers acceptances and time deposits
of United States banks having total assets in excess of $1,000,000,000; and
(iii) securities commonly known as "commercial paper" issued by a corporation
organized and existing under the laws of the United States of America or any
state thereof that at the time of purchase have been rated and the ratings for
which are not less than "P 1" by Moody's Investors Services, Inc., or not less
than "A 1" by Standard and Poor's.
"Total Indebtedness" shall mean Funded Debt of the Company and
its Subsidiaries on a consolidated basis less Junior Subordinated Indebtedness.
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"Transaction Documents" has the meaning assigned to that term
in Section 5.17.
"Unit Purchase Price" has the meaning assigned to that term in
Section 2.1(a).
"Vehicle Loan" means a motor vehicle installment sales
contract assigned to the Company that is secured by title to, security interests
in, or liens on a motor vehicle under applicable provisions of the motor vehicle
or other similar law of the jurisdiction in which the motor vehicle is title and
registered by the purchaser at the time the contract is originated or purchased.
"Voided Payment" has the meaning assigned to that term in
Section 12.17.
"Warrants" has the meaning assigned to that term in the first
Whereas clause.
"Warrant Shares" has the meaning assigned to that term in
Section 5.13.
1.2 Accounting Terms; Financial Covenants. All accounting
terms used herein not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with sound accounting practice.
The term "sound accounting practice" shall mean such accounting practice as, in
the opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis. If any changes in
accounting principles are hereafter occasioned by promulgation of rules,
regulations, pronouncements or opinions by or are otherwise required by the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions),
and any of such changes results in a change in the method of calculation of, or
affects the results of such calculation of, any of the financial covenants,
standards or terms found herein, then the parties hereto agree to enter into and
diligently pursue in good faith negotiations in order to amend such financial
covenants, standards or terms so as to reflect fairly and equitably such
changes, with the desired result that the criteria for evaluating the Company's
financial condition and results of operations shall be the same as nearly as
practicable after such changes as if such changes had not been made.
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ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale of Senior Subordinated Notes and
Warrants. Subject to the terms and conditions set forth herein, the Company
agrees that it will issue to Purchaser, and Purchaser agrees that it will
acquire from the Company, at the Closing, (i) $20,000,000 aggregate principal
amount of Senior Subordinated Notes, with such Senior Subordinated Notes being
substantially in the form attached hereto as Exhibit A, appropriately completed
in conformity herewith and (ii) Warrants to purchase initially [593,671] shares
of Common Stock, with such Warrants being substantially in the form attached
hereto as Exhibit B, for the aggregate purchase price of $20,000,000 (the "Unit
Purchase Price") in cash, by wire transfer of immediately available funds to an
account designated in a notice delivered to such Purchaser not later than two
Business Days prior to the Closing Date.
2.2 Fees. The Company hereby agrees that it will pay to the
Purchaser, at the Closing, a facility fee of $200,000 to the Purchaser (less any
portion thereof previously paid by the Company to the Purchaser) by wire
transfer of immediately available funds to an account designated in a notice
delivered to the Company not later than two Business Days prior to the Closing
Date.
2.3 Closing. The purchase and issuance of the Senior
Subordinated Notes and the Warrants shall take place at the closing (the
"Closing") to be held at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, New York 10153 on March 27, 1998, at 10:00 a.m., New York City
time, or on such other date and at such other time as the Purchaser and the
Company may mutually agree (the "Closing Date"). At the Closing, subject to the
terms and conditions set forth herein, the Company shall sell the Senior
Subordinated Notes and the Warrants to the Purchaser by delivering to the
Purchaser, the Senior Subordinated Notes and the Warrants registered in the name
of the Purchaser, with appropriate issue stamps, if any, affixed at the expense
of the Company, free and clear, upon issuance, of any Lien (other than as may be
created by the Purchaser), and the Purchaser shall purchase the Senior
Subordinated Notes and the Warrants for the Unit Purchase Price.
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ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Senior
Subordinated Notes and the Warrants to pay the Unit Purchase Price therefor at
the Closing, and to perform any of its obligations hereunder in respect of
transactions contemplated to occur on the Closing Date shall be subject to the
satisfaction or waiver of the following conditions on or before the Closing
Date:
3.1 Representations and Warranties True. The representations
and warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects (unless any representation or warranty is
qualified by its terms as to materiality, in which case such representation or
warranty shall be true and correct) at and as of the Closing Date, as if made at
and as of such date.
3.2 Compliance with this Agreement. The Company shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
3.3 Officer's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the Chief Executive Officer,
Vice Chairman or Chief Financial Officer of the Company, certifying that the
conditions set forth in Sections 3.1 and 3.2 hereof have been satisfied on and
as of such date.
3.4 Secretary's Certificate. The Purchaser shall have received
a certificate, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, attaching a good standing certificate from
the Delaware Secretary of State with respect to the Company, and certifying the
correctness of attached copies of the certificate of incorporation and by-laws
of the Company and resolutions of the Board of Directors of the Company
approving this Agreement and the transactions contemplated hereby.
3.5 Documents. The Purchaser shall have received copies of
such documents as it reasonably may request in connection with the sale of the
Senior Subordinated Notes and the Warrants and the transactions contemplated
hereby, all in form and substance reasonably satisfactory to the Purchaser.
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3.6 Purchase Permitted by Applicable Laws; Legal Investment.
The acquisition of and payment for the Senior Subordinated Notes and the
Warrants and the consummation of the transactions contemplated hereby (a) shall
not be prohibited by any applicable law or governmental regulation, (b) shall
not subject the Purchaser to any penalty or, in their reasonable judgment, other
onerous condition under or pursuant to any applicable law or governmental
regulation and (c) shall be permitted by the laws and regulations of the
jurisdictions to which they are subject.
3.7 Opinion of Counsel. The Purchaser shall have received the
opinion of Weil, Gotshal & Manges LLP, counsel to the Company, dated the Closing
Date, substantially in the form attached hereto as Exhibit D. The Purchaser
shall have received the opinion of in-house counsel to the Company, dated the
Closing Date, substantially in the form of the attached hereto as Exhibit E.
3.8 Approval of Counsel to the Purchaser. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Richard D. Gorevitz, Assistant Counsel, the Prudential Insurance
Company of America, counsel to the Purchaser, as to their form and substance.
3.9 Consents and Approvals. All consents, waivers, exemptions,
authorizations (including, without limitation, stockholder approval), or other
actions by, or notices to, or filings with, Governmental Authorities and other
Persons necessary or required in connection with the execution, delivery or
performance by the Company or enforcement against the Company of this Agreement
or any other Transaction Document shall have been obtained and be in full force
and effect, and the Purchaser shall have been furnished with appropriate
evidence thereof.
3.10 No Material Adverse Change. Since December 31, 1996,
except as disclosed in Schedule 3.10, there shall have been no change, that has,
or would have, a material adverse effect on the assets, business, properties,
operations or financial or other condition of the Company and its Subsidiaries,
taken as a whole (a "Material Adverse Effect"), nor shall any such change be
threatened.
3.11 Intentionally Deleted.
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3.12 Registration Rights Agreement. The Registration Rights
Agreement shall have been duly executed and delivered to the Purchaser by each
of the other parties thereto.
3.13 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries. No amendments to the certificate of incorporation or
by-laws of the Company as in effect on the date hereof shall have been effected.
3.14 Market Conditions. On or prior to the Closing Date, (a)
trading in securities generally on the NYSE shall not have been suspended or
limited or minimum or maximum prices shall not have been generally established
on such exchange, or additional material governmental restrictions, not in force
on the date of this Agreement, shall not have been imposed upon trading in
securities generally by such exchange or by order of the Commission or any court
or other Governmental Authority, (b) a general banking moratorium shall not have
been declared by either federal or New York State authorities or (c) any
material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall not have
occurred.
3.15 No Default or Breach. The Company shall not be or have
been in Default under this Agreement, any of the other Transaction Documents or
any Indebtedness and, after giving effect to the transactions contemplated
hereby and thereby, the Company will not be in Default under any of the
Transaction Documents or any Indebtedness.
3.16 Fees. The Company shall have paid or shall concurrently
pay to the Purchaser the fees provided for in Section 2.2 hereof.
3.17 Side Letter. The Company shall have executed and
delivered a side letter regarding confidential information and transfer of
Senior Subordinated Notes and Warrants in form and substance reasonably
satisfactory to the Purchaser (the "Side Letter").
3.18 Credit Agreement Waiver. The Company shall have delivered
to the Purchaser, in form and substance reasonably satisfactory to the
Purchaser, a waiver of any provisions of the Credit Agreement prohibiting or
otherwise restricting the ability of the Company to enter into and perform its
obligations under this Agreement or any other Transaction Document.
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3.19 Securities Purchase Agreement Waiver. The Company shall
have delivered to the Purchaser, in form and substance reasonably satisfactory
to the Purchaser, a waiver of any provisions of the December Securities Purchase
Agreement prohibiting or otherwise restricting the ability of the Company to
enter into and perform its obligations under this Agreement or any other
Transaction Document.
3.20 Intentionally Deleted.
3.21 Subordination. The Company shall have executed and
delivered the Junior Subordination Agreement, in form and substance reasonably
satisfactory to the Purchaser.
3.22 National Auto Finance Company, L.P. The Company shall
have delivered to the Purchaser, in form and substance reasonably satisfactory
to the Purchaser, an agreement duly executed and delivered by National Auto
Finance Company, L.P. pursuant to which it agrees to vote its shares of Common
Stock in favor of the Person to be nominated to the Company's Board of Directors
by the Purchaser pursuant to the provisions of Section 9.10 hereof.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Senior
Subordinated Notes and the Warrants and to perform any of its other obligations
hereunder in respect of transactions contemplated to occur on the Closing Date,
shall be subject to the satisfaction or waiver of the following conditions on or
before the Closing Date:
4.1 Representations and Warranties True. The representations
and warranties of the Purchaser contained in Article 6 hereof shall be true and
correct in all material respects (unless any representation or warranty is
qualified by its terms as to materiality, in which case such representation or
warranty shall be true and correct) at and as of the Closing Date as if made at
and as of such date.
4.2 Compliance with this Agreement. The Purchaser shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that
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are required to be performed or complied with by the Purchaser on or before the
Closing Date.
4.3 Approval of Counsel to the Company. All actions and
proceedings hereunder and all documents required to be delivered by the
Purchaser hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Weil, Gotshal & Manges LLP, counsel to the Company, as to their
form and substance.
4.4 Consents and Approvals. All consents, exemptions,
authorizations, waivers or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Purchaser or the Company or
enforcement against the Purchaser of this Agreement shall have been obtained and
be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
4.5 The Registration Rights Agreement. The Registration Rights
Agreement shall have been duly executed and delivered to the Company by each of
the other parties thereto.
4.6 Credit Agreement Waiver. The Company shall have obtained a
waiver of any provisions of the Credit Agreement prohibiting or otherwise
restricting the ability of the Company to enter into and perform its obligations
under this Agreement or any other Transaction Document.
4.7 Intentionally Deleted
4.8 General Partner's Certificate. The Company shall have
received from the Purchaser a certificate, dated the Closing Date and signed by
the manager of the Purchaser, certifying that the conditions set forth in
Sections 4.1 and 4.2 hereof have been satisfied on and as of such date with
respect to the Purchaser.
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ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
5.1 Corporate Existence and Power. The Company:
(a) is, and after giving effect to the transactions
contemplated by the Transaction Documents, will be duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization;
(b) has, and after giving effect to the transactions
contemplated hereby, will have (i) full corporate power and authority
and (ii) all Permits to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it
is currently, or is currently proposed to be, engaged;
(c) is, and after giving effect to the transactions
contemplated hereby, will be duly qualified as a foreign corporation,
licensed and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its
business requires such qualification; and
(d) is, and after giving effect to the transactions
contemplated hereby, will be in compliance with (i) its certificate of
incorporation and by-laws or other organizational or governing
documents and (ii) all Requirements of Law;
except, in the case of (b)(ii), (c) or (d)(ii) of this Section 5.1, to the
extent that the failure to do, or be, so would not have a Material Adverse
Effect.
5.2 Corporate Authorization; No Contravention. The execution,
delivery and performance by the Company of this Agreement, the Registration
Rights Agreement, any other Transaction Document and the transactions
contemplated hereby and thereby, including without limitation, the issuance of
the Senior Subordinated Notes and the Warrants:
(a) is within the Company's corporate power and
authority and has been duly authorized by all necessary corporate
action; and
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(b) does not, and will not after giving effect to the
transactions contemplated hereby, contravene the terms of the
certificate of incorporation or by-laws or other organizational or
governing documents or any amendment thereof of the Company; and
(c) does not, and will not after giving effect to the
transactions contemplated hereby, violate, conflict with or result in
any breach of, contravention of or the creation of any Lien under, any
Contractual Obligation of the Company or any order or decree directly
relating to the Company.
5.3 Governmental Authorization; Third Party Consents. No
approval, consent, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, is necessary or
required in connection with the execution, delivery or performance by the
Company or enforcement against the Company of this Agreement, the Senior
Subordinated Notes, the Warrants, the Registration Rights Agreement, any other
Transaction Document or the transactions contemplated hereby or thereby, other
than consents required pursuant to the Credit Agreement, Registration Rights
Agreement and December Securities Purchase Agreement or those that have been
obtained or made on or prior to the Closing.
5.4 Binding Effect. This Agreement has been duly executed and
delivered by the Company, and at the Closing the Senior Subordinated Notes, the
Registration Rights Agreement, the Warrants and each other Transaction Document
will be duly executed and delivered by the Company, and this Agreement
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, and at the Closing the
Registration Rights Agreement, the Senior Subordinated Notes and the Warrants
will constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
5.5 No Legal Bar. Neither the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, or any other
Transaction Document nor the issuance of or performance of the terms of the
Senior Subordinated Notes or the Warrants will violate any Requirement of Law.
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5.6 Litigation. There are no actions, suits, proceedings,
claims or disputes pending, or to the knowledge of the Company, threatened, at
law, in equity, in arbitration or before any Governmental Authority against the
Company:
(a) with respect to any Transaction Document or
any of the transactions contemplated thereby; or
(b) which would, if adversely determined, (i) have a
Material Adverse Effect or (ii) have a material adverse effect on the
ability of the Company to perform its obligations under this Agreement,
the Senior Subordinated Notes, the Warrants, the Registration Rights
Agreement or any other Transaction Document. No injunction, writ,
temporary restraining order, decree or any order of any nature has been
issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery and performance of this
Agreement, the Senior Subordinated Notes, the Warrants, the
Registration Rights Agreement or any other Transaction Document.
5.7 No Default or Breach. No event has occurred and is
continuing or would result from the incurring of obligations by the Company
under this Agreement, the Registration Rights Agreement or any other Transaction
Document which constitutes a default under or breach of any of the provisions
hereof or of the Notes and no such event will occur or will be continuing
immediately after giving effect to the transactions contemplated hereby. The
Company is not, and after giving effect to the transactions contemplated by the
Transaction Documents will not be, in Default under or with respect to any
Transaction Document in any respect.
5.8 Title to Properties. The Company has, and after giving
effect to the transactions contemplated by the Transaction Documents will have,
good record and marketable title to, or hold leases in full force and effect in
all its real property, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect.
5.9 Financial Condition; No Undisclosed Liabilities. The
Company heretofore has delivered to the Purchaser true and correct copies of (i)
the audited consolidated balance sheets of National Auto Finance Company, L.P.
and its Subsidiaries for the fiscal years ended December 31, 1996 and December
31, 1995 and the related consolidated statements of income (loss), partners'
capital and cash flows for the years ended December 31, 1996 and December 31,
1995 and for the period from October 1, 1994 (date of inception) to December 31,
1994 (the "Predecessor Financials"), (ii) the unaudited pro
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forma balance sheet of the Company for the fiscal year ended December 31, 1996
and an unaudited pro forma statement of income for the year ended December 31,
1996 (the "Financials") and (iii) the unaudited balance sheet of the Company as
of September 30, 1997 and the related statements of income, cash flows and
stockholder's equity, together with notes thereto, for the nine-month period
then ended (the "Interim Financials"), certified, as stated in the immediately
following sentence, by the Treasurer or Chief Financial Officer of the Company.
Except as disclosed therein, the Predecessor Financials, the Financials and the
Interim Financials have been prepared in accordance with GAAP applied
consistently throughout the periods covered thereby (except to the extent of any
inconsistency resulting from the fact that the Company's predecessor was a
limited partnership), and present fairly in all material respects the financial
condition of the Company (or its predecessor, as the case may be) as of the
dates thereof, and the results of operations of the Company (or its predecessor,
as the case may be) for the periods then ended; provided, however, the Purchaser
acknowledges that the application of FAS 125 and its effects on securitization
assets, including the Company's assets, and the use of "gain-on-sale"
accounting, in general, are presently under review by the Company's accountants
and the accounting profession as a whole. The Purchaser further acknowledges
that any change in the interpretation or application of FAS 125 to the
gain-on-sale accounting policies utilized by the Company and the assumptions
underlying those policies may affect the financial condition and operating
results of the Company for 1997 and in the future. After giving effect to the
transactions contemplated hereby, the Company will not have any material direct
or indirect Indebtedness or liability, whether known or unknown, fixed or
unfixed, contingent or otherwise, of a kind required by GAAP to be set forth on
a financial statement (collectively "Liabilities"), other than (i) Liabilities
fully and adequately reflected on the Financials and the Interim Financials,
(ii) those incurred since the date of the Interim Financials in the ordinary
course of business and (iii) Liabilities incurred pursuant to the Senior
Subordinated Notes and the December Notes.
5.10 No Material Adverse Change. Except as set forth on
Schedule 5.10, since December 31, 1996, there has not been any material adverse
change, nor to the knowledge of the Company is any such change threatened, in
the assets, business, properties, prospects, operations or financial or other
condition of the Company; provided, however, the Purchaser acknowledges that the
application of FAS 125 and its effects on securitization assets, including the
Company's assets, and the use of "gain-on-sale" accounting, in general, are
presently under review by the Company's accountants and the accounting
profession as a whole. The Purchaser further acknowledges that any change in the
interpretation or application of FAS 125 to the gain-on-sale accounting policies
utilized by the Company and the assumptions underlying those policies may affect
the financial condition and operating results of the Company for 1997 and in the
future.
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5.11 Investment Company. Neither the Company nor National
Auto Finance Company, L.P. is, and after giving effect to the transactions
contemplated hereby will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
5.12 Subsidiaries. The Company has no Subsidiaries.
5.13 Capitalization. At Closing, after giving effect to
the transactions contemplated hereby, (i) the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock and 1,000,000 shares
of Series A Preferred Stock and (ii) no shares of Common Stock or Series A
Preferred Stock will be held in the Company's treasury. As of the Closing, after
giving effect to the transactions contemplated hereby, 9,030,762 shares of
Common Stock and 2,295 shares of Series A Preferred Stock will be issued and
outstanding. All such shares of Capital Stock of the Company have been duly
authorized and all of the issued and outstanding shares of Common Stock and
Series A Preferred Stock as of the date hereof are fully paid and nonassessable.
The Warrants (assuming all such Warrants are exercised) to be issued at the
Closing will constitute _____% of the Common Stock on a fully diluted basis
(assuming exercise, exchange or conversion, as the case may be, of all options
(including options reserved for issuance but not yet issued), warrants,
convertible or exchangeable securities or other Common Stock equivalents) as of
the Closing Date. Except as set forth in Schedule 5.13 or as reserved for
issuance in connection with the exercise of the Warrants and December Warrants,
there are no shares of Capital Stock of the Company reserved for issuance. The
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") will
be duly authorized, and, when issued against payment therefor, the Warrant
Shares will be fully paid and nonassessable. Except for the Warrants and
December Warrants and as set forth in Schedule 5.13, there are no options,
warrants or other rights to purchase shares of Capital Stock or any other
securities of the Company, nor is the Company obligated in any manner to issue
shares of its Capital Stock or other securities. Except as contemplated hereby
and for relevant state and federal securities laws, there are no restrictions on
the Company's ability to transfer shares of Capital Stock of the Company.
5.14 Solvency. On and as of the Closing, after giving effect
to the transactions contemplated hereby, the Company will be Solvent.
5.15 Private Offering. No form of general solicitation or
general advertising was used by the Company or, to its knowledge, its
representatives in connection with the offer or sale of the Senior Subordinated
Notes or the Warrants. No registration of the Senior Subordinated Notes, the
Warrants or the Warrant Shares pursuant to the provisions of the
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Securities Act or any state securities or "blue sky" laws will be required by
the offer, sale or issuance of any such securities pursuant to the transactions
contemplated hereby. The Company agrees that neither it, nor anyone acting on
its behalf, will offer or sell the Senior Subordinated Notes or the Warrants or
any other security in such a manner so as to require the registration of the
Senior Subordinated Notes or the Warrants pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws.
5.16 Broker's, Finder's or Similar Fees. Except for the
Company's agreement with First Union Capital Markets which requires the Company
to pay fees totaling $400,000 and the Company's agreement with National
Financial Companies LLC which requires the Company to pay fees totaling
$200,000, which fees shall be paid by the Company at Closing, and except for the
facility fee payable to the Purchaser pursuant to Section 2.2 hereof, there are
no brokerage commissions, finder's fees or similar fees or commissions payable
in connection with the offer or sale of the Senior Subordinated Notes or the
Warrants contemplated hereby based on any agreement, arrangement or
understanding with the Company, or any action taken by the Company.
5.17 Full Disclosure. No statement by the Company contained in
this Agreement (including all Schedules hereto), the Senior Subordinated Notes,
the Warrants, the Registration Rights Agreement, the Subordination Agreement or
the certificates referred to in Sections 3.3 and 3.4 hereof (collectively,
"Transaction Documents") or in any other written material delivered to the
Purchaser in connection with the purchase and sale of the Senior Subordinated
Notes and the Warrants at or prior to the Closing contains (or will contain) an
untrue statement of a material fact or omits (or will omit) to state a material
fact required to be stated therein or necessary to make the statements made, in
light of the circumstances in which made, not materially false or misleading;
provided, however, the Purchaser acknowledges that the application of FAS 125
and its effects on securitization assets, including the Company's assets, and
the use of "gain-on-sale" accounting, in general, are presently under review by
the Company's accountants and the accounting profession as a whole. The
Purchaser further acknowledges that any change in the interpretation or
application of FAS 125 to the gain-on-sale accounting policies utilized by the
Company and the assumptions underlying those policies may affect the financial
condition and operating results of the Company for 1997 and in the future.
5.18 Anti-Dilution Protection. Except for the December
Warrants as to which , no holder of shares of Common Stock (or securities
convertible into or exchangeable or exercisable for any of the foregoing) has
any rights to purchase or receive additional or other securities upon the
occurrence of an event that might dilute such holder's percentage interest in
the Company.
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5.19 Registration Rights Agreements. Upon execution of the
Registration Rights Agreement referred to in Section 3.21 of this Agreement, the
Company will not be a party to any agreement granting any registration rights to
any Person other than the Registration Rights Agreement.
5.20 Labor Relations. The Company is not engaged in any unfair
labor practice. There is (a) no unfair labor practice complaint pending or, to
the knowledge of the Company, threatened against the Company before the National
Labor Relations Board or any other Governmental Authority and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending or, to the knowledge of the Company, threatened, (b) no
strike, labor dispute, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against the Company and (c) no union representation question
existing with respect to the employees of the Company and, to the knowledge of
the Company, no union organizing activities are taking place.
5.21 ERISA and Employee Benefit Plans.
(a) There are no employee benefit plans or
material employee benefit arrangements, policies or commitments of any type
(including, but not limited to, plans described in section 3(3) of ERISA)
maintained by the Company, or with respect to which the Company has or could
have any direct or indirect liability, other than those described in Schedule
5.21 ("Benefit Plans").
(b) Accurate and complete copies of all plan
text and agreements, the most recent annual report, the most recent annual and
periodic accounting of plan assets, and the most recent actuarial valuation with
respect to each Benefit Plan have been delivered to the Purchaser.
(c) No Benefit Plan is subject to Title IV of
ERISA or section 412 of the Code. No Benefit Plan is a "multiple employer plan"
within the meaning of the Code or ERISA.
(d) With respect to each Benefit Plan, except
as set forth in Schedule 5.21: (i) if it is intended to qualify under section
401(a) or 403(a) of the Code, such plan so qualifies and has in effect a current
determination letter; (ii) such Benefit Plan has been maintained and
administered at all times in compliance in all material respects with its terms
and applicable laws and regulations; (iii) no event has occurred and there
exists no circumstances under which the Company could incur material liability
under ERISA, the Code or otherwise (other than routine claims for benefits) with
respect to such plan or with
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respect to any other entity's employee benefit plan; and (iv) all contributions
and premiums due with respect to such plan have been made on a timely basis.
(e) With respect to each Benefit Plan that is a
"welfare plan" (as defined in ERISA section 3(1)): (i) no such plan provides
medical or death benefits with respect to current or former employees of the
Company beyond their termination of employment (other than as required to avoid
an excise tax under Code section 4980B); and (ii) the Company has complied in
all material respects with the requirements of Code section 4980B.
(f) The consummation of the transactions
contemplated by this Agreement will not: (i) entitle any individual to severance
or termination pay; (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any individual; or (iii) result in the payment
that will be taken into account in determining whether there is an "excess
parachute payment" under Code section 280G(b)(1).
5.22 Environmental Matters. (i) The Company is and has been in
compliance in all material respects with all applicable Safety and Environmental
Laws; (ii) there is no Environmental Claim pending or, to the knowledge of the
Company, threatened against the Company, and there is no civil, criminal or
administrative judgement or notice of violation against the Company pursuant to
Safety and Environmental Laws or principles of common law relating to pollution,
protection of the Environment or health and safety; and (iii) there are no past
or present events, conditions, circumstances, activities, practices, incidents,
agreements, actions or plans which may prevent compliance with Environmental
Laws, or which have given rise to or will give rise to Environmental Claims,
individually or in the aggregate, in excess of $125,000 or to Environmental
Compliance Costs, individually or in the aggregate, in excess of $125,000.
5.23 Taxes.
(a) The Company has timely filed all returns
with respect to Taxes required to be filed through the date hereof in a manner
consistent with prior years and applicable laws and regulations and all such Tax
returns are true and complete in all material respects. The Company timely paid
all Taxes shown on such returns as are due through the date hereof, or that are
claimed or asserted by any taxing authority to be due through the date hereof,
except for those Taxes that are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been established.
With respect to any period for which Tax returns have not yet been filed, or for
which Taxes are not yet due or owing, the Company has no liability for Taxes in
each case other than Taxes incurred
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in the ordinary course of business or for which accruals are reflected in the
Financials or the Interim Financials.
(b) No audit or other proceeding by any court,
taxing authority, or similar person is pending or, to the knowledge of the
Company, threatened with respect to any Taxes due from or with respect to the
operations of the Company, or any Tax return filed by or with respect to the
operations of the Company. No assessment of Taxes is proposed against the
Company or any of its assets.
5.24 Patents, Trademarks, Etc.
(a) The Company owns or has licensed or
otherwise has the right to use all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises and other rights that are material to
the operation of its business as presently conducted or proposed to be
conducted.
(b) The Company owns, licenses or otherwise has
the right to use all computer software, including the source codes thereto, that
is material to the operation of its business as presently conducted or proposed
to be conducted. All computer software owned by the Company, including the
source codes thereto, is free and clear of all Liens (except Permitted Liens),
has not in any material way been divulged to any third party and represents
unique work product to which the Company has good and marketable title. The
Company uses and has used its best efforts to secure and maintain its
intellectual property rights in any and all computer software it owns.
Duplicates of all such computer software, including the source codes thereto,
are at a secure off-site location.
(c) No product, process, method, substance or
other material presently owned, sold, licensed or employed by the Company, or
which the Company contemplates owning, selling, licensing or employing, (i)
infringes upon the patents, trademarks, service marks, copyrights or licenses
that are owned by others or (ii) to the knowledge of the Company, is being
infringed upon by any other Person. No litigation is pending and no claim has
been made against the Company or, to the knowledge of the Company, is
threatened, contesting the right of the Company to own, sell, license or use any
product, process, method, substance or other material presently owned, sold,
licensed or employed by the Company or which the Company intends to acquire an
ownership interest in, sell, license or employ. To the knowledge of the Company,
no patent, invention, device, principle or any statute, law, rule, regulation,
standard or code is pending or proposed which would be reasonably likely to have
a Material Adverse Effect.
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5.25 Potential Conflicts of Interest. To the knowledge of the
Company, except as set forth on Schedule 5.25, no officer, director or Affiliate
of the Company, and no relative or spouse of any such officer, director or
Affiliate: (a) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an officer, director, employee or consultant of,
any Person which is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent or customer of, or lender to or borrower
from, the Company; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company uses in the conduct of its
business; or (c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements arising in the ordinary course
of business.
5.26 Trade Relations. To the knowledge of the Company, there
exists no actual or threatened termination, cancellation or limitation of, or
any adverse modification or change in, the business relationship or business of
the Company, or its business with any customer or any group of customers whose
use of its services are individually or in the aggregate material to the
business of the Company, or with any material supplier, and there exists no
condition or state of facts or circumstances that would have a Material Adverse
Effect or prevent the Company from conducting its business after the
consummation of the transactions contemplated by the Transaction Documents in
substantially the same manner in which it heretofore has been conducted.
5.27 Indebtedness. Schedule 5.27 lists (i) the principal
amount of all Indebtedness of the Company (other than the Senior Subordinated
Notes), (ii) the Liens that relate to such Indebtedness of the Company and that
encumber the assets of the Company and (iii) the name of each lender thereof.
5.28 Material Contracts. Schedule 5.28 lists all contracts,
agreements and commitments of the Company (other than the Transaction Documents)
that are, or are required to be, filed as exhibits to any registration
statement, proxy statement, report or other document filed, or to be filed, by
the Company under the Securities Act or Exchange Act, and which have not, by
their terms, expired or lapsed. All such contracts, agreements and commitments
of the Company are in full force and effect and, to the knowledge of the Company
with respect to other parties thereto, are binding upon the parties thereto in
accordance with their terms. The Company is not in default under any such
contract, agreement or commitment to which it is a party, nor does any condition
exist that with notice or lapse of time or both would constitute a default
thereunder. Except with respect to the
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Omni Agreement, the Company has no knowledge of any proposed, pending, or likely
cancellation or termination of any such contract, agreement or commitment.
5.29 Insurance. Schedule 5.29 sets forth all policies or
binders of fire, liability, workman's compensation, vehicular or other insurance
held by or on behalf of the Company (specifying the insurer, the policy number
of covering note numbers with respect to binders and describing each pending
claim thereunder of more than $10,000, other than any claim arising in the
ordinary course of business under the Company's vendor single interest insurance
policies). To the Company's knowledge, such policies and binders are in full
force and effect. The Company is not in default in any material respect with
respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any claim under such policy or binder in
due and timely fashion.
5.30 Projections. Prior to the date hereof, the Company
delivered to the Purchaser financial projections as set forth in Schedule 5.30
(the "Projections"). The assumptions used in preparation of the Projections were
reasonable when made and continue to be reasonable as of the date hereof and as
of the Closing Date; provided, however, the Purchaser acknowledges that the
application of FAS 125 and its effects on securitization assets, including the
Company's assets, and the use of "gain-on-sale" accounting, in general, are
presently under review by the Company's accountants and the accounting
profession as a whole. The Purchaser further acknowledges that any change in the
interpretation or application of FAS 125 to the gain-on-sale accounting policies
utilized by the Company and the assumptions underlying those policies may affect
the financial condition and operating results of the Company for 1997 and in the
future. The Projections have been prepared in good faith. The Purchaser further
acknowledges that the Projections contain assumptions about future events,
including but not limited to the interpretation and application of FAS 125 to
the gain-on-sale accounting policies utilized by the Company, and that actual
results during the period or periods covered may differ from the data and
results contained in such Projections.
5.31 Commission Documents. The Company has filed all
registration statements, proxy statements, reports and other documents required
to be filed by it under the Securities Act and the Exchange Act, and all
amendments thereto (collectively, the "Commission Documents"), and the Company
has furnished to the Purchaser correct and complete copies of all Commission
Documents, each as filed with the Commission. Each Commission Document was true
and accurate in all material respects when filed with the Commission and in
compliance in all material respects with the requirements of its respective
report form; provided, however, the Purchaser acknowledges that the application
of FAS 125 and its effects on securitization assets, including the Company's
assets, and the use of "gain-
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on-sale" accounting, in general, are presently under review by the Company's
accountants and the accounting profession as a whole. The Purchaser further
acknowledges that any change in the interpretation or application of FAS 125 to
the gain-on-sale accounting policies utilized by the Company and the assumptions
underlying those policies may affect the financial condition and operating
results of the Company for 1997 and in the future..
5.32 Lending Activities.
(a) All Vehicle Loans and all advertising,
origination and servicing activities, procedures and materials with regard to
all Vehicle Loans or accounts made, created, acquired, assumed, collected or
serviced by Omni or the Company comply in all material respects with all
applicable federal, state and local laws, ordinances, rules and regulations,
including but not limited to those related to usury, truth-in-lending, consumer
protection, equal credit opportunity, fair debt collection, rescission rights
and disclosures, except where failure to comply would not have a Material
Adverse Effect.
(b) Schedule 5.32(b) hereto completely and
accurately describes the Company's Current Policies Regarding Purchase of Retail
Installment Vehicle Loans as in effect on the date hereof, and all existing
Vehicle Loans comply in all material respects with such policies.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
6.1 Nature of Purchase. The Purchaser is not acquiring the
Notes and Warrants to be purchased by it hereunder with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act, provided that the disposition of the Purchaser's property shall at all
times be and remain within its control.
6.2 Source of Funds. No part of the funds being used by the
Purchaser to pay the purchase price of the Notes and Warrants being purchased by
the purchaser hereunder constitutes assets of any employee benefit plan. For the
purpose of this section
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6.2, the term "employee benefit plan" shall have the meaning specified in
section 3 of ERISA.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by the Company. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless the Purchaser and its Affiliates, officers,
directors, agents, employees and partners (each, an "indemnified party") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel) or other liabilities ("Losses") resulting from any breach of any
representation or warranty, covenant or agreement of the Company in the
Transaction Documents or any legal, administrative or other actions (including
actions brought by any equity holders of the Company or derivative actions
brought by any Person claiming through the Company or in the Company's name),
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of this Agreement, the Senior
Subordinated Notes, the Warrants, the Registration Rights Agreement, any other
Transaction Document, the transactions contemplated hereby, or any indemnified
party's role therein or in the transactions contemplated hereby; provided,
however, that the Company shall not be liable under this Section 7.1: (a) for
any amount paid in settlement of claims without the Company's consent (which
consent shall not be unreasonably withheld), (b) with respect to Losses arising
solely out of actions brought by the partners of the Purchaser against an
indemnified party or by one indemnified party against another or (c) to the
extent that it is finally judicially determined that such Losses resulted
primarily from the willful misconduct, bad faith or gross negligence of such
indemnified party or a breach of the indemnified party's representations in
Article 6; provided, further, that if and to the extent that such
indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws. In connection with
the obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees to reimburse each indemnified party for all such
documented expenses (including reasonable fees, disbursements and other charges
of counsel) as they are incurred by such indemnified party; provided, however,
that if an indemnified party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct, bad faith or gross negligence of such indemnified party.
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7.2 Notification. Each indemnified party under this Article 7
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such indemnified party in respect of which indemnity
may be sought from the Company under this Article 7, notify the Company in
writing of the commencement thereof. The omission of any indemnified party so to
notify the Company of any such action shall not relieve the Company from any
liability which it may have to such indemnified party other than pursuant to
this Article 7 or, unless, and only to the extent that, such omission results in
the Company's forfeiture of substantive rights or defenses. In case any such
action or other proceeding shall be brought against any indemnified party and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that any indemnified party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action or proceeding in which both the Company and an
indemnified party is, or is reasonably likely to become, a party, such
indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, any conflict
or potential conflict exists between the Company and such indemnified party that
would make such separate representation advisable; provided, however, that in no
event shall the Company be required to pay fees and expenses under this Section
7 for more than one firm of attorneys in any jurisdiction in any one legal
action or group of related legal actions. The Company shall not, without the
consent of the indemnified party (which consent shall not be unreasonably
withheld), consent to the entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation or which requires action other than the
payment of money by the Company. The rights accorded to indemnified parties
hereunder shall be in addition to any rights that any indemnified party may have
at common law, by separate agreement or otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to
the contrary in this Article 7, the indemnification and contribution provisions
of the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or offers or sales made
thereunder.
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ARTICLE 8
PRE-CLOSING AFFIRMATIVE COVENANTS
8.1 Operation of Company. From and after the date hereof
through the Closing, the Company shall not enter into any transaction or take
any action other than in the ordinary course of business, except that the
Company may enter into such transactions and take such other actions outside of
the ordinary course of business, in each case, as may be specifically approved
in writing by the Purchaser.
8.2 Exclusivity. From the date hereof through the earlier of
the Closing Date or March 31, 1998, the Company shall not enter into discussions
or negotiations with any Persons other than the Purchaser in respect of any
transaction similar in nature to any transaction contemplated by this Agreement;
provided, however, that the Company may have discussions or negotiations with a
potential "underwriter" (as defined in Section 2(11) of the Securities Act) in
connection with a Public Offering by the Company.
ARTICLE 9
AFFIRMATIVE COVENANTS
Until the payment of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest under this Agreement, including, without limitation, all expenses and
amounts due at such time in respect of indemnity obligations under Article 7
(except with respect to Sections 9.1(c), 9.7, 9.8, 9.9(a), 9.9(b), 9.10, 9.11
and 9.14, which shall survive in accordance with the terms thereof), the Company
hereby covenants and agrees (a) with the Purchaser, with respect to all of this
Article 9, and (b) with all other Holders, with respect to all of this Article 9
except Sections 9.1(c), 9.9, 9.10 and 9.14 that, unless the Purchaser or such
other Holders, as the case may be, waives compliance in writing:
9.1 Financial Statements. The Company shall deliver to the
Purchaser and any other Holder:
(a) as soon as available, but not later than ninety
(90) days after the end of each fiscal year of the Company, a copy of
the audited consolidated balance sheet of the Company and its
Subsidiaries as of the end of such year and the related consolidated
statements of income and cash flows for such fiscal year, setting forth
in
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each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis
of the operations of the Company and its Subsidiaries for such fiscal
year and by the opinion of a nationally recognized independent public
accounting firm which report shall state that such consolidated
financial statements present fairly in all material respects the
financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (except to the extent of
any inconsistency resulting solely from the fact that the Company's
predecessor was a limited partnership);
(b) as soon as available and, in any event within 45
days of each of the first three fiscal quarters of each year commencing
with the fiscal quarter ended March 31, 1998, the unaudited
consolidated balance sheet of the Company and its Subsidiaries, and the
related consolidated statements of income and cash flow for such
quarter and for the period commencing on the first day of the fiscal
year and ending on the last day of such quarter, all certified by an
appropriate officer of the Company;
(c) budgets, documentation of material financial
transactions, projections, operating reports, acquisition analyses,
presentations to banks, financial institutions or potential investors,
consultants' reports and such other financial and operating data of the
Company and its Subsidiaries as the Purchaser reasonably may request
(any such information to be subject to the provisions of Section
9.9(b)) (provided that this Section 9.1(c) shall only require the
Company to furnish the information specified herein to the Purchaser
and shall only be binding upon the Company so long as the Purchaser
holds (i) more than 33% of its Purchaser Shares or (ii) any of the
Notes);
(d) at any time when it is not subject to Section 13
or 15(d) of the Exchange Act, upon request, to the Purchaser and any
prospective purchaser of Notes, Warrants or Warrant Shares, information
of the type that would satisfy the requirement of subsection (d)(4)(i)
of Rule 144A (or any similar successor provision) under the Securities
Act; and
(e) except as otherwise provided in Section 9.1(a)
and (b), promptly after the same are filed, copies of all reports,
statements and other documents filed with the Commission.
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9.2 Certificates; Other Information. The Company shall
furnish to the Purchaser and to any other Holder:
(a) concurrently with the delivery of the financial
statements referred to in Section 9.1(a) and (b) above, a certificate
of the Company's Chief Financial Officer stating that, to the best of
such officer's knowledge, there exists no Default under or breach of
Articles 9 and 10, except as specified in such certificates; and
(b) concurrently with the delivery of the financial
statements referred to in Sections 9.1(a) and (b) above, a certificate
of an officer of the Company including calculations set forth in
reasonable detail showing the Company's compliance with the financial
covenants contained in Sections 10.1, 10.2 and 10.6.
9.3 Preservation of Corporate Existence. The Company
shall, and shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect
its corporate existence and good standing under the laws of its
jurisdiction of incorporation or organization (except (i) in the event
that the Company merges or consolidates into another Person in a
transaction in compliance with Section 10.3 hereof, or (ii) in the
event of a merger of wholly owned Subsidiaries of the Company with or
into each other; provided that in each case the surviving Person shall
preserve and maintain in full force and effect its corporate existence
and good standing under the laws of its jurisdiction of incorporation
or organization); and
(b) preserve and maintain in full force and effect
all material rights, privileges, qualifications, licenses and
franchises necessary in the normal conduct of its business.
9.4 Payment of Obligations. The Company shall, and shall cause
each of its Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including without
limitation:
(a) all Tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same
are being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP are being maintained by the
Company or such Subsidiary;
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(b) all lawful claims which the Company and each of
its Subsidiaries are obligated to pay, which are due and which, if
unpaid, might by law become a Lien (other than a Permitted Lien) upon
its property unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Company or such Subsidiary; and
(c) all payments of principal and interest when due
(giving effect to any grace periods relating thereto) on Indebtedness.
9.5 Compliance with Laws. The Company shall comply, and shall
cause each of its Subsidiaries to comply, in all material respects with its
articles or certificate of incorporation and by-laws or other organizational or
governing documents and all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over it or its business, except such
as to which such failure to comply would not have a Material Adverse Effect.
9.6 Notices. Upon knowledge of the Chief Executive Officer,
the President, the Chairman, the Vice Chairman, any Executive Vice-President or
the Chief Financial Officer of the Company of the events described below, the
Company shall give prompt written notice (but in any event within 10 days) to
each holder of Notes:
(a) of the occurrence of any Default under, or breach
of, any of the provisions of Articles 9 or 10;
(b) of any (i) material default or event of default
under any Senior Indebtedness, Indebtedness pari passu in respect of
payment with the Notes or any other material Contractual Obligation of
the Company or any of its Subsidiaries, or (ii) material dispute,
litigation, investigation, proceeding or suspension which may exist at
any time between the Company or any of its Subsidiaries and any
Governmental Authority; and
(c) each notice pursuant to this Section 9.6 shall be
accompanied by a statement by the Chief Executive Officer, President or
Chief Financial Officer of the Company setting forth details of the
occurrence referred to therein and stating what action the Company has
taken or proposes to take with respect thereto.
9.7 Issue Taxes. Until the earlier of (x) the exercise of all
of the Warrants and issuance of the Warrant Shares or (y) the expiration of the
Warrants in accordance with their terms, the Company shall pay, or cause to be
paid, all documentary and similar taxes
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(excluding income or capital gains taxes) levied under the laws of any
applicable jurisdiction in connection with the initial issuance of the Senior
Subordinated Notes, the Warrants and the Warrant Shares and the execution and
delivery of the other agreements and documents contemplated hereby and any
modification of the Senior Subordinated Notes, the Warrants or such other
agreements and documents and will hold the Purchaser harmless, without
limitation as to time, against any and all liabilities with respect to all such
taxes.
9.8 Reservation of Shares. Until the earlier of (x) the
exercise of all of the Warrants and the issuance of the Warrant Shares or (y)
the expiration of the Warrants in accordance with their terms, the Company shall
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue or delivery upon exercise of all outstanding
Warrants as provided therein, such number of shares of Common Stock as shall
then be issuable or deliverable upon the exercise of all outstanding Warrants.
Such shares of Common Stock shall, when issued or delivered against payment
therefor in accordance with the terms of the Warrants, be duly and validly
issued and fully paid and nonassessable.
9.9 Inspection; Confidentiality.
(a) So long as the Purchaser holds (i) more than
33% of its Purchaser Shares or (ii) any of the Notes, the Company will permit,
and will cause each of its Subsidiaries to permit, representatives of the
Purchaser to visit and inspect any of its properties, to examine its corporate,
financial and operating records and make copies thereof or abstracts therefrom,
and to discuss its affairs, finances and accounts with their respective
directors, officers and independent public accountants, all at such reasonable
times during normal business hours without interfering with the normal conduct
of the Company's business or operations and as often as may be reasonably
requested, upon reasonable advance notice to the Company. All expenses incurred
by the Purchaser in connection with the foregoing shall be payable by the
Purchaser; provided, however, that if any Default or Event of Default shall have
occurred and be continuing, all such expenses shall be payable by the Company.
(b) The Purchaser will maintain as confidential
any confidential or proprietary information obtained from the Company pursuant
to Section 9.9(a) or 9.1(c) (other than information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by the Purchaser
or any of its representatives), (ii) is available to the Purchaser on a non-
confidential basis from a source other than the Company or its Subsidiaries,
provided that such source was not known by the Purchaser to be bound by a
confidentiality agreement with, or other duty of confidentiality to, the Company
or any of its Subsidiaries, (iii) has
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been independently developed by the Purchaser or (iv) which was obtained more
than one year prior to such disclosure), and shall not disclose any information
obtained from the Company pursuant to Section 9.9(a) or 9.1(c) and required to
be maintained as confidential pursuant hereto, except (a) after advising them of
the confidential nature of such information and their responsibility to maintain
such confidentiality, to the respective advisors, representatives, agents,
partners (and their representatives and advisors) and employees of the Purchaser
who need to know such information to perform their duties, (b) to any
prospective transferee of the Senior Subordinated Notes, the Warrants or the
Warrant Shares or of an interest in the Purchaser or in a successor to the
Purchaser sponsored by any Affiliate of the Purchaser, upon the execution of a
confidentiality agreement in form and substance reasonably satisfactory to the
Company, (c) as may be required by law (including a court order, subpoena or
other administrative order or process) or applicable regulations to which the
Purchaser is or becomes subject, as, and only to the extent, determined by
outside legal counsel and only following, if practicable, prior notice to the
Company (but excluding any obligation of disclosure with respect to information
furnished pursuant to Section 9.1(c) hereof, to the extent arising solely from
the fact that the Purchaser desires to offer or sell all or any part of the
Notes, Warrants or Warrant Shares), (d) in connection with any litigation
arising out of or related to this Agreement, (e) to the executive officers of
the Company or any of its Subsidiaries, or (f) with the consent of the Company.
In connection with clause (a) of the preceding sentence, it is understood and
agreed that the Purchaser shall be responsible for any breach of the provisions
of this Section 9.9(b) by any of its advisors, representatives, agents, partners
and employees.
9.10 Board Representation; Visitation Rights.
(a) The Company shall at or prior to the Closing
Date cause a vacancy to be created on its Board of Directors (by increasing the
number of members of the Board of Directors or otherwise) and at the Closing
Date shall cause the person designated by the Purchaser to be elected to its
Board of Directors. Such designee shall serve until the annual meeting of
stockholders of the Company immediately following the election of such person to
the Board of Directors.
(b) Commencing with the annual meeting of
stockholders of the Company immediately following the election of such persons
to the Board of Directors, and at each annual meeting of stockholders of the
Company thereafter, the Purchaser shall be entitled to nominate (in addition to
any rights granted to the holders of Common Stock as set forth in the Company's
articles or certificate of incorporation), from time to time, one director to
the Company's Board of Directors; provided, that the Purchaser shall be entitled
to nominate a director to the Board of Directors only so long as the Purchaser
holds either
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(x) at least 50% of the aggregate outstanding principal amount of the Notes
initially issued to the Purchaser or (y) at least 50% of the Purchaser Shares
initially issued to the Purchaser. The Company shall cause such nominee of the
Purchaser to be included in the slate of nominees recommended by the Board to
the Company's stockholders for election as directors, and the Company shall use
its reasonable best efforts to cause the election of such nominees, including
voting all shares for which the Company holds proxies (excluding any proxy
submitted by a stockholder with other directions) or is otherwise entitled to
vote, in favor of the election of such person.
(c) In the event any such nominee of the
Purchaser shall cease to serve as a director for any reason, other than by
reason of the Purchaser not being entitled to nominate a nominee as provided in
Section 9.10(b), the Company shall use its reasonable best efforts to cause the
vacancy resulting thereby to be filled by a nominee of the Purchaser.
(d) In the event that the Board of Directors of
the Company establishes committees from time to time, the nominee of the
Purchaser shall have the right, upon the Purchaser's request, to serve on each
such committee. If the Company creates any Subsidiaries, each Subsidiary's Board
of Directors shall consist of the same members as the Company's Board of
Directors.
(e) So long as the Purchaser owns more than 25%
of (i) the aggregate outstanding principal amount of the Notes initially issued
to the Purchaser or (ii) the number of Purchaser Shares initially issued to the
Purchaser, in addition to the rights granted pursuant to Sections 9.10(a) and
(b) above, the Purchaser shall have the right to have a representative attend
all regular and special meetings of the Board of Directors of the Company and
its Subsidiaries and any committees thereof. The visitation rights set forth
above shall include the right to receive the same notice and materials provided
to members of the Board of Directors of the Company and each committee thereto.
9.11 Registration and Listing. If any Warrant Shares require
registration with or approval of any Governmental Authority under any federal or
state or other applicable law before such shares of Common Stock may be issued
or delivered upon exercise of the Warrants, the Company will in good faith and
as expeditiously as possible endeavor to cause such shares of Common Stock to be
duly registered or approved, as the case may be, unless such registration or
approval is required solely because of a breach of such Purchaser's
representation contained in Section 6.2. In the event that, and so long as, the
Common Stock (or any series or class of Capital Stock into which the Common
Stock is reorganized, reclassified, reconstituted or otherwise changed) is
listed on the NYSE or quoted or listed on any other national securities exchange
or Nasdaq, the Company will, if permitted by the rules of such system or
exchange, quote or list and keep quoted or listed on such exchange or Nasdaq,
upon official notice of issuance, Warrant Shares. In addition, the Company will
in good faith and as expeditiously as possible endeavor to obtain private
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placement numbers for the Notes, the Purchaser Shares and the Warrants (or any
series or class of Capital Stock into which the Purchaser Shares are, or may be,
reorganized, reclassified, reconstituted or otherwise changed), as assigned by
the CUSIP Service Bureau of Standard & Poor's Corporation. The covenant provided
in this Section 9.11 shall survive until there are no Holders.
9.12 Use of Proceeds. The proceeds of the Senior Subordinated
Notes, the Warrants shall be used by the Company only (a) to fund the purchase
of Vehicle Loans by the Company in the ordinary course of business and in a
manner consistent with past practice (including cash deposits in connection
therewith), (b) for working capital requirements, (c) for general corporate
purposes (including repayment of outstanding borrowings under the Credit
Agreement), (d) cash deposits in connection with Permitted Securitization
Transactions and (e) for the payment of fees and expenses in connection with the
transactions contemplated in the Transaction Documents. Neither the Company nor
any Subsidiary owns or has any present intention of acquiring any "margin stock"
as defined in Regulation G (12 CFR Part 270) of the Board of Governors of the
Federal Reserve System ("margin stock"). None of such proceeds of the sale of
Notes or Warrants will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any margin stock or
for the purpose of maintaining, reducing or retiring any Indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the Notes or Warrants to violate Regulation G,
Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System in each case as in effect now or as the same may hereafter be in
effect.
9.13 Payment of Notes. The Company shall pay the principal of,
interest on and other amounts due in respect of, the Notes on the dates and in
the manner provided herein and in the Notes.
9.14 Sale of Company. Until the Purchaser does not hold any
Warrants (whether as a result of exercise or expiration), in the event of a
contemplated sale of all of the Capital Stock of the Company (by way of merger
or otherwise), the Company shall, if requested by the Purchaser, use its
reasonable best efforts to cause such sale transaction to be structured in a
manner that requires the purchaser(s) to purchase the Warrants from the
Purchaser at a price equal to the consideration the Purchaser would have
received had it
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exercised the Warrants immediately prior to the consummation of such sale
transaction less the exercise price of such Warrants.
9.15 Allocation for Tax Purposes. For purposes of Treasury
Regulation section 1.1273-2(h), the Senior Subordinated Notes and the Warrants
shall be treated as an investment unit. The amount of the Unit Purchase Price
which is allocable to the Senior Subordinated Notes shall equal $18,441,614, and
the amount of the Unit Purchase Price which is allocable to the Warrants shall
equal $1,558,836. The parties hereto shall file all returns and statements in
respect of Taxes in a manner which is consistent with the foregoing allocation.
9.16 Information on Internal Rate of Return. Upon the
occurrence of an event that (i) permits the holders of the Notes to require a
Mandatory Redemption and (ii) that would require the Company to consider the
"internal rate of return" of the Purchaser pursuant to the second paragraph of
Section 3.1 of the Notes, the Purchaser shall promptly deliver to the Company,
but in any event within 5 Business Days after receiving a written request, a
certificate setting forth in reasonable detail the calculation of its "internal
rate of return," including any documents reasonably supporting such calculation.
The determination of "internal rate of return" set forth in such certificate,
which shall be prepared in good faith, shall be conclusive and binding on the
Company in the absence of manifest error. The Company shall maintain as
confidential any information contained in such certificate or obtained from the
Purchaser in connection with the determination of the Purchaser's "internal rate
of return" under terms and conditions substantially identical to Section 9.9(b)
hereof.
ARTICLE 10
NEGATIVE AND FINANCIAL COVENANTS
Until the payment of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest under this Agreement, including, without limitation, all expenses and
amounts due at such time in respect of indemnity obligations under Article 7
(except with respect to Sections 10.4, 10.13 and 10.14, which shall be binding
upon the Company until the sale by the Purchaser of more than 66% of the
aggregate amount of the Purchaser Shares), the Company covenants and agrees as
follows:
10.1 Minimum Consolidated Net Worth. The Company shall not
permit Consolidated Net Worth for any fiscal quarter to be less than (a)
$25,890,000 plus (b) on a
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cumulative basis commencing with the fiscal quarter ending March 31, 1998, fifty
percent (50%) of Net Income (if positive) for each fiscal quarter of the Company
and its Subsidiaries ending on and after March 31, 1998 plus (c) one hundred
percent (100%) of the proceeds (after payment of the Company's fees and
expenses) received by the Company from any Public Offering or private placement
of Capital Stock after the Closing Date (including the issuance and sale of the
Shares (as defined in the December Securities Purchase Agreement)).
10.2 Adjusted Interest Expense. The Company's EBIT divided by
Consolidated Total Interest Expense for each period of four consecutive fiscal
quarters ending December 31, 1997 and thereafter shall be at least 1.4:1.0.
10.3 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except the Company may consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person if:
(a) The corporation or partnership formed by
such consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Company shall be (after giving effect to
such transaction) a Solvent corporation or partnership organized or formed, as
the case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the Company under this Agreement, the Notes, the Warrants
and the Registration Rights Agreement;
(b) immediately after giving effect to such
transaction, (i) no default under the provisions of Articles 9 and 10 exists and
(ii) the corporation or partnership formed by such consolidation or surviving
such merger or the Person which acquires all or substantially all of the assets
of the Company shall not be prohibited from incurring at least $1.00 of
additional Indebtedness without violating any of the provisions of this
Agreement;
(c) the corporation or partnership formed by or
surviving any such transaction or the Person that acquires all or substantially
all of the assets of the Company shall have a Consolidated Net Worth at least
equal to the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(d) the Company shall have furnished to the
Holders (i) an opinion of outside counsel reasonably satisfactory to the holders
of a majority in interest of the Notes, addressing the matters (other than
solvency) set forth in clause (a) above and (ii) the
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certificate of the Chief Financial Officer of the Company to the effect that
such transaction has been consummated in compliance with the foregoing
requirements; provided that nothing in this Section 10.3 shall affect the rights
of any holder of the Notes, the Warrants or the Common Stock under this
Agreement, the Notes, the Warrants or the Registration Rights Agreement.
10.4 Transactions with Affiliates. Except as set forth in
Schedule 10.4 and for payments permitted under Section 10.9, the Company shall
not, and shall not permit any of its Subsidiaries to, enter into any transaction
with any Affiliate of the Company (other than the Company's Subsidiaries) or of
any such Subsidiary (other than the Company), except (i) in the ordinary course
of business and pursuant to the reasonable requirements of the business of the
Company or such Subsidiary, (ii) on terms no less favorable to the Company or
such Subsidiary than those the Company or such Subsidiary would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary and (iii) following the prior approval of a majority
of the members of the Board of Directors of the Company.
10.5 No Inconsistent Agreements. Neither the Company nor any
of its Subsidiaries shall (a) enter into any loan or other agreement after the
date hereof or (b) amend or modify any currently existing loan or other
agreement, which in each case by its terms restricts or prohibits the ability of
the Company to pay the principal of or interest on the Notes or to issue the
Warrant Shares in accordance with the terms of this Agreement and the Warrants;
provided, however, that the foregoing shall not prevent the Company from
entering into loan or other agreements that contain, or any amendment or other
modification to any currently existing credit agreement to provide, restrictions
on the ability of the Company to optionally redeem or prepay the Notes,
following the occurrence of a default or event of default under such agreements.
10.6 Limitation on Indebtedness.
(a) Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, issue, assume or otherwise incur any
Indebtedness, other than: (i) Indebtedness under this Agreement and the Notes
and the December Securities Purchase Agreement and the December Notes, (ii)
Junior Subordinated Indebtedness, (iii) Intercompany Indebtedness, (iv)
Indebtedness under the Credit Agreement or other similar facilities in an amount
not exceeding $100 million, which increases to an amount equal to the product of
the Consolidated Tangible Net Worth of the Company multiplied by five multiplied
by 0.6, and (v) Senior Indebtedness (to the extent not incurred under subsection
(iv) of this Section 10.6) and Indebtedness that is pari passu with the
Indebtedness incurred under the Notes, but only
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to the extent that, in the case of this clause (v), immediately after giving
effect thereto, the ratio of Total Indebtedness to Consolidated Tangible Net
Worth does not exceed 5.0:1.0).
(b) The Company shall not incur any Indebtedness
if such Indebtedness is subordinate or junior in right of payment to Senior
Indebtedness (as defined in Article 12) unless such Indebtedness is pari passu
with the Indebtedness incurred under the Notes or is Junior Subordinated
Indebtedness.
10.7 Limitation on Liens. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (i) Liens in favor of
the Company or its Subsidiaries; (ii) Liens to secure Taxes, assessments and
other governmental charges in respect of obligations not overdue or being
contested in good faith by appropriate proceedings or Liens on properties to
secure claims for labor, material or supplies in respect of obligations not
overdue or being contested in good faith by appropriate proceedings; (iii)
deposits or pledges made in connection with, or to secure payment of, workmen's
compensation, unemployment insurance, old age pensions or other social security
obligations; (iv) Liens on properties in respect of judgments or awards, (a) the
Indebtedness with respect to which is in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the Company
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review or (b) that would not give rise to a Default under
Section 11.1(ix); (v) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens on properties in respect of obligations not
overdue or being contested in good faith by appropriate proceedings; (vi)
encumbrances consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property and defects and irregularities in the
title thereto, landlord's or lessor's liens under leases to which the Company or
a Subsidiary of the Company is a party, and other minor Liens or encumbrances
none of which in the opinion of the Company interferes materially with the use
of the property affected in the ordinary conduct of the business of the Company
and its Subsidiaries, which defects do not individually or in the aggregate have
a materially adverse effect on the business of the Company individually or of
the Company and its Subsidiaries on a consolidated basis; (vii) presently
outstanding Liens listed on Schedule 10.7 hereto; (viii) any Lien on equipment,
software or real property securing Indebtedness incurred or assumed for the sole
purpose of financing all or part of the cost of acquiring such equipment or real
property, provided that such Lien attaches to such asset concurrently with or
within 10 days after the acquisition thereof; (ix) Liens in respect of Senior
Indebtedness permitted to be incurred under Section 10.6 of this Agreement; (x)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds, tenders,
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bids, leases or other obligations of a like nature incurred in the ordinary
course of business by the Company or its Subsidiaries; (xi) Liens on property of
a Person existing at the time such Person becomes a Subsidiary of the Company,
its assets are acquired by a Subsidiary of the Company, or such Person and the
Company merge or consolidate in a transaction in compliance with Section 10.3;
provided that such Liens were in existence prior to the contemplation of such
merger, acquisition or consolidation and do not extend to any assets other than
those of the Person merging or consolidating with the Company; (xii) Liens on
property existing at the time of acquisition thereof by the Company or any of
its Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any property other than
that being acquired; (xiii) Liens on cash deposits made for the purpose of
enhancing the credit of Special Purpose Subsidiaries; and (xiv) other Liens
arising in the ordinary course of and incidental to the conduct of the business
of the Company and its Subsidiaries, which in the aggregate do not materially
impair the use of such properties for the purposes for which such properties are
held by the Company or its Subsidiaries, provided that the aggregate amount of
the obligations secured by Liens permitted under this clause (xiv) shall not
exceed $100,000 at any one time outstanding (collectively, "Permitted Liens").
10.8 Investments. Neither the Company nor any of its
Subsidiaries shall make any Investment, except for (i) Investments in Temporary
Cash Investments; (ii) Investments existing as of the date hereof and listed on
Schedule 10.8A; (iii) Investments by the Company in Subsidiaries of the Company
existing on the Closing Date; (iv) Investments consisting of non-cash
consideration received as proceeds of Dispositions permitted by Section 10.10;
(v) Investments consisting of loans and advances to employees for moving,
entertainment and travel (other than ordinary course business expenses) not to
exceed $250,000 in the aggregate at any time outstanding; (vi) Investments in
Special Purpose Subsidiaries formed for the purpose of effectuating Permitted
Securitization Transactions; (vii) purchases of Vehicle Loans consistent with
the Company's Current Policies Regarding Purchase of Retail Installment Vehicle
Loans as in effect from time to time that are made pursuant to good faith bona
fide transactions; (viii) Investments by the Company in Subsidiaries of the
Company engaging in the commercial or consumer finance and/or related service
businesses, all as approved in advance by a majority of the members of the Board
of Directors of the Company and in an amount in any Fiscal Year not in excess of
30% of the Consolidated Net Worth of the Company based on the most recent
audited financial statements of the Company; (ix) Investments by the Company or
its Subsidiaries as a result of the bankruptcy or reorganization of customers,
suppliers, auto dealers and referral salesmen and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business of the Company or its Subsidiaries; (x) Investments
consisting of advances to customers, suppliers, auto dealers and referral
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salesmen, in each case if created, acquired or made in the ordinary course of
business, payable or dischargeable in accordance with customary trade terms, and
in accordance with past practice; and (xi) additional Investments not to exceed
$100,000 in the aggregate.
10.9 Limitations on Restricted Payments. Neither the Company
nor any of its Subsidiaries will declare or make any Restricted Payment, except
that the Company may, so long as no Default or Event of Default shall have
occurred and be continuing or would occur as a result of any such Restricted
Payment, (i) purchase, redeem, retire or otherwise acquire or pay dividends in
respect of shares of the Company's Capital Stock in an amount not to exceed
$250,000 in any 12-month period; (ii) pay dividends to the holders of the
Company's or any Subsidiary's Preferred Stock; (iii) purchase, redeem or retire
Junior Subordinated Indebtedness in exchange for Capital Stock of the Company,
provided that any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock issued in exchange for (A) Existing
Junior Subordinated Indebtedness if issued (x) on or prior to March 31, 1998,
shall have an issue, exchange, exercise or conversion price, as the case may be,
equal to the greater of $5.25 per share (subject to appropriate adjustments for
stock splits, stock dividends and the like) or Current Market Price at the time
a definitive agreement to exchange is entered into or (y) after March 31, 1998,
shall have an issue, exchange, exercise or conversion price, as the case may be,
equal to no less than the Current Market Price at the time a definitive
agreement to exchange is entered into, and (B) Junior Subordinated Indebtedness
(other than the Existing Junior Subordinated Indebtedness) shall be issued at an
issue, exchange, exercise or conversion price, as the case may be, equal to no
less than the Current Market Price at the time a definitive agreement to
exchange is entered into; (iv) purchase, redeem or retire Existing Junior
Subordinated Indebtedness in exchange for cash to the extent that such Existing
Junior Subordinated Indebtedness is purchased, redeemed or retired only at its
stated and scheduled maturity and no sooner; and (v) purchase, redeem or retire
Preferred Stock of the Company (x) in exchange for shares of Common Stock of the
Company, but only so long as such shares of Common Stock are to be issued at a
price no less than the Current Market Price of the Common Stock at the time a
definitive agreement relating to such purchase, redemption or retirement is
executed or (y) with the proceeds of the issuance and sale of additional shares
of Preferred Stock, but only so long as such shares of Preferred Stock are
issued in a transaction approved by a majority of the non-employee directors of
the Company (excluding, however, in all cases, Gary L. Shapiro).
10.10 Dispositions of Assets. The Company shall not, and shall
not permit any of its Subsidiaries to, make any Disposition (excluding any
transaction made in compliance with Section 10.3 hereof) unless (i) the Company
(or the Subsidiary, as the case may be) receives consideration at the time of
such disposition at least equal to the fair market
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value of the assets sold or otherwise disposed of and, in the case of a lease of
assets, a lease providing for rent and other conditions which are no less
favorable than the then prevailing market conditions, (ii) the Company shall
apply, or cause a Subsidiary to apply, the Net Sale Proceeds from such
disposition within 180 days of receipt thereof (A) to make Investments in assets
or properties that will be used in the business of the Company and its
Subsidiaries consistent with Section 10.13 hereto or (B) to repay any
Indebtedness of the Company, and (iii) no Default or Event of Default shall have
occurred and be continuing or would occur as a result of any such Disposition.
Notwithstanding the foregoing sentence, the Company may sell or transfer its
assets or properties in the ordinary course of business consistent with past
practice, including transfers made in a Permitted Securitization Transaction and
such transactions shall not be subject to the conditions set forth in the
previous sentence.
10.11 Future Issuances of Preferred Stock. The Company shall
not, and shall not permit any of its Subsidiaries to, issue any shares of
Preferred Stock unless (i) no Default or Event of Default shall have occurred
and be continuing or would occur as a result of any such issuance; and (ii) if
the shares of Preferred Stock are convertible or exchangeable into shares of the
Company's Common Stock, the conversion or exchange price of such Preferred Stock
shall be no less than 120% of the Current Market Price on the date a definitive
purchase agreement with respect to the issuance of such Preferred Stock is
executed.
10.12 Certificate of Incorporation and By-Laws of the Company
and its Subsidiaries. Except with the prior written consent of the Purchaser, no
amendments to the articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries that would adversely affect the Company's
obligation to pay the principal of and interest on the Notes shall be effected.
10.13 Line of Business. The Company shall not, and shall not
permit any of its Subsidiaries to, engage in the conduct of any business other
than the business of the Company and its Subsidiaries in connection with the
purchase and securitization of Vehicle Loans as such businesses exist on the
Closing Date or in other commercial or consumer finance and/or related service
businesses.
10.14 Vehicle Loan Policy. Except with the prior approval of
the majority of the Board of Directors of the Company, the Company shall not
materially modify or amend its Current Policies Regarding Purchase of Retail
Installment Vehicle Loans.
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ARTICLE 11
DEFAULTS AND REMEDIES
11.1 Events of Default. An "Event of Default" shall occur if:
(i) the Company shall default in the payment of
any installment of principal of any Note, when and as the same shall become due
and payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) the Company shall default in the payment of
any installment of interest on any Note according to the terms thereof, when and
as the same shall become due and payable and such default shall continue for a
period of five days; or
(iii) the Company or any of its Subsidiaries shall
default in the due observance or performance of any covenant to be observed or
performed pursuant to Sections 9.1(a), 9.1(b), 9.8, 9.10 or Article 10 (except
for Sections 10.4 and 10.5) hereof; or
(iv) the Company or any of its Subsidiaries, as
the case may be, shall default in the due observance or performance of any other
covenant, condition or agreement on the part of the Company or any of its
Subsidiaries to be observed or performed pursuant to the terms of this
Agreement, and such default shall continue for 5 days with respect to Sections
10.4 and 10.5 hereof, or 30 days with respect to any such other covenant, in
each case after the earlier of (A) the date the Company obtains knowledge of
such default, or (B) the date written notice thereof shall have been given to
the Company by the holder of any of the Notes; or
(v) any representation, warranty, certification
or statement made by or on behalf of the Company in this Agreement or in any
certificate or other document delivered pursuant hereto shall have been
incorrect in any material respect when made; or
(vi) any (A) default in any payment of principal
of or interest of any Indebtedness (other than Indebtedness under the Credit
Agreement) of the Company or any of its Subsidiaries which Indebtedness has an
aggregate principal amount outstanding equal to or exceeding $1,000,000, and
such default shall continue beyond any applicable grace period or (B) default in
the observance or performance of any other agreement or condition relating to
any such Indebtedness or relating to Indebtedness under the Credit Agreement or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition actually
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results in the acceleration of such Indebtedness (including Indebtedness under
the Credit Agreement) prior to its stated maturity; or
(vii) an involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of competent jurisdiction
seeking (a) relief in respect of the Company or any of its Subsidiaries, or of a
substantial part of their property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Company or any of its Subsidiaries, or for a substantial part of their
property or assets, or (c) the winding up or liquidation of the Company or any
of its Subsidiaries; and such proceeding or petition shall continue undismissed
for 60 days, or an order or decree approving or ordering any of the foregoing
shall be entered; or
(viii) the Company or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (vii) of this
Section 11.1, (c) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any of its Subsidiaries, or for a substantial part of their property
or assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, or (f) take any action for the purpose of effecting any of
the foregoing; or
(ix) one or more final judgments for the payment of
money in an aggregate amount in excess of $750,000 (to the extent not covered by
insurance) shall be rendered against the Company or any of its Subsidiaries and
the same shall remain in force, undischarged, unstayed, unsatisfied, unvacated
or unbonded for more than 30 days, or any action, which is not quashed or
remains unstayed for a period in excess of fifteen days, shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company or any
of its Subsidiaries to enforce any such judgment; or
(x) the Company or any Subsidiary thereof shall
become unable, admit in writing its inability or fail generally to pay its debts
as they become due.
11.2 Acceleration. If an Event of Default occurs under
clauses (vii) or (viii) of Section 11.1, then the outstanding principal of and
all accrued interest on the Notes and
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all other amounts owing under this Agreement and the Notes shall automatically
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are expressly waived. If any other Event of
Default occurs and is continuing, subject to Section 12.3(d), the holders of 51%
of the aggregate principal amount of the Notes outstanding, by written notice to
the Company, may declare the principal of and accrued interest on the Notes and
all other amounts owing under this Agreement to be due and payable immediately.
Upon such declaration, such principal and interest and other amounts shall
become immediately due and payable. The holders of 51% of the aggregate
principal amount of the Notes outstanding may rescind an acceleration and its
consequences if all existing Events of Default have been cured or waived, except
nonpayment of principal or interest or other amounts that has become due solely
because of the acceleration, and if the rescission would not conflict with any
judgment or decree. Any notice or rescission shall be given in the manner
specified in Section 14.2 hereof.
ARTICLE 12
SUBORDINATION
The Notes shall at all times be wholly subordinate and junior
in right of payment to all Senior Indebtedness to the extent and in the manner
provided in this Article 12.
12.1 Definitions. As used in this Article 12, the following
terms shall have the following meanings:
"Junior Securities" means any debt or equity securities
distributed to the holders of the Notes, but only if they are subordinated to at
least the same extent as the Subordinated Indebtedness is subordinated to the
Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness.
"Senior Default" shall mean a Senior Payment Default or a
Senior Event of Default.
"Senior Event of Default" shall mean an event of default,
other than a Senior Payment Default, that occurs and is continuing with respect
to Senior Indebtedness that permits the holders thereof to accelerate the
maturity of such Senior Indebtedness.
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"Senior Indebtedness" shall mean (i) the principal of and
interest on (including without limitation any interest that accrues after the
commencement of any case, proceeding or other legal action relating to the
bankruptcy, insolvency or reorganization of the Company to the extent such
interest constitutes an allowed claim) (a) all Indebtedness of the Company
(including Indebtedness of others guaranteed by the Company) which is (x) for
money borrowed or (y) evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets of any
kind and (b) amendments, renewals, extensions, modifications and refundings of
any such Indebtedness, whether such Indebtedness described in (a) or (b) is
outstanding on the date hereof or hereafter created, incurred or assumed, but
only if (a) such Indebtedness is permitted to be incurred under Section 10.6 and
(b) the instrument creating or evidencing any such Indebtedness pursuant to
which the same is outstanding expressly provides that such Indebtedness is
superior in right of payment to the Notes, and (ii) any other monetary
obligations of the Company arising out of or in connection with the Indebtedness
described in clause (i) above.
"Senior Payment Default" shall mean an event of default in the
payment of any Senior Indebtedness that occurs and is continuing beyond any
applicable period of grace.
"Subordinated Indebtedness" shall mean (i) the principal of
and interest on the Notes; and (ii) any other monetary obligations of the
Company arising out of or in connection with this Agreement or the Notes.
12.2 General. Subject to the rights of the holders of the
Subordinated Indebtedness to receive Junior Securities and any distributions
provided in Section 12.4(c), upon the maturity of any Senior Indebtedness by
lapse of time, acceleration, required prepayment or otherwise, all Senior
Indebtedness then so due and payable shall first be paid in full in cash, before
any payment is made or provided for on account of the Subordinated Indebtedness
then so due and payable or any Notes issued pursuant to this Agreement are
redeemed.
12.3 Limitation on Payment and Remedies.
(a) Upon receipt by the Company and the holders
of the Notes of a Blockage Notice (as defined below), then unless and until (i)
all Senior Defaults that gave rise to the Blockage Notice shall have been
remedied or effectively waived in writing or shall have ceased to exist or (ii)
the Senior Indebtedness in respect of which such Senior Defaults shall have
occurred shall have been paid in full in cash, no direct or indirect payment (in
cash, property, securities or by set-off or otherwise) of or on account of any
regularly scheduled principal of or interest on the Notes (and specifically
excluding any Optional
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Redemption or repayment of the Notes), with the exception of Junior Securities,
shall be made during any period prior to the expiration of the Blockage Period
(as defined below).
(b) For purposes of this Agreement, a "Blockage
Notice" is a notice of a Senior Default that in fact has occurred and is
continuing, given to the Company and the holders of the Notes (or their
authorized Agent) by the holders of the requisite principal amount of the Senior
Indebtedness under which such Senior Default has occurred (or their authorized
agent); provided, however, that (i) no such notice shall be effective as a
Blockage Notice if an effective Blockage Notice shall have been given within 360
days (measured as of the commencement date of the prior notice) prior thereto
and (ii) no such notice shall be effective as a Blockage Notice if based upon a
Senior Default that was the basis of a prior effective Blockage Notice and such
Senior Default has not been cured or waived for a period of at least 90 days.
(c) For purposes of this Section 3, a "Blockage
Period" with respect to a Blockage Notice is the period commencing upon the
Company's receipt of such Blockage Notice and having a duration as follows:
(1) 225 days if the Senior Default to which
the Blockage Notice
refers is a Senior Payment Default; or
(2) 180 days if the Senior Default to which
the Blockage Notice refers is a Senior
Covenant Default.
Upon the expiration or termination of any Blockage Period, the
holders of the Notes shall be entitled to be paid accrued but unpaid interest
then due on the Notes.
(d) As long as any Senior Indebtedness remains
outstanding, upon the occurrence of an Event of Default under this Agreement,
the holders of the Subordinated Indebtedness shall not declare or join in any
declaration of the Notes to be due and payable by reason of such Event of
Default or otherwise take any action against the Company prior to the expiration
of 45 days (a "Remedy Standstill Period") after the written notice of intention
to accelerate on account of the occurrence of such Event of Default, specifying
same (the "Remedy Notice") shall have been given by the holders of the principal
amount of the Subordinated Indebtedness necessary to cause acceleration thereof
to the Company and the holders of the Senior Indebtedness (or their authorized
agent) unless the holders of any Senior Indebtedness shall have caused such
Senior Indebtedness to become due prior to its stated maturity or any Event of
Default pursuant to Section 11.1(vii) or 11.1(viii) of this Agreement shall have
occurred; provided, however, that such Remedy Standstill Period shall
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be extended to 150 days from the date of such Remedy Notice if, at the time the
Remedy Standstill Period would otherwise expire, there exists any Senior Default
and an effective Blockage Notice is given in accordance with, and subject to the
limitations of Agreement. Upon the expiration or termination of any Remedy
Standstill Period, the holders of the Notes shall be entitled to exercise any of
their rights with respect to the Notes other than any right to accelerate the
maturity date of the Notes based upon the occurrence of any Event of Default
which has been cured or otherwise remedied during the Remedy Standstill Period.
(e) Notwithstanding the foregoing, any Blockage
Period or Remedy Standstill Period shall be inapplicable or cease to be
effective if an Event of Default pursuant to Section 11.1(vii) or 11.1(viii) of
this Agreement shall have occurred. In addition, any Blockage Period or Remedy
Standstill Period shall cease to be effective if at any time during such period:
(i) 37.5% or more of the assets of the Company are sold or otherwise disposed of
(in one transaction or a series of related transactions) outside of the ordinary
course of business for less than fair value; (ii) payment or any distribution of
any character, whether in cash, securities or other property of the Company
shall be made to or received by any creditor on any Indebtedness which is on the
same level of priority with or junior and subordinate in right of payment to the
Notes or (iii) acceleration of the maturity of any Senior Indebtedness.
Notwithstanding any provision of any instrument evidencing any Subordinated
Indebtedness or any other provisions contained in this Agreement to the
contrary, no holder of Subordinated Indebtedness shall have any right to
accelerate or declare a default under any Subordinated Indebtedness, and no
purported default or acceleration of any Subordinated Indebtedness shall have
any effect, to the extent that such default or acceleration is premised upon the
existence of a default or event of default under the Senior Indebtedness.
12.4 Subordination Upon Certain Events. Upon the
occurrence of any Event of Default under Sections 11.1(vii) or (viii) of this
Agreement:
(a) Upon any payment or distribution of assets
of the Company to creditors of the Company, holders of Senior Indebtedness shall
be entitled to receive payment in full in cash before the holders of
Subordinated Indebtedness shall be entitled to receive any payment in respect of
the Subordinated Indebtedness, except that the holders of Subordinated
Indebtedness may receive Junior Securities.
(b) Until all Senior Indebtedness is paid in
full in cash, any distribution to which the holders of Subordinated Indebtedness
would be entitled but for this Agreement shall be made to holders of Senior
Indebtedness, as their interests may appear, except that the holders of
Subordinated Indebtedness may receive Junior Securities.
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(c) Notwithstanding the foregoing provisions of
this Section 12.4, if payment or delivery by the Company of Junior Securities to
the holders of Subordinated Indebtedness is authorized by an order or decree
giving effect, and stating in such order or decree that effect is given, to the
subordination of the Subordinated Indebtedness to the Senior Indebtedness, and
made by a court of competent jurisdiction in a proceeding under any applicable
bankruptcy or reorganization law, payment or delivery by the Company of such
Junior Securities shall be made to the holders of the Subordinated Indebtedness
in accordance with such order or decree.
12.5 Payments and Distributions Received. If the holders of
the Subordinated Indebtedness shall have received any payment from or
distribution of assets of the Company in respect of the Subordinated
Indebtedness in contravention of the terms of this Article 12 before all Senior
Indebtedness is paid in full in cash, then and in such event such payment or
distribution shall be received and held in trust for and shall be promptly paid
over or delivered to the holders of Senior Indebtedness (or their authorized
agent(s)) in the same form of payment received, with appropriate endorsements,
to the extent necessary to pay all such Senior Indebtedness in full in cash, or
any such assets as collateral for the Senior Indebtedness.
12.6 Subrogation. After all amounts payable under or in
respect of Senior Indebtedness are paid in full in cash, the holders of the
Subordinated Indebtedness shall have the right to be subrogated to the rights of
holders of Senior Indebtedness to receive payments or distributions applicable
to Senior Indebtedness to the extent that distributions otherwise payable to the
holders of the Subordinated Indebtedness have been applied to the payment of
Senior Indebtedness. A distribution made under this Agreement to a holder of
Senior Indebtedness which otherwise would have been made to the holders of the
Subordinated Indebtedness is not, as between the Company and the holders of the
Subordinated Indebtedness, a payment by the Company on Subordinated
Indebtedness.
12.7 Relative Rights. This Agreement defines the relative
rights of the holders of the Subordinated Indebtedness and the holders of Senior
Indebtedness. Nothing in this Section shall: (i) impair, as between the Company
and the holders of the Subordinated Indebtedness, the obligation of the Company,
which is absolute and unconditional, to pay principal of and interest (including
default interest) on Subordinated Indebtedness in accordance with its terms;
(ii) effect the relative rights of holders of Subordinated Indebtedness and
creditors of the Company other than holders of Senior Indebtedness; or (iii)
except as expressly provided herein, prevent the holders of Subordinated
Indebtedness from exercising their available remedies upon a Default or Event of
Default, subject to the rights, if any, under this Article 12 of holders of
Senior Indebtedness.
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12.8 Subordination May Not Be Impaired by the Company. No
right of any holder of any Senior Indebtedness to enforce the subordination of
the Subordinated Indebtedness shall be impaired by any failure by the Company to
comply with this Agreement.
12.9 Payments. Subject to Section 12.3, a payment with respect
to principal of or interest on the Subordinated Indebtedness shall include,
without limitation, payment of principal of, and interest on the Subordinated
Indebtedness, any depositing of funds for the defeasance of the Subordinated
Indebtedness and any payment on account of mandatory prepayment or optional
prepayment provisions.
12.10 Section Not to Prevent Events of Default. The failure to
make a payment on account of principal of or interest on or other amounts
constituting Subordinated Indebtedness by reason of any provision of this
Agreement shall not be construed as preventing the occurrence of an Event of
Default under Article 11 of this Agreement.
12.11 Defense to Enforcement. If the Holder of any Note, in
contravention of the terms of this Article 12, shall commence, prosecute or
participate in any suit, action or proceeding against the Company, then the
Company may interpose as a defense or plea the making of the agreement contained
in this Article 12, and any holder of Senior Indebtedness may intervene and
interpose such defense or plea in its name or in the name of the Company. If the
Holder of any Note, in contravention of the terms of this Agreement, shall
attempt to collect any of the Subordinated Indebtedness or enforce any of its
rights under the Notes or Article 12 of this Agreement, then any holder of
Senior Indebtedness or the Company may, by virtue of this Article 12, restrain
the enforcement thereof in the name of such holders of Senior Indebtedness or in
the name of the Company. If the Holder of any Note, in contravention of the
terms of this Article 12, obtains any cash or other assets of the Company as a
result of any administrative, legal or equitable actions, or otherwise, such
holder agrees forthwith to pay, deliver and assign to the holders of Senior
Indebtedness, with appropriate endorsements, any such cash for application to
Senior Indebtedness and any such other assets as collateral for Senior
Indebtedness.
12.12 Further Covenants.
(a) Each Holder of Notes agrees, upon request
of a holder of Senior Indebtedness at any time and from time to time, to execute
such other documents or instruments as may reasonably be requested to evidence
of public record or otherwise the senior priority of the Senior Indebtedness as
contemplated hereby.
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(b) Each Holder of Notes further agrees to
maintain on its books and records such notations as may reasonably be requested
to reflect the subordination contemplated hereby and to perfect or preserve the
rights of the holders of Senior Indebtedness hereunder.
12.13 Freedom of Dealing. Each Holder of a Note agrees, with
respect to Senior Indebtedness and any and all collateral therefor or guaranties
thereof, that the Company and the holders of Senior Indebtedness may, subject to
the limitations contained in Section 10.6 of this Agreement, agree to increase
the amount of the Senior Indebtedness or otherwise modify the terms of the
Senior Indebtedness, and the holders of Senior Indebtedness may grant extensions
of the time of payment or performance to and make compromises, including
releases of collateral or guaranties, and settlements with the Company and all
other Persons, in each case without the consent of the Holders of the Notes or
the Company and without affecting the agreements of the Holders of the Notes or
the Company contained in this Article 12; provided, however, that nothing
contained in this Section 12.13 shall constitute a waiver of the right of the
Company itself to agree or consent to a settlement or compromise of a claim
which holders of Senior Indebtedness may have against the Company.
12.14 Subordinated Indebtedness Voting Rights. At any meeting
of creditors of the Company or in the event of any case or proceeding, voluntary
or involuntary, for the distribution, division or application of all or part of
the assets of the Company or the proceeds thereof, whether such case or
proceeding be for the liquidation, dissolution or winding up of the Company or
its business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Company for relief under any bankruptcy or reorganization law or any other law
relating to the relief of debtors, readjustment of indebtedness, reorganization,
arrangement, composition or extension or marshaling of assets or otherwise, the
holders of Subordinated Indebtedness shall retain the right to vote and
otherwise act with respect to the Subordinated Indebtedness (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension),
provided that, absent fraud or misrepresentation by the holders of Senior
Indebtedness with respect to the Senior Indebtedness or conduct on the part of
the holders of Senior Indebtedness which would be sufficient to support a claim
of equitable subordination with respect to Senior Indebtedness under
ss.510(c)(1) of the Bankruptcy Code (Title 11 U.S.C.), the holders of
Subordinated Indebtedness shall not vote with respect to any such plan or take
any other action in any way so as to contest (i) the validity of any Senior
Indebtedness or any collateral therefor or guaranties thereof, (ii) the relative
rights and duties of any holders of any Senior Indebtedness established in any
instruments or agreements creating or evidencing any of the
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Senior Indebtedness with respect to any of such collateral or guaranties or
(iii) the obligations and agreements of the holders of Subordinated Indebtedness
set forth in this Article 12.
12.15 Subordinated Indebtedness Unsecured. The holders of the
Subordinated Indebtedness hereby acknowledge and agree that the Subordinated
Indebtedness is unsecured.
12.16 Modification or Sale of the Subordinated Indebtedness.
The holders of Subordinated Indebtedness will not, at any time while this
Agreement is in effect, modify any of the terms of this Article 12, Sections
10.1, 10.2, 10.6, any of the definitions relevant to any of the foregoing, or
any other provision of this Agreement if such amendment, supplement or
modification would impose more restrictive terms on the Company and would have
an adverse effect on the rights and remedies of the holders of the Senior
Indebtedness; nor will the holders of Subordinated Indebtedness sell, transfer,
pledge, assign, hypothecate or otherwise dispose of any or all of the
Subordinated Indebtedness to any person other than a person who agrees in
writing reasonably satisfactory in form and substance to the holders of the
Senior Indebtedness, to become a party hereto and to succeed to the rights and
to be bound by all of the obligations of the holders of the Subordinated
Indebtedness under this Article 12. In the case of any such sale or other
disposition by the holders of Subordinated Indebtedness, the holders of
Subordinated Indebtedness will notify the holders of Subordinated Indebtedness
at least five (5) Business Days prior to the date of any of such intended sale
or other disposition.
12.17 Termination of Subordination. This Article 12 shall
continue in full force and effect, and the obligations and agreements of the
holders of Subordinated Indebtedness and the Company hereunder shall continue to
be fully operative, until all of the Senior Indebtedness shall have been paid or
provided for in full in cash and such provision or payment shall be final and
not avoidable. To the extent that the Company or any guarantor of or provider of
collateral for the Senior Indebtedness makes any payment on the Senior
Indebtedness that is subsequently invalidated, declared to be fraudulent or
preferential or set aside or is required to be repaid to a trustee, receiver or
any other party under any bankruptcy, insolvency or reorganization act, state or
federal law, common law or equitable cause (such payment being hereinafter
referred to as a "Voided Payment"), then to the extent of such Voided Payment,
that portion of the Senior Indebtedness that had been previously satisfied by
such Voided Payment shall be revived and continue in full force and effect as if
such Voided Payment had never been made. In the event that a Voided Payment is
recovered from any holder of Senior Indebtedness, an event of default shall be
deemed to have existed and to be continuing under the applicable Senior
Indebtedness from the date of such holder's initial receipt of such Voided
Payment until the full amount of such Voided Payment is restored to such holder
of Senior Indebtedness. During any continuance of any
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such event of default, this Agreement shall be in full force and effect with
respect to the Subordinated Indebtedness. To the extent that any holder of
Subordinated Indebtedness has received any payments with respect to the
Subordinated Indebtedness subsequent to the date of any holder's Senior
Indebtedness initial receipt of such Voided Payment and such payments have not
been invalidated, declared to be fraudulent or preferential or set aside or are
required to be repaid to a trustee, receiver, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, such holder
of Subordinated Indebtedness shall be obligated and hereby agrees that any such
payment so made or received shall be deemed to have been received in trust for
the benefit of the holders of Senior Indebtedness, and the holders of
Subordinated Indebtedness hereby agree to pay to the holders of Senior
Indebtedness upon demand, the full amount so received by the Subordinated
Indebtedness during such period of time to the extent necessary fully to restore
to the holders of Senior Indebtedness the amount of such Voided Payment.
12.18 Notices to Holders of Senior Indebtedness. The holders
of Subordinated Indebtedness shall provide notices required to be given under
this Article 12 to holders of Senior Indebtedness in the manner provided in
Section 14.2 of this Agreement to the addresses of holders of Senior
Indebtedness specified in the Credit Agreement or other documents evidencing any
such Indebtedness.
ARTICLE 13
PREPAYMENT
The Company shall prepay outstanding principal (together with
accrued interest) on the Notes in accordance with the "Mandatory Prepayment"
provisions set forth in Section 3 of the Notes. The Company may prepay
outstanding principal (together with accrued interest) on the Notes only if the
Notes are prepaid in accordance with the "Optional Prepayment" provisions set
forth in Section 4 of the Notes.
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ARTICLE 14
MISCELLANEOUS
14.1 Survival of Provisions. All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement, any investigation by or on behalf of the Purchaser or any Affiliate,
acceptance of the Notes, Warrants and Warrant Shares and payment therefor,
payment of the Note upon redemption or otherwise, and exercise of the Warrants.
14.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier services or personal delivery to the following addresses, or to such
other addresses as shall be designated from time to time by a party in
accordance with this Section 14.2:
(a) if to the Purchaser:
(1) All payments shall be made by wire
transfer of immediately available funds for
credit to:
The Structured Finance High Yield Fund, LLC
Account No. 890-0324-260
Bank of New York
New York, New York
ABA: 021-000-018
(2) Address for all notices relating to
payments: with a copy to:
The Structured Finance High Yield Fund, LLC
c/o Prudential Investments - Structured Finance Group
One Gateway Center, 11th Floor
Newark, New Jersey 07106-5311
Attention: Managing Director
Telephone No.: 973/802-4587
Telecopier No.: 973/802-2147
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The Prudential Insurance Company of America
c/o Trade Management
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Gregory Florek
Telephone No.: 973/367-3141
Telecopier No.: 973/802-9245
(3) Address for all other communications and
notices:
The Structured Finance High Yield Fund, LLC
c/o Prudential Investments - Structured Finance Group
One Gateway Center
Newark, New Jersey 07102-5311
Attention: Managing Director
Telephone No.: 973/802-4587
Telecopier No.: 973/802-2147
(b) if to the Company:
National Auto Finance Company, Inc.
621 N.W. 53rd Street
Suite 200
Boca Raton, Florida 33487
Attention: Keith B. Stein
Telecopier No.: (360) 693-0552
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with a copy to:
Weil Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attention: Jeremy W. Dickens, Esq.
Telecopier No.: (214) 746-7777
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
to a courier, if delivered by commercial overnight courier service; five
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when confirmation of receipt is acknowledged, if telecopied.
14.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns and
permitted transferees of the parties hereto. Except as provided in Articles 7
and 12, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement, the Notes
and the Warrants.
14.4 Assignments.
(a) The Company may not assign any of its rights
or obligations under this Agreement (other than in connection with a transaction
permitted pursuant to Section 10.3 hereof) without the written consent of the
Purchaser (prior to Closing) or the holders of a majority (x) in aggregate
principal amount of the Notes outstanding (following Closing) and (y) of the
aggregate number of Purchaser Shares then held by Holders.
(b) Subject to the other limitations contained
in the Notes, the Warrants and herein, including but not limited to Section 6.5,
the Purchaser and any subsequent Holder of Notes, Shares, Warrant Shares or
Warrants may, at any time or from time to time sell, agree to sell or assign to
one or more other Persons who agree to be bound by all of the terms of this
Agreement, all or any portion of the Notes, Warrants, Shares or Warrant Shares.
Subject to the other limitations contained in the Notes and this Agreement,
including but not limited to Section 6.5, in the event of any such sale or
assignment of a Note, upon surrender for exchange of any Note at the office of
the Company designated for notices in accordance with Section 14.2, the Company
shall execute and deliver in exchange therefor, without expense to the holder
(provided the Company shall not be responsible for
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any transfer taxes in connection with any such sale or assignment), one or more
new Notes in the same aggregate principal amount as the then unpaid principal
amount of the Note so surrendered as such holder shall specify, dated as of the
date to which interest has been paid on the Note so surrendered (or, if no
interest has been paid, the date of such surrendered Note), in the name of such
Person or Persons as may be designated by such holder in writing, and otherwise
of the same form and tenor as the Note so surrendered for exchange. Subject to
the limitation contained in the Warrants (solely with respect to the Warrants),
certificates representing Warrant Shares (solely with respect to the Shares or
Warrant Shares, as applicable) and this Agreement, including but not limited to
Section 6.5 hereof, in the event of any sale or assignment of any Warrants,
Shares or Warrant Shares, upon surrender for exchange of any Warrant or
certificate representing any of Warrant Shares at the office of the Company
designated for notices in accordance with Section 14.2, the Company shall
execute and deliver in exchange therefor, without expense to the holder
(provided the Company shall not be responsible for any transfer taxes in
connection with any such sale or assignment), one or more Warrants or
certificates representing Shares or Warrant Shares, as applicable, in the same
amount as surrendered as such holder shall specify in the name of such Person or
Persons as may be designated by such holder in writing, and otherwise of the
same form. Every Note, Warrant or certificate representing any Warrant Shares
surrendered for transfer shall be duly endorsed, or accompanied by a written
instrument of transfer duly executed by the holder of such Note, Warrant or
certificate representing any Warrant Shares or its attorney duly authorized in
writing.
14.5 Amendment and Waiver.
(a) No failure or delay on the part of any
Holder, in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b) Any amendment, supplement or modification
of or to any provision of this Agreement or the Notes, any waiver of any
provision of this Agreement or the Notes, and any consent to any departure by
the Company from the terms of any provision of this Agreement or the Notes,
shall be effective (i) only if it is made or given in writing and signed by the
Company and holders of 66% of the aggregate principal amount of the Subordinated
Notes outstanding, and (ii) only in the specific instance and for the specific
purpose for which made or given. Notwithstanding the foregoing, without the
consent of each holder of a Note affected, an amendment may not:
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(1) reduce the rate of or extend the time for
payment of interest on any Note;
(2) reduce the principal of or extend the maturity
of any Note;
(3) change the time at which any Note shall or may
be prepaid in accordance with Sections 3 and 4
of the Notes;
(4) make any Note payable in money other
than that stated in the Notes;
(5) make any change in Article 12 that
adversely affects the rights of any
holder of a Note under Article 12;
or
(6) make any change in the first or
second sentence of this Section
14.5(b).
(c) Any amendment, supplement or modification of
or to any of the terms provided in Article 8, Sections 9.1(c), 9.7, 9.9, 9.10,
9.11, 9.15, 10.4, 10.13 and 10.14 and Article 14, and any definitions in Article
1 relating to such provisions, and any consent to any departure by the Company
from such provisions, shall be effective (i) only if it is made or given in
writing and signed by the Company and Holders and December Holders of at least
51% of the Purchaser Shares and the December Purchaser Shares, in the aggregate
held by Holders and December Holders, and (ii) only in the specific instance and
for the specific purpose for which made or given.
(d) In addition to the foregoing, any amendment,
supplement or modification of or to any of the terms provided in Sections 9.8,
9.11 or 9.14, and any consent to any departure by the Company from any such
provisions, shall be effective (i) only if it is made or given in writing and
signed by the Company and Holders and December Holders of at least 51% of the
Warrants and the December Warrants (based on the number of shares issuable upon
the exercise of unexercised Warrants and December Warrants) held by Holders and
December Holders, and (ii) only in the specific instance and for the specific
purpose for which made or given.
(e) Notwithstanding the foregoing, no amendment,
supplement or modification hereunder shall become effective unless an equivalent
amendment, modification
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or waiver under the December Securities Purchase Agreement becomes effective
simultaneously therewith.
(f) Except where notice is specifically required
by this Agreement, no notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances.
14.6 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
14.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
14.8 Determinations. All determinations to be made by the
Company, the Purchaser or any Holder hereunder in its opinion or judgment or
with its approval or otherwise shall be made by it in its sole discretion,
unless otherwise specified herein.
14.9 Governing Law. This Agreement has been negotiated,
executed and delivered in the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
14.10 Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
may be brought in the courts of the State of New York located in New York City
or of the United States of America for the Southern District of New York and
hereby expressly submits to the personal jurisdiction and venue of such courts
for the purposes thereof and expressly waives any claim of improper venue and
any claim that such courts are an inconvenient forum. Each party hereby
irrevocably consents to the service of process of any of the aforementioned
courts pursuant to a contractual provision in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 14.2, such service to
become effective 10 days after such mailing. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
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SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN
CONTRACT OR TORT OR OTHERWISE.
14.11 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
14.12 Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
14.13 Remedies. If a breach of this Agreement, the Notes or
the Warrants by the Company occurs and is continuing, the Purchaser or any
Holder may pursue any available remedy by proceeding at law or in equity to
enforce the performance (including, without limitation, the specific
performance) of any provision of the Notes, the Warrants or this Agreement. The
Purchaser or any Holder may maintain a proceeding even if it does not possess
any of the Notes or Warrants or does not produce any of them in the proceeding.
No remedy is exclusive of any other remedy. All available remedies are
cumulative.
14.14 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto, the Notes, the Warrants and the Registration
Rights Agreement is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits and schedules hereto, the Notes, the
Warrants and the Registration Rights Agreement supersede all prior agreements
and understandings among the parties with respect to such subject matter.
14.15 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the Notes, the Warrants and the
Registration Rights Agreement or any other document or instrument contemplated
hereby or thereby, or where any provision hereof or thereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees, charges and disbursements in addition to any other available
remedy.
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14.16 Publicity. Except as may be required by applicable law
or a listing agreement with any securities exchange or Nasdaq, no party hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto. If any announcement is
required by law to be made by a party hereto, prior to making such announcement
such party will deliver a draft of such announcement to the other parties and
shall give the other parties an opportunity to comment thereon.
14.17 Expenses. The Company acknowledges and agrees that
whether or not the transactions contemplated hereby are consummated, the Company
shall reimburse the Purchaser for (a) all out-of-pocket expenses of the
Purchaser in connection with any preparation and filing of any notification and
report forms filed in compliance with the HSR Act in connection with the
transactions contemplated hereby and (b) all out-of-pocket expenses, and all
legal fees and expenses of the Purchaser incurred in connection with the
negotiation, execution and delivery of this Agreement and the other Transaction
Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers or partners
hereunto duly authorized as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
THE STRUCTURED FINANCE HIGH YIELD
FUND, LLC
By:
Name:
Partner
71
SENIOR SUBORDINATED PROMISSORY NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITH "ORIGINAL
ISSUE DISCOUNT" FOR PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. FOR INFORMATION REGARDING THE "ISSUE PRICE," "ISSUE DATE,"
AMOUNT OF "ORIGINAL ISSUE DISCOUNT," AND "YIELD TO MATURITY" OF THE NOTE,
CONTACT THE CHIEF FINANCIAL OFFICER OF NATIONAL AUTO FINANCE COMPANY, INC. AT
621 N.W. 53RD STREET, SUITE 200, BOCA RATON, FLORIDA 33487, TELEPHONE: (800)
999- 7535.
NATIONAL AUTO FINANCE COMPANY, INC.
SENIOR SUBORDINATED PROMISSORY NOTE
DUE DECEMBER 22, 2004
$20,000,000 New York, New York
March 27, 1998
DAFS03...:\97\64897\0015\1306\NTS3138U.10A
<PAGE>
FOR VALUE RECEIVED, the undersigned, NATIONAL AUTO FINANCE COMPANY,
INC., a Delaware corporation (the "COMPANY"), promises to pay to the order of
THE STRUCTURED FINANCE HIGH YIELD FUND, LLC or permitted assigns the principal
sum of Twenty Million dollars ($20,000,000) on December 22, 2004, with interest
thereon from time to time as provided herein.
1. PURCHASE AGREEMENT. This Senior Subordinated Promissory Note
(this "NOTE") is issued pursuant to the Securities Purchase Agreement, dated as
of March 27, 1998, by and among the Company and The Structured Finance High
Yield Fund, LLC (the "PURCHASE AGREEMENT"), and the holder of this Note is
entitled to the benefits of this Note and the Purchase Agreement and may enforce
the agreements contained herein and therein and exercise the remedies provided
for hereby and thereby or otherwise available in respect hereto and thereto.
The Purchase Agreement provides for the acceleration of the maturity
of this Note upon the occurrence of certain events.
2. INTEREST. The Company promises to pay interest on the outstanding
principal amount of this Note (i) at the rate of 11.875% per annum through
December 22, 2000, (ii) at the rate of 12.875% per annum from and after December
22, 2000 through December 22, 2001, (iii) at the rate of 13.875% per annum from
and after December 22, 2001 through December 22, 2002, and (iv) at the rate of
14.875% per annum from and after December 22, 2002 and thereafter (as applicable
for each period, the "BASE INTEREST RATE"). The Company shall pay interest on
the Note quarterly in arrears on each March 31, June 30, September 30 and
December 31 of each year or, if any such date shall not be a Business Day, on
the next succeeding Business Day to occur after such date (each date upon which
interest shall be so payable, an "INTEREST PAYMENT DATE"), beginning on March
31, 1998. Interest on this Note shall be paid by wire transfer of immediately
available funds to an account designated by the holder of this Note. Interest on
this Note shall accrue from the date of issuance until repayment of the
principal and payment of all accrued interest in full. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding
the foregoing provisions of this Section 2, but subject to applicable law, any
overdue principal of and overdue interest on this Note shall bear interest,
payable on demand in immediately available funds, for each day from the date
payment of principal or interest was due to the date of actual payment, at the
rate of interest which is equal to the applicable Base Interest Rate plus 2% per
annum, and, upon and during the continuance of an Event of Default, this Note
shall bear interest, from the date of the occurrence of such Event of Default
until such Event of Default is cured or waived, payable on demand in immediately
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available funds, at the rate of interest which is equal to the applicable Base
Interest Rate plus 2% per annum.
3. MANDATORY REDEMPTION AT THE OPTION OF THE HOLDER.
3.1 CHANGE OF CONTROL. If one or more events constituting a
Prepayment Event shall occur, the holder of this Note shall have the right, on
the date specified in Section 3.2 (the "MANDATORY REDEMPTION DATE"), to require
the Company to redeem (a "MANDATORY REDEMPTION") all (but not less than all) of
the Notes then held by such holder at a price (the "MANDATORY REDEMPTION PRICE")
equal to (i) the following percentage of the outstanding principal amount of the
Note to be prepaid plus (ii) an amount equal to all accrued and unpaid interest
thereon to the Mandatory Redemption Date, in immediately available funds:
If to be Prepaid During Percentage of
the Period: Principal Amount
March 27, 1998 to 110.0%
December 22, 1998
December 23, 1998 to 107.5%
December 22, 1999
December 23, 1999 to 105.0%
December 22, 2000
December 23, 2000 100.0%
and thereafter
Notwithstanding anything to the contrary contained herein, in the
event the holder of this Note requires a Mandatory Redemption following a Change
of Control that is a Sale Transaction, the percentage of the Mandatory
Redemption Price that exceeds the aggregate principal amount of and accrued but
unpaid interest on the Notes to be repaid shall be waived or reduced to the
extent that The Structured Finance High Yield Fund, LLC's "internal rate of
return" on the Notes and the Warrants issued pursuant to the Purchase Agreement
(taking into account the portion of the Mandatory Redemption Price that exceeds
the aggregate principal amount of and accrued but unpaid interest on the Notes
held by The Structured Finance High Yield Fund, LLC that have been or are to be
prepaid pursuant to this Section 3 which is not waived) exceeds 25.0%. For
purposes of this Note, "internal rate
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<PAGE>
of return" means, as of the Mandatory Redemption Date, an internal rate of
return calculated by determining the discount rate that equates the present
value of all cash flows of the investment in the Notes and the Warrants to zero
and which is derived by taking into account (i) the amount invested in the Notes
and the Warrants of the Company by The Structured Finance High Yield Fund, LLC
(as of the date invested), (ii) the amount of any interest payments on the Notes
received by The Structured Finance High Yield Fund, LLC (as of the date
received), (iii) the amount of any proceeds received by The Structured Finance
High Yield Fund, LLC upon the sale or other disposition prior to the Mandatory
Redemption Date of all or any portion of the Notes and the Warrants or the
Common Stock issuable upon exercise of the Warrants (as of the date received),
(iv) the Market Price (as defined in the Warrants) of the Common Stock (assuming
exercise of any unexercised Warrants of the Company held by The Structured
Finance High Yield Fund, LLC (as of the Mandatory Redemption Date) and (v) the
facility fee received by The Structured Finance High Yield Fund, LLC pursuant to
Section 2.2 of the Purchase Agreement.
3.2 NOTICE. Notice of a Prepayment Event (the "PREPAYMENT
EVENT NOTICE") shall be mailed no more than 10 Business Days after the
occurrence of a Prepayment Event to each holder of Notes, at such holder's
address as it appears on the transfer books of the Company. The date fixed for
each Mandatory Redemption shall be fixed by the Company and shall be no less
than 20 days or more than 40 days after the date of the Prepayment Event Notice.
Notwithstanding the foregoing and Section 3.1 hereof, in the event of the
occurrence of a Prepayment Event of the types set forth in any of clauses (iii)
or (iv) of the definition of "Change of Control," the Prepayment Event Notice
shall be mailed to each holder of Notes no later than 10 Business Days prior to
the consummation of the transaction contemplated by such clause (iii) or (iv),
as the case may be, and the Company shall not be required to purchase any Notes
unless such transaction shall be consummated, in which case the Company shall be
required to purchase such Notes immediately prior to the consummation of such
transaction.
3.3 PROVISIONS OF NOTICE. The right of the holders of Notes to
require the Company to effect a Mandatory Redemption shall remain in effect from
the time of the mailing of, until the redemption date set forth in, the
Prepayment Event Notice. The Prepayment Event Notice shall be accompanied by a
copy of the information most recently required to be supplied under Sections
9.1(a) and 9.1(b) of the Purchase Agreement. The Prepayment Event Notice shall
contain all instruments and materials necessary to enable the holder of this
Note to tender this Note pursuant to this Section 3. The Prepayment Event
Notice, which shall govern the terms of the Mandatory Redemption, shall state:
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<PAGE>
(a) that a Prepayment Event has occurred, that each
holder of Notes has the right to require the Company to effect a
Mandatory Redemption pursuant to this Section 3 and that tendered
Notes will be redeemed;
(b) the Mandatory Redemption Price and the date for
redemption;
(c) that each holder of Notes may require the Company to
redeem all (but not less than all) Notes held thereby;
(d) that the Notes redeemed pursuant to the Mandatory
Redemption shall cease to accrue interest after the designated date
for purchase (unless the Company shall default in the payment of the
Mandatory Redemption Price, in which case the Notes shall not cease
to accrue interest after such date);
(e) such other information respecting the procedures for
effecting the Mandatory Redemption as the Company shall include and
such other information as may be required by law; and
(f) that (unless otherwise required by law) any holder of
Notes will be entitled to withdraw his or her election if the
Company receives, not later than the close of business on the third
Business Day next preceding the date scheduled for redemption,
facsimile transmission or letter setting forth the name of such
holder, the principal amount of Notes such holder delivered for
redemption and a statement that such holder is withdrawing his or
her election to have such Notes redeemed.
3.4 REDEMPTION PROCEDURE. The holder of this Note may elect to
require the Company to redeem all (but not less than all) of the Notes held by
such holder pursuant to a Mandatory Redemption by delivery of written notice
thereof to the Company prior to the date fixed for such Mandatory Redemption. If
the holder of this Note so elects, on the date fixed for any Mandatory
Redemption, such holder shall surrender all of the Notes held thereby to the
Company at the place designated in the Prepayment Event Notice. From and after
the Mandatory Redemption Date (i) such Notes shall no longer be deemed
outstanding, (ii) the right to receive interest thereon shall cease to accrue
and (iii) all rights of the holders of such Notes shall cease and terminate,
excepting only the right to receive the Mandatory Redemption Price therefor;
provided, however, that if the Company shall default
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<PAGE>
in the payment of the Mandatory Redemption Price, the Notes shall thereafter be
deemed to be outstanding and the holders thereof shall have all of the rights of
a holder of Notes until such time as such default shall no longer be continuing
or shall have been waived by holders of at least 66% of the then outstanding
principal amount of the Notes.
4. OPTIONAL REDEMPTION.
4.1 REDEMPTION BY COMPANY. Except as otherwise provided
herein, the Company shall not have any right to prepay or redeem this Note. The
Company shall have the right, at any time and from time to time at its sole
option and election, to redeem (the "OPTIONAL REDEMPTION") the Notes, in whole
but not in part, on not less than 30 days notice of the date of redemption,
which must be a Business Day (any such date an "OPTIONAL REDEMPTION DATE") at a
price (the "OPTIONAL REDEMPTION PRICE") equal to (i) the following percentage of
the outstanding principal amount of the Notes to be redeemed plus (ii) an amount
equal to all accrued and unpaid interest thereon to the date fixed for
prepayment, whether or not currently payable, to the Optional Redemption Date,
in cash or other immediately available funds:
If redeemed Percentage of Principal
during the period: Amount
March 27, 1998 to 110.0%
December 22, 1998
December 23, 1998 to 107.5%
December 22, 1999
December 23, 1999 to 105.0%
December 22, 2000
December 23, 2000 and 100.0%
thereafter
Notwithstanding anything to the contrary contained herein, in the
event of the occurrence of any Public Offering prior to December 23, 2000, the
Company shall have the right, at its sole option and election, to use the
proceeds from such Public Offering(s) to redeem, by delivery of a notice
pursuant to Section 4.2, concurrently with the consummation of such Public
Offering(s), up to an aggregate total amount (whether with the proceeds from
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<PAGE>
one or more than one Public Offering) of 33-1/3% of the principal amount of the
Notes outstanding on the Closing Date at a price equal to 100.0% of the
outstanding principal amount of the Notes to be prepaid plus an amount equal to
all accrued and unpaid interest thereon to the date fixed for prepayment,
whether or not currently payable, in cash or other immediately available funds.
Upon the occurrence of an Event of Default under Section 11.1(viii)
of the Purchase Agreement, the Company shall be deemed to have elected to redeem
the Notes as provided in this Section 4.1 and shall so redeem the Notes as
provided in this Section 4 (without giving effect to the immediately preceding
paragraph).
4.2 NOTICE. Notice of the Optional Redemption (the "OPTIONAL
REDEMPTION NOTICE") shall be mailed at least 30 days, but not more than 60 days,
prior to the date fixed for redemption to each holder of the Notes, at such
holder's address as it appears on the transfer books of the Company. In order to
facilitate the redemption of the Notes, the Board of Directors of the Company
may fix a record date for the determination of the Notes to be redeemed, or may
cause the transfer books of the Company for the Notes to be closed, not more
than 60 days or less than 30 days prior to the date fixed for such redemption.
4.3 DEPOSIT OF FUNDS. On the Optional Redemption Date, the
Company shall, and at any time after the Optional Redemption Notice shall have
been mailed and before the date of Optional Redemption the Company may, deposit
for the benefit of the holders of the Notes the funds necessary for the Optional
Redemption with a bank or trust company in the Borough of Manhattan, The City of
New York, having a capital and surplus of at least $150,000,000. Any moneys so
deposited by the Company and unclaimed at the end of two years from the date
designated for the Optional Redemption shall revert to the general funds of the
Company or as otherwise required by law. After such reversion, any such bank or
trust company shall, upon demand, pay over to the Company such unclaimed amounts
and thereupon such bank or trust company shall be relieved of all responsibility
in respect thereof and any holder of Notes shall look only to the Company for
the payment of the Optional Redemption Price. Any interest accrued on funds
deposited pursuant to this Section 4.3 shall be paid from time to time to the
Company for its own account.
4.4 TERMINATION OF RIGHTS. The Optional Redemption Notice
having been given as aforesaid, upon the deposit of funds pursuant to Section
4.3 in respect of the Notes to be redeemed pursuant to Section 4.1,
notwithstanding that any such Notes themselves shall not have been surrendered
for cancellation, from and after the Optional Redemption Date (i) the Notes
shall no longer be deemed outstanding, (ii) the rights to
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receive interest thereon shall cease to accrue and (iii) all rights of the
holders of the Notes shall cease and terminate, excepting only the right to
receive the Optional Redemption Price therefor; provided, however, that if the
Company shall default in the payment of the Optional Redemption Price, the Notes
shall thereafter be deemed to be outstanding and the holders thereof shall have
all of the rights of a holder of Notes until such time as such default shall no
longer be continuing or shall have been waived by holders of at least 66% of the
then outstanding principal amount of the Notes.
5. DEFINITIONS. Capitalized terms not otherwise defined in this Note
shall have the meanings ascribed to them in the Purchase Agreement. As used in
this Note, and unless the context requires a different meaning, the following
terms have the meanings indicated:
"BANKRUPTCY LAW" means Title 11, U.S. Code or any other federal,
state or foreign law for the relief of debtors, as any such laws may be amended
from time to time.
"CHANGE OF CONTROL" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) other than National Auto Finance Company,
L.P., Morgan Guaranty Trust Company, Gary L. Shapiro, Keith B. Stein,
First Union National Bank of North Carolina (or any of its Affiliates),
The 1818 Mezzanine Fund, L.P., P.C. Investment Company, the Progressive
Investment Company, Inc. and Manufacturers Life Insurance Company (U.S.A.)
or the Purchaser (collectively, the "Principal Stockholders") is or
becomes the beneficial owner, directly or indirectly, of outstanding
shares of Capital Stock of the Company, entitling such Person or Persons
to exercise 50% or more of the total votes entitled to be cast for the
election of directors under ordinary circumstances at a regular or special
meeting, or by action by written consent, of (i) common stockholders of
the Company if at least a majority of the Company's Board of Directors are
elected by common stockholders, and (ii) voting stockholders of the
Company in all other circumstances (the term "beneficial owner" shall be
determined in accordance with Rule 13d-3, promulgated by the Commission
under the Exchange Act);
(ii) A majority of the Board of Directors of the Company shall
consist of Persons other than Continuing Directors. The term "Continuing
Director" shall mean any member of the Board of Directors of the Company
on the Closing Date and any other member of the Board of Directors who
shall be recommended or elected to
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succeed or become a Continuing Director by a majority of Continuing
Directors who are then members of the Board of Directors of the Company;
(iii) The stockholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation, sale or other
disposition of all or substantially all the assets of the Company (in one
transaction or in a series of related transactions) or similar
transaction, in each case, with respect to which all or substantially all
the Persons who were the respective beneficial owners of the outstanding
shares of Capital Stock of the Company immediately prior to such
recapitalization, reorganization, merger or consolidation, beneficially
own, directly or indirectly, less than 50% of the combined voting power of
the then outstanding shares of Capital Stock of the Company resulting from
such recapitalization, reorganization, merger, consolidation or similar
transaction or obtaining the assets of the Company; or
(iv) Upon the consummation of any transaction the result of
which is that the Common Stock is not required to be registered under
Section 12 of the Exchange Act and that the holders of Common Stock do not
receive common stock of the Person surviving such transaction which is
required to be registered under Section 12 of the Exchange Act.
"PREPAYMENT EVENT" means the occurrence of (i) a Change of Control
or (ii) a conveyance, transfer, lease or other disposition (whether in one
transaction or a series of transactions) of all or substantially all of the
assets (wherever acquired) of any division or Subsidiary of the Company (except
for sales in connection with Permitted Securitization Transactions) if such
assets accounted for at least 33% of the Company's Net Income determined by
reference to the most recent audited financial statements of the Company.
"PUBLIC OFFERING" shall mean the sale in any offering by the Company
of its Capital Stock for its own account pursuant to a registration statement on
Form S-1 or otherwise under the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
"SALE TRANSACTION" shall mean a Change of Control pursuant to
subsection (iii) of the definition thereof, provided that the reference
contained therein to 50% shall instead be deemed to be 10%.
6. SUBORDINATION. This Note is subordinated to certain Senior
Indebtedness. To the extent provided in Article 12 of the Purchase Agreement,
Senior
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Indebtedness must be paid before this Note may be paid. The Company, and the
holder of this Note by accepting this Note, agree to the subordination
provisions contained in Article 12 of the Purchase Agreement.
7. EXCHANGE OF NOTES. At the option of the holder of this Note, this
Note may be exchanged for other Notes of like tenor and of a like aggregate
principal amount, upon surrender of this Note at the principal office of the
Company; provided, however, that the minimum denomination of any Note to be
issued in exchange for this Note shall be at least $3,000,000 and in at least
$1,000 increments, unless the transferee of this Note (i) shall have purchased
this Note in a public offering or subsequent to a public offering thereof, (ii)
is a partner or member of the holder of this Note and shall have received this
Note upon the dissolution or liquidation of the holder of this Note or in
connection with a distribution of assets by the holder of this Note, or (iii) is
a parent or subsidiary of the holder of this Note, which in each case the
minimum denomination of any note to be issued in exchange for this Note shall be
at least $1,000.
8. AMENDMENT. Amendments and modifications of this Note may be made
only in the manner provided in Section 14.5 of the Purchase Agreement.
9. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed, as of the date written below.
NATIONAL AUTO FINANCE COMPANY, INC.
By_____________________________
Name:
Title:
Date: March 27, 1998
10
WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS. NEITHER THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. 5
WARRANT
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
NATIONAL AUTO FINANCE COMPANY, INC.
THIS IS TO CERTIFY THAT THE STRUCTURED FINANCE HIGH YIELD FUND, LLC
or its registered assigns (the "PURCHASER"), is the owner of Five Hundred
Ninety-Three Thousand Six Hundred Seventy-One (593,671) Warrants (the
"WARRANTS"), each of which entitles the registered holder thereof to purchase
from NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation (the
"COMPANY"), one fully paid, duly authorized and nonassessable share of Common
Stock, par value $.01 per share, of the Company (the "COMMON STOCK"), at any
time or from time to time on or before 5:00 p.m., New York City time, on March
27, 2008 (subject to earlier expiration in certain events), at an exercise price
of $.01 per share (the "EXERCISE PRICE"), all on the terms and subject to the
conditions hereinafter set forth.
DAFS03...:\97\64897\0015\1306\WAR3138U.36B
<PAGE>
The number of shares of Capital Stock issuable upon exercise of each
such Warrant (the "NUMBER ISSUABLE"), which is initially one (1) share of Common
Stock, is subject to adjustment from time to time pursuant to the provisions of
Section 2 of this Warrant certificate.
Capitalized terms used herein but not otherwise defined shall have
the meanings given them in Section 11 hereof or, if not therein defined, in the
Purchase Agreement.
1. Exercise of Warrant. Subject to the last paragraph of this
Section 1, the Warrants evidenced hereby may be exercised, in whole or in part,
by the registered holder hereof at any time or from time to time on or before
5:00 p.m., New York City time, on March 27, 2008, but in any event no later than
the date of the consummation of a Sale Transaction, upon delivery to the Company
at the principal executive office of the Company in the United States of
America, of (a) this Warrant certificate, (b) a written notice stating that such
holder elects to exercise all or any portion of the Warrants evidenced hereby in
accordance with the provisions of this Section 1 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued in connection with such exercise and (c) payment of
the Exercise Price for the shares of Common Stock issuable upon exercise of such
Warrants, which shall be payable, subject to the immediately following
paragraph, (i) in cash, (ii) by a certified or official bank check payable to
the order of the Company or (iii) by the surrender (which surrender shall be
evidenced by cancellation of the number of Warrants represented by any Warrant
certificate presented in connection with a Cashless Exercise (as defined below))
of a Warrant or Warrants (represented by one or more relevant Warrant
certificates), and without the payment of the Exercise Price in cash, in return
for the delivery to the surrendering holder of such number of shares of Common
Stock equal to the product of (x) the number of shares of Common Stock for which
such Warrant is exercisable as of the date of exercise (if the Exercise Price
were being paid in cash) multiplied by (y) the Cashless Exercise Ratio. An
exercise of a Warrant in accordance with clause (iii) is herein called a
"CASHLESS EXERCISE." The "CASHLESS EXERCISE RATIO" shall equal a fraction, the
numerator of which is the excess of the Current Market Price per share of Common
Stock on the date of exercise over the Exercise Price per share as of the date
of exercise and the denominator of which is the Current Market Price per share
of the Common Stock on the date of exercise. Upon surrender of a Warrant
certificate representing more than one Warrant in connection with a Cashless
Exercise, the number of shares of Common Stock deliverable upon a Cashless
Exercise shall be equal to the number of Warrants that the holder specifies is
to be exercised pursuant to a Cashless Exercise multiplied by the Cashless
Exercise Ratio, (collectively, the "WARRANT EXERCISE DOCUMENTATION").
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<PAGE>
If any holder at the time of the exercise of any Warrants is not a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act or an "accredited investor" within the meaning of Rule 501 under
the Securities Act such holder of the Warrants will be required to effect the
exercise of the Warrants solely pursuant to the Cashless Exercise Option.
As promptly as practicable, and in any event within five Business
Days after receipt of the Warrant Exercise Documentation, the Company shall
deliver or cause to be delivered (a) certificates representing the number of
validly issued, fully paid and nonassessable shares of Common Stock specified in
the Warrant Exercise Documentation, (b) if applicable, cash in lieu of any
fraction of a share, as hereinafter provided, and (c) if less than the full
number of Warrants evidenced hereby are being exercised, a new Warrant
certificate or certificates, of like tenor, for the number of Warrants evidenced
by this Warrant certificate, less the number of Warrants then being exercised.
Such exercise shall be deemed to have been made at the close of business on the
date of delivery of the Warrant Exercise Documentation so that the Person
entitled to receive shares of Common Stock upon such exercise shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time. No such surrender shall be effective to constitute the
person entitled to receive such shares as the record holder thereof while the
transfer books of the Company for the Common Stock are closed for any purpose
(but not for any period in excess of five days); but any such surrender of this
Warrant certificate for exercise during any period while such books are so
closed shall become effective for exercise immediately upon the reopening of
such books, as if the exercise had been made on the date this Warrant
certificate was surrendered and for the Number Issuable of Common Stock
specified in the Warrant Exercise Documentation and at the Exercise Price.
The Company shall pay all expenses in connection with, and all taxes
and other governmental charges (other than income taxes of the holder) that may
be imposed in respect of, the issue or delivery of any shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered holder of the Warrants
evidenced hereby.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Company shall pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the Current Market Price
per share of Common Stock on the Business Day which next precedes the day of
exercise. If more than one such Warrant shall be exercised by the holder thereof
at the same time, the number of full shares of Common Stock issuable
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<PAGE>
on such exercise shall be computed on the basis of the total number of Warrants
so exercised.
2. ADJUSTMENTS.
(A) ADJUSTMENT OF NUMBER ISSUABLE. The Number Issuable shall be
subject to adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to time
after the Issue Date:
(A) pay a dividend or make a distribution on the
outstanding shares of Common Stock in Capital Stock of the Company;
(B) subdivide the outstanding shares of Common Stock
into a larger number of shares;
(C) combine the outstanding shares of Common Stock into
a smaller number of shares; or
(D) issue any shares of its Capital Stock in a
reclassification of the Common Stock;
then, and in each such case, the Number Issuable in effect immediately
prior to such event shall be adjusted (and any other appropriate actions
shall be taken by the Company) so that the holder of any Warrant evidenced
hereby thereafter exercised shall be entitled to receive the number of
shares of Capital Stock of the Company which such holder would have owned
or had been entitled to receive upon or by reason of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event. An adjustment made pursuant to this clause (i)
shall become effective retroactively (x) in the case of any such dividend
or distribution, to a date immediately following the close of business on
the record date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (y) in the case of
any such subdivision, combination or reclassification, to the close of
business on the date upon which such corporate action becomes effective.
(ii) If after the Issue Date, the Company shall at any time or
from time to time issue or sell (x) shares of Common Stock or (y)
securities convertible into or
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<PAGE>
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock (other than (a) shares of Common
Stock issued upon exercise of the Warrants or the December Warrants and
shares issued as a result of adjustments made under the other provisions
of this Section 2, (b) shares of Common Stock issued pursuant to an
underwritten Public Offering where such shares of Common Stock are listed
on the New York Stock Exchange, Inc. or quoted or listed on any other
national securities exchange or the National Market System of the Nasdaq
Stock Market or (c) equity securities convertible into or exchangeable for
shares of Common Stock, or any options, warrants or other rights to
acquire shares of Common Stock if issued in connection with an issuance of
debt securities as a unit (collectively, a "UNIT ISSUANCE"), but only to
the extent (A) the Company retains a nationally recognized investment
bank, which the Company and the holders of a majority of the outstanding
Warrants mutually approve, to underwrite or privately place such Unit
Issuance, or (B) if the Company and the holders of a majority of the
outstanding Warrants do not agree on an investment bank under clause (A)
hereof, the Company retains a nationally recognized investment bank to
underwrite or privately place such Unit Issuance, in which case the
holders of a majority of the outstanding Warrants may opt to retain (at
the Company's expense) a nationally recognized investment bank that
delivers to the holders of the outstanding Warrants, if such option is
exercised, an opinion that the Unit Issuance is fair, from a financial
point of view, to the stockholders of the Company) at a price per share
that is less than the Current Market Price per share of Common Stock then
in effect as of the record date or issue date, as the case may be,
referred to in the following sentence (the "RELEVANT DATE") (treating the
price per share of Common Stock, in the case of the issuance of any
security convertible or exchangeable or exercisable into Common Stock as
equal to (x) the sum of the price for such security convertible,
exchangeable or exercisable into Common Stock plus any additional
consideration payable (without regard to any anti-dilution adjustments)
upon the conversion, exchange or exercise of such security into Common
Stock divided by (y) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable security), in
each case, other than issuances or sales for which an adjustment is made
pursuant to another paragraph of this Section 2, then, and in each such
case, the Number Issuable then in effect shall be adjusted by multiplying
the Number Issuable in effect on the day immediately prior to the Relevant
Date by a fraction, (1) the numerator of which shall be the sum of the
number of shares of Common Stock, on a fully diluted basis, outstanding on
the Relevant Date, plus the number of additional shares of Common Stock
issued or to be issued (or the maximum number into which such convertible
or exchangeable securities initially may convert or exchange or for which
such options, warrants or other rights initially may be exercised), and
(2) the denominator of which shall be the
5
<PAGE>
sum of the number of shares of Common Stock, on a fully diluted basis,
outstanding on the Relevant Date, plus the number of shares of Common
Stock which the aggregate consideration for the total number of such
additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for
which such options, warrants or other rights may be exercised plus the
aggregate amount of any additional consideration initially payable upon
conversion, exchange or exercise of such security) would purchase at the
Current Market Price per share of Common Stock on the Relevant Date. Such
adjustment shall be made whenever such shares, securities, options,
warrants or other rights are issued, and shall become effective
retroactively to a date immediately following the close of business (x) in
the case of an issuance to the stockholders of the Company, as such, on
the record date for the determination of stockholders entitled to receive
such shares, securities, options, warrants or other rights and (y) in all
other cases, on the date (the "ISSUE DATE") of such issuance; provided,
that if any convertible or exchangeable securities, options, warrants, or
other rights (or any portions thereof) which shall have given rise to an
adjustment pursuant to this Section 2(a)(ii) shall have expired or
terminated without the exercise thereof, then the Number Issuable
hereunder shall be readjusted (but to no greater extent than originally
adjusted) on the basis of eliminating from the computation any additional
shares of Common Stock corresponding to such convertible or exchangeable
securities, options, warrants or other rights as shall have expired or
terminated. Solely for purposes of this clause (ii), (I) Common Stock
shall include the Common Stock, par value $.01 per share, of the Company
and each other class of capital stock of the Company that does not have a
preference over any other class of capital stock of the Company as to
dividends or upon liquidation, dissolution or winding up of the Company
and, in each case, shall include any other class of capital stock of the
Company into which such stock is reclassified or reconstituted and (II) if
the provisions of any securities convertible into or exchangeable for
shares of Common Stock or options, warrants or other rights to acquire
shares of Common Stock are amended after the date of issuance so as to
reduce the applicable conversion price, exchange price or exercise price
such amendment shall be deemed to be a new issuance of such securities.
(iii) In case the Company shall at any time or from time to
time after the Issue Date distribute to any holder of shares of its Common
Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the resulting or surviving
corporation and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of the Company or another issuer, securities of
the Company or another issuer or other assets (excluding dividends or
other distributions of shares of Common Stock or other Capital Stock for
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<PAGE>
which adjustment is made under Section 2(a)(i) or dividends or other
distributions received by or set aside for the benefit of the holders of
Common Stock pursuant to Section 2(c) below) or rights or warrants to
subscribe for or purchase securities of the Company (excluding those in
respect of which adjustments in the Number Issuable is made pursuant to
Section 2(a)(i) or Section 2(a)(ii)), then, and in each such case, the
Number Issuable then in effect shall be adjusted by multiplying the Number
Issuable in effect immediately prior to the date of such distribution by a
fraction (x) the numerator of which shall be the Current Market Price per
share of Common Stock on the record date referred to below and (y) the
denominator of which shall be such Current Market Price per share of
Common Stock less the then Fair Market Value (as determined in good faith
by the Board of Directors of the Company, a certified resolution with
respect to which shall be mailed to the holder of the Warrants evidenced
hereby) of the portion of the cash, evidences of indebtedness, securities
or other assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock (but such denominator shall in no
event be zero). Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iv) In case the Company at any time or from time to time
shall take any action which could have a dilutive effect (it being
understood that this Section 2(a)(iv) shall not apply to percentage
dilution) on the number of shares of Common Stock that may be issued upon
exercise of the Warrants, other than an action described in any of Section
2(a)(i) through 2(a)(iii), inclusive, or Section 2(b), then, the Number
Issuable shall be adjusted in such manner and at such time as the Board of
Directors of the Company reasonably determines to be equitable under the
circumstances (such determination to be evidenced in a resolution, a
certified copy of which shall be mailed to the holder of the Warrants
evidenced hereby).
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 2(a) need be made to the Number Issuable
unless such adjustment would require an increase or decrease of at least
1% of the Number Issuable then in effect. Notwithstanding the foregoing,
any lesser adjustment shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment, which, together
with any adjustment or adjustments so carried forward, shall amount to an
increase or decrease of at least 1% of such Number Issuable. Any
adjustment to the Number Issuable carried forward and not theretofore made
shall be made immediately prior to the exercise of any Warrants pursuant
hereto.
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(vi) The Company promptly shall deliver to each registered
holder of Warrants at least 20 days prior to effecting any transaction
which would result in an increase or decrease in the Number Issuable
pursuant to this Section 2 a notice thereof, together with a certificate,
signed by the Chief Executive Officer, the Chairman or the Vice Chairman
and by the Chief Financial Officer, Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was, or will be, calculated and specifying the
increased or decreased Number Issuable then in effect following such
adjustment.
(vii) Notwithstanding anything contrary contained in this
Section 2(a), the Company shall be entitled to make such upward
adjustments in the Number Issuable, in addition to those otherwise
required by this Section 2(a), as the Board of Directors of the Company in
their discretion shall determine to be advisable in order that any stock
dividend, subdivision or combination of shares, distribution of rights or
warrants to purchase stock or securities, or distribution of securities
convertible into or exchangeable for Common Stock, hereafter made by the
Company to its shareholders shall not be taxable; provided, however, that
any such adjustment shall be made, as nearly as practicable, in a manner
which treats all holders of Warrants with similar protections on an equal
basis.
(B) REORGANIZATION. In case of any capital reorganization or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) (any of the foregoing, a "TRANSACTION"),
the Company, or any successor, as the case may be, shall execute and deliver to
each holder of the Warrants evidenced hereby, at least 20 days prior to
effecting any of the foregoing Transactions, a certificate that the holder of
each such Warrant then outstanding shall have the right thereafter to exercise
such Warrant into the kind and amount of shares of stock or other securities (of
the Company or another issuer) or property or cash receivable upon such
Transaction by a holder of the number of shares of Common Stock into which such
Warrant could have been exercised immediately prior to such Transaction. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2 and shall
contain other terms identical to the terms hereof. If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than (i) the successor and (ii) other than the Company, which
controls or is controlled by the successor or which, in connection with such
Transaction, issues stock, securities, other property or cash to holders of
Common Stock, then such certificate also shall be executed by
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<PAGE>
such Person, and such Person shall, in such certificate, specifically assume the
obligations of such successor or purchasing Person and acknowledge its
obligations to issue such stock, securities, other property or cash to holders
of the Warrants upon exercise thereof as provided above. The provisions of this
Section 2(b) similarly shall apply to successive Transactions.
(C) SPECIAL DISTRIBUTIONS. If the holder so elects (in lieu of an
adjustment to the Number Issuable pursuant to Section 2(a)(i) or 2(a)(iii)) by
sending a Special Notice to the Company, in the event that the Company shall
declare a dividend or make any other distribution (including, without
limitation, in cash, in capital stock (which shall include, without limitation,
any options, warrants or other rights to acquire capital stock) of the Company,
whether or not pursuant to a shareholder rights plan, "poison pill" or similar
arrangement) in other property or assets, to holders of Common Stock (a "SPECIAL
DISTRIBUTION"), then the Board of Directors shall set aside the amount of such
dividend or distribution that any holder of Warrants would have been entitled to
receive had it exercised such Warrants prior to the record date for such
dividend or distribution. Upon the exercise of a Warrant evidenced hereby, the
holder shall be entitled to receive, such dividend or distribution that such
holder would have received had such Warrant been exercised immediately prior to
the record date for such dividend or distribution. Prior to any Special
Distribution described in this section 2(c), the Company shall as provided in
Section 3 hereof notify each holder (not less than 20 days prior to the
occurrence of each Special Distribution) of its intent to make such Special
Distribution and the holder, if it elects to have such distribution set aside
the amount thereof rather than have an adjustment to the Number Issuable as
provided in Sections 2(a)(i) or 2(a)(iii), shall notify the Company by sending a
Special Notice three Business Days prior to the date of any such Special
Distribution.
3. NOTICE OF CERTAIN EVENTS. In case at any time or from time to
time, the Company shall declare any dividend or any other distribution to the
holders of its Common Stock, or shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment to the Number Issuable pursuant to Section 2(a)(i) or (ii) or would
result in a Special Distribution pursuant to Section 2(c) hereof, or there shall
be any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another Person,
or any sale or other disposition of all or substantially all the assets of the
Company, or any Transaction, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, in any one or more
of such cases the Company shall mail to each holder of the Warrants evidenced
hereby at such holder's address as it appears on the transfer books of the
Company, as promptly as
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practicable but in any event at least 20 days prior to the applicable date
hereinafter specified, a notice stating (a) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights, warrants or
Transaction or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights
or warrants, or to participate in such Transaction, are to be determined, (b)
the issue date (as defined in Section 2(a)(ii) hereof) or (c) the date on which
such reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation winding up or Transaction is expected to become effective. Such
notice also shall specify the date as of which it is expected that the holders
of Common Stock of record shall be entitled to exchange their Common Stock for
shares of stock or other securities or property or cash deliverable upon such
reorganization, reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up.
4. CERTAIN COVENANTS. The Company covenants and agrees that all
shares of capital stock of the Company which may be issued against payment
therefor upon the exercise of the Warrants evidenced hereby will be duly
authorized, validly issued and fully paid and nonassessable. The Company shall
at all times reserve and keep available for issuance upon the exercise of the
Warrants, such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the exercise of all outstanding
Warrants, and shall take all action required to increase the authorized number
of shares of Common Stock if at any time there shall be insufficient authorized
but unissued shares of Common Stock to permit such reservation or to permit the
exercise of all outstanding Warrants. The Company shall prepare and file, and
cooperate with the holder of the Warrants so that it may prepare and file, in
each case within five Business Days of a request by such holder, notification
and report forms in compliance with the HSR Act, and shall otherwise fully
comply with the requirements of the HSR Act, to the extent required in
connection with the exercise of the Warrants. The Company shall bear all of its
own expenses and all of its own out-of-pocket expenses (including reasonable
attorneys' fees, charges and expenses) and filing fees of The Structured Finance
High Yield Fund, LLC (including any Permitted Transferee thereof)] in connection
with any such preparation and filing.
5. REGISTERED HOLDER. The person in whose name this Warrant
certificate is registered on the books and records of the Company shall be
deemed the owner hereof and of the Warrants evidenced hereby for all purposes.
The registered holder of this Warrant certificate, in its capacity as such,
shall not be entitled to any rights whatsoever as a stockholder of the Company,
except as herein provided.
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<PAGE>
6. TRANSFER OF WARRANTS. Any transfer of the rights represented by
this Warrant certificate shall be subject to the limitations provided herein,
and shall be effected by the surrender of this Warrant certificate, along with
the form of assignment attached hereto, properly completed and executed by the
registered holder hereof, at the principal executive office of the Company in
the United States of America, together with an appropriate opinion letter, if
deemed reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered holder hereof and, in the event of a partial
transfer, in the name of the registered holder hereof, a new Warrant certificate
or certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Notwithstanding anything to the contrary contained herein, if any
holder of the Warrants desires to sell or otherwise transfer all or any portion
of his Warrants (other than to a Permitted Transferee), such holder shall first
send written notice (the "OFFERING NOTICE") to the Company which shall state (i)
the number of Warrants proposed to be sold or otherwise transferred (the
"OFFERED WARRANTS"), (ii) the proposed purchase price per Warrant which such
holder is willing to accept and (iii) the material terms and conditions of the
proposed sale or transfer. For a period of five Business Days after delivery of
the Offering Notice (the "NOTICE PERIOD"), the Company shall have the right (but
not the obligation) to purchase all but not less than all of the Offered
Warrants at a purchase price equal to the purchase price provided in the
Offering Notice and upon the terms and conditions set forth in the Offering
Notice. Upon delivery of the Offering Notice, such offer shall be irrevocable
unless and until the rights of first offer of the Company provided for herein
shall have been waived or shall have expired. Failure of the Company to respond
within Notice Period shall be deemed a rejection of such offer. If the Company
elects to accept such offer, the Offered Warrants shall be sold or transferred
to the Company in accordance with the terms and conditions provided in the
Offering Notice on the date that is three Business Days following the Company's
acceptance of such offer.
7. DENOMINATIONS. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered holder hereof a new Warrant certificate or
certificates in such denominations specified by such holder for an aggregate
number of Warrants equal to the number of Warrants evidenced by this Warrant
certificate provided, however, that the Company shall not be required to issue
any Warrants for fractional shares of Common Stock.
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<PAGE>
8. REPLACEMENT OF WARRANTS. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant
certificate and, in the case of loss, theft or destruction, upon delivery of an
indemnity reasonably satisfactory to the Company (in the case of an insurance
company or other institutional investor, its own unsecured indemnity agreement
shall be deemed to be reasonably satisfactory), or, in the case of mutilation,
upon surrender and cancellation thereof, the Company will issue a new Warrant
certificate of like tenor for a number of Warrants equal to the number of
Warrants evidenced by this Warrant certificate.
9. GOVERNING LAW. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
10. RIGHTS INURE TO REGISTERED HOLDER. The Warrants evidenced by
this Warrant certificate will inure to the benefit of and be binding upon the
registered holder hereof and the Company and their respective successors and
permitted assigns. Nothing in this Warrant certificate shall be construed to
give to any Person other than the Company and the registered holder hereof any
legal or equitable right, remedy or claim under this Warrant certificate, and
this Warrant certificate shall be for the sole and exclusive benefit of the
Company and such registered holder.
11. DEFINITIONS. For the purposes of this Warrant certificate,
the following terms shall have the meanings indicated below:
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York, are authorized or
required by law or executive order to close.
"CURRENT MARKET PRICE" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 15 days, ending on such date,
on which the national securities exchange or market system on which the Common
Stock is primarily traded was open for trading, and (b) if the Common Stock is
not then listed or quoted on any exchange or market system, the Market Price on
such date.
"EXERCISE PRICE" shall have the meaning given it in the first
paragraph of this Warrant certificate.
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<PAGE>
"FAIR MARKET VALUE" shall mean the amount which a willing buyer,
under no compulsion to buy, would pay a willing seller, under no compulsion to
sell, in an arm's-length transaction.
"HSR ACT" shall mean the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended and the rules and regulations of the Federal Trade
Commission promulgated thereunder.
"ISSUE DATE" shall mean March 27, 1998.
"MARKET PRICE" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is then listed or admitted to trading
on any national securities exchange, the closing price of the Common Stock on
such date; (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security, the last sale price of the Common Stock on such date; or (c) if there
shall have been no trading of the Common Stock on such date or if the Common
Stock is not so designated, the average of the reported closing bid and asked
price of the Common Stock, on such date as shown by Nasdaq and reported by any
member firm of the NYSE selected by the Company; or (d) if neither (a), (b) nor
(c) is applicable, the Fair Market Value per share determined in good faith by
the Board of Directors of the Company which shall be deemed to be Fair Market
Value unless holders of at least 33% of Common Stock issued or issuable upon
exercise of the Warrants request that the Company obtain an opinion of a
nationally recognized investment banking firm chosen by the Company (who shall
bear the expense) and reasonably acceptable to such requesting holders of the
Warrants, in which event the Fair Market Value shall be as determined by such
investment banking firm.
"NASDAQ" shall mean the National Market System of the Nasdaq Stock
Market.
"NOTES" shall mean the Senior Subordinated Promissory Notes issued
by the Company pursuant to the Purchase Agreement.
"NUMBER ISSUABLE" shall have the meaning given it in the second
paragraph of this Warrant certificate.
"NYSE" shall mean the New York Stock Exchange, Inc.
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<PAGE>
"PERMITTED TRANSFEREE" means any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
"PERSON" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PURCHASE AGREEMENT" shall mean that certain Securities Purchase
Agreement, dated as of March 27, 1998, by and among the Company and The
Structured Finance High Yield Fund, LLC, as the same may be amended,
supplemented or modified from time to time in accordance with its terms.
"SALE TRANSACTION" means the merger or consolidation with or into
another Person by the Company (other than a merger or consolidation in which the
Company is the surviving or resulting person) or the completion of a tender
offer and/or acquisition for any and all shares of Common Stock of the Company;
provided that, when entering into such transaction, the Company shall comply
with Section 9.14 of the Purchase Agreement.
"SPECIAL NOTICE" shall mean the notice sent by a holder to the
Company indicating its preference to have any special distribution set aside for
its benefit upon exercise of the Warrant.
"WARRANT EXERCISE DOCUMENTATION" shall have the meaning given it in
Section 1 hereof.
12. NOTICES. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, courier services or
personal delivery, (a) if to the holder of a Warrant, at such holder's last
known address appearing on the books of the Company; and (b) if to the Company,
at its principal executive office in the United States located at the address
designated for notices in the Purchase Agreement, or such other address as shall
have been furnished to the party given or making such notice, demand or other
communication. All such notices and communications shall be deemed to have been
duly
14
<PAGE>
given: when delivered by hand, if personally delivered; when delivered to a
courier if delivered by commercial overnight courier service; and five Business
Days after being deposited in the mail, postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant certificate
to be duly executed as of the Issue Date.
NATIONAL AUTO FINANCE COMPANY, INC.
By:_______________________________________
Name:
Title:
15
<PAGE>
FORM OF ASSIGNMENT FORM
(To be executed upon assignment of the Warrants)
The undersigned hereby assigns and transfers this Warrant
certificate to ____________________ whose Social Security Number or Tax ID
Number is
_________________ and whose record address is
_____________________________________, and irrevocably appoints ________________
as agent to transfer this security on the books of the Company. Such agent may
substitute another to act for such agent.
Signature:
------------------------------------
Signature Guarantee:
------------------------------------
Date: ___________________________
16
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
(NAFI/WILLIAM MAGRO)
This First Amendment to Employment Agreement (the "Amendment") is
entered into as of the 27th day of May, 1997, by and between National Auto
Finance Company, Inc. (the "Company") and William Magro ("Magro").
RECITALS
A. Auto Credit Clearinghouse L.P., a Delaware limited partnership
("ACCH") and Magro entered into that certain Employment Agreement dated July 1,
1996 (the "Original Agreement").
B. ACCH was dissolved as a limited partnership and all of the
liabilities of ACCH (including any liabilities under the Original Agreement)
were transferred to, and assumed by, the Company.
C. The Company and Magro desire to amend certain terms of the Original
Agreement as set forth hereinbelow.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The Company. The Company acknowledges that the Company has assumed
all of the obligations and liabilities of ACCH under the Original Agreement. All
references in the Original Agreement to ACCH or the "Limited Partnership" shall
hereinafter constitute references to "the Company" for all purposes. All
references in the Original Agreement to "National Auto Finance Corporation," the
"General Partner," "National Auto Finance Company L.P." or "NAFCO" shall
hereinafter constitute references to "the Company" for all purposes.
2. New Position. In addition to serving as Executive Vice President of
the Company, Magro shall also have the title of "SERVICE CENTER PRESIDENT" for
the new service center which is being established by the Company in
Jacksonville, Florida.
3. Base Salary. The base salary amounts set forth in Section 4(a)(i),
(ii), (iii) and (iv) of the Original Agreement are hereby deleted in their
entirety and the following is hereby substituted in lieu thereof:
(i) Calendar Year 1997 $130,000
(ii) Calendar Year 1998 $140,000
(iii) Calendar Year 1999 $150,000
(iv) Calendar Year 2000 $175,000
<PAGE>
The other provisions of Section 4(a) shall not be modified by this Amendment.
4. Incentive Bonus. The amounts set forth in Section 4(b)(B) of the
Original Agreement are hereby deleted in their entirety and the following is
hereby substituted in lieu thereof:
Calendar Year 1997 55% of Base Salary
Calendar Year 1998 60% of Base Salary
Calendar Year 1999 60% of Base Salary
Calendar Year 2000 60% of Base Salary
5. Agreements Regarding Relocation by Magro to Jacksonville Florida.
Magro has agreed to relocate his primary residence to Jacksonville, Florida in
order to serve the Company as the Service Center President of the new service
center. In connection with such agreement by Magro, the Company hereby agrees as
follows:
a. The Company shall pay for, or reimburse Magro, for all
expenses associated with the moving of Magro's household goods
to Jacksonville, including packing and storage costs and the
cost of transporting Magro's automobiles.
b. The Company shall pay for, or reimburse Magro for, all travel
and related reasonable expenses incurred during the physical
move from South Florida to Jacksonville and interim living
expenses in connection with the move to Jacksonville,
including lodging and per diem expenses.
c. The Company shall pay for, or reimburse Magro for, two house
hunting trips for Magro's spouse, including airfare, lodging,
car rental and meals.
d. The Company shall pay for, or reimburse Magro for, 50% of the
amount of the monthly mortgage payment owed by Magro for his
South Carolina residence for a maximum period of 12 months.
e. The Company shall pay for all closing costs (excluding prepaid
taxes, interest and insurance) associated with the purchase of
a new home for Magro and his family in the Jacksonville,
Florida area.
6. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one instrument, but in making proof hereof it shall only be necessary to produce
one such counterpart.
7. Modification. This Agreement may only be modified by a written
instrument or instruments executed by the party against which enforcement of the
modification is asserted. Any alleged modification which is not so documented
shall not be effective as to any party.
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<PAGE>
8. Governing Law. The terms and provisions of this Agreement shall be
governed by the laws of the State of Florida (without regard to the conflict of
laws rules of such State) and to applicable federal law.
9. Entire Agreement. The Original Agreement, as modified by this
Amendment, constitutes the entire understanding and agreement between the
parties hereto with respect to the transactions referenced herein and supersedes
all prior written or oral understandings and agreements between the parties
hereto with respect thereto. Each party hereto hereby acknowledges that, except
as incorporated in writing in the Original Agreement or this Amendment, there
are not, and were not, and no persons are or were authorized by such party to
make, any representations, understandings, stipulations, agreements or promises,
oral or written, with respect to the transaction which is the subject of this
Agreement. Without limiting the foregoing, that certain memorandum from Bill
Magro to Roy Tipton, President of the Company dated May 27, 1997, Re: Service
Center/Employment Agreement is hereby superceded in its entirety by this
Amendment and is hereby rendered null and void for all purposes.
IN WITNESS WHEREOF, each party set forth below has executed this
Amendment on November 12, 1997, to be effective for all purposes as of the date
first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Gary L. Shapiro, CEO
WILLIAM MAGRO
3
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
(NAFI/ROY TIPTON)
This First Amendment to Employment Agreement (the "Amendment") is
entered into as of the 16th day of December, 1997, by and between National Auto
Finance Company, Inc. (the "Company") and Roy Tipton ("Tipton").
RECITALS
A. National Auto Finance Company L.P., a Delaware limited partnership
(the "Partnership") and Tipton entered into that certain Employment Agreement
dated September 16, 1995 (the "Original Agreement"). Each capitalized term which
is used but not defined in this Agreement shall have the meaning set forth in
the Original Agreement.
B. The Partnership was dissolved as a limited partnership and all of
the liabilities of the Partnership (including any liabilities under the Original
Agreement) were transferred to, and assumed by, the Company.
C. The Company and Tipton desire to amend certain terms of the Original
Agreement as set forth hereinbelow.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The Company. The Company acknowledges that the Company has assumed
all of the obligations and liabilities of the Partnership under the Original
Agreement. All references in the Original Agreement to "National Auto Finance
Corporation," the "Partnership", the "Limited Partnership", the "General
Partner," "National Auto Finance Company L.P." or "NAFCO" shall hereinafter
constitute references to "the Company" for all purposes.
2. Term. The Term of the Original Agreement as set forth in Section 1
of the Original Agreement is hereby extended to expire on DECEMBER 31, 1999,
unless soon terminated as provided in Section 10 of the Original Agreement or in
Section 6 of this Amendment.
3. Base Salary. The base salary amount (i.e. $180,000) set forth in
Section 4(a)(4) of the Original Agreement is hereby deleted in its entirety and
the following is hereby substituted in lieu thereof and, in addition, a new
Section 4(a)(5) is hereby added to such Section as follows:
(4) $200,000 from January 1, 1998 through December 31, 1998;
(5) $240,000 from January 1, 1999 to December 31, 1999.
The other provisions of Section 4(a) shall not be modified by this Amendment.
<PAGE>
4. Incentive Bonus. Section 4(b) of the Original Agreement is hereby
amended by providing for an incentive bonus for Tipton for calendar year 1999 as
follows:
a. Section 4(b)(A) is hereby amended by adding the phrase "$20,000,000
FOR 1999" after the phrase "$15,000,000 for 1998" and by adding the phrase
"$146,250 FOR 1999" after the phrase "$117,000 for 1998".
b. Section 4(b)(B) is hereby amended by adding "1999 - $146,250"
beneath the following numbers "1998-$117,000".
c. Section 4(b) is hereby amended by adding "1999" after "1998" in the
third sentence of such Section and in the last sentence of such Section.
5. Bonuses.
a. Upon the execution and delivery of this Amendment, the Company shall
pay to Tipton a one-time special signing bonus of $25,000.
b. In addition to the bonus amount payable to Tipton as set forth in
the Original Agreement for calendar year 1997 (and the signing bonus set forth
above), Tipton will receive an additional $30,000 for his 1997 bonus, which
amount shall be paid by the Company to Tipton at the same time as the 1997 bonus
is paid to Tipton.
6. Special Termination Right of Tipton.
a. In addition to the termination rights set forth in the Original
Agreement, in the event that the Company retains one or more new chief executive
officer(s) during the Term (other than Tipton or Gary L. Shapiro), then, Tipton
shall have the right to terminate the Term of the Original Agreement (as amended
hereby) which termination shall be effective 120 days after written termination
notice has been received by the Company from Tipton.
b. Following the expiration of such 120-day period (i.e. on the
effective date of such termination), Tipton shall be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary, Benefits,
and Other Compensation, and all Base Salary, Benefits and Other Compensation
shall then cease after the effective date of such termination, except as set
forth in Section 9(b) of the Original Agreement in the event that the Company
exercises its rights under such Section, as amended hereby.
c. Following such termination by Tipton, the Company shall have the
right to exercise the Company's rights which are set forth in Section 9(b) of
the Original Agreement; provided however (notwithstanding the requirement to
give 120-days notice to Tipton as set forth in the Agreement) the Company must
exercise such option to extend the "covenant not to compete" as contemplated by
Section 9(b) of the Original Agreement by giving to Tipton written notice on or
before 60 days prior to the effective date of such termination by Tipton under
this Section 6.
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<PAGE>
7. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one instrument, but in making proof hereof it shall only be necessary to produce
one such counterpart.
8. Modification. This Agreement may only be modified by a written
instrument or instruments executed by the party against which enforcement of the
modification is asserted. Any alleged modification which is not so documented
shall not be effective as to any party.
9. Governing Law. The terms and provisions of this Agreement shall be
governed by the laws of the State of Florida (without regard to the conflict of
laws rules of such State) and to applicable federal law.
10. Entire Agreement. The Original Agreement, as modified by this
Amendment, constitutes the entire understanding and agreement between the
parties hereto with respect to the transactions referenced herein and supersedes
all prior written or oral understandings and agreements between the parties
hereto with respect thereto. Each party hereto hereby acknowledges that, except
as incorporated in writing in the Original Agreement or this Amendment, there
are not, and were not, and no persons are or were authorized by such party to
make, any representations, understandings, stipulations, agreements or promises,
oral or written, with respect to the transaction which is the subject of this
Agreement.
IN WITNESS WHEREOF, each party set forth below has executed this
Amendment as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Gary L. Shapiro, CEO
ROY TIPTON
3
CONSENT AND AMENDMENT
THIS CONSENT AND AMENDMENT is made as of July 2, 1996 (this
"Agreement"), between NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware business
trust ("NAFCO"), NATIONAL AUTO FINANCE COMPANY L.P., a Delaware limited
partnership ("National Auto"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA
("FUNB") and BANKERS TRUST COMPANY, as Trustee of National Financial Auto
Receivables Master Trust (the "Trustee"), pursuant to Section 13.01(b) of the
Pooling and Administration Agreement, dated as of December 8, 1994, among NAFCO,
National Auto and the Trustee, as supplemented by the Series 1994-R, class B
Supplement, and amended October 5, 1995 and January 11, 1996 (as so supplemented
and amended, the "Pooling Agreement").
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties and the Class B
Certificateholders to the extent provided herein:
1. The definition of "Distribution Date" set forth in Appendix
A to the Pooling Agreement is hereby amended to read as follows:
"Distribution Date" means the 21st day of each calendar month
or, if any such day is not a Business Day, the next succeeding Business
Day.
2. The definition of "Eligible Pool Balance" set forth in
Appendix A to the Pooling Agreement is hereby amended to read as follows:
"Eligible Pool Balance" shall mean, as of any date of
determination, the Pool Balance less the aggregate unpaid principal
balance of all Receivables that are greater than 90 days past due.
3. The definition of "Liquidated Receivable" set forth in
Appendix A to the Pooling Agreement is hereby amended to read as follows:
"Liquidated Receivable" means, as of any date of
determination, a Receivable (i) which, in the case of any Receivable
other than a Bankruptcy Receivable, is greater than 120 days past due
and, in the case of a Bankruptcy Receivable, is greater than 210 days
past due, (ii) as to which the Administrator has determined, in
accordance with the Credit and Collection Policy, that all Recoveries
in respect of such Receivable have been received or (iii) with respect
to which the related Financed Vehicle has been repossessed and disposed
of.
4. Appendix A to the Pooling Agreement is hereby amended by
inserting the following definition in the appropriate alphabetical order:
"Bankruptcy Receivable" means, as of any date of
determination, any Receivable that (i) is greater than 120 days past
<PAGE>
due, (ii) with respect to which the related Financed Vehicle has not
been repossessed and liquidated and (iii) the related Obligor of which
is, or has been during the preceding 120 days, the subject of a
bankruptcy proceeding.
5. The definition of "Net Loss Rate" set forth in Appendix A
to the Pooling Agreement is hereby amended by (i) inserting "sum of" before "Net
Losses", (ii) inserting "and Assumed Losses" after "Net Losses" and (iii)
inserting the following at the end of the last sentence:
"; provided, however, that if the Net Loss Rate calculated
with respect to any Distribution Date included an Assumed Loss, such
Net Loss Rate shall be recalculated and the Assumed Loss included in
such calculation shall be adjusted to equal zero, if subsequent to the
Calculation Period relating to such Distribution Date and prior to the
related Bankruptcy Receivable becoming a Liquidated Receivable the
related Obligor cures any delinquency.
6. Appendix A to the Pooling Agreement is hereby amended by
inserting the following definition in the appropriate alphabetical order:
"Assumed Losses" means, with respect to any Calculation Period
and any Bankruptcy Receivable, the product of (i) the unpaid principal
balance of any Receivable that became a Bankruptcy Receivable during
such Calculation Period and (ii) one minus a fraction the numerator of
which is the aggregate Recoveries in respect of Financed Vehicles
repossessed and liquidated during such Calculation Period and each of
the three preceding Calculation Periods and the denominator of which is
the aggregate unpaid principal balance of the related Receivables
immediately prior to such liquidation.
7. The definition of "Net Losses" set forth in Appendix A to
the Pooling Agreement is hereby amended to read as follows:
"Net Losses" means, with respect to any Calculation Period,
the excess of (i) the unpaid principal balance of Receivables that
became Liquidated Receivables during such Calculation Period, over (ii)
the sum of (a) all Recoveries in respect of such Liquidated
Receivables, (b) Recoveries received during such Calculation Period in
respect of Liquidated Receivables that became Liquidated Receivables
prior to such Calculation Period and (c) any Assumed Losses in respect
of Receivables that became Liquidated Receivables during such
Calculation Period to the extent such Assumed Losses were included in
the calculation of the Net Loss Rate for a prior Calculation Period.
8. The definition of "Minimum Required Overcollateralization
Level" is hereby amended to read as follows:
"Minimum Required Overcollateralization Level" means, with
respect to any Interest Period, the greater of (a) the percentage
<PAGE>
equivalent of a fraction the numerator of which is equal to the excess
of (i) the product of (x) one-tenth (.1) and (y) the sum of (A) the
Outstanding Principal Balance (as such term is defined in the Pooling
and Servicing Agreement, dated as of October 1, 1995 (the "Pooling and
Servicing Agreement"), among NAFCO, as transferor, National Auto, as
master servicer, and Harris Trust and Savings Bank, as trustee, the
"Outstanding Pool Balance") and (B) the Eligible Pool Balance, over
(ii) the product of (x) eleven-one hundredths (.11) and (y) the
Outstanding Pool Balance, and the denominator of which is equal to the
Eligible Pool Balance, and (b) the product of (i) 2.5 and (ii) the Net
Loss Rae for the Distribution Date on which such Interest Period
commenced.
9. The definition of "Pooling Requirements" is hereby amended
by deleting clause (iii) thereof in its entirety and renumbering clauses (iv)
and (v) as clauses (iii) and (iv), respectively.
10. Paragraph (1) of Section 9.01 is hereby amended by
deleting the comma immediately following "(iii)" and inserting in lieu thereof
the work "and" and by deleting the phrase "and (v)".
11. By execution and delivery hereof, NAFCO hereby pledges,
assigns, grants, transfers and conveys to the Trustee, for the benefit of the
Certificateholders, a lien on and security interest in NAFCO's right to receive
distributions in respect of the Transferor Interest (as defined in the Pooling
and Servicing Agreement (the "Transferor Interest") made pursuant to Section
4.01(b)(xi) of the Pooling and Servicing Agreement in the amount of any
deficiencies in the distributions made pursuant to paragraphs (i) through (ix),
inclusive, of subsection 4.03(a) of the Pooling Agreement and paragraphs (i)
through (iii), inclusive, of subsection 4.03(b) of the Pooling Agreement;
provided, however, that such lien and security interest is limited to, and the
Trustee may apply distributions in respect to the Transferor Interest to such
deficiencies in an amount not to exceed, $400,000 in the aggregate. National
Auto, as Administrator under the Pooling Agreement, will report to the Trustee
on a monthly basis the amount of distributions in respect of the Transferor
Interest applied pursuant to the preceding sentence. The amount and the balance
of any such distributions in respect of the Transferor Interest remaining after
application to such deficiencies shall be remitted in immediately available
funds to or at the written direction of NAFCO within one Business Day of receipt
by the Trustee.
12. NAFCO, as holder of 99% of the outstanding Class C
Certificates, and FUNB, as holder of 100% of the outstanding Class B
Certificates, hereby waive the conditions to effectiveness of this Consent and
Amendment set forth in Section 13.01 of the Pooling Agreement, and each of NAFCO
and FUNB hereby instruct the Trustee to execute and deliver this Agreement.
<PAGE>
13. National Auto, by its execution of this Agreement, hereby
directs The Chase Manhattan Bank (USA), as Owner Trustee of the National
Financial Auto Funding Trust, to execute and deliver this Agreement on behalf of
NAFCO.
14. Capitalized terms used but not defined herein shall have
the respective meanings assigned to such terms in the Pooling Agreement.
Agreed and Consented to by:
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: THE CHASE MANHATTAN BANK (USA)
not in its individual capacity but solely as Owner Trustee of
the National Financial Auto Funding Trust
By: _____________________________________
Name:
Title:
Agreed and Consented to by:
NATIONAL AUTO FINANCE COMPANY L.P.
By: NATIONAL AUTO FINANCE CORPORATION, as General Partner
By: _____________________________________
Name:
Title:
<PAGE>
Agreed and Consented to by:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: _____________________________________
Name:
Title:
Agreed and Consented to by:
BANKERS TRUST COMPANY
not in its individual capacity but solely as Trustee of National
Financial Auto Receivables Master Trust
By: _____________________________________
Name:
Title:
AMENDMENT TO AMENDED AND RESTATED
SERVICING AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED SERVICING
AGREEMENT (the "Agreement") is entered into as of the 6th day of September,
1995, by and among World Omni Financial Corp., a Florida corporation ("WOFC")
and National Auto Finance Company, L.P., a Delaware limited partnership (the
"Company").
WHEREAS, WOFC and Company entered into an Amended and Restated
Servicing Agreement dated the 5th day of December, 1994 ("Servicing Agreement");
and
WHEREAS, the parties desire to amend the Servicing Agreement as set
forth herein below:
1. Article IV, paragraph 4, shall be amended as follows:
The second sentence of such paragraph shall be deleted in its
entirety.
2. Article V, paragraph 1, line 2 shall be amended as follows:
"$12.30" shall be replaced with "$12.70."
3. Except as herein specifically amended and modified, the Servicing
Agreement is unchanged and continues in full force and effect, and the parties
hereby confirm and ratify the existence of each and every term, condition, and
covenant contained therein, to the same extent as though the same were set out
herein in full.
4. This Agreement may be executed in a number of identical
counterparts, each of which shall be deemed an original. In making proof of this
instrument, it shall not be necessary for any party to account for all
counterparts, and it shall be sufficient for a party to produce one such
counterpart.
5. This Agreement shall be binding upon and shall inure to the
benefit of WOFC and Company and their permitted successors and/or assigns.
DAFS03...:\97\64897\0001\2058\AMD4168W.290
<PAGE>
This Amendment is due to be effective as of October 1, 1995.
WORLD OMNI FINANCIAL CORP.
WITNESS: By:
Its:
NATIONAL AUTO FINANCE COMPANY,
L.P.
WITNESS: By:
Its:
2
SECOND AMENDMENT TO AMENDED AND
RESTATED SERVICING AGREEMENT
THIS SECOND AMENDMENT TO THE AMENDED AND RESTATED SERVICING AGREEMENT is
entered into as of the 24th day of June, 1997, by and between Omni Financial
Services of America, Inc. ("OFSA"), a Delaware corporation, as assignee of World
Omni Financial Corp. ("WOFC") and National Auto Finance Company, Inc.
("Company"), as assignee of National Auto Finance Company, L.P., a Delaware
corporation.
WHEREAS, OFSA and Company are parties to an Amended and Restated
Servicing Agreement effective as of the 5th day of December, 1994 ("Servicing
Agreement"); and
WHEREAS, OFSA and Company are parties to an Amendment to Amended and
Restated Servicing Agreement dated as of the 6th day of September, 1995, which
is also part of the Servicing Agreement; and
WHEREAS, Company has requested that OFSA permit Company access to its
computer collection system, and that Company be able to access and type in
comments into the CACS system (as defined below); and
WHEREAS, the parties desire to amend the Servicing Agreement as set
forth herein below:
1. Article IV shall be amended by adding the following paragraph at the
end of Article IV:
6. OFSA hereby grants Company permission to utilize its Credit and
Collection System computer software system ("CACS") so long as the Servicing
Agreement remains in effect. Company has been informed by OFSA that it has a
license to utilize the CACS system from American Management Systems, Inc.
("AMS"), and Company agrees to protect the confidentiality of all Confidential
Information, as hereinafter defined, contained in the CACS system and not to
publish or disclose such information to any third party without AMS' and OFSA's
written permission except that Company may disclose Confidential Information to
the following parties upon obtaining AMS' written consent, which written consent
shall only be required on and after June 24, 1997: (a) beneficial owners,
partners, lenders, potential and current syndication investors and directors of
Company; (b) accountants, auditors, rating agencies, and governmental regulatory
agencies; (c) potential purchasers of, or merger c! andidates with, customer or
any of its affiliates; and (d) the agents, representatives, attorneys,
accountants, financial advisors, and other professional advisors and consultants
of any of the persons or entities listed in clauses (a), (b) and (c).
<PAGE>
Furthermore, Company agrees that CACS shall only be used for its own portfolio,
which includes but is not limited to loans purchased from other finance
companies, and shall not be used as part of a commercial timesharing or service
bureau operation or in any other resale capacity. Confidential Information shall
mean the software that comprises CACS and not the information or data inputted
into CACS, which Confidential Information is hereby designated as proprietary
and confidential trade secrets of AMS. Confidential Information shall not
include information which (1) becomes generally available to the public as the
result of a disclosure by AMS, or (2) becomes available to Company on a
non-confidential basis from a source other ! than AMS or OFSA provided such
source is not required to keep such information confidential by law or
confidential agreement with any other disclosing party. Company agrees not to
remove any copyright, trademark and other proprietary notice from the CACS
software. Company agrees to surrender any and all software, manuals, documents,
etc. related to CACS in its possession to OFSA upon termination of the Servicing
Agreement.
2. Article VII, paragraph 1(a) shall be amended by adding the following
after "limitation," on line 12 of paragraph 1 (a): "any claims or causes of
action due to the Company's use of CACS or disclosure of Confidential
Information relating to CACS"...
Except as herein specifically amended and modified, the Servicing
Agreement is unchanged and continues in full force and effect, and the parties
hereby confirm and ratify the existence of each and every term, condition and
covenant contained therein, to the same extent as though the same were set out
herein in full.
This Agreement may be executed in a number of identical counterparts,
each of which shall be deemed an original. In making proof of this instrument,
it shall not be necessary for any party to account for all counterparts, and it
shall be sufficient for a party to produce one such counterpart.
This Agreement shall be binding upon and shall inure to the benefit of
WOFC and Company and their permitted successors and/or assigns.
This Amendment is due to be effective as of August 1, 1996.
OMNI FINANCIAL SERVICES OF AMERICA, INC.
By: _________________________
Its: _________________________
NATIONAL AUTO FINANCE COMPANY, INC.
By: _________________________
Its: _________________________
THIRD AMENDMENT TO AMENDED AND
RESTATED SERVICING AGREEMENT
This Third Amendment to the Amended and Restated Servicing Agreement (this
"Third Amendment") is entered into as of 12th day of September, 1997, by and
between Omni Financial Services of America, Inc., a Delaware corporation
("OFSA"), as assignee of World Omni Financial Corp. ("WOFC"), and National Auto
Finance Company, Inc., a Delaware corporation ("NAFI"), as assignee of National
Auto Finance Company L.P.
RECITAL
OFSA and NAFI are parties to an Amended and Restated Servicing Agreement
effective as of the 5th day December, 1994 (as amended the "Servicing
Agreement"). The Servicing Agreement has been amended pursuant to an Amendment
to Amended and Restated Servicing Agreement dated as of September 6, 1995 and
effective as of October 1, 1995 the "First Amendment"), the Supplement to
Amended and Restated Servicing Agreement dated and effective as of November 21,
1995 (the Supplement"), and the Second Amendment to Amended and Restated
Servicing Agreement dated as of June 24, 1997 and effective as of August 1, 1996
(the "Second Amendment"). NAFI has given OFSA notice of its intent to terminate
the Servicing Agreement effective October 1, 1997. OFSA and NAFI now desire to
amend the Servicing Agreement as set forth hereinbelow.
1. Unless otherwise defined herein, all capitalized terms used in this Third
Amendment shall have the meanings given to those terms in the Servicing
Agreement.
2. OFSA will continue to service all Accounts not more than 30 days past due
in accordance with the Servicing Agreement. Without requiring by
implication that OFSA service the Accounts in a manner other then as set
forth in the Servicing Agreement, OFSA shall not be required to take any
action to collect any Account that is not at least four (4) days past due.
OFSA reserves the right to employ automated dialing technology and
reasonably adjust its full time equivalent staff at any time. Article V,
Section 2 of the Servicing Agreement will remain in effect. Other than as
specifically set forth in this Third Amendment, OFSA shall have no
obligation to collect any Account that is greater than thirty (30) days
past due. OFSA shall continue to be entitled to all amounts set forth in
the Servicing Agreement for all Accounts serviced by OFSA. NAFI and OFSA
may enter into a written agreement setting forth amounts by which NAFI may
enhance OFSA's standard service fees.
DAFS03...:\97\64897\0001\2058\AGR4148S.470
<PAGE>
3. Except as specifically set forth herein, NAFI will be responsible to
collect any Account that is greater than thirty (30) days past due.
4. OFSA will establish an exclusive state S42 on its CACS Plus system which
shall be available to NAFI for the purpose of NAFI's review and/or approval
of repossessions and charge-offs. Notwithstanding anything in this Third
Amendment to the contrary, and except with regard to Accounts for which
OFSA is handling the repossession of the subject vehicle on August 31,
1997, on and after September 1, 1997, OFSA shall have no responsibility for
handling any aspect of repossessing or disposing of any vehicle that is the
subject of an Account, including, but not limited to, locating a
repossession agent and assigning the repossession to the agent, paying any
third-party invoices related to the repossession, storage and sale of the
vehicle or otherwise, or the sale or other disposition of the repossessed
vehicle.
5. OFSA will establish an exclusive state S41 on its CACS Plus System into
which NAFI shall transfer Accounts approved by NAFI for repossession. Prior
to September 1, 1997, OFSA shall have no duty to take any action to
repossess a vehicle that is the subject of an Account unless NAFI transfers
the Account to state S41 from S42 or unless NAFI places an Account for
which NAFI has servicing responsibility into state S41. OFSA will begin to
process all NAFI approved repossessions transferred to or placed in state
S41 by 3:00 PM on the day such Accounts are transferred or placed in state
S41 according to Article 11, Section 5 of the Servicing Agreement. On or
after September 1, 1997, and except with regard to Accounts for which OFSA
is handling the repossession of the subject vehicle on August 31, 1997,
OFSA shall have no responsibility for handling any aspect of repossessing
or disposing of any vehicle that is the subject of an Account.
6. If NAFI desires to charge-off an Account, NAFI shall transfer such Account
to state S43 from state S41 or place an Account for which NAFI has
servicing responsibility into state S43. If NAFI transfers or places an
Account for charge-off into S43 by 11:00 AM Central Time, except on the
last day of a calendar month, OFSA will process the charge-off that same
day. If NAFI transfers or places an Account for charge-off into state S43
after 11:00 AM Central Time, except on the last day of a calendar month,
OFSA will process the charge-off the next business day. OFSA's month end
charge-off cutoff deadlines will remain in effect. If NAFI transfers or
places an Account for charge-off into S43 on a day that is the last day of
a calendar month, the Account will be charged-off on or before the second
business day following the day on which the Account was transferred into
S43.
2
<PAGE>
7. OFSA will establish an exclusive state S40 available to NAFI who will use
it to notify OFSA, as soon as possible, that the Borrower or Co-Borrower on
an Account has filed for bankruptcy protection. Such notice shall include
the name of the attorney (if no attorney, the notice Must state that fact)
representing the Borrower or Co-Borrower in the bankruptcy proceeding, the
attorney's telephone number, the bankruptcy case number and the court in
which the case was filed. NAFI collectors shall enter this Information in
the permanent comments section on the CACS Plus system for affected
Accounts. Upon receipt of this information, OFSA will place the Account in
bankruptcy status and handle according to Article 11, Section 10 of the
Servicing Agreement. OFSA will enter information Into state S40 as it may
learn of bankruptcy filings from time-to-time in the ordinary course of its
collection of NAFI Accounts.
8. NAFI shall notify OFSA of all insurance total loss claims which notice
shall include the date of the loss, the Borrower's insurance company, the
phone number of the insurance company, the claim number, and any other
information needed to handle the claim. NAFI shall enter such information
into the permanent comments section of CACS, Plus for such Accounts. OFSA
will place these Accounts in a separate state S02 and service them
consistent with normal servicing standards.
9. Upon at least one full business day's prior written notice by NAFI to
OFSA, OFSA agrees to manage, service and make collections on the Accounts
for which NAFI has responsibility to service. If NAFI provides such notice
requesting OFSA to service Accounts for one or more days during any
calendar month, OFSA shall be paid at the rate set forth in the Servicing
Agreement for all Accounts serviced by OFSA at any time during such month,
regardless of delinquency status.
10. OFSA will establish an exclusive state S04 available to NAFI who will use
it to notify OFSA of Accounts involved in litigation (i.e. litigation
status). Litigation status Accounts placed in the S04 state by NAFI shall
be limited to Accounts on which the Borrower or Co-Borrower has filed suit
against NAFI or any party related to the servicing of such Accounts
including, but not limited to, repossession agents, vehicle storage lots,
auctions or OFSA. The Accounts placed in state S04 will include Accounts in
litigation status and discharged/dismissed bankruptcies to be serviced by
OFSA.
11. NAFI agrees to pay $350 per month per ID for each additional collection ID
and all out-of-pocket expenses to establish a connection to OFSA
collection system until October 1, 1997.
3
<PAGE>
12. NAFI agrees to pay all costs for the telephone and computer connections
between the Information Technology Systems (ITS) and NAFI Jacksonville
offices and beyond to the interior of NAFI facilities. NAFI and OFSA will
negotiate to meet reasonable schedules to connect such services.
13. Prior to September 1, 1997, once an Account has been assigned to an agent
for repossession by OFSA, OFSA will be responsible for following up with
the agent for repossession and canceling the assignment with the agent.
OFSA will coordinate by telephone with NAFI follow up with the agent for
any skip tracing help and/or collection activity in the field. Except with
regard to Accounts for which OFSA is handling the repossession of the
subject vehicle on August 31, 1997, on or after September 1, 1997, OFSA
shall have no responsibility for handling any aspect of repossessing or
disposing of any vehicle that is the subject of an Account.
14. NAFI will be responsible for all collection reviews on Accounts 31 days
past due or older except for bankrupt, insurance loss and charge-off
Accounts serviced by OFSA.
15. Prior to September 1, 1997, NAFI will be responsible for approving and
completing required forms for repossession and collection bills with
examples of forms to be provided by OFSA to NAFI prior to implementation.
Upon receipt of such bills, OFSA will overnight express mail the bills to
NAFI, for payment by NAFI, at NAFI's expense. Except with regard to
Accounts for Which OFSA is handling the repossession of the subject vehicle
on August 31, 1997, on or after September 1, 1997, OFSA shall have no
responsibility for handling any aspect of repossessing or disposing of any
vehicle that is the subject of an Account.
16. OFSA will assign one collection customer service representative to work 8
a.m. CT to 6 p.m. CT to pull credit bureaus, print payment histories, and
send copies of imaged documents via overnight mail which will be billed to
NAFI. NAFI agrees to pay $.25 per copy for all pay histories and image
documents. OFSA will not fax any of the above requested documents. Any
additional services will be billed at $25.00 per hour per person.
17. NAFI agrees to pay all expenses to have a printer installed in its
Jacksonville location. OFSA agrees to print one (1) set of collection
reports (Exhibit A) to the printer in Jacksonville. Copies of collection
reports will no longer be sent to NAFI's Boca Raton address.
4
<PAGE>
18. NAFI agrees to pay OFSA $125 per hour for regular hours worked and $145 per
hour for overtime hours worked for the CACS administrator and some support
staff to rearrange the queues according to NAFI specification and to have
accounts enter CACS at three days past due. The OFSA fee is subject to a
maximum of 80 hours. OFSA shall require view access to Accounts that are
greater than thirty (30) days past due to respond to incoming service
calls. This work has been completed as of this date, and NAFI agrees to pay
OFSA the amount of $5,545 (i.e. 20 regular hours for $2,500 plus 21
overtime hours for $3,045).
19. NAFI assumes all responsibility to verify that a cure notice was sent on
an Account in a state where a cure notice is required prior to
repossession. OFSA agrees to provide NAFI with samples of the letters that
cannot be sent by CACS Plus, but OFSA makes no representation or
warranties with respect to the compliance of such forms with applicable
laws.
20. OFSA agrees to assist NAFI in responding to all NAFI's customer
complaints; however, OFSA is not ultimately responsible for response to
the complaints.
21. NAFI agrees to pay $85.00 per hour for any additional reports that may be
required for this transition; provided, however, that NAFI shall only have
to pay for the preparation of such reports, and not the transmission of
such reports, prior to August 15, 1997. On or after August 15, 1997, NAFI
shall pay for all service's and work related to the preparation and
transmission of such reports. Beginning on or after July 11, 1997, NAFI
shall pay OFSA $75 per hour for the administration of the related
conversion activity as provided by OFSA's Client Services Manager.
22. Unless herein specifically amended and modified, the Servicing Agreement
is unchanged and continues in full force and effect, and the parties
hereby confirm and ratify the existence of each and every term, condition
and covenant contained therein, to the same extent as though the same were
set out herein in full.
23. This Third Amendment may be executed by any number of identical
counterparts, each of which shall be deemed an original.
24. This Third Amendment shall be binding upon and shall inure to the benefit
of OFSA and NAFI and their permitted successors and/or assigns.
This Third Amendment shall be effective as of the 21st day of July, 1997.
5
<PAGE>
OMNI FINANCIAL SERVICES OF AMERICA, INC.
BY:
PRINT NAME:
PRINT TITLE:
NATIONAL AUTO FINANCE COMPANY, INC.
BY:
PRINT NAME:
PRINT TITLE:
6
FOURTH AMENDMENT TO AMENDED AND
RESTATED SERVICING AGREEMENT
This Fourth Amendment to the Amended and Restated Servicing Agreement (this
"Fourth Amendment") is entered into as of the 1st day of October, 1997, by and
between Omni Financial Services of America, Inc., a Delaware corporation
("OFSA") as assignee of World Omni Financial Corp., and National Auto Finance
Company, Inc., a Delaware corporation ("NAFI"), as assignee of National Auto
Finance Company L.P.
RECITAL
OFSA and NAFI are parties to an Amended and Restated Servicing Agreement
effective as of the 5th day of December, 1994 (as amended and supplemented the
"Servicing Agreement"). The Servicing Agreement has been amended pursuant to an
Amendment to Amended and Restated Servicing Agreement dated as of September 6,
1995 and effective as of October 1, 1995, tile Supplement to Amended and
Restated Servicing Agreement dated as of November 21, 1995, the Supplement to
Amended and Restated Servicing Agreement dated as of November 13, 1996, the
Second Amendment to Amended and Restated Servicing Agreement dated as of June
24, 1997 and effective as of August 1, 1996, the Supplement to Amended and
Restated Servicing Agreement dated as of July 12,1997, the Third Amendment to
Amended and Restated Servicing Agreement dated as of September 12, 1997 and
effective as of July 21, 1997 (tile "Third Amendment"), and the Supplement to
Amended and Restated Sen,icing Agreement dated as of September 19, 1997 (being
held in escrow). The parties now desire to extend the Servicing Agreement past
September 30, 1997, and not to terminate the Servicing Agreement effective
October 1, 1997. The parties further desire to modify some of the services
provided by OFSA pursuant to the Servicing Agreement effective October 1, 1997.
1. Unless otherwise defined herein, all capitalized terms used in this Fourth
Amendment shall have the meanings given to those terms in the Servicing
Agreement.
2. Effective October 1, 1997, OFSA will no longer collect any Account,
including but not limited to those Accounts that are not more than thirty
(30) days past due. Accordingly, any references in the Servicing Agreement
to OFSA collecting any Account shall be deleted in their entirety as of
October 1, 1997.
3. Effective October 1, 1997, Sections I and 2 of Article V of the Servicing
Agreement shall be deleted in their entirety and shall be replaced with
the following:
DAFS03...:\97\64897\0001\2058\AGR4148U.210
<PAGE>
a. OFSA shall receive as compensation for servicing the Retail Accounts
a Servicing Fee each month equal to $10 per Retail Account (includes
but is not limited to Accounts being collected by NAFI; does not
include Accounts that have been paid off by the Borrower or on the
Borrower's behalf or Accounts that have been charged-off by NAFI)
serviced by OFSA during that month; and
b. OFSA shall be entitled to a one-time fee of $20 for each new Retail
Account it boards each month.
4. OFSA shall be entitled to $85 per hour for systems programming performed
by OFSA personnel at the request of and for the benefit and use of NAFI.
5. NAFI agrees to pay $350 per month per ID for each additional collection ID
and all out-of-pocket expenses incurred by OFSA to establish a connection
to OFSA's collection system. The reference in paragraph 11 of the Third
Amendment to "October 1, 1997" is hereby stricken to reflect that the
Servicing Agreement is not terminating as of October 1, 1997.
6. The first paragraph of Article IX of the Servicing Agreement is hereby
deleted in its entirety. The first sentence of the second paragraph of
Article IX of the Servicing Agreement shall be modified to read as follows:
"Notwithstanding anything to the contrary set forth in this Servicing
Agreement, OFSA or NAFI may terminate this Servicing Agreement at any time
without cause upon sixty (60) days written notice to the other party, which
notice cannot be given prior to November 2, 1997,,with the earliest
possible effective date of termination being the close of business on
December 31, 1997." Further, an additional sentence shall be added
immediately after that sentence and shall read as follows: "On and after
the effective date of the termination of the Servicing Agreement, neither
party shall have any duty or obligation to the other party, other than the
duties and obligations set forth in Article VII, Article VIII, Sections and
4, the last grammatical paragraph of Article IX and Article X (except for
Sections 2 and 3) of the Servicing Agreement." The remaining of Article IX
of the Servicing Agreement shall remain in full force and effect until the
effective date of termination of the Servicing Agreement.
7. The first sentence of Article IV, Section 1 of the Servicing Agreement
shall be modified to read as follows: "OFSA hereby grants NAFI a license to
utilize its 'ACE,' 'Contract Entry' and 'RITS' computer software systems so
long as this Agreement remains effective."
2
<PAGE>
8. Effective October 1, 1997, Article 11, Section 3, Section 4(a)(i), Section
4(a)(iii) and Section 6 and Article V, Sections 3 and 4 of the Servicing
Agreement shall be deleted in their entirety.
9. Effective October 1, 1997, paragraphs 2, 3, 9 and 18 of the Third
Amendment shall be deleted in their entirety. Further, paragraph 14 of the
Third Amendment shall be modified to read as follows: "NAFI will be
responsible for collection reviews on all Accounts."
10. Unless herein specifically, amended and modified, the Servicing Agreement
is unchanged and continues in full force and effect, and the parties
hereby contained and ratify the existence of each and every term,
condition and covenant contained therein, to tile Same extent as though
tile same were set out herein in full.
11. The Fourth Amendment may be executed by any number of identical
counterparts, each of which shall be deemed an original.
12. This Fourth Amendment shall be binding upon and shall inure to the benefit
of OFSA and NAFI and their permitted successors and/or assigns.
This Fourth Amendment shall be effective as of the 1st day of October, 1997.
OMNI FINANCIAL SERVICES OF AMERICA, INC.
BY:
PRINT NAME:
PRINT TITLE:
NATIONAL AUTO FINANCE COMPANY, INC.
BY:
PRINT NAME:
PRINT TITLE:
3
SUPPLEMENT TO AMENDED AND RESTATED SERVICING AGREEMENT
THIS SUPPLEMENT (this "Supplement") of the Amended and Restated
Servicing Agreement, dated as of December 5, 1994, between OMNI FINANCIAL
SERVICES OF AMERICA, INC. ("OFSA") (as assignee of World Omni Financial Corp.),
as servicer, and NATIONAL AUTO FINANCE COMPANY, INC. ("NAFI") (as successor to
National Auto Finance Company L.P.), as amended as of October 1, 1995 and
supplemented as of November 13, 1996 (the "Servicing Agreement"), is made as of
July 23, 1997 by and between OFSA and NAFI.
RECITALS
--------
A. National Financial Auto Funding Trust ("Auto Funding"), a Delaware
business trust, 100% of the beneficial ownership interest in which is held by
NAFI or affiliates of NAFI, intends to assign the accounts designated in
Schedule 1 hereto (the "Assigned Accounts") to National Auto Finance 1997-1
Trust (the "1997-1 Trust") pursuant to the Sale and Servicing Agreement dated as
of June 29, 1997 (the "Sale and Servicing Agreement"), by and among Auto
Funding, NAFI, Wilmington Trust Company, as trustee of the National Auto Finance
1997-1 Trust (the "Owner Trustee"), and Harris Trust and Savings Bank, as Trust
Collateral Agent (the "Collateral Trustee").
B. NAFI and OFSA have agreed to further amend the Servicing Agreement
as set forth below to provide for the servicing of the Assigned Accounts
following assignment of the Assigned Accounts by Auto Funding to the 1997-1
Trust.
C. Capitalized terms used but not defined herein shall have the same
meanings ascribed thereto in the Servicing Agreement.
STATEMENT OF AGREEMENT
- ----------------------
NOW, THEREFORE, for good and valuable consideration, NAFI and OFSA, as
assignee of WOFC hereby amend and supplement the Servicing Agreement solely with
respect to the Assigned Accounts, as follows:
1. Section 6 of Article I is hereby deleted and the following inserted
in lieu thereof:
6. Company Account. The Collection Account designated in the
Sale and Servicing Agreement into which are deposited amounts received
by the Servicer on behalf of the Company which may include deduction of
certain amounts due the Servicer pursuant to Article II, paragraph 5 of
this Agreement. The wiring address for such account is Harris Trust and
Savings Bank ABA # __________ A/C# __________ For Further Credit: NAFI
97-A # __________ Attention: K. Richardson - Ext. 2647.
<PAGE>
2. The second sentence of Section 1 of Article II is hereby deleted and
following inserted in lieu thereof: "The Servicer shall service and administer
the Accounts by employing procedures (including collection procedures) and a
degree of care consistent with prudent industry standards and as are customarily
employed by servicers in servicing and administering motor vehicle retail
installment sales contracts comparable to the Accounts."
3. The following is hereby inserted at the end of the second sentence
of Section 3 of Article II the following: "provided, however, that Servicer
shall be permitted to extend the then current maturity date of an Account
provided that (i) a period of at least six months takes place between each such
extension, and (ii) each such extension is not more than two months; provided,
further, Servicer shall in no event extend the maturity date of an Account
beyond February 28, 2003."
4. Notwithstanding Section 4 of Article II, Servicer shall, as
custodian for the 1996-1 Trust, retain possession of the Loan File for each
Assigned Account in accordance with the Custodial Agreement dated as of July 23,
1997 by and between OFSA, as custodian and NAFI; provided, however, that this
Section 5 of this Amendment shall not be construed to amend or modify the
obligation of the Servicer to service or continue to service any Account; and
provided, further, that NAFI will indemnify and hold Servicer harmless against
any liability of Servicer for not returning the Loan File with respect to an
Assigned Account to NAFI in accordance with such Section 4 to the extent
Servicer retained such Loan File in accordance with its obligations as
Custodian.
5. The fourth sentence of Section 7 of Article II is hereby deleted and
the following inserted in lieu thereof: "Servicer shall have no obligation to
determine whether the actual motor vehicle title is received in those states
which permit the Borrower, rather than the lienholder, to have possession of the
actual motor vehicle title."
6. The first sentence of Section 2 of Article III is hereby deleted and
the following inserted in lieu thereof: "Company shall pay monthly on the
twenty-first day of each month or, if such date is not a Business Day, the next
succeeding Business Day, the Servicing Fees as well as any other expenses or
charges due the Servicer pursuant to this Agreement; provided that, to the
extent such amounts are not paid by the Company on such twenty-first day (for
any reason other than errors of transmission), Servicer may withdraw and apply
the amount of such Servicing Fees owed but not paid from the $5000 reserve
account maintained for such purpose."
7. Article III is hereby amended by adding the following Section after
Section 4: "5. The Company shall provide Servicer with written notice of any
transfer of an Account to the 1996-1 Trust five calendar days prior to any such
transfer."
8. Section 7 of Article V is hereby deleted in its entirety (solely
with respect to the Assigned Accounts).
<PAGE>
9. Subsection (b) of Section 14 of Article X is hereby deleted and the
following inserted in lieu thereof: "(b) the Company shall, at the request of
the Servicer, execute and deliver or cause to be executed and delivered such
further instruments (including any powers of attorney or similar instruments
from Auto Funding or 1996-1 Trust) and take or cause to be taken such further
actions as Servicer may reasonably deem necessary to carry out the terms and
provisions of this Agreement."
10. Article VIII, is hereby amended by inserting the following language
at the end of Section 1 thereof: "g. If (i)(A) the Company fails to remit timely
to the Servicer the Servicing Fees in accordance with Section 2 of Article III
and such failure to pay continues for a period of three Business Days and (B)
there are insufficient funds in the Reserve Account to cover payment of any
Servicing Fees owed and not paid or (ii) the Company does not receive first
priority payment of distributions in accordance with Section 5.7 of the Sale and
Servicing Agreement."
11. This Amendment amends the Amended and Restated Servicing Agreement
and supersedes the Amended and Restated Servicing Agreement solely with respect
to the Assigned Accounts and the subject matter hereof. This amendment is not
intended to amend or modify, and shall not be construed to amend or modify in
any respect, the servicing by the Servicer pursuant to the Amended and Restated
Servicing Agreement of Accounts other than the Assigned Accounts, and the
provisions of the Amended and Restated Servicing Agreement, as such provisions
appear in the Amended and Restated Servicing Agreement dated as of December 5,
1994, as amended as of October 1, 1995, shall remain in full force and effect
(including, except as amended hereby, the Assigned Accounts).
12. This Amendment shall become effective upon the assignment of the
Assigned Accounts to the 1997-1 Trust. 13. Except as the terms and provisions of
the Amended and Restated Servicing Agreement shall have been amended and
superseded hereby, the Amended and Restated Servicing Agreement shall remain in
full force and effect.
This Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
amendment as of the date first provided above.
OMNI FINANCIAL SERVICES OF AMERICA, INC.
By: ________________________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.
By: ________________________________________
Name:
Title:
SUPPLEMENT TO AMENDED AND RESTATED
SERVICING AGREEMENT
THIS SUPPLEMENT (the "Supplement") of the Amended and Restated Servicing
Agreement, dated as of December 5, 1994, between OMNI FINANCIAL SERVICES OF
AMERICA, INC. ("OFSA" or the "Servicer") (as assignee of World Omni Financial
Corp.), as servicer, and NATIONAL AUTO FINANCE COMPANY, INC. ("NAFI" or the
"Company") (as successor to National Auto Finance Company L.P.), as amended as
of October 1, 1995, June 24, 1997 and July 21, 1997 and supplemented as of
November 21, 1995, November 13, 1996 and July 12, 1997 (the "Servicing
Agreement"), is made as of September 19, 1997 by and between OFSA and NAFI.
RECITALS
A. NAFI intends to grant a security interest in and pledge and assign the
accounts designated in Schedule 1 hereto (as the same may be updated from time
to time in accordance with Paragraph 6 hereof) (the "Pledged Accounts") to
BankBoston, N.A. in its capacity as agent (the "Agent") for certain lenders
party to a Revolving Credit Agreement dated as of September 19, 1997 (the
"Credit Agreement") by and among, NAFI, such lenders and the Agent, pursuant to
the Security Agreement dated as of September 19, 1997 (the "Security Agreement")
by and between NAFI and the Agent.
B. NAFI and OFSA have agreed to further amend and supplement the Servicing
Agreement as set forth below to provide for the servicing of the Pledged
Accounts following the pledge and assignment of the Pledged Accounts by NAFI to
the Agent.
C. Capitalized terms used but not defined herein shall have the same
meanings ascribed thereto in the Servicing Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for good and valuable consideration, NAFI and OFSA hereby
amend and supplement the Servicing Agreement solely with respect to the Pledged
Accounts, as follows:
1. Section 6 of Article I is hereby deleted and the following inserted in
lieu thereof:
DAFS03...:\97\64897\0001\2058\AGR4228U.020
<PAGE>
6. Company Account. The Collection Account designed in the Revolving
Credit Agreement into which are deposited amounts received by the Servicer on
behalf of the Company. The wiring address for such account is BankBoston, N.A.,
ABA #011-000-380, Account #560-14019, Account Name: National Auto Finance
Company Collection Account.
2. The second sentence of Section 1 of Article II is hereby deleted and
following inserted in lieu thereof: "The Servicer shall service and administered
the Accounts by employing procedures (including collection procedures) and a
degree of care consistent with prudent industry standards and as are customarily
employed by servicers in servicing and administering motor vehicle retail
installment sales contracts comparable to the Accounts."
3. Notwithstanding Section 4 of Article II, Servicer shall, as custodian
for the Agent, retain possession of the Loan File for each Pledged Account in
accordance with the Custodial Agreement dated as of July 23, 1997 by and between
OFSA, as custodian and NAFI; provided, however that this Paragraph 8 of this
Amendment shall not be construed to amend or modify the obligation of the
Servicer to service or continue to service any Pledged Account, and provided,
further, that NAFI will indemnify and hold Servicer harmless against any
liability of Servicer for not returning the Loan File with respect to a Pledged
Account to NAFI in accordance with such Section 4 of Article II to the extent
Servicer retained such Loan File in accordance with its obligations as
Custodian.
4. The fourth sentence of Section 7 of Article II is hereby deleted and
the following inserted in lieu thereof: "Servicer shall have no obligation to
determine whether the actual motor vehicle title is received in those states
which permit the Borrower, rather than the lienholder, to have possession of the
actual motor vehicle title."
5. The first sentence of Section 2 of Article III is hereby deleted and
the following inserted in lieu thereof: "Company shall pay monthly on the
twenty-first day of each month or, if such date is not a Business Day, the next
succeeding Business Day, the Servicing Fees as well as any other expenses or
charges due the Servicer pursuant to this Agreement, provided that, to the
extent such amounts are not paid by the Company on such twenty-first day (for
any reason other than errors of transmission). Servicer may withdraw and apply
the amount of such Servicing Fees owed but not paid from the $5,000 reserve
account maintained for such purpose."
6. Article III is hereby amended by adding the following Section after
Section 4: "5. The Company shall provide Servicer with written notice of the
pledge of an Account to
2
<PAGE>
the Agent five calendar days prior to any such pledge, whereupon such Account
shall become a Pledged Account."
7. Section 7 of Article V is hereby deleted in its entirety (solely with
respect to the Pledged Accounts).
8. Article VIII is hereby amended by inserting the following language at
the end of Section 1 thereof:
"g. If (A) the Company fails to remit timely to the Servicer the
Servicing Fees in accordance with Section 2 of Article III and such
failure to pay continues for a period of three Business Days and (B) there
are insufficient funds in the Reserve Account to cover payment of any
Servicing Fees owed and not paid."
9. Notwithstanding Section 10 of Article X, with respect to Pledged
Accounts, this Agreement shall be also for the benefit of the Agent and may be
enforced by the Agent. The Servicing Agreement may not be amended, modified or
supplemented if such amendment, supplement of modification would change the
definition of Company Account with respect to the Pledged Accounts or would be
detrimental to the position of the Agent or the Banks without the prior written
consent of the Agent.
10. Subsection (b) of Section 14 of Article X is hereby deleted and the
following inserted in lieu thereof: "(b) the Company shall, at the request of
the Servicer, execute and deliver or cause to be executed and delivered such
further instruments and take or cause to be taken such further actions as
Servicer may reasonably deem necessary to carry out the terms and provisions of
this Agreement."
11. This Supplement amends and supplements the Amended and Restated
Servicing Agreement and supersedes the Amended and Restated Servicing Agreement
solely with respect to the Pledged Accounts and the subject matter hereof. This
Supplement is not intended to amend or modify, and shall not be construed to
amend or modify in any respect, the servicing by the Servicer pursuant to the
Amended and Restated Servicing Agreement of Accounts other than with respect to
the Pledged Accounts, and the provisions of the Amended and Restated Servicing
Agreement, as such provisions appear in the Amended and Restated Servicing
Agreement dated as of December 5, 1994, as amended as of October 1, 1996, June
24, 1997 and July 21, 1997 shall remain in full force and effect (including,
except as amended hereby, the Pledged Accounts).
12. This Supplement shall become effective as of the date hereof.
3
<PAGE>
13. Except as the terms and provisions of the Amended and Restated
Servicing Agreement shall have been amended and superseded hereby, the Amended
and Restated Servicing Agreement shall remain in full force and effect.
This Supplement may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this supplement as of
the date first provided above.
OMNI FINANCIAL SERVICES OF AMERICA, INC.
By:
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
4
SECOND AMENDMENT TO
MANAGEMENT AGREEMENT
This Second Amendment to Management Agreement is effective as of the
1st day of January, 1997, by and between National Auto Finance Corporation
("NAFCORP"), National Auto Finance Company, Inc. ("NAFI"), National Auto Finance
Company L.P. (the "Partnership") and National Financial Companies LLC ("NFC").
RECITALS
a. NAFCORP, National Financial Corporation ("Old NFC"), and the
Partnership are parties to that certain Management Agreement, dated December 29,
1994 (the "Original Management Agreement). The Original Management Agreement was
amended by that certain First Amendment to Management Agreement by and among
NAFCORP, Old NFC, the Partnership and Auto Credit Clearinghouse L.P. ("ACCH")
(the "First Amendment"). The Original Management Agreement, as amended by the
First Amendment, is hereinafter referred to as the "Amended Management
Agreement."
b. Old NFC has designated NFC as Old NFC's designee under the Amended
Management Agreement for all purposes and NFC has accepted such designation.
c. ACCH has been dissolved by operation of law, but the business of
ACCH continues as a division of NAFI.
d. Pursuant to that certain Assignment and Assumption Agreement, by and
between the Partnership and NAFI, dated as of February 4, 1997 (as amended, the
"Assignment and Assumption Agreement), the Partnership assigned to NAFI all of
the Partnership's obligations under the Amended Management Agreement and NAFI
assumed all of the Partnership's obligations thereunder. The parties desire to
execute this Agreement in order to carry out the intent and purpose of the
Assignment and Assumption Agreement. In addition, the parties desire to amend
certain terms of the Amended Management Agreement.
NOW, THEREFORE, in accordance with the premises and the mutual promises
contained herein, the parties hereto agree as follows:
1. Services Performed for NAFI. The parties agree that NFC shall
perform, for the benefit of NAFI, the services set forth in Section 1 of the
Amended Management Agreement directly to NAFI. In exchange for such services,
NAFI shall pay to NFC the fees and expense reimbursement as set forth in Section
2 of the Amended Management Agreement.
(a) All references to the term "NAFCO LP" or "Partnership" in the
Amended Management Agreement shall hereinafter refer to "National Auto Finance
Company, Inc." or "NAFI" and all references to the term "ACCH" in the Amended
Management Agreement shall hereinafter refer to "National Auto Finance Company,
Inc." or "NAFI".
<PAGE>
(b) All references to "National Auto Finance Corporation" in the
Amended Management Agreement shall hereinafter refer to "National Financial
Companies LLC."
(c) All references to "NFC" in the Amended Management Agreement shall
hereinafter refer to "National Financial Companies LLC."
(d) From and after the date hereof, the Partnership and ACCH shall not
longer be parties to, or liable under, the Amended Management Agreement, as
amended hereby.
2. Fees and Expenses. Section 2(v) of the Amended Management Agreement
is hereby amended by deleting in its entirety the last sentence of such section
and by substituting in lieu thereof the following sentence: "Such payments shall
be made beginning on January 15, 1996 and shall continue on the fifteenth day of
each succeeding month throughout the term of this Agreement as such term is set
forth in Section 3 (as such Section 3 was amended by the First Amendment),
unless otherwise agreed in writing by all of the parties to the Second Amendment
to Management Agreement."
3. Term. Section 3 of the Amended Management Agreement is hereby
amended by deleting in its entirety the phrase "and the cancellation of its
Certificate of Limited Partnership has been effected" which occurs two times in
such Section 3.
4. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon the successors and assigns of either
party hereto and shall inure to the benefit of either party and their respective
successors and assigns.
5. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document.
6. Governing Law. The terms and provisions of this Agreement shall be
governed by the laws of the State of Florida (without regard to the conflict of
laws rules of such State) and to applicable federal law.
7. Effect of this Agreement. The Amended Management Agreement, as
amended hereby, shall continue in full force and effect in accordance with its
terms.
END OF PAGE
<PAGE>
IN WITNESS WHEREOF, each party set forth below has executed this
Agreement as of the date first above written.
NATIONAL AUTO FINANCE CORPORATION
By:
Keith B. Stein, Executive Vice President
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Keith B. Stein, Vice Chairman
NATIONAL AUTO FINANCE COMPANY L.P.
By: National Auto Finance Corporation, its
general partner
By:
Keith B. Stein, Executive Vice
President
NATIONAL FINANCIAL COMPANIES LLC
By:
Robert W. Barron, Managing Director
SECOND AMENDMENT TO SERVICES AGREEMENT
This Second Amendment to Services Agreement is effective as of the 1st
day of January, 1997, by and between National Auto Finance Corporation
("NAFCORP"), National Auto Finance Company, Inc. ("NAFI") and National Financial
Companies LLC ("NFC").
RECITALS
a. NAFCORP and National Financial Corporation ("Old NFC") are parties
to that certain Services Agreement, dated December 29, 1994 (the "Original
Services Agreement). The Original Services Agreement was amended by that certain
First Amendment to Services Agreement by and between NAFCORP and Old NFC (the
"First Amendment"). The Original Services Agreement, as amended by the First
Amendment, is hereinafter referred to as the "Amended Services Agreement."
b. Old NFC has designated NFC as Old NFC's designee under the Amended
Services Agreement for all purposes and NFC has accepted such designation.
c. Pursuant to that certain Assignment and Assumption Agreement, by and
between the Partnership and NAFI, dated as of February 4, 1997 (as amended, the
"Assignment and Assumption Agreement), the Partnership (including NAFCORP, the
sole general partner of the Partnership) assigned to NAFI all of the
Partnership's and NAFCORP's obligations under the Amended Services Agreement and
NAFI assumed all of the Partnership's and NAFCORP's obligations thereunder. The
parties desire to execute this Agreement in order to carry out the intent and
purpose of the Assignment and Assumption Agreement. In addition, the parties
desire to amend certain terms of the Amended Services Agreement.
NOW, THEREFORE, in accordance with the premises and the mutual promises
contained herein, the parties hereto agree as follows:
1. NAFI and NFC. All references to "NAFCORP" in the Amended Services
Agreement shall hereinafter refer to "NAFI." All references to the "Partnership"
in the Amended Services Agreement shall hereinafter refer to "NAFI." All
references to "ACCH" in the Amended Services Agreement shall hereinafter refer
to "NAFI." All references to "NFC" in the Amended Services Agreement shall
hereinafter refer to "National Financial Companies LLC." From and after the date
hereof, NAFCORP and National Financial Corporation shall no longer be parties
to, or liable under, the Amended Services Agreement, as amended hereby. The
first recital of the Original Services Agreement is hereby deleted in its
entirety. Recital B of the First Amendment is hereby deleted in its entirety.
2. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon the successors and assigns of either
party hereto and shall inure to the benefit of either party and their respective
successors and assigns.
<PAGE>
3. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document.
4. Governing Law. The terms and provisions of this Agreement shall be
governed by the laws of the State of Florida (without regard to the conflict of
laws rules of such State) and to applicable federal law.
5. Effect of this Agreement. The Amended Services Agreement, as amended
hereby, shall continue in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, each party set forth below has executed this
Agreement as of the date first above written.
NATIONAL AUTO FINANCE CORPORATION
By:
Keith B. Stein, Executive Vice
President
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Keith B. Stein, Vice Chairman
NATIONAL FINANCIAL COMPANIES LLC
By:
Robert W. Barron, Managing
Director
LEASE FOR THE BROADWAY CENTER
BY AND BETWEEN
CTC INVESTMENTS II LIMITED
AND
NATIONAL AUTO FINANCE COMPANY, INC.
DATED
JUNE 16, 1997
<PAGE>
I N D E X
ARTICLE Page
ARTICLE 1 BASIC LEASE PROVISIONS AND IDENTIFICATION OF EXHIBITS ..... 1
1.1 Basic Lease Provisions............................ 1
1.2 Identification of Exhibits........................ 2
ARTICLE 2 PREMISES AND TERM.......................................... 3
2.1 Lease of Premises................................. 3
2.2 Term of Lease..................................... 3
2.3 Right to Measure.................................. 3
ARTICLE 3 RENEWAL OPTION............................................. 4
3.1 Option............................................ 4
3.2 Notice............................................ 4
3.3 Monthly Base Rent During Renewal Term............. 4
3.4 Compliance with terms of Lease.................... 4
3.5 Fair Market Rate.................................. 4
ARTICLE 4 RIGHT OF FIRST REFUSAL ON ADDITIONAL SPACE................. 6
ARTICLE 5 FIRST RIGHT TO LEASE....................................... 8
ARTICLE 6 RENT AND TAXES............................................. 10
6.1 Rent.............................................. 10
6.2 Taxes............................................. 10
ARTICLE 7 UTILITIES.................................................. 10
7.1 Payment by Tenant................................. 10
7.2 No Liability of Landlord.......................... 10
7.3 Installation of Equipment......................... 11
ARTICLE 8 POSSESSION, USE AND ENJOYMENT.............................. 11
8.1 Demise of Premises................................ 11
8.2 Prohibited Uses................................... 11
8.3 Landlord's Work................................... 11
8.4 Tenant's Work..................................... 11
8.5 Permitted Uses.................................... 11
8.6 No Violations of Lease............................ 12
8.7 Licenses or Permits............................... 12
8.8 No Unusual Risks.................................. 12
8.9 Signage........................................... 12
8.10 Permitted Signage................................. 12
8.11 Quiet Enjoyment................................... 12
8.12 Landlord's Title.................................. 12
8.13 Additional Landlord's Representations............. 12
ARTICLE 9 CONDITION OF PREMISES...................................... 13
ARTICLE 10 ASSIGNMENT AND SUBLETTING.................................. 13
i
<PAGE>
10.1 Assignment and Subletting......................... 13
10.2 Notice and Consent................................ 13
10.3 Effectiveness..................................... 14
10.4 Intercompany Assignment........................... 14
ARTICLE 11 ACCESS, CHANGES IN BUILDING FACILITIES, NAME............... 15
11.1 Landlord's Access................................. 15
11.2 Exhibition of Premises............................ 15
11.3 Landlord's Representatives and Designees.......... 15
11.4 No Unreasonable Interferences..................... 15
ARTICLE 12 MAINTENANCE AND REPAIR..................................... 15
12.1 Tenant's Obligation............................... 15
12.2 Tenant's Work and Property........................ 15
12.3 Landlord's Obligation............................. 16
12.4 Maintenance and Service Agreements................ 16
12.5 No Liability of Landlord.......................... 16
12.6 Floor Loads....................................... 16
12.7 Machines and Equipment............................ 16
12.8 Inconvenience or Injury to Business............... 16
ARTICLE 13 SERVICES AND FUNCTIONS..................................... 17
13.1 Landlord's Obligations............................ 17
13.2 Tenants Obligations............................... 17
13.3 Pests............................................. 17
13.4 Water............................................. 17
ARTICLE 14 ALTERATIONS AND IMPROVEMENTS SUBSEQUENT TO INITIAL
OCCUPANCY.................................................. 17
14.1 Alterations and Improvements...................... 17
14.2 Liens............................................. 18
ARTICLE 15 WAIVER OF CLAIMS........................................... 18
ARTICLE 16 TENANT'S DEFAULT AND LANDLORD'S REMEDIES................... 19
16.1 Events of Default................................. 19
16.2 Landlord's Remedies............................... 19
16.3 Trustee in Bankruptcy............................. 20
16.4 Attorneys' Fees................................... 20
16.5 Limitation of Remedies............................ 21
ARTICLE 17 SURRENDER OF PREMISES...................................... 21
ARTICLE 18 HOLDING OVER............................................... 21
ARTICLE 19 DAMAGE BY FIRE OR OTHER CASUALTY........................... 22
19.1 Substantial Untenantability....................... 22
19.2 Insubstantial Untenantability..................... 22
19.3 Rent Abatement.................................... 22
ARTICLE 20 EMINENT DOMAIN............................................. 23
ii
<PAGE>
20.1 Substantial Taking................................ 23
20.2 Insubstantial Taking.............................. 23
20.3 Compensation...................................... 23
ARTICLE 21 INSURANCE.................................................. 23
21.1 Tenant's Insurance................................ 23
21.2 Landlord's Insurance.............................. 23
21.3 Mutual Waiver of Subrogation...................... 24
ARTICLE 22 RULES AND REGULATIONS...................................... 24
ARTICLE 23 LANDLORD'S RIGHTS.......................................... 24
ARTICLE 24 ESTOPPEL CERTIFICATES...................................... 25
ARTICLE 25 ADJUSTMENT TO MONTHLY BASE RENT............................ 25
25.1 Expenses.......................................... 25
25.2 Taxes............................................. 26
25.3 Adjustments....................................... 26
25.4 Inspection of Records............................. 29
ARTICLE 26 PARKING.................................................... 29
ARTICLE 27 REAL ESTATE BROKERS........................................ 29
ARTICLE 28 SUBORDINATION AND ATTORNMENT............................... 29
28.1 Subordination..................................... 30
28.2 Attornment........................................ 30
28.3 Conditions to Subordination and Attornment........ 30
28.4 Subordination of Landlord's Lien.................. 30
ARTICLE 29 NOTICES.................................................... 31
ARTICLE 30 MISCELLANEOUS.............................................. 31
30.1 Late charges...................................... 31
30.2 Entire Agreement.................................. 32
30.3 Accord and Satisfaction........................... 32
30.4 Limitation of Liability........................... 32
30.5 Force Majeure..................................... 32
30.6 Applicable Law.................................... 33
30.7 Time.............................................. 33
30.8 Landlord's Right to Perform Tenant's Duties....... 33
30.9 Landlord's Access................................. 33
30.11 Tenant's Remedies................................. 33
30.12 Headings.......................................... 35
30.13 Cover Sheet....................................... 35
30.14 Table............................................. 35
30.15 Exhibits.......................................... 35
30.16 References........................................ 35
30.17 Gender; Successor & Assigns....................... 35
30.18 Joint and Several Obligations..................... 35
iii
<PAGE>
30.19 Multiple Tenants.................................. 35
30.20 Mortgages......................................... 36
30.21 References to Lease as a Whole.................... 36
30.22 Consents and Approvals............................ 36
30.23 Recordation....................................... 36
30.24 Arbitration....................................... 36
iv
<PAGE>
LEASE
ARTICLE 1
BASIC LEASE PROVISIONS AND IDENTIFICATION OF EXHIBITS
1.1 BASIC LEASE PROVISIONS.
(a) BUILDING & ADDRESS:
Broadway Center -- Building I
10302 Deerwood Park Boulevard
Jacksonville, Florida 32257
(b) LANDLORD & ADDRESS:
CTC Investments II Limited
9428 Baymeadows Road, Suite 112
Jacksonville, Florida 32256
ATTN: Thomas F. Beeckler
(c) TENANT & CURRENT ADDRESS:
National Auto Finance Company, Inc.
One Park Place, Suite 550
621 N.W. 53rd Street, Boca Raton, FL 33487
ATTN: William Magro
(d) DATE OF LEASE: June 16, 1997
(e) LEASE TERM: Six (6) years
(f) COMMENCEMENT DATE OF TERM: The Commencement Date, as
defined in Section 2.2 hereof.
(g) EXPIRATION DATE OF TERM: The Expiration Date, as
defined in Section 2.2 hereof.
(h) MONTHLY BASE RENT: The monthly base rent shall be in
the following amounts for the following years during
the term of this Lease:
================================================================================
Monthly Base Rent Monthly
Lease Year/Month per square foot Base Rent
================================================================================
- --------------------------------------------------------------------------------
Months 1-5 $0.00 $0.00
- --------------------------------------------------------------------------------
Month 6 .48648 x $1.0042 $18,075.36
- --------------------------------------------------------------------------------
Months 7-12 $1.0042 $37,154.70
- --------------------------------------------------------------------------------
2nd Year $1.0342 $38,264.17
<PAGE>
- --------------------------------------------------------------------------------
3rd Year $1.0650 $39,405.00
- --------------------------------------------------------------------------------
4th Year $1.0975 $40,607.50
- --------------------------------------------------------------------------------
5th Year $1.1300 $41,810.00
- --------------------------------------------------------------------------------
6th Year $1.1642 $43,074.17
================================================================================
In addition to the Monthly Base Rent, Tenant shall
also pay all sums, costs, expenses, payments and
deposits required by Tenant pursuant to the terms of
this Lease. The Monthly Base Rent is subject to
adjustment as provided in Section and Article of this
Lease. The Monthly Base Rent is also subject to
increase in accordance with Section C(1)(d) of the
Work Letter attached hereto as EXHIBIT C.
(i) NET RENTABLE SQUARE FEET OF THE PREMISES UPON WHICH
ANNUAL RENT AND ADJUSTED RENT IS CALCULATED: 37,000
square feet, subject to adjustment pursuant to
Section 2.3 below.
(j) SECURITY DEPOSIT: None
(k) BROKERS: Phoenix Realty Group, Inc.
Suite 2330, 1301 Riverplace Boulevard
Jacksonville, Florida 32207
TSC Southeast-Florida, Inc.
c/o The Staubach Company
950 East Paces Ferry Road, Suite 2060
Atlanta, Georgia 30326
(l) RENTABLE SQUARE FEET OF THE BUILDINGS INCLUDED IN THE
PROJECT (DEFINED AS BEING THAT CERTAIN PROPERTY,
INCLUDING BUILDINGS CONSTRUCTED OR TO BE CONSTRUCTED
THEREON, LOCATED IN DUVAL COUNTY, FLORIDA AND MORE
PARTICULARLY DESCRIBED ON EXHIBITS A-2 ATTACHED
HERETO): 142,100 square feet, subject to adjustment
pursuant to Section 2.3 below.
(m) TENANT'S PROPORTIONATE SHARE (DEFINED AS BEING THE
RENTABLE SQUARE FOOTAGE OF THE PREMISES DIVIDED BY
THE TOTAL RENTABLE SQUARE FOOTAGE OF THE BUILDINGS
INCLUDED IN THE PROJECT, INCLUSIVE OF THE PREMISES):
26.04%, subject to adjustment pursuant to Section 2.3
below.
1.2 IDENTIFICATION OF EXHIBITS. The exhibits set forth below and
attached to this Lease are incorporated in this Lease by this reference and are
hereby made a part of this Lease:
EXHIBIT A - Tenant Location in Building
EXHIBIT A-1 - Preliminary Layout Plan of Premises
("Layout Plan")
EXHIBIT A-2 - Legal Description for Project
EXHIBIT B - Rules and Regulations
EXHIBIT C - Work Letter
2
<PAGE>
EXHIBIT C-1 - Drawing of Elevation
EXHIBIT C-2 - Construction Schedule
EXHIBIT D - Approved Signage
EXHIBIT E - Parking Site Plan
ARTICLE 2
PREMISES AND TERM
2.1 LEASE OF PREMISES. Landlord leases to Tenant and Tenant leases from
Landlord the premises (the "Premises") outlined on EXHIBITS A AND A-1, which is
contained in the building described in Section (the "Building"), together with
the right to access and utilize the roof of the Building for the installation
and maintenance of any equipment serving the Premises (provided, however, that
the installation of any such equipment shall be subject, in all events, to the
terms and conditions of this Lease respecting the installation of alterations or
improvements to the Premises), and the right to use common areas of the Building
and Project in common with the other tenants thereof, upon the following terms
and conditions.
2.2 TERM OF LEASE. The term of this Lease (the "Term") shall commence
on the date (the "Commencement Date") which shall be (i) 90 days after the
Delivery of Possession Date (as hereinafter defined), or (ii) the date that
Tenant first occupies all or any part of the Premises for the conduct of
business, if such date occurs prior to the date set forth in (i) above;
provided, however, that in the case of clause (i), the Commencement Date shall
be extended by the number of days of delay incurred in the preparation of the
Premises for Tenant's occupancy (in accordance with the Work Letter attached
hereto as EXHIBIT C) as a result of an event of Force Majeure (as defined in
Section 30.5) or Landlord delay, such total number of days of delay to be
calculated without duplication. The Term shall expire at midnight on the day
immediately preceding the sixth (6th) anniversary of the Commencement Date (the
"Expiration Date"), unless renewed or sooner terminated as otherwise provided in
this Lease. For purposes of this Lease, the term "Delivery of Possession Date"
shall mean the date of this Lease, if such day is a working day, and if not,
then the first working day thereafter. On the Delivery of Possession Date,
Landlord shall allow the Tenant unrestricted access to the Premises for the
delivery and installation of building materials and equipment in accordance with
the terms of the Work Letter.
2.3 RIGHT TO MEASURE. The rentable area for the Premises and each of
the buildings included within the Project shall be subject to Tenant's right to
confirm the measurement thereof by making a written request for confirmation not
later than ninety (90) days after the Commencement Date. If Tenant requests such
a measurement, such measurement shall be conducted, at Tenant's sole cost and
expense, within thirty (30) days after Tenant's request for a measurement, by an
architect or engineer selected by Tenant. Such measurement shall be based upon
the current standards published by Building Owners and Managers Association
International ("BOMA"), except that all exterior walls shall be measured from
the exterior side of such walls (as opposed to the center line), interior walls
(such as a demising wall) shall be measured to its center line, and all unheated
space, such as an unenclosed entrance way or vestibule with a roof overhang,
shall be excluded. Landlord reserves the right to contest the measurements of
Tenant's architect or engineer. If the measurements are finally determined to
vary from the amounts reflected in this Lease, Landlord and Tenant agree to
enter into an amendment to this Lease to correct such measurements and any other
percentages or dollar amounts based thereon, within thirty (30) days after the
final measurements. If Tenant does not request a final measurement in accordance
with the terms of this Section 2.3, then
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Landlord's measurements as set forth in Article 1 shall be binding and
conclusive upon Tenant. Tenant shall have a comparable right to measure any
additional space or expansion space that is hereafter added to the Premises.
ARTICLE 3
RENEWAL OPTION
3.1 OPTION. Subject to the terms and conditions of this Article 3,
Tenant shall have the option (the "Renewal Options") to extend this Lease for
two (2) successive terms of five (5) years each (the "Renewal Terms").
3.2 NOTICE. In order to exercise any Renewal Option provided hereunder,
Tenant shall provide to Landlord written notice of Tenant's intent to exercise
such option not less than four (4) months and not more than twelve (12) months
prior to the commencement of such Renewal Term in question. If Tenant fails to
exercise any Renewal Option in accordance with the terms and conditions hereof,
including, but not limited to, the foregoing requirement of notice, such Renewal
Option shall thereafter be deemed null and void and of no further force or
effect.
3.3 MONTHLY BASE RENT DURING RENEWAL TERM. In the event Tenant elects
to exercise any Renewal Option provided hereunder, the Monthly Base Rent for
such Renewal Term shall be 95% of the then current Fair Market Rate (as
hereinafter defined). In recognition that the Fair Market Rate for the Premises
may not be determined until after the commencement of the Renewal Term, Tenant
shall pay the Monthly Base Rent previously in effect under the Lease until such
time as a Monthly Base Rent for the Renewal Term is finally determined. In such
event, on the next date on which rent is due following the determination of the
Monthly Base Rent for the Renewal Term, Tenant shall pay any additional rent
which is due, or shall receive a credit for any excess rent which Tenant has
paid, to the extent the Monthly Base Rent paid by the Tenant pending the final
determination differs from the Monthly Base Rent as finally determined. In
addition to Monthly Base Rent as determined in connection with this Article ,
Tenant shall pay Adjusted Monthly Base Rent, Additional Rent and all other
taxes, expenses and charges due under the terms of this Lease at all times
during any Renewal Term period.
3.4 COMPLIANCE WITH TERMS OF LEASE. Tenant's use and occupancy of the
Premises during any applicable renewal term shall be subject to each of the
terms, covenants and conditions of this Lease, except as specifically modified
in this Article . Tenant's right to exercise any Renewal Option shall be
suspended during any period in which Tenant is in default under this Lease
beyond any applicable grace or cure period. In addition, should any event of
default hereunder occur either before or after the exercise of any Renewal
Option, but prior to the commencement of the Renewal Term and not be cured
within any applicable grace and cure period provided herein, Landlord, at its
option, may declare any such Renewal Option terminated and of no further force
or effect.
3.5 FAIR MARKET RATE.
(a) For purposes of this Lease, "Fair Market Rate" shall mean,
as of the date in question, the base rental rate (including
escalations) which a landlord willing but not obligated to lease, would
accept for the premises at issue and which a tenant, willing but not
obligated to lease, would pay therefor in an arm's length transaction,
such determination to be made with reference to other comparable lease
transactions in the Building's marketplace (a "Reference Lease") and
shall take into account all relevant factors, including without
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limitation, any inducements granted in a Reference Lease such as free
rent, free parking, tenant improvement allowances, and landlord's
assumption of existing leases, the relative location, age and quality
of the building that is the subject of the Reference Lease, the size of
the premises under the Reference Lease, and the services provided under
the Reference Lease in comparison to the services provided hereunder.
The Fair Market Rate shall not reflect the value of any improvements to
the Premises made by the Tenant which Tenant has the right to remove at
the end of the term of this Lease.
(b) Landlord and Tenant shall attempt in good faith to agree
upon the Fair Market Rate by mutual discussion and shall diligently
pursue such effort at such times during the Lease Term as either party
may request in conjunction with the proposed exercise of rights
hereunder to which such Fair Market Rate applies. If, however, Landlord
and Tenant shall not be able to agree upon the Fair Market Rate at any
time after Tenant has exercised an option which gives rise to a
determination of Fair Market Rate, then, in such event, either party
may demand that the Fair Market Rate be determined by arbitration
pursuant to the provisions of this Section 3.5 by delivering written
notice to the other party which notice shall designate such party's
appointment of a person as arbitrator with the qualifications set forth
in Section 3.5(c) below on its behalf, together with such party's
determination of the Fair Market Rate (the "First Proposed Fair Market
Rate"). Within twenty (20) days after receipt of such notice, the
receiving party by written notice to the other party shall appoint a
second person as arbitrator with the qualifications set forth in
Section 3.5(c) below and the three arbitrators shall, within thirty
(30) days, determine the Fair Market Rate by making their own
independent determination of the actual Fair Market Rate for the
applicable space based upon the definition of Fair Market Rate
contained herein; provided, however, that the arbitrators are bound to
choose a Fair Market Rate that is within the range established by the
First Proposed Fair Market Rate and the Second Proposed Fair Market
Rate. The arbitrators shall not have the right to determine the Fair
Market Rate in any other manner; provided, however, that:
(i) If the second arbitrator shall not have been
appointed within the twenty (20) day period as
aforesaid, the First Proposed Fair Market Rate shall
be the applicable Fair Market Rate; and
(ii) If the two arbitrators are appointed by the parties
and shall be unable to agree, within ten (10) days
after their appointment, upon the third arbitrator,
they shall give written notice to the parties of such
failure to agree, and if the parties fail to agree
upon the selection of such third arbitrator within
ten (10) days after the arbitrators appointed by the
parties gave notice as aforesaid, then either of the
parties upon notice to the other party may request in
writing such appointment by the American Arbitration
Association, or any successor organization ("AAA") or
in its absence, refusal, failure or inability to act
within ten (10) days after the request to the AAA,
may apply to the Chief Judge of the Duval County
Circuit Court for a court appointment of such
arbitrator.
(c) Each arbitrator shall be qualified and impartial person
who shall be a licensed real estate salesperson, broker or appraiser
with substantial commercial experience with respect to management,
ownership and marketing of office/warehouse buildings in the
Jacksonville, Florida metropolitan area. Once the arbitrators have been
selected, the
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arbitrators shall, after due consideration of the factors to be taken
into account in connection with the definition of the Fair Market Rate
and hearing whatever evidence they deem appropriate from Landlord,
Tenant or others, determine a Fair Market Rate that is within the range
established by the First Proposed Fair Market Rate and the Second
Proposed Fair Market Rate and shall render their decision in writing,
upon the concurrence of at least two (2) of their number, within thirty
(30) days after the appointment of the third arbitrator. Such decision
shall be final and conclusive on the parties and counterpart copies of
such decision shall be delivered to each of the parties; provided,
however, upon the rendering of such decision, Tenant shall be entitled
to rescind its exercise of the option in question provided such
rescission is exercised by an irrevocable written notice to Landlord at
least ten (10) days after the arbitrators have determined the Fair
Market Rate and notified the parties thereof. No such rescission shall
be effective unless Tenant agrees to pay Landlord's reasonable
out-of-pocket expenses incurred in connection with such option,
including, without limitation, all arbitration costs incurred with
respect to the determination of Fair Market Rate. Judgment may be had
on the decision of the arbitrators so rendered in any court of
competent jurisdiction and to the extent that Florida law imposes
requirements different than those of the AAA in order for the decision
of the arbitrators to be enforceable in the courts of the State of
Florida, such requirements shall be complied with during the
arbitration.
(d) Except as otherwise provided in Section 3.5 (c) above, the
parties shall each pay the fees of the arbitrator they selected,
one-half (1/2) of the fees of the third arbitrator and shall each pay
their own respective fees of counsel, experts and witnesses.
ARTICLE 4
RIGHT OF FIRST REFUSAL ON ADDITIONAL SPACE
During the Term of this Lease, including any extensions or renewals
thereof, Tenant shall have the right of first refusal to lease any area of the
Building that is contiguous to the then current Premises (the "ROFR Area"). Such
right of first refusal shall be exercisable at the following times and upon the
following conditions:
(a) If during the Term of this Lease, Landlord receives an
offer from a prospective tenant (the "Prospective Tenant") to lease
premises (the "Offered Premises") in the Building containing all or any
part of the ROFR Area, and Landlord desires to accept such offer,
Landlord shall notify Tenant of such fact. Tenant shall have a period
of five (5) working days from the date of delivery of such notice to
notify Landlord whether Tenant elects to exercise the right granted
hereby to lease the Offered Premises. If Tenant fails to give any
notice to Landlord within the required five (5) working day period,
Tenant shall be deemed to have refused its right to lease that portion
of the ROFR Area which comprises the Offered Premises.
(b) If Tenant refuses its right to lease the Offered Premises,
either by giving written notice thereof or by failing to give any
notice, Landlord shall thereafter have the right, for a period of one
hundred twenty (120) days, to lease the Offered Premises to the
Prospective Tenant on such terms and provisions as may be acceptable to
Landlord, provided such terms and provisions are not more favorable
than the terms and provisions set forth in the notice from Landlord to
Tenant. If Landlord and the Prospective Tenant fail to enter into a
lease following Tenant's refusal to lease the ROFR Area within the one
hundred
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twenty (120) day period provided in the previous sentence, Tenant shall
have the right of first refusal described herein with respect to any
subsequent bona fide offers from the Prospective Tenant. Moreover,
without regard to the one hundred twenty (120) day period referenced
above, Tenant shall have the right of first refusal described herein
with respect to any subsequent bona fide offers from other prospective
tenants.
(c) If Tenant exercises its right to lease the Offered
Premises, Landlord and Tenant shall, within thirty (30) days after
Tenant delivers to Landlord notice of its election, enter into an
amendment to this Lease which evidences that Tenant has leased the
Offered Premises on the same terms, covenants, and conditions as are
contained in this Lease, subject to the following:
(i) The rentable area of the Offered Premises shall be
equal to the area offered to be leased by the
Prospective Tenant.
(ii) The rate of Monthly Base Rent to be paid for the
Offered Premises for the balance of the then current
Term (as the same may be adjusted pursuant to
subsection (v) below) shall be equal to the monthly
base rent offered to be paid by the Prospective
Tenant, including any free rent periods offered and
any offered rent escalations from time to time in
such rental rate; provided, however, that such
monthly base rent shall be adjusted, if necessary, to
account for differences in the duration of the lease
as offered by the Prospective Tenant as compared to
the duration Tenant will be leasing the Offered
Premises; such adjustment to be mutually agreed upon,
or failing agreement to be finally determined
utilizing the arbitration process set forth in
Section 3.5 above.
(iii) The payment of monthly installments of Monthly Base
Rent with respect to the Offered Premises shall
commence on the effective date of the lease of the
Offered Premises as offered to the Prospective
Tenant, or in the event no specific effective date
was so offered, on the date mutually acceptable to
Landlord and Tenant, but in no event earlier than the
later of (x) thirty (30) days after Tenant delivers
to Landlord notice of its election, or (y) the date
Landlord delivers possession of the Offered Premises
to Tenant. Rent for any partial month shall be
prorated.
(iv) Possession of the Offered Premises shall be delivered
to Tenant on the basis offered to the Prospective
Tenant, including any construction allowances;
provided, however, that Landlord will use reasonable
diligence to make the Offered Premises available to
Tenant on the date requested by Tenant.
(v) The term of the lease of the Offered Premises shall
commence on the date determined pursuant to
subsection (iv) above (the "Supplemental Commencement
Date"), and shall continue thereafter for the
remaining then current Term of this Lease; provided,
however, that if the then current Term of this Lease
is due to expire within three (3) years after the
Supplemental Commencement Date and Tenant has not
exercised an available Renewal Option, if any, then
the then current Term of this Lease shall be extended
one day for each day of such shortfall, such that the
then current Term of this
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Lease is in no event shorter than three (3) years in
duration from the Supplemental Commencement Date.
(vi) Any renewal of this Lease occurring after the
Supplemental Commencement Date pursuant to Article 3
above, shall include and extend to the Offered
Premises leased hereunder, with the rent for the
Offered Premises (and the balance of the Premises) to
be calculated pursuant to Article 3 for the Renewal
Term.
(d) The right of first refusal provided under this Article 4
shall be suspended during any period in which Tenant is in default
under this Lease beyond any applicable grace or cure period. In
addition, should any event of default hereunder occur either before or
after the exercise of any right of first refusal, but prior to the
execution of an amendment for the Offered Premises and the same is not
cured within any applicable grace or cure period provided herein, then
Landlord, at its option, may reject Tenant's notice of exercise of its
right of first refusal and proceed hereunder as if Tenant had declined
to lease the Offered Premises.
ARTICLE 5
FIRST RIGHT TO LEASE
(a) From time to time during the Lease Term, but not more
frequently than quarterly, Tenant shall have the option to notify
Landlord of its desire to lease additional space in the Building.
(b) Within thirty (30) days following the receipt of Tenant's
notification under subsection (a) above, Landlord shall notify Tenant,
in writing, of the space which is then available in the Building (or
scheduled to become available within one hundred twenty (120) days from
the date of Landlord's notice) and the date upon which any expansion
rights of other tenants in and to such space would permit occupation of
such space by such tenant (the "Other Tenant").
(c) Within ten (10) days after notice from Landlord to Tenant
of the available space, Tenant must notify Landlord in writing
designating that space, if any, which Tenant is interested in leasing
(the "Designated Space") and the term for which Tenant is interested in
leasing such Designated Space (which term shall not extend beyond the
Term of this Lease (as the same may be extended pursuant to Article 3
above) and either (i) shall not extend beyond the date the Landlord
requires such Designated Space in order to deliver such Designated
Space to the Other Tenant in accordance with the Other Tenant's
expansion rights, or (ii) shall be subject to the expansion rights of
the Other Tenant). Tenant shall have no option to lease the Designated
Space during any period when Tenant is in default of this Lease beyond
any applicable grace or cure period.
(d) If Tenant does not give Landlord written notice within
thirty (30) days after Tenant gives notice under subsection (c) above
that Tenant has exercised Tenant's option to lease the Designated
Space, Tenant shall be deemed to have elected not to exercise such
option with respect to such Designated Space and Landlord shall be free
to lease such Designated Space in the ordinary course of business, but
if such Designated Space is unleased
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as of the date of a request by Tenant under subsection (a), such
Designated Space shall be available space under subsection (b).
(e) The Designated Space shall be leased upon the terms and
provisions then in effect under this Lease, except that (i) the Monthly
Base Rent, escalation, concessions, etc. for the Designated Space for
the balance of the then current term shall be the Fair Market Rate for
the Designated Space; (ii) the Tenant shall not be entitled to the
"Tenant Improvement Allowance" referenced in the Work Letter (provided,
however, that the absence thereof shall be taken into account in the
determination of Fair Market Rate); and (iii) the term for the
Designated Space shall be modified in accordance with subsection (c).
The rate of Monthly Base Rent during any subsequent Renewal Term shall
be determined in accordance with Article 3. The lease of the Designated
Space shall commence and rent and other charges shall commence to
accrue on the earlier of (i) ninety (90) days after the date Landlord
delivers actual possession of the Designated Space to Tenant, or (ii)
the date that Tenant first occupies all or any part of the Premises for
the conduct of business. Landlord and Tenant shall enter into an
amendment to this Lease which evidences that Tenant has leased the
Designated Space within thirty (30) days after Landlord has delivered
possession of the Designated Space to Tenant.
(f) If Landlord and Tenant do not agree on the Fair Market
Rate for the Designated Space at any time after Tenant's exercise of
its option right hereunder, either party may require that such Fair
Market Rate be determined using the procedures set forth in Section 3.5
(which determination shall be binding on Landlord and Tenant). In
recognition that the Fair Market Rate for the Designated Space may not
be determined until after the commencement of the lease for such
Designated Space, Tenant shall pay, as Monthly Base Rent and additional
charges for the Designated Space, until such Fair Market Rate is
determined, the amount of Monthly Base Rent and other charges then in
effect under this Lease on a per rentable square foot basis multiplied
by the number of rentable square feet in such Designated Space. If the
Fair Market Rate is determined to be less than such amount, Tenant
shall receive a credit again the Monthly Base Rent and other charges
thereafter coming due under this Lease in an amount equal to the
difference between the amount of Monthly Base Rent and other charges
actually paid by Tenant with respect to such Designated Space and the
amount which Tenant would have paid at the Fair Market Rate for such
Designated Space. If such Fair Market Rate is determined to be more
than such amount, Tenant shall pay such difference to Landlord within
thirty (30) days after the determination of Fair Market Rate.
(g) The first right to lease granted to Tenant hereunder shall
be subject and subordinate to any expansion or renewal options granted,
from time to time, in leases to other tenants in the building.
(h) The first right to lease provided hereunder shall be
suspended during any period in which Tenant is in default under this
Lease beyond any applicable grace or cure period. In addition, should
any event of default hereunder occur either before or after the
exercise of any first right of lease, but prior to the execution of an
amendment for the Designated Space and the same is not cured within any
applicable grace or cure period provided herein, then Landlord, at its
option, may reject Tenant's notice of exercise of its first right to
lease and proceed hereunder as if Tenant had declined to lease the
Designated Space.
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ARTICLE 6
RENT AND TAXES
6.1 RENT. Tenant agrees to pay to Landlord at the address set forth in
Section of this Lease, or at such other place designated by Landlord, without
any prior notice or demand and without any set-off or deduction whatsoever
except as expressly permitted herein, base rent at the initial monthly rate
stated in Section ("Monthly Base Rent"). Monthly Base Rent is subject to
adjustment pursuant to Article , and as adjusted is called "Adjusted Monthly
Base Rent". Monthly Base Rent and Adjusted Monthly Base Rent shall be paid
monthly in advance on the first day of each month of the Term. Monthly Base Rent
and Adjusted Monthly Base Rent shall be prorated for partial months within the
Term. All charges, costs and sums required to be paid by Tenant to Landlord
under this Lease, in addition to Monthly Base Rent and Adjusted Monthly Base
Rent, shall be considered additional rent, and Monthly Base Rent, Adjusted
Monthly Base Rent and Additional Rent shall be collectively called "Rent".
Notwithstanding anything contained herein to the contrary Rent (including any
so-called free rent periods) shall not begin to accrue until the Landlord's Work
is Substantially Complete, as that term is defined in the Work Letter.
Notwithstanding any provision hereof to the contrary, Tenant shall not
pay Monthly Base Rent for the first five months of the Term of this Lease, and
shall only pay 48.648% of any Adjusted Monthly Base Rent for the sixth month of
the Term of this Lease. Thereafter, Tenant shall pay all Rent sums due under the
Terms of this Lease.
6.2 TAXES. Tenant shall pay to Landlord any sales, use, excise, or
similar tax, levied or assessed by the State of Florida or any political
subdivision thereof, on the Rent payable hereunder, and required by law to be
paid. Such tax shall be paid to Landlord with each payment of Rent herein
reserved and calculated on the Rent paid with such payment. Default in payment
of such tax shall constitute an event of default under Section hereof to the
same extent as would a default in payment of Rent.
ARTICLE 7
UTILITIES
7.1 PAYMENT BY TENANT. Tenant shall pay, directly to the appropriate
supplier, the cost of all utilities (heat, gas, electricity, telephone, and
refuse disposal, but exclusive of water and sewer) and other services supplied
to the Premises. However, if any services or utilities are jointly metered with
other units, Landlord shall make a reasonable determination of Tenant's share of
the cost of such utilities and services and Tenant shall pay such share to
Landlord.
Tenant shall pay to Landlord the charges specified by Landlord for such
services and utilities, within 20 days after billing by Landlord. Default in
payment of such charge shall constitute an event of default under Section 16.1
hereof to the same extent as would a default in payment of Rent.
7.2 NO LIABILITY OF LANDLORD. Unless due to Landlord's negligence or
wilful misconduct, Landlord shall not be liable for damages for any failure to
furnish or delay in furnishing any service or utility described in Section 7.1
above. Unless due to Landlord's negligence or wilful misconduct, no such failure
or delay shall result in any liability of Landlord to Tenant or be deemed to be
an
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eviction or disturbance of Tenant's use or possession of the Premises, or
relieve Tenant from its obligation to pay all Rent when due or from any other
obligation of Tenant under this Lease.
7.3 INSTALLATION OF EQUIPMENT. Tenant agrees that it will not install
any equipment which will exceed or overload the capacity of any utility
facilities.
ARTICLE 8
POSSESSION, USE AND ENJOYMENT
8.1 DEMISE OF PREMISES. Landlord does hereby demise and lease to
Tenant, and Tenant does hereby hire and take the Premises from Landlord.
8.2 PROHIBITED USES. Tenant shall not occupy or use the Premises for
any purpose or in any manner which: (1) is unlawful or in violation of any
applicable legal, governmental or quasi-governmental requirement, ordinance or
rule (including the rules of the Board of Fire Underwriters); (2) may be
dangerous to persons or property; (3) may invalidate or increase the amount of
premiums for any policy of insurance affecting the Building or covering its
operation or violate the terms thereof and if any additional amounts of
insurance premiums are payable as a result of Tenant's occupancy or use of the
Premises, Tenant shall pay to Landlord the additional amounts on demand; (4) may
create a nuisance, disturb any other tenant of the Building or the occupants of
neighboring property or injure the reputation of the Building; (5) will conflict
with any exclusive rights granted to any other tenant in the Building; or (6)
will violate the provisions of any covenant, condition, restriction, agreement
or document relating to the Premises, Building or Land (which shall be defined
to include the real property upon which the Building and all improvements
serving the Building, including parking areas, are located) which is recorded in
the office of the Clerk of the Court of Duval County, Florida.
8.3 LANDLORD'S WORK. All installations, facilities, materials and work
to construct the Premises for its initial occupancy by Tenant as described in
the Work Letter to be undertaken by Landlord are hereinafter referred to as the
"Landlord's Work" and are described in the Work Letter attached hereto. Except
for Landlord's Work, Landlord shall not be required to perform any work, render
any services or furnish or install any materials, fixtures or equipment to the
Premises in order that the Premises be ready for occupancy on the Commencement
Date, except for payment of the Tenant Improvements Allowance (as hereinafter
defined).
8.4 TENANT'S WORK. All installations, facilities, materials and work
other than Landlord's Work, which may be undertaken by or for the account of
Tenant to equip (including but not limited to the installation of its trade
fixtures) and finish the Premises for its initial occupancy by Tenant are
hereinafter called "Tenant's Work".
8.5 PERMITTED USES. The Premises shall be used by Tenant for warehouse,
distribution, call center and general office uses (and uses accessory thereto
permitted under applicable laws, regulations or covenants and restrictions), and
for no other purpose. Notwithstanding anything contained in the Lease to the
contrary, Tenant shall have no obligation to occupy the Premises during the term
of the Lease, but Tenant's failure to occupy the Premises shall not relieve
Tenant from its obligation to pay Rent accruing pursuant to the terms of the
Lease, or to otherwise adhere to the terms and conditions of this Lease.
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8.6 NO VIOLATIONS OF LEASE. Tenant shall not use or permit the use of
the Premises or any part thereof in any way which would violate any of the
covenants, agreements, terms, provisions and conditions of this Lease or for any
unlawful purposes or in any unlawful manner or in violation of any applicable
law, regulations or covenant or restriction and Tenant shall not suffer or
permit the Premises or any part thereof to be used in any manner or anything to
be done therein or anything to be brought into or kept therein which, in the
judgment of Landlord, reasonably exercised, shall (i) adversely affect the
character, or appearance of the Premises, or (ii) adversely interfere with any
use, operation or occupancy of the facilities or improvements. Tenant shall not
install any electrical or other equipment of any kind which, in the reasonable
judgment of Landlord, might cause any such impairment.
8.7 LICENSES OR PERMITS. If any license or permit of a governmental
authority shall be required for the proper and lawful conduct of Tenant's
business or other activity carried on in the Premises, and if the failure to
secure such license or permit would or might reasonably be expected to adversely
affect, in any way, the Landlord, then Tenant, at Tenant's expense, shall duly
procure and thereafter maintain such license or permit and submit the same for
inspection by Landlord. Tenant, at Tenant's expense, shall, at all times, comply
with the requirements of each such license or permit.
8.8 NO UNUSUAL RISKS. The use of the Premises for the purposes
specified in Section hereof shall not in any event be deemed to include, and
Tenant shall not use, suffer or permit the use of the Premises or any part
thereof for the conduct of any business, or activity in which, in the reasonable
judgment of Landlord, may create or foster an unusual risk to the Building or of
any of its occupants.
8.9 SIGNAGE. No signs, advertisement, notice or other lettering shall
be exhibited, inscribed, painted or affixed by Tenant on any part of the outside
of the Premises or the Building without the prior written consent of the
Landlord. In the event of the violation of the foregoing by Tenant, Landlord may
remove the same without any liability, and may charge the expense incurred by
such removal to the Tenant.
8.10 PERMITTED SIGNAGE. Notwithstanding the provisions of Section
hereof, Landlord will allow Tenant to install the signage specified in EXHIBIT E
annexed hereto and made a part hereof, subject to any covenants and restrictions
regarding Broadway Center and Deerwood Park, zoning laws, municipal ordinances
and any other applicable laws and governmental regulations. All costs incurred
in effecting the provisions of the first sentence of this Section shall be borne
by Tenant.
8.11 QUIET ENJOYMENT. So long as Tenant is not in default under this
Lease beyond any applicable grace or cure period, Tenant shall be entitled to
peaceful and quiet enjoyment of the Premises, subject to (i) the provisions of
this Lease, (ii) any governmental action, and (iii) any cause beyond the
reasonable control of Landlord.
8.12 LANDLORD'S TITLE. Landlord represents and warrants to Tenant that
it owns the Premises in fee simple, and has the power and authority to execute
and deliver this Lease and to carry out and perform all covenants to be
performed by it hereunder.
8.13 ADDITIONAL LANDLORD'S REPRESENTATIONS. Landlord hereby represents
and warrants to Tenant, both as of the date hereof, and as of the Commencement
Date, that to the best knowledge and belief of Landlord, no Hazardous Substances
(as hereinafter defined) exists on, under or about the Premises or have been
transplanted to or from the Premises or used, generated, manufactured,
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stored or disposed of on, under or above the Premises and there has been no
escape, seepage, leakage, spillage, discharge, emission or other release on or
from the Premises of any Hazardous Substances. As used in this Lease, the term
"Hazardous Substances" means any hazardous or toxic substance, material or waste
which poses any danger to persons or property in, on or about the Premises or
which is or becomes regulated by any local governmental authority, the State of
Florida, or the United States government.
ARTICLE 9
CONDITION OF PREMISES
Tenant shall be conclusively presumed to have accepted the Premises and
Landlord's Work on the date Tenant first takes possession of the Premises and to
have waived all claims relating to the condition of the Premises and the work,
except for "punch list items," as provided in the Work Letter and except for
latent or hidden defects or any breach of Sections 8.12 or 8.13, and Landlord's
repair obligation as provided in Section hereof.
ARTICLE 10
ASSIGNMENT AND SUBLETTING
10.1 ASSIGNMENT AND SUBLETTING. Without the prior written consent of
Landlord, Tenant shall not (i) sublease all or any part of the Premises, or
assign, convey, encumber, mortgage, pledge, hypothecate or otherwise transfer or
permit the transfer of the interest of Tenant in this Lease, in whole or in
part, by operation of law or otherwise, or (ii) permit the use and occupancy of
all or any part of the Premises by any party other than Tenant, its agents,
employees, invitees and guests. For purposes of this Article 10, an assignment
shall be considered to include a change in the majority ownership or control of
Tenant if Tenant is a partnership or a corporation; provided, however, that the
foregoing provision shall not apply if the stock or partnership interests of the
Tenant are publicly traded, nor shall such provision apply for so long as
National Auto Finance Company, Inc. or one or more of its Affiliates (as
hereinafter defined) is the "Tenant" under this Lease. For purposes of this
Lease, an "Affiliate" of , or persons or entities "Affiliated" with, a specified
person or entity, is a person or entity that directly, or indirectly through one
or more intermediaries, "Controls" or is "Controlled By," or is "Under Common
Control With," the persons or entities specified, and the term "Control"
(including the terms "Controlling," "Controlled By" and "Under Common Control
With") as used in this Lease shall mean the possession, direct or indirect, 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.
10.2 NOTICE AND CONSENT. In the event that Tenant shall desire
Landlord's prior written consent to the subletting of all or any part of the
Premises or the assignment of the Lease, Tenant shall give Landlord prior
written notice thereof. Tenant shall also provide Landlord with such information
as to the proposed assignee's or subtenant's financial responsibility and
standing as Landlord may reasonably require. Tenant agrees that Landlord shall
be entitled to and shall receive fifty percent (50%) of any "excess rent" paid
by a subtenant or assignee to Tenant. For purposes of this Section , the term
"excess rent" shall mean all rent paid by a subtenant or assignee to the Tenant
in excess of the sum of (i) the Rent payable hereunder, plus (ii) an amount
equal to the total out-of-pocket costs to Tenant to prepare the Premises for
occupancy either for itself or its assignee or subtenant (which costs shall be
exclusive of furniture, furnishings, machinery, equipment or other
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movable or detachable items or any so-called tenant improvement allowances
provided to Tenant by Landlord) (the "Out-Of-Pocket Improvement Costs")
amortized over the initial Term of the Lease at ten (10) percent per annum, plus
(iii) the cost to Tenant of brokerage and consulting fees to obtain said
sublease or assignment (to the extent such fees are reasonable and consistent
with the prevailing fair market fees for such services), amortized over the
period of such sublease or assignment plus the amount Tenant has paid for any
lease concessions granted by Tenant to such assignee or subtenant, and the sum
of all Rent incurred by Tenant from the date it vacated and put on the market
the space which is the subject of the assignment or sublease, to the date it
assigned or subleased the same, amortized over the period of the assignment or
sublease. If less than the entire Premises is sublet or assigned, (i) only a
fraction of the Rent shall be used to calculate excess rent, the numerator of
such fraction shall be the number of Rentable Square Feet of the Premises
subleased or assigned by the Tenant and the denominator shall be the Rentable
Square Feet of the Premises as provided in Section and (ii) any Out-Of-Pocket
Improvement Costs paid in gross for improvements to both the space being
assigned or sublet and other areas of the Premises shall be allocated in a
reasonable fashion and in good faith by Tenant. Landlord covenants not to
unreasonably withhold, delay or condition its consent to any proposed assignment
or subletting by Tenant; provided, however, that Landlord shall not in any event
be obligated to consent to any such proposed assignment or subletting unless (i)
the proposed assignee, or subtenant is of a financial standing reasonably
satisfactory to Landlord, (ii) the Premises will not be utilized by the assignee
or subtenant in a manner prohibited by the terms of this Lease, (iii) the
proposed assignment or subletting does not violate any negative covenants as to
use contained in any other lease made between Landlord and other tenant(s) of
the Building, and (iv) Tenant shall not be in default, beyond any applicable
grace or cure period, under any of the terms and conditions of this Lease at the
time of any notice or request for consent under the terms of this Article or at
the effective date of such assignment or subletting.
10.3 EFFECTIVENESS. It is a condition to the effectiveness of any
assignment otherwise complying with this Article that the assignee execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee assumes all obligations of Tenant
under this Lease (with such assumption to be limited to obligations thereafter
accruing with respect to any assignment to a person or entity that is not
Affiliated with the assignor) and agrees that the provisions of this Article
shall continue to be binding upon it in respect of all future assignments of
this Lease. No assignment or subletting of this Lease shall release the assignor
from its continuing obligations to Landlord under this Lease except as herein
provided, and Tenant and any subsequent assignor shall continue to remain
jointly and severally liable (as primary obligors) for all Tenant's obligations
hereunder. The joint and several liability of the Tenant named below and any
immediate or remote successor in interest of the Tenant named below for the due
performance and observance of all covenants and conditions to be performed and
observed by Tenant shall not be impaired by any agreement of Landlord extending
the time for such performance or observance or by Landlord's waiving or failing
to enforce any provisions of this Lease.
10.4 INTERCOMPANY ASSIGNMENT. Notwithstanding any provision of this
Article to the contrary, Tenant may assign its rights under this Lease to any
corporation which may, as a result of a reorganization, merger, consolidation or
sale of stock or assets, succeed to the business now carried on by Tenant, or to
any Affiliate of Tenant, provided that Tenant shall not be in default, beyond
any applicable grace or cure period under any of the terms and conditions of
this Lease at the time of the request for consent to the assignment or the
effective date of such assignment; and further provided that such assignment or
sublet does not violate any negative covenants as to use contained in any other
lease made between Landlord and other tenant(s) of the Building and does not
result in the Premises being utilized by the assignee or subtenant in a manner
that is prohibited under the terms of
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this Lease. Any such assignment shall be subject to each of the conditions and
requirements of Section hereof, including, without limitation, the provisions
thereof with respect to the continued liability of the Tenant under the terms of
the Lease following such assignment.
ARTICLE 11
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
11.1 LANDLORD'S ACCESS. Landlord or Landlord's agents and designees
shall have the right to enter and/or pass through the Premises or any part
thereof during regular business hours to examine or inspect the Premises and to
show them to actual and prospective Mortgagees and to prospective purchasers, of
the Premises, or any part thereof, upon reasonable notice to Tenant, except in
the case of emergency situations.
11.2 EXHIBITION OF PREMISES. During the period of nine (9) months prior
to the expiration or termination of this Lease, Landlord may exhibit the
Premises to prospective tenants during regular business hours on reasonable
advance notice to Tenant.
11.3 LANDLORD'S REPRESENTATIVES AND DESIGNEES. Wherever in a provision
of this Lease, reference is made to the right of Landlord to enter the Premises
for an activity therein referenced, the term "Landlord" shall mean and include
its representatives and designees.
11.4 NO UNREASONABLE INTERFERENCES. Rights of access granted to
Landlord under this Lease shall be utilized so as not to unreasonably interfere
with Tenant's use and occupancy of the Premises. Moreover, notwithstanding
anything contained in this Lease to the contrary, Tenant may maintain certain
secure areas in the Premises to which the Landlord will not be provided a key or
be granted access without being accompanied by a representative of the Tenant,
except in emergency situations.
ARTICLE 12
MAINTENANCE AND REPAIR
12.1 TENANT'S OBLIGATION. Tenant shall, at its sole cost and expense,
take good care of the Premises, and shall make all non-structural repairs to the
interior of the Premises, including, but not limited to, those pertaining to
floor coverings, ceiling tiles, glass, interior windows and window frames,
electrical fixtures, switches and outlets, door closers and hardware, painting
and decorating, toilets, sinks and faucets, but excluding, its load-bearing
elements, floor slab, exterior masonry and walls and any repairs or maintenance
required by Landlord under this Lease.
12.2 TENANT'S WORK AND PROPERTY. In addition, Tenant shall make all
repairs to the Premises, structural and non-structural, attributable to (a) the
moving, installation, removal, use or operation of Tenant's Work or Tenant's
property or of parties acting for or at the instance of Tenant or those deriving
their interest in the Premises through or under Tenant or (b) the carelessness,
omission, neglect, negligence or improper conduct of Tenant or any other parties
referenced in clause (a) preceding or (c) to the extent not within the purview
of (a) preceding, with respect to Tenant's Work, Tenant changes or Tenant's
property. Tenant shall promptly notify Landlord of the need for any such
repairs.
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12.3 LANDLORD'S OBLIGATION. Except for those repairs for which Tenant
is responsible pursuant to Section hereof or any other provisions of this Lease,
Landlord shall make all repairs to the Project, Building and Premises , whether
interior or exterior, structural or non-structural) and shall maintain
(including repair or replacement when necessary) the same, including the roof,
walls, foundation, gutters, utility supply lines and pipes, downspouts and
structural portions of the Premises, in good condition and repair. In making any
repairs or replacements, Landlord shall use its best efforts to minimize any
interference with Tenant's use and enjoyment of the Premises. Landlord shall
make all necessary replacements, repairs and perform all necessary maintenance
and custodial services for the common areas, including striping of lanes and
elimination of cave-ins and pools of water and shall maintain the driveways and
sidewalks in good repair. Landlord shall keep the parking areas and sidewalks
open and accessible and free from rubbish, debris, ice, snow or other
hindrances.
Landlord will maintain the landscaping in good order and repair.
12.4 MAINTENANCE AND SERVICE AGREEMENTS. Tenant agrees to provide and
to keep in force, at Tenant's sole cost, during the Term for the benefit of
Landlord and Tenant, a comprehensive maintenance and service agreement, in form
and substance and with a contractor satisfactory to Landlord in the reasonable
exercise of its discretion, covering the maintenance, service, repairing and
replacement and both labor and materials, with respect to any HVAC equipment,
alternators, UPS or UBS systems, air-conditioning or air-distribution systems or
equipment, or systems or equipment which services the Premises exclusively. Upon
request, Tenant agrees to deliver to Landlord a duplicate original of the
aforesaid service and maintenance agreement which shall provide that it will run
in favor of Landlord if Landlord so elects and that such agreement may not be
cancelled or modified except with prior notice to Landlord.
The provisions of Sections and hereof shall not apply to repairs
required by reason of a taking (or partial taking) by any governmental authority
or fire or other casualty or any other matter covered by any casualty insurance
maintained by Landlord.
12.5 NO LIABILITY OF LANDLORD. Except for matters attributable to
Landlord's negligence or willful misconduct, Landlord shall have no liability to
Tenant by reason of any inconvenience, annoyance, interruption or injury to
business arising from Landlord's making any repairs or changes which Landlord is
required or permitted by this Lease, to make in or to any portion of the
Premises; provided Landlord has used its reasonable efforts to minimize any
interference with Tenant's business operations and use and enjoyment of the
Premises.
12.6 FLOOR LOADS. Tenant shall not place a load upon the floor of the
Premises exceeding the floor load per square foot areas which such floor was
designed to carry and which is allowed by law.
12.7 MACHINES AND EQUIPMENT. Machines and mechanical equipment used by
Tenant which cause vibration, noise, cold or heat that may be transmitted to the
Building structure or to any leased space to such a degree as to be reasonably
objectionable to Landlord or to any other tenant in the Building shall be placed
and maintained by Tenant at its expense in settings sufficient to absorb and
prevent such vibration or noise, or prevent transmission of such cold or heat.
12.8 INCONVENIENCE OR INJURY TO BUSINESS. Except as otherwise
specifically provided in this Lease, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of the Landlord by
reason of inconvenience, annoyance or injury to business arising from the making
by Landlord of any repairs, alterations, additions or improvements in or to any
portion of the
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Premises or in or to fixtures, provided, Landlord has exercised its reasonable
diligence to minimize any interference with Tenant's business operations,
provided, further, however, that Landlord shall not be required to perform the
same on an overtime or premium pay basis.
ARTICLE 13
SERVICES AND FUNCTIONS
13.1 LANDLORD'S OBLIGATIONS. In accordance with Section 7.1, Tenant
shall contract directly with the appropriate utility supplier for heat, gas,
electricity, light and other energy or energy producing sources and Landlord
shall not be required to furnish the same. Landlord shall have no duty or
obligation to make any alteration, change, improvement, replacement or repair
to, or to demolish any improvements now or hereafter erected, constituting a
part of or located within the Premises, except as otherwise specifically in this
Lease provided to the contrary.
13.2 TENANTS OBLIGATIONS. Tenant shall also, at its own cost and
expense, (a) keep the interior of the Premises reasonably clean and (b) heat the
Premises so as to prevent damage thereto.
13.3 PESTS. Landlord shall maintain the Premises free of insect or
vermin and shall provide exterminating services necessary to do so. In addition,
Tenant agrees not to use the Premises in a manner which reasonably can be
anticipated to propagate the existence of such insects or vermin.
13.4 WATER. Landlord shall furnish sewer and water for use within the
Premises.
ARTICLE 14
ALTERATIONS AND IMPROVEMENTS SUBSEQUENT TO INITIAL OCCUPANCY
14.1 ALTERATIONS AND IMPROVEMENTS. Tenant shall not, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned, or delayed, make or cause to be made any alterations, improvements,
additions or installations in or to the Premises subsequent to the initial
occupancy of the Premises by Tenant (other than repair or replacement of
non-structural, interior Tenant improvements). If Landlord so consents, before
commencement of any such work or delivery of any materials into the Premises or
the Building, Tenant shall furnish to Landlord for approval: architectural plans
and specifications, names and addresses of all contractors, contracts, necessary
permits and licenses, certificates of insurance and instruments of
indemnification against any and all claims, costs, expenses, damages and
liabilities which may arise in connection with such work, all in such form and
amount as may be reasonably satisfactory to Landlord. All work performed by
Tenant shall be performed and supervised by a licensed Florida general
contractor. In addition, prior to commencement of any such work or delivery of
any materials into the Premises, Tenant shall provide Landlord security for the
payment of said work and materials as Landlord may require (which security may
be in the form of a payment and performance bond reasonably acceptable to
Landlord) if at any time the total materials and work undertaken by Tenant (and
not fully completed, as evidenced by final waivers of lien) exceeds, in the
aggregate, $10,000, or such work is commenced in the last 120 days of the term
of this Lease, or any Renewal Term thereof. Tenant agrees to hold Landlord, its
partners, officer, directors, the managing agent of the Building and each of
their respective agents and employees forever harmless against all claims and
liabilities of every kind, nature and description which may arise out of or in
any way be connected with such work. The Landlord's interest in the Premises
shall in no way be subject to any liens for improvements or
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repairs made by Tenant or any contractor, subcontractor, materialman, or
laborer. Tenant shall notify any contractor making improvements to the Premises
of this provision as required by Florida Statute 713.10 and shall provide
Landlord with a receipt of such notice signed by the contractor. If Landlord
desires to make a recording as contemplated by Florida Statute 713.10, Tenant
shall cooperate with Landlord in recording in the appropriate clerk's office
either (a) a short form of this Lease or (b) a notice which complies with the
provisions of said statute. All such work shall be performed and insured under
insurance policies reasonably satisfactory to Landlord. If at any time such work
shall cause or threaten to cause disharmony or interference, including labor
disharmony, Landlord may revoke Tenant's authority to continue to perform such
work. Upon completion of such work, Tenant shall furnish Landlord with
contractors' affidavits and full and final waivers of lien and receipted bills
covering all labor and materials expended. All such work shall be in compliance
with all applicable legal, governmental and quasi governmental requirements,
ordinances and rules (including the Board of Fire Underwriters), and all
requirements of applicable insurance companies. Tenant shall permit Landlord, if
Landlord so desires, to supervise construction operations in connection with
such work at no cost to Tenant; provided, however, that such supervision or
right to supervise by Landlord shall not constitute any warranty by Landlord to
Tenant of the adequacy of the design, workmanship or quality of such work or
materials for Tenant's intended use or impose any liability upon Landlord in
connection with the performance of such work. All alterations, improvements,
additions and installations to or on the Premises shall become (subject to
Article ) part of the Premises at the time of their installation and shall
remain in the Premises at the expiration or termination of this Lease without
compensation or credit to Tenant.
14.2 LIENS. If any lien or claim for lien is filed (other than a lien
arising from any construction by Landlord or Landlord's contractor), Tenant
shall, within 20 days after such filing, either have such lien or claim for lien
released of record or shall deliver to the appropriate clerk's office a bond or
other security in form, content, and amount sufficient to comply with Florida
Statute 713.24 and which transfers the claim of lien to the bond pursuant to
said statute. If Tenant fails to have such lien or claim for lien so released or
to deliver such bond to the clerk's office as specified above, Landlord, in
addition to the other rights and remedies under this Lease and without
investigating the validity of such lien, may pay or discharge the same and
Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord,
including Landlord's reasonable and actual expenses and attorneys' fees (in
settlement, at trial, or on appeal).
ARTICLE 15
WAIVER OF CLAIMS
To the full extent permitted by law, Tenant hereby releases and waives
all claims against Landlord, its officers, directors, employees, the managing
agent of the Building and each of their respective agents and employees for
injury or damage to person, property or business sustained in, on or about the
Building or the Premises by Tenant, its agents or employees other than damage
caused by the negligence of Landlord, its employees, the managing agent of the
Building, or any of their respective agents, employees, contractors or
representatives.
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ARTICLE 16
TENANT'S DEFAULT AND LANDLORD'S REMEDIES
16.1 EVENTS OF DEFAULT. Each of the following shall constitute an event
of default by Tenant under this Lease:
(a) If any default in the payment of Rent shall continue for
ten (10) days after Landlord has provided written notice to Tenant of
such nonpayment;
(b) Tenant fails to observe or perform any of the other
covenants, conditions or provisions of this Lease or under the Work
Letter to be observed or performed by Tenant and fails to cure such
default within thirty (30) days after written notice to Tenant
provided, however, that where such failure cannot reasonably be cured
within such thirty (30) day period, Tenant shall not be in default if
it commences to cure such default within the thirty (30) day period and
diligently thereafter prosecutes the same to completion within ninety
(90) days after written notice of such default;
(c) the interest of Tenant in this Lease is levied upon under
execution or other legal process;
(d) a petition is filed by or against Tenant to declare Tenant
bankrupt or seeking a plan of reorganization or arrangement under any
Chapter of the Bankruptcy Code, or any amendment, replacement or
substitution therefor, or to delay payment of, reduce or modify
Tenant's debts, or any petition is filed or other action taken to
reorganize or modify Tenant's capital structure or to dissolve Tenant
except that the filing of any involuntary petition for bankruptcy
against Tenant shall not constitute an event of default hereunder,
unless such petition is not dismissed within thirty (30) days of the
filing of the same;
(e) Tenant is declared insolvent by law or any assignment of
Tenant's property is made for the benefit of creditors; or
(f) a receiver is appointed for Tenant or Tenant's property.
16.2 LANDLORD'S REMEDIES. Upon the occurrence of an event of default by
Tenant under this Lease, Landlord, at its option, without further notice or
demand to Tenant, may in addition to all other rights and remedies provided in
this Lease or at law or in equity (but subject to Section 16.5 below):
(a) Terminate this Lease and retake possession upon the
Landlord's own account, terminating all further liability and rights of
the Tenant (with the exception of any outstanding Rent or other sums
due Landlord at the time of such termination, including any amount due
as a consequence of Landlord electing to accelerate rent pursuant to
subsection (e) below) under the terms of this Lease;
(b) Not terminate this Lease, but hold the Tenant liable for
Rent as it comes due under the terms of this Lease;
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(c) Not terminate this Lease, but hold the Tenant liable for
all Rent and other charges payable to Landlord or to others on
Landlord's behalf under the terms of this Lease;
(d) Retake possession of the Premises for the account of the
Tenant, holding the Tenant liable for the difference between the Rent
stipulated to be paid (as such Rent comes due as stipulated in this
Lease or as may be accelerated in accordance with Subsection (e) below)
under this Lease and what the Landlord is able to actually recover from
reletting. Landlord and Tenant specifically agree that Landlord shall
not be liable for repayment back to Tenant of any sums actually
received from reletting in excess of the Rent stipulated to be paid
under this Lease. Any such sums received by Landlord shall first be
applied to any expenses incurred or to be incurred by Landlord in
reletting the property, including without limitation leasing
commissions and tenant improvements, then to payment of attorneys fees
and costs incurred or to be incurred by Landlord, then to outstanding
Rent at the date of default under the terms of this Lease, then to any
Rent payable as such Rent comes due as stipulated in this Lease;
(e) If this Lease is terminated by Landlord as a result of the
occurrence of an event of default, then if and to the extent permitted
by applicable law, Landlord may declare due and payable immediately an
amount determined as follows: (i) the entire amount of Rent and other
charges and assessments which would have become due and payable during
the remainder of the Lease Term, discounted to present value by using a
discount factor of eight percent (8%) per annum, plus (ii) all of
Landlord's costs and expenses (including, without limitation,
Landlord's expenses in redecorating and restoring the Premises and all
costs relating to such reletting, including broker's commissions and
lease assumptions) reasonably incurred in connection with or related to
the reletting of the Premises, minus (iii) the market rental value of
the Premises for the remainder of the Lease Term, based on Landlord's
reasonable determination of both future rental value and the
probability of reletting the Premises for all or part of the remaining
Term, discounted to present value by using a discount factor of eight
percent (8%) per annum. The term "remaining Lease Term" as used in this
subsection shall mean the period which otherwise would have (but for
the termination of this Lease) constituted the balance of the Lease
Term from the date of the termination of this Lease.
(f) Subject to Section 16.5, all other remedies permitted in
law or in equity.
16.3 TRUSTEE IN BANKRUPTCY. In the event a petition is filed by or
against Tenant seeking a plan of reorganization or arrangement under any Chapter
of the Bankruptcy Code, Landlord and Tenant agree, to the extent permitted by
law, that the trustee in bankruptcy shall determine within 60 days after
commencement of the case, whether to assume or reject this Lease.
16.4 ATTORNEYS' FEES. Tenant shall pay upon demand, all costs and
expenses, including reasonable attorneys' fees (in settlement, at trial or on
appeal or in connection with any bankruptcy proceeding), incurred by Landlord in
enforcing Tenant's obligations under this Lease and the Work Letter, or
resulting from Tenant's default under this Lease. If suit be brought by either
party, the prevailing party shall be entitled to recover from the other party,
the prevailing parties' costs, including reasonable attorneys' fees, whether
such fees and costs be incurred at trial, on appeal, in bankruptcy proceedings
or otherwise.
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16.5 LIMITATION OF REMEDIES. Landlord shall have no right to accelerate
rent on Tenant's default, except as provided in Subsections (a), (d) and (e)
above. Landlord shall have not right to evict or dispossess the Tenant, except
in accordance with statutory legal process.
ARTICLE 17
SURRENDER OF PREMISES
Upon the expiration or termination of this Lease or termination of
Tenant's right of possession of the Premises, Tenant shall surrender and vacate
the Premises immediately and deliver possession thereof to Landlord in a clean,
good and tenantable condition, ordinary wear and loss due to casualty or
condemnation excepted. In the event possession of the Premises is not
immediately delivered to Landlord or if Tenant shall fail to remove any movable
trade fixtures or personal property which Tenant is entitled to remove, Landlord
may remove same without any liability to Tenant. Any movable trade fixtures and
personal property which may be removed from the Premises by Tenant but which are
not so removed, and all improvements made by Tenant to the Premises, shall be
conclusively presumed to have been abandoned by Tenant and title to such
property shall pass to Landlord without any payment or credit, and Landlord may,
at its option and at Tenant's expense, store, keep and/or dispose of such
property. In no event shall Tenant have any obligation to remove any alterations
or improvements made to the Premises in accordance with the provisions of this
Lease or the Work Letter.
ARTICLE 18
HOLDING OVER
(a) Tenant may retain possession of the Premises for a period
of not more than three (3) one month periods immediately following the
expiration of the Term of this Lease, provided that Tenant complies
with all provisions of this Lease (including, without limitation,
payment of all Rent due under this Lease, with Monthly Base Rent to be
at the same rate as for the final year of the Term of this Lease), and
further provided that Tenant provide to Landlord written notice of its
intent to retain possession of the Premises, and the tentative duration
thereof, not later than six (6) months prior to the expiration of the
Term of this Lease.
(b) In the event Tenant retains possession of the Premises, or
any part of the Premises, after the expiration or termination of this
Lease, except in accordance with subparagraph (a) above, Tenant shall
pay Landlord one hundred twenty-five percent (125%) of the Adjusted
Monthly Base Rent then applicable under this Lease for each month or
partial month during which Tenant retains possession, not to exceed
three (3) months, and thereafter two hundred percent (200%) of the
applicable Adjusted Monthly Base Rent for any month or partial month.
In addition to the foregoing, Tenant shall also indemnify Landlord
against all liabilities and damages sustained by Landlord by reason of
any improper retention of possession. The provisions of this Article
shall not constitute a waiver by Landlord of any re-entry rights of
Landlord available under this Lease or by law.
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ARTICLE 19
DAMAGE BY FIRE OR OTHER CASUALTY
19.1 SUBSTANTIAL UNTENANTABILITY. If either the Premises or the
Building is rendered substantially untenantable by fire or other casualty,
Landlord may elect by giving Tenant written notice within 60 days after the date
of said fire or casualty, either to (1) terminate this Lease as of the date of
the fire or other casualty; or (2) proceed to repair or restore the Premises or
the Building, other than leasehold improvements (except those constructed by
Tenant with the Tenant Improvements Allowance) and personal property installed
by Tenant, to substantially the same condition as existed immediately prior to
such fire or casualty. For purposes of this Lease, the Building shall be deemed
substantially untenantable if the amount of any loss or damage to the Building
exceeds fifty percent (50%) of the value of the Building immediately prior to
such damage or loss as determined by the Landlord or any mortgagee of the
Building.
If Landlord elects to proceed pursuant to subsection (2) above,
Landlord's notice shall contain Landlord's reasonable estimate of the time
required to substantially complete such repair or restoration. If such estimate
indicates that the time so required will exceed 150 days from the date of the
casualty, then Tenant shall have the right to terminate this Lease as of the
date of such casualty by giving written notice to Landlord not later than 20
days after the date of Landlord's notice. If Landlord's estimate indicates that
the repair or restoration can be substantially completed within 150 days, or if
Tenant fails to exercise its said right to terminate this Lease, this Lease
shall remain in force and effect. Notwithstanding any provision of this Article
to the contrary, Tenant may, at its option, terminate this Lease, if Landlord
elects to repair or restore as provided hereunder, and such repair or
restoration is not completed within 150 days plus the number of days of delay
attributable to an events of Force Majeure, as provided in Section 30.5 hereof
(provided that the total number of days of delay attributable to an event of
Force Majeure may not exceed thirty (30)), plus the number of days of delay, if
any, as are attributable to the failure of Tenant to repair or restore any
portion of the Building or Premises to be repaired or restored by Tenant.
19.2 INSUBSTANTIAL UNTENANTABILITY. If the Premises are damaged by fire
or other casualty but are not rendered substantially untenantable, then Landlord
shall diligently proceed to repair and restore the damaged portions thereof,
other than the leasehold improvements and personal property installed by Tenant,
to substantially the same condition as existed immediately prior to such fire or
casualty, unless such damage (or substantial damage) occurs during the last six
(6) months of the Term, or any applicable Renewal Term (unless Tenant has
exercised its Renewal Option with respect to a subsequently occurring Renewal
Term), in which event Landlord shall have the right to terminate this Lease as
of the date of such fire or other casualty by giving written notice to Tenant
within thirty (30) days after the date of such fire or other casualty.
19.3 RENT ABATEMENT. If all or any part of the Premises are damaged by
fire or other casualty and this Lease is not terminated, Adjusted Monthly Base
Rent shall abate (and Tenant's proportionate share shall be adjusted) for all or
that part of the Premises which are untenantable on an equitable basis from the
date of the fire or other casualty until Landlord has substantially completed
the repair and restoration work in the Premises which it is required to perform,
provided, that as a result of such fire or other casualty, Tenant does not
occupy the portion of the Premises which are untenantable during such period.
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ARTICLE 20
EMINENT DOMAIN
20.1 SUBSTANTIAL TAKING. If all or any part of the Premises or the
Building or the common areas is permanently taken or condemned by any competent
authority for any public use or purpose (including a deed given in lieu of
condemnation), which renders the Premises substantially untenantable, this Lease
shall terminate as of the date title vests in such authority, and Adjusted
Monthly Base Rent shall be apportioned as of said date.
20.2 INSUBSTANTIAL TAKING. If any part of the Premises or the Building
is taken or condemned for any public use or purpose (including a deed given in
lieu of condemnation) and this Lease is not terminated pursuant to Section ,
Adjusted Monthly Base Rent shall be reduced for the period of such taking by an
equitable amount, and Tenant's Proportionate Share shall be adjusted
accordingly, for all purposes under this Lease.
20.3 COMPENSATION. Landlord shall be entitled to receive the entire
price or award from any such sale, taking or condemnation without any payment to
Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such
award. Tenant shall have no claim or right to any price or award as a result of
any such sale, taking or condemnation, except Tenant shall be entitled to make a
claim for its trade fixtures, personalty, relocation expenses, Tenant's loss of
business and, if and to the extent the same does not dismiss Landlord's award,
for the unamortized balance of any of Tenant's Out-Of-Pocket Improvement Costs
(as defined in Section 10.2).
ARTICLE 21
INSURANCE
21.1 TENANT'S INSURANCE. Tenant, at its expense, shall maintain in
force during the Term: comprehensive general public liability insurance, which
shall include coverage for personal liability, contractual liability, tenant's
legal liability, bodily injury, death and property damage, all on an occurrence
basis with respect to the business carried on, in or from the Premises and
Tenant's use and occupancy of the Premises, with coverage for any one occurrence
or claim of not less than $1,000,000 or such other amount as Landlord may
reasonably require upon not less than six months' prior written notice, which
insurance shall include Landlord, its partners, officers, directors and the
managing agent of the Building as named insureds and shall protect Landlord in
respect of claims by Tenant as if Landlord were separately insured. All
insurance required to be maintained by Tenant shall be on terms and with
insurers reasonably acceptable to Landlord. Tenant shall furnish to Landlord, if
and whenever required by it, certificates or other evidences acceptable to
Landlord as to the insurance from time to time effected by Tenant and its
renewal or continuation in force.
21.2 LANDLORD'S INSURANCE. Landlord shall carry, at its expense, all
risk insurance, comprehensive general commercial liability insurance insuring
Landlord, on an occurrence basis, against contractual liability and liability
for injury to or death of a person or persons and for damage to property
occasioned by or arising out of the maintenance, operation and/or management of
the Building or Project by Landlord, or its equivalent, insuring the Building
(exclusive of any component of the Premises which Tenant is required to insure
pursuant to the terms of Section 21.1 above), such insurance coverage to be in
an amount equal to one hundred percent (100%) of the replacement cost of the
Building, as such may increase from time to time. All said insurance policies
shall be carried
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with companies licensed to do business in the State of Florida reasonably
satisfactory to Tenant. Landlord shall provide to Tenant certificates of such
insurance if requested by Tenant.
21.3 MUTUAL WAIVER OF SUBROGATION. Landlord and Tenant each waive any
and all rights or recovery, claim, action or cause of action against the other,
its agents, officers or employees, for any loss or damage that may occur to the
Premises or the Building or any personal property therein, by reason of fire,
the elements, or any other cause or causes which are insured against under the
terms of insurance policies, regardless of cause or origin, including negligence
of the other party hereto, its agents, officers or employees. This waiver shall
be applicable only if the same does not violate the terms of the insurance
policies carried by each, which insures against such loss or damage. Each party
agrees to use its best efforts to obtain a waiver of subrogation endorsement on
its insurance policies, without thereby invalidating its insurance or affecting
its rights to proceeds payable thereunder. Each such policy of insurance shall
contain an undertaking by the insurer that no material change adverse to
Landlord or Tenant will be made, and such policy will not lapse or be cancelled,
except after not less than 15 days' prior written notice to Landlord of the
intended change, lapse or cancellation.
ARTICLE 22
RULES AND REGULATIONS
Tenant agrees that Tenant and each of Tenant's employees, agents, and
invitees shall comply with the Rules and Regulations attached hereto as EXHIBIT
B and with all modifications and additions thereto which Landlord may from time
to time make consistent with sound management practices, which are uniformly
applied and enforced against other tenants by Landlord. In the event of any
conflict between the Rules and Regulations and the terms and condition of this
Lease, the terms and conditions of this Lease shall control.
ARTICLE 23
LANDLORD'S RIGHTS
Landlord shall have the following rights exercisable without notice
(except as expressly provided to the contrary in this Lease) and without being
deemed an eviction or disturbance of Tenant's use or possession of the Premises
or giving rise to any claim for set-off or abatement of Rent: (1) upon
reasonable prior notice, to change the name or street address of the Building
provided that Landlord compensates Tenant for any changes in stationery, etc.,
reasonably incurred as a result thereof; (2) subject to Section 8.10, to
install, affix and maintain all signs on the exterior of the Building, the
interior of the Building and/or on the land upon which the Building is located
(collectively referred to as the "Land"); (3) subject to Section 14.1, to
designate and/or approve prior to installation, all window shades, blinds,
drapes, awnings or other similar items that may be visible from the exterior of
the Premises; (4) to change the arrangement, size, configuration and/or
decoration of entrances, exits, doors, closets, atriums, storage areas,
corridors, boiler rooms, mechanical rooms, elevators, washrooms, hallways,
lobbies, trash and rubbish areas and stairs in or about the Building and,
subject to Article 26, to change the arrangement, size and/or configuration of
the parking areas, driveways, entrances, exits and all other areas of the Land;
(5) to have access for Landlord and other tenants of the Building to any mail
chutes and boxes located in or on the Premises according to the rules of the
United States Post Office; (6) to take any and all reasonable measures,
including inspections and repairs to the Premises or to the Building, as may be
necessary or
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desirable in the operation or protection thereof, provided Landlord shall
exercise its best efforts to minimize any interference with Tenant's business
operations; (7) to retain at all times master keys or pass keys to the Premises;
(8) to install, operate and maintain security systems which monitor, by closed
circuit television or otherwise, all persons entering and leaving the Building;
and (9) to install and maintain pipes, ducts, conduits, wires and structural
elements located in the Premises which serve other parts or other tenants of the
Building, provided Landlord shall exercise its best efforts to minimize any
interference with Tenant's business operations.
ARTICLE 24
ESTOPPEL CERTIFICATES
Tenant shall from time to time after the date of this Lease, upon not
less than 10 days' prior written request by Landlord, or any mortgagee or ground
lessor of the Building, or any prospective purchaser of the Building, deliver to
Landlord, or such mortgagee, ground lessor or purchaser, a statement in writing
signed by Tenant certifying as to information that may be reasonably requested.
Landlord shall from time to time, upon not less than 10 days prior
written request by Tenant, provide similar Estoppel Certificates to Tenant's
prospective lenders or sub-lessees or assignees.
ARTICLE 25
ADJUSTMENT TO MONTHLY BASE RENT
25.1 EXPENSES. The term "Expenses" shall mean the actual cost incurred
by Landlord with respect to the operation, maintenance and repair of the
Building and Land, including, without limitation or duplication, (1) the costs
reasonably incurred for cleaning; rubbish removal; general landscaping and
ground maintenance; window washing; repairs; maintenance; fire, extended
coverage, sprinkler apparatus, public liability and property damage insurance
(including loss of rental income insurance); supplies; wages; salaries,
disability benefits, pensions, hospitalization, retirement plans and group
insurance respecting service and maintenance employees and management staff (if
said employees and/or staff perform services for properties other than the
Building or Land, the expenses relating thereto shall be equitably prorated);
expenses imposed pursuant to any collective bargaining agreement with respect to
such employees; payroll, social security, unemployment and other similar taxes
with respect to such employees (if said employees and/or staff perform services
for properties other than the Building or Land, the expenses relating thereto
shall be equitably prorated); sales, use and other similar taxes; any applicable
occupancy taxes and other similar taxes; water rates and sewer rents; and any
other costs, charges and expenses which, under generally accepted accounting
principles and practices, would be regarded as maintenance and operating
expenses, and (2) the cost of any capital improvements made to the Building or
Land after the Commencement Date that are intended to reduce other Expenses (but
only to the extent of such reduction), or made to the Building or Land by
Landlord after the date of this Lease that are required under any governmental
law or regulation that was not applicable to the Building or Land at the time it
was constructed, such cost or allocable portion thereof to be amortized over
such reasonable period as Landlord shall determine, together with interest on
the unamortized balance at a rate of interest equal to the prime rate as
published by Barnett Bank, N.A. or such higher rate as may have been paid by
Landlord on funds borrowed for the purpose of constructing such capital
improvements. Expenses shall not include "Taxes", depreciation on the Building;
costs of services or repairs and maintenance which are paid for by proceeds of
insurance by other tenants or third parties; tenant improvements, real estate
brokers'
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commissions, interest and capital items other than those referred to in clause
(2) above; or any costs that are not customarily incurred by landlords operating
comparable properties consistent with sound management practices.
25.2 TAXES. The term "Taxes" shall mean the amount of all ad valorem
real property taxes and assessments, special or otherwise, levied upon or with
respect to the Building and Land, or the rent and additional charges payable
hereunder, imposed by any taxing authority having jurisdiction. Taxes shall also
include all taxes, levies and charges which may be assessed, levied or imposed
in replacement of, or in addition to, all or any part of ad valorem real
property taxes as revenue sources, and which in whole or in part are measured or
calculated by or based upon the Building and Land, the leasehold estate of
Landlord or Tenant, or the rent and other charges payable hereunder. Taxes shall
include any expenses incurred by Landlord in determining or attempting to obtain
a reduction of Taxes, but only to the extent any reduction is achieved.
Notwithstanding the foregoing,"Taxes" shall not include any tax that is the
subject of Section 6.2.
25.3 ADJUSTMENTS.
(a) Tenant shall pay to Landlord Tenant's Proportionate Share
of Expenses and Taxes in the manner and at the times herein provided.
(b) With respect to Expenses, prior to the Commencement Date
and prior to the beginning of each fiscal year of Landlord thereafter,
or as soon thereafter as practicable, Landlord shall give Tenant notice
of Landlord's estimate of Tenant's Proportionate Share of Expenses for
the ensuing fiscal year. On or before the first day of each month
during the ensuing fiscal year, Tenant shall pay to Landlord
one-twelfth (1/12) of such estimated amounts, provided that until such
notice is given with respect to the ensuing fiscal or calendar year, as
the case may be, Tenant shall continue to pay the amount currently
payable pursuant hereto until after the month such notice is given. If
at any time or times (including, without limitation, upon Tenant taking
occupancy of the Premises) it appears to Landlord that Tenant's
Proportionate Share of Expenses for the then current fiscal year will
vary from Landlord's estimate by more than five percent (5%), Landlord
may, by notice to Tenant, revise its estimate for such year and
subsequent payments by Tenant for such year shall be based upon such
revised estimate.
Within ninety (90) days after the close of each fiscal year of
Landlord with respect to Expenses, or as soon after such ninety (90)
day period as practicable, Landlord shall deliver to Tenant a statement
prepared by Landlord of Tenant's Proportionate Share of Expenses for
such fiscal year. If on the basis of such statements, Tenant owes an
amount that is less than the estimated payments for such fiscal year
previously made by Tenant, Landlord shall credit such excess amount
against the next payment due from Tenant to Landlord of Expenses. If
such credit due Tenant exceeds the next payment due from Tenant,
Landlord shall apply such credit to the next payment due, and refund
the excess to Tenant, if requested by Tenant. In no event shall a
reduction in Expenses operate to reduce the rental set forth in Section
1.1(h) hereof required to be paid hereunder. If on the basis of such
statement, Tenant owes an amount that is more than the estimated
payment for such fiscal year previously made by Tenant, Tenant shall
pay the deficiency to Landlord within twenty (20) days after delivery
of the statement.
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If this Lease shall commence on a day other than the first day
of Landlord's fiscal year or terminate on a day other than the last day
of Landlord's fiscal year, Tenant's Proportionate Share of Expenses
that are applicable to Landlord's fiscal year in which such
commencement or termination shall occur shall be prorated on the basis
of the number of calendar days within such year as are within the term
of this Lease. If this Lease shall commence on a day other than the
first day of a calendar year or terminate on a day other than the last
day of a calendar year, Tenant's Share of Taxes that are applicable to
the calendar year in which such commencement or termination shall occur
shall be prorated on the basis of the number of calendar days within
such year as are within the term of this Lease.
(c) Taxes:
(1) Tenant shall pay to Landlord, as Additional
Rent, Tenant's Proportionate Share of the
Taxes assessed against the Building and
surrounding common property ("Tenant's Tax
Payment").
(2) Tenant agrees to make payments on account of
Tenant's Tax Payment for a tax year, as
determined by the appropriate taxing
authority (a "Tax Year") in equal monthly
installments, in advance, on the first day
of each month within such Tax Year. Each
monthly installment shall be in an amount
equal to one-twelfth (1/12) of the amount
which would have to be paid by the Tenant to
the Landlord so as to effect compliance with
this Article, for the Tax Year immediately
preceding such Tax Year. The installments
for each such month shall be appropriately
adjusted to reflect the actual Tenant's Tax
Payment when Taxes for such Tax Year are
ascertained. If, as so ascertained, the
amount of Tenant's Tax Payment for such Tax
Year shall be greater than (resulting in an
underpayment) or be less than (resulting in
an overpayment) the aggregate of all of the
installments so paid to the Landlord by the
Tenant for such Tax Year, then, within
twenty (20) days after the receipt of a Tax
Statement for such Tax Year and in
fulfillment of its obligations under this
Article, the Tenant shall, in the case of an
underpayment, pay to the Landlord an amount
equal to such underpayment, or the Landlord
shall, in the case of an over- payment, pay
to the Tenant an amount equal to such
overpayment.
(3) Tenant's Tax Payment for a Tax Year, only a
part of which is included within the Term,
shall be apportioned so that Tenant shall
pay the portion thereof which the portion of
the Tax Year within the Term bears to the
entire Tax Year.
(4) The benefit of any discount for the early
payment or prepayment or abatement of Taxes
shall be subtracted in determining Taxes and
Tenant's Tax Payment.
(5) Tenant shall not institute or maintain any
action, proceeding or application in any
court or with any governmental authority or
otherwise for the purpose of changing the
Taxes.
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(6) If, by reason of the failure of Tenant to
pay Tenant's Tax Payment to Landlord when
due, a Governmental Authority or a Mortgagee
imposes a penalty or requires a penalty to
be paid in respect of Taxes, then Tenant
shall be responsible, in full, for the
payment of such penalty or interest, or
both, to Landlord, on demand, as Additional
Rent, but otherwise Tenant shall have no
responsibility for such penalty or interest.
(7) If Landlord shall receive a refund of Taxes
for any Tax Year, Tenant shall be entitled
to a prompt refund of Tenant's Proportionate
Share of the portion of the refund
attributable to Tenant's Tax Payment for
such Tax Year.
(8) Landlord's failure to render a Tax Statement
with respect to any Tax Year shall not
prejudice Landlord's right to thereafter
render a Tax Statement with respect to such
Tax Year or with respect to any subsequent
Tax Year, and Landlord may render one or
more revised Tax Statements with respect to
any Tax Year.
(9) Each Tax Statement shall be conclusive and
binding upon Tenant unless within ninety
(90) days after receipt of such Tax
Statement, Tenant shall notify Landlord that
it disputes the correctness of such Tax
Statement, specifying the particular
respects in which such Tax Statement is
claimed to be incorrect. Any dispute
relating to an Tax Statement must be
submitted to Arbitration within one hundred
twenty (120) days after the giving of such
Tax Statement. Pending such determination,
Tenant shall pay the disputed charge.
(10) Provided Tenant is not in default of any of
its obligations hereunder Landlord covenants
to pay Taxes prior to the date any interest
or penalty shall first become due with
respect to such payment. All special
assessments will be paid over the largest
number of installments allowed by the taxing
authority, if the payment of such
installments would extend beyond the
remaining Term of the Lease.
(11) To the extent not covered by Section 6.2
above, Tenant shall pay to Landlord upon
demand, as Additional Rent, any occupancy
tax or rent tax or any tax attributable to
this Lease or the leasehold estate created
hereby or any investment or installation
made by Tenant in respect of the Premises or
any personal property owned or used by
Tenant in or in connection with the Premises
(including but not limited to Tenant's
Property) whether the same is now or
hereafter in effect, required to be paid by
Landlord.
(12) Tenant's obligation under this Article shall
survive the expiration or earlier
termination of the Term, or any applicable
Renewal Term. Landlord's obligation to
refund excess Expenses and Taxes paid by
Tenant hereunder shall likewise survive the
expiration or termination of the Term or any
Renewal Term.
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25.4 INSPECTION OF RECORDS. Tenant shall have the right to inspect
Landlord's books and records as to Expenses and Taxes incurred by Landlord not
more than once each year during the initial Term of this Lease, and any
applicable Renewal Term.
ARTICLE 26
PARKING
Landlord has allocated, and shall make available for Tenant, its
employees, agents, visitors and invitees, twenty (20) "reserved" parking spaces
for Tenant's exclusive use. In addition, Tenant, its employees, agents, visitors
and invitees may use one hundred and eighty (180) additional parking spaces in
common with other tenants to whom similar rights are granted. A preliminary
parking site plan is attached hereto as Exhibit "E" which indicates the location
of Tenant's parking. Landlord will not change the parking in any manner that
materially and adversely affects Tenant's use of or access to the parking
facilities, or the location of Tenant's parking spaces, as such use, access or
location are reflected on the preliminary parking site plan; provided, however,
that nothing contained herein shall be read to limit Landlord's ability to
exclude or limit Tenant's access to such parking on a temporary basis, so long
as reasonable alternative parking accommodations are provided by Landlord during
the period of exclusion or limited access. Landlord, at all times, shall have
sole and exclusive control of all parking facilities, and may at any time
exclude any person from the use and occupancy thereof, except those persons
using the parking facilities in accordance with the written consent of Landlord
and in accordance with all regulations established by Landlord from time to
time. Tenant agrees that Landlord assumes no responsibility of any kind
whatsoever in reference to the use of such parking facilities by the Tenant, its
employees, agents, visitors and invitees. Landlord may, from time to time, limit
access to the parking facilities, by means of attendants and/or other devices,
and make other changes in the layout and operation of the parking facilities,
including, without limitation, changes in locations of entrances, exits and
parking spaces, except nothing herein shall be deemed to permit Landlord to
charge Tenant or its guests or invitees a fee for the parking provided to Tenant
in accordance with this Article during the Term of this Lease.
ARTICLE 27
REAL ESTATE BROKERS
Landlord and Tenant each represent and warrant to the other that,
except for the Brokers named in Section , they have not dealt with any real
estate broker, salesperson, or finder in connection with this Lease, and no such
person initiated or participated in the negotiation of this Lease, or showed the
Premises to Tenant. Each agrees to indemnify, defend and hold harmless the
other, its partners, officers, directors, the managing agent of the Building and
their respective agents and employees from and against any and all liabilities
and claims for commissions and fees arising out of a breach of the foregoing
representation and warranty. Landlord shall pay the commissions due the Brokers
named in Section , in accordance with the commission agreements entered into by
Landlord.
ARTICLE 28
SUBORDINATION AND ATTORNMENT
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28.1 SUBORDINATION. This Lease and the rights of Tenant hereunder are
expressly subject and subordinate to any ground lease of the Land now or
hereafter existing and all amendments, renewals, modifications and extensions of
and to any said ground lease, and to the lien of any one or more mortgage or
trust deed specified by Landlord now or hereafter existing encumbering the
Building, or any part hereof, or said Land or ground leasehold estate, and all
amendments, renewals, modifications and extensions of and to each said mortgage
or trust deed, and to all advances made or hereafter to be made upon the
security of each said mortgage or trust deed. Tenant agrees to promptly sign and
deliver to Landlord such further instruments subordinating this Lease to any
such ground lease or to the lien of each such mortgage or trust deed as may be
requested in writing by Landlord from time to time, provided that the holder of
such lien join in the execution of such instrument for the purpose of agreeing
not to disturb Tenant's possession of the Premises under this Lease, so long as
Tenant is not default hereunder.
28.2 ATTORNMENT. In the event of the cancellation or termination of any
such ground lease in accordance with its provisions or by the surrender of such
ground leasehold estate, whether voluntary, involuntary or by operation of law,
or by summary proceedings, or the foreclosure of any such mortgage or trust deed
by voluntary agreement or otherwise, or the commencement of any judicial action
seeking such foreclosure, Tenant, at the request of the then Landlord, shall
attorn to and recognize such ground lessor, mortgagee, holder of such trust deed
or purchaser in foreclosure as Tenant's Landlord under this Lease. Tenant agrees
to sign and deliver at any time upon request of such ground lessor, mortgagee,
holder, purchaser, or any of their successors, any instrument to further
evidence such attornment.
28.3 CONDITIONS TO SUBORDINATION AND ATTORNMENT. As soon as
practicable, but in any event within thirty (30) days after the date hereof,
Landlord shall obtain a subordination, non-disturbance and attornment agreement
(reasonably satisfactory to Tenant and its legal counsel) (a "SNDA Agreement")
from each holder of a mortgage, deed to secure debt, deed of trust, or other
instrument in the nature thereof which encumbers the Project and which has
priority over the Lease. If Landlord should fail to obtain such SNDA Agreement
within the time period permitted above, then in addition to any rights or
remedies available to Tenant at law or in equity, Tenant may elect to terminate
this Lease by written notice to Landlord delivered within forty (40) days after
the date hereof, or such right of Tenant to terminate this Lease shall be
waived. Notwithstanding anything contained in this Lease (including Sections
28.1 or 28.2) to the contrary, Tenant's agreement to attorn to a successor in
title to the Premises, or to subordinate this Lease to the interest of any
subsequent lienholder is conditioned upon Tenant's prior receipt of a SNDA
Agreement reasonably satisfactory to Tenant (and its legal counsel).
28.4 SUBORDINATION OF LANDLORD'S LIEN. Landlord agrees that it will
subordinate to any conditional sales vendor, lessor, or lender of Tenant, any
lien or ownership rights Landlord may have in regard to any furniture, trade
fixtures, equipment, or other articles of personal property from time to time
installed by Tenant at its expense in the Premises or otherwise stored or
located in, on or about the Premises (whether owned by or leased to Tenant)
(collectively, "Tenant's Property"); provided that the holder of such lien
provide to Landlord a subordination agreement, in form reasonably satisfactory
to Landlord and Landlord's counsel, which shall provide that such lienholder
shall remove Tenant's Property from the Premises within ten (10) days of
Landlord's written notice to such lienholder of Landlord's intent to exercise
Landlord's lien upon the Tenant's Property, and that should such lienholder fail
to remove such Tenant's Property (or make other arrangements with respect
thereto satisfactory to Landlord) within such ten (10) day period, then such
subordination agreement shall be deemed null and void, and Landlord shall be
entitled to deal with Tenant's
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Property as it sees fit. Moreover, Landlord agrees that should any conditional
sales vendor, lessor or lender of Tenant so require, Landlord will execute any
waiver of ownership rights which may be reasonably requested by any such
conditional sales vendor, lessor or lender of Tenant, in regard to any of
Tenant's Property, and Landlord will utilize its reasonable efforts to cause its
mortgagees to execute and deliver such documentation as may be reasonably
requested by any such conditional sales vendor, lessor or lender.
ARTICLE 29
NOTICES
All notices required or permitted to be given under this Lease shall be
in writing and shall be deemed given and delivered, whether or not received, on
the date when personally delivered (and receipted for) or two days following the
date when deposited in the United States Mail, postage prepaid and properly
addressed, certified mail, return receipt requested, at the following addresses:
(a) To Landlord: at the address specified in Section of
this Lease, with a copy to: Douglas A. Ward, Esquire, Rogers, Towers,
Bailey, Jones & Gay, 1301 Riverplace Boulevard, Suite 1500,
Jacksonville, Florida 32207.
(b) To Tenant: At the address specified in Section prior to
the Commencement Date, and at the Premises after the Commencement Date,
or such other address as Tenant shall designate by written notice to
Landlord, with a copy to: Eric H. Mandus, Esquire, Smith, Gambrell &
Russell, Atlanta Financial Center, Suite 1800, 3343 Peachtree Road,
Northeast, Atlanta, Georgia 30328-1010.
ARTICLE 30
MISCELLANEOUS
30.1 LATE CHARGES. Tenant hereby acknowledges that the late payment by
Tenant to Landlord of Rent and other charges due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of any mortgage covering the Premises.
Accordingly, if any installment of Rent or any other charge due from Tenant is
not received by Landlord or Landlord's designee within ten (10) days after such
amount shall be due and if Tenant has been more than ten (10) days late in the
payment of Rent one or more times within the preceding twelve month period,
then, in addition to the other remedies provided to the Landlord herein, Tenant
shall pay to Landlord, within ten (10) days after demand, a late charge equal to
the five percent (5%) of such overdue amount, and in such event the parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of the late payment by Tenant. No late
charge may be imposed on a late charge or more than once for the same late
rental payment. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any other rights and remedies granted to it
hereunder.
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In addition to the late fee provided above, at the option of the
Landlord, all delinquent Rent shall bear interest at 2% in excess of the Prime
Rate as published by Barnett Bank, N.A. as in effect from time to time, from the
date due until paid.
30.2 ENTIRE AGREEMENT. This Lease and the Exhibits attached hereto
contain the entire agreement between Landlord and Tenant concerning the Premises
and there are no other agreements, either oral or written, between Landlord and
Tenant.
30.3 ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than any installment or payment of Rent due shall be
deemed to be other than on account of the amount due, and no endorsement or
statement on any check or any letter accompanying any check or payment of Rent
shall be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
installment or payment of Rent and Landlord may pursue any other remedies
available to Landlord. No receipt of money by Landlord from Tenant after the
termination of this Lease or Tenant's right of possession of the Premises shall
reinstate, continue or extend the Term.
30.4 LIMITATION OF LIABILITY. Notwithstanding anything to the contrary
herein provided, each and every term, covenant, condition and provision of this
Lease is hereby made specifically subject to the provisions of this Section .
The term "Landlord" as used in this Lease means only the owner or lessor for the
time being of the Building, so that in the event of any conveyance of such
interest and the transfer to the transferee of any funds then being held under
this Lease by such owner, Landlord shall be and hereby is entirely freed and
relieved of any and all obligations of Landlord hereunder thereafter accruing,
and it shall be deemed without further agreement between the parties and such
grantee(s) that the grantee has assumed and agreed to observe and perform all
obligations of Landlord hereunder. It is specifically understood and agreed that
notwithstanding anything to the contrary herein provided or otherwise provided
at law or in equity, there shall be absolutely no personal liability in excess
of its interest in the Building and related proceeds to Landlord or any
successor in interest thereto (whether the same be an individual, joint venture,
tenancy in common, firm or partnership, general, limited or otherwise) or on the
part of the members of any firm, partnership or joint venture or other
unincorporated Landlord with respect to any of the terms, covenants and/or
conditions of this Lease; in the event of a breach or default by Landlord, or
any successor in interest thereof, of the Building of any of its obligations
under this Lease, Tenant shall look solely to the then Landlord for the
satisfaction of each and every remedy of Tenant, such exculpation of personal
and additional liability which is in excess of such interest in the Building and
related proceeds to be absolute and without any exception whatsoever.
30.5 FORCE MAJEURE. In the event either party hereto shall be delayed
or hindered in, or prevented from, the performance of any acts due under the
terms of this Lease, and such failure is due in whole or in part to any strike,
lockout, labor trouble (whether legal or illegal), civil disorder, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrections, war, fuel shortages, accidents, casualties,
Acts of God, mechanical breakdown, repair, servicing or other reasons of a like
nature not the fault of the party delayed in performing such act required under
the terms of this Lease (all of such reasons or causes being referred to herein
as "Force Majeure"), then performance of such act shall be excused for the
period of such delay, and the period of such performance of such act shall be
extended for a period equivalent of such delay. "Force Majeure" shall not
include within its meaning any delay related to financial causes or the
inability to pay or receive funds, nor shall Force Majeure relieve any party
from the obligation to pay Rent or other sums due hereunder.
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30.6 APPLICABLE LAW. This Lease shall be construed in accordance with
the laws of the State of Florida.
30.7 TIME. Time is of the essence of this Lease and the performance of
all obligations hereunder.
30.8 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES. If Tenant fails to
timely perform any of its duties under this Lease, Landlord shall have the right
(but not the obligation), after the expiration of any grace or cure period
elsewhere under this Lease expressly granted to Tenant for the performance of
such duty, to perform such duty on behalf and at the expense of Tenant without
further prior notice to Tenant, and all sums expended or expenses reasonably and
actually incurred by Landlord in performing such duty shall be deemed to be
additional Rent under this Lease and shall be due and payable upon demand by
Landlord.
30.9 LANDLORD'S ACCESS. Without incurring any liability to Tenant,
Landlord may permit access to the Premises and open the same, whether or not
Tenant shall be present, upon demand of any receiver, trustee, assignee for the
benefit of creditors, sheriff, marshal or court officer entitled to, or
reasonably purporting to be entitled to, such access for the purpose of taking
possession of, or removing, Tenant's property or for any other lawful purpose
(but this provision and any action by Landlord hereunder shall not be deemed a
recognition by Landlord that the person or official making such demand has any
right or interest in or to this Lease, or in or to the Premises), or upon demand
of any governmental authority.
30.10 RELINQUISHMENT OF RIGHTS UPON DEFAULT. Tenant shall not be
entitled to exercise any right or option granted to it by the Lease (if any) at
any time when Tenant is in default beyond any applicable grace or cure period in
the performance or observance of any of the covenants, terms, provisions or
conditions on its part to be performed or observed under this Lease.
30.11 TENANT'S REMEDIES.
(a) In the event Landlord shall default in the payment, when
due, of any monetary obligations to be paid by Landlord hereunder and
fails to cure said default within ten (10) days after written notice
thereof from Tenant; or if Landlord shall default in performing any of
the covenants, terms or provisions of this Lease (other than the
payment, when due, of any of Landlord's monetary obligations hereunder)
and fails to cure such default within thirty (30) days after written
notice thereof from Tenant (or such longer period as may be reasonably
necessary to cure such default if such default is not reasonably
susceptible of being cured within such thirty (30) day period and
Landlord commences its efforts promptly to cure the same and pursues
such cure thereafter with due diligence and good faith); then, and in
any of said events, Tenant, at its option may pursue any one or more of
the following remedies without further notice or demand whatsoever:
(i) In the event such default arises because of the
failure by Landlord to pay to Tenant any allowance
provided to Tenant pursuant to the Work Letter,
Tenant shall be entitled to offset the amount owed by
Landlord against Rent next accruing hereunder, and
such sums shall bear interest at two percentage
points in excess of the Prime Rate of Barnett Bank,
N.A., from the date when due until paid.
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(ii) In the event that such default relates to the failure
to provide any service or perform any obligation
required under this Lease, then Tenant shall have the
right, but not the obligation, to remedy Landlord's
failure and charge Landlord for the reasonable cost
of such remedy, which charges shall be payable by
Landlord within ten (10) days of Tenant's demand
therefor. If Landlord shall fail to pay same, Tenant
shall have the right to deduct such costs (including
any interest due hereunder) from Rent next accruing
hereunder. Notwithstanding the foregoing provisions,
no work by Tenant shall materially interfere with the
use or enjoyment of the Building by any other tenant
or occupant or user of the Building.
(iii) Tenant shall be entitled to exercise any other right
or remedy available to Tenant at law or in equity.
The remedies set forth above are in addition to and cumulative with any of the
Tenant's rental abatement rights set forth in this Lease. Such rental abatement
rights may be exercised independently of any rights or remedies set forth above.
(b) If Landlord should dispute, in good faith, any claim by
Tenant under subsection (a) above that Landlord has failed to perform
an obligation under this Lease and if Landlord shall give Tenant
written notice specifying in reasonable detail the basis for its
dispute within ten (10) days after receipt of Tenant's notice of
Landlord's failure, then Tenant shall deposit the disputed amounts
Tenant from time to time deducts pursuant to subsection (a) above in an
escrow account solely for such purpose with a national bank having
offices in Jacksonville, Florida, and Tenant and Landlord shall proceed
diligently to resolve any such dispute by arbitration conducted in
accordance with Section 30.24 or in such other manner as may be
acceptable to the parties. Landlord shall not be deemed to be in
default as to such disputed items unless such dispute is determined
adversely to Landlord. Similarly, Tenant shall not be deemed to be in
default by reason of it exercising its rights under subsection (a)
above with respect to the disputed amounts unless and until Tenant
fails to make such payment into escrow or such dispute is determined
adversely to Tenant and Tenant shall fail to direct the escrow agent to
pay to Landlord the escrowed amounts, or so much thereof as shall be
determined to be payable to Landlord, within ten (10) days of the
resolution of such dispute.
(c) In addition to and not in lieu of any cure rights given to
Landlord herein in the event that Landlord defaults under this Lease,
each and every mortgagee and ground lessor having an interest in the
Property or Building shall have the right (but not the obligation) to
cure any such defaults on the part of Landlord hereunder in accordance
with and subject to the following terms and conditions:
(i) The rights granted hereunder to a mortgagee or a
ground lessor shall be given to any mortgagee or
ground lessor of which Tenant has written notice
prior to the occurrence of such default. Such notice
shall be given to Tenant by virtue of (A) any
subordination, non-disturbance and attornment
agreement to which Tenant is a party, or (B) any
other written notice of such mortgagee or ground
lessor given by Landlord to Tenant in accordance with
the notice provisions specified herein. Such notice
by Landlord shall specify the name and address for
such notice purposes of the mortgagee or ground
lessor in
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question, and the instrument or document from which
the interest of the mortgagee or ground lessor
derives;
(ii) Tenant shall deliver to all such mortgagees or ground
lessors a copy of any notice of default or demand to
perform on the part of Landlord hereunder at the time
such notice or demand is delivered to Landlord, and
no such notice shall be effective as to the mortgagee
or ground lessor unless and until it has been so
delivered to such mortgagee or ground lessor;
(iii) The mortgagee or ground lessor in question shall have
the same amount of time from the date of default that
Landlord has (without duplication) to cure any
default on the part of Landlord under this Lease; and
(iv) Tenant shall accept a cure of the mortgagee or the
ground lessor in question within any applicable cure
period as if such cure were the cure of Landlord.
30.12 HEADINGS. The Article and Section headings of this Lease are for
convenience only and are not to be given any effect whatsoever in construing
this Lease.
30.13 COVER SHEET. The cover sheet hereto which immediately precedes
the Index is a part of this Lease, but in the event of a conflict between any of
the provisions of such cover sheet and those otherwise contained in the portion
of the Lease beginning on Page 1 hereof, the latter shall prevail and be
controlling.
30.14 TABLE OF CONTENTS. The table of contents preceding this Lease but
under the same cover is for the purpose of convenience of references only and is
not to be deemed or construed in any way as part of this Lease, nor as
supplemental thereto or amendatory thereof.
30.15 EXHIBITS. The Exhibits annexed to this Lease shall be deemed part
of this Lease and are hereby incorporated herein.
30.16 REFERENCES. All references in this Lease to numbered Articles,
numbered Sections and lettered Exhibits are references to Articles and Sections
of this Lease, and Exhibits annexed to (and thereby made part of) this Lease, as
the case may be, unless expressly otherwise designated in the context in which
used.
30.17 GENDER; SUCCESSOR & ASSIGNS. All words and terms used in this
Lease, regardless of the number and gender in which used, shall be deemed to
include any other number and any other gender as the context in which used may
require; and the use herein of the words "successors and assigns" or "successors
or assigns" of Landlord or Tenant shall be deemed to include the heirs, legal
representatives and assigns of any individual Landlord or Tenant.
30.18 JOINT AND SEVERAL OBLIGATIONS. If Landlord or Tenant consists of
more than one party, the obligations, representations, warranties and covenants
of Landlord or Tenant, as the case may be, hereunder are joint and several as to
each such party.
30.19 MULTIPLE TENANTS. If more than one person is named as or becomes
Tenant hereunder, the Landlord may require the signatures of all such persons in
connection with any notice to be given or action to be taken by Tenant
hereunder. Each person named as Tenant shall be fully
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and primarily liable for all obligations hereunder and any notice to any person
named as Tenant shall be sufficient and shall have the same force and effect as
though given to all persons named as Tenant.
30.20 MORTGAGES. The terms "mortgage" and "deed of trust" are used
interchangeably in this Lease, are hereby given identical meanings, and where
applicable shall also refer to the notes and/or bonds or other evidence of
indebtedness and any chattel mortgages, conditional bills of sale, assignments
of rents, security agreements and financing statements executed and delivered in
connection with or as part of any such mortgage; as are the term "holder of the
mortgage", "mortgagee", "trustee" and "beneficiary"; and all of the foregoing
are applicable to any of the defined terms used in this Lease relating to a
mortgage or a holder thereof.
30.21 REFERENCES TO LEASE AS A WHOLE. Unless the context in which used
requires a different construction, the words "herein", "hereof" and "hereunder"
and words of similar import refer to this Lease as a whole and not to any
particular Section or subdivision thereof.
30.22 CONSENTS AND APPROVALS. Except if and to the extent otherwise
expressly provided for in this Lease, whenever the consent or approval of
Landlord or Tenant is required under any provision of this Lease, Landlord and
Tenant each agrees not to withhold, delay or condition such consent or approval
unreasonably. If either party withholds such consent or approval, such party
shall notify the other in writing stating the reasons therefor. Anytime this
Lease grants Landlord or Tenant the right to take action, exercise discretion,
establish rules and regulations or make an allocation or other determination,
Landlord and Tenant shall act reasonably and in good faith and take no action
which might result in the frustration of the other party's reasonable
expectations concerning the benefits to be enjoyed under this Lease.
30.23 RECORDATION. Landlord and Tenant agree that a short form of this
Lease shall be executed at the same time this Lease is executed, or thereafter
upon request by either Landlord or Tenant. Such short form of this Lease shall
be for recording and public notice purposes only, shall not reflect any of the
monetary terms of this Lease, and shall otherwise be in form and content
reasonably acceptable to both Landlord and Tenant. The party requesting the
short form lease shall be responsible for the cost of recording the same.
30.24 ARBITRATION.
(a) Terms. Should a provision of this Lease provide for the
arbitration of a dispute between Landlord and Tenant, then such
arbitration shall be conducted in accordance with the terms of this
Section 30.24 unless the provision in dispute makes reference to the
arbitration procedures set forth in Section 3.5 (relating to the
determination of Fair Market Rate) in which event the provisions of
Section 3.5 shall control. Any dispute to be settled by arbitration
pursuant to this Section 30.24 shall be determined by binding
arbitration in Jacksonville, Florida in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA") then
in effect by a sole arbitrator who (i) has the qualifications and
experience set forth in subparagraph (b) of this Section and (ii) is
selected as provided in subparagraph (c) of this Section. The
arbitrator shall render his decision in writing and shall include the
findings of fact and conclusions of law upon which his award or
decision is based. The arbitration shall be governed by the terms and
conditions of this Lease, the substantive laws of the State of Florida
applicable to contracts made and to be performed therein, without
regard to conflicts of law rules, and by the arbitration law of the
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Federal Arbitration Act (Title 9, U.S. Code), and judgment upon the
decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
(b) Qualifications. Every person nominated or recommended to
serve as an arbitrator hereunder shall be a neutral and impartial
lawyer who has had training and experience as an arbitrator or who is
or has been a partner in (or counsel to) a law firm for at least
fifteen (15) years as a practicing attorney specializing in commercial
real estate matters in the Jacksonville, Florida area.
(c) Selection. If the parties cannot agree upon an arbitrator
within twenty (20) days of either party notifying the other party in
writing of an issue or issues the notifying party desires to arbitrate
under this Agreement, the arbitrator shall be selected in accordance
with the AAA's Commercial Arbitration Rules then in effect and in
accordance with the qualifications as set forth in subparagraph (b)
above, except that each party shall be entitled to strike on a
peremptory basis, for any reason or no reason, any or all of the names
of potential arbitrators on the list submitted to the parties by the
AAA. In the event the parties hereto cannot agree on a mutually
acceptable arbitrator from the one or more lists submitted by the AAA,
the President of the AAA shall designate three (3) persons who, in his
or her opinion, meet the criteria set forth in subparagraph (b), which
designees may include persons named on any list submitted by the AAA.
Each of the parties hereto shall each be entitled to strike one of such
three (3) designees on a peremptory basis, indicating its order of
preference with respect to the remaining designees, and the selection
of the arbitrator shall be made from among such designee(s) which have
not been so stricken by either Landlord or Tenant in accordance with
their indicated order of mutual preference.
(d) Procedure.
(i) The arbitrator shall, in his sole discretion,
determine whether or not an arbitration hearing shall
be held. If the arbitrator determines that a hearing
shall be held, it will occur in Jacksonville at a
date, time and place set by the arbitrator after
consulting with and securing the agreement of both
parties. The parties agree that, upon the request of
one party, the preliminary hearing, pursuant to AAA
Arbitration Rule 29, shall be conducted by telephone.
(ii) Consistent with the expedited nature of arbitration,
Landlord and Tenant will, upon the written request of
the other party, provide the other with copies of
documents relevant to the issue(s) raised by any
claim or counterclaim. Other discovery may be ordered
by the arbitrator to the extent the arbitrator deems
additional discovery relevant and appropriate, and
any dispute regarding discovery, including disputes
as to the need therefor or the relevance or scope
thereof, shall be determined by the arbitrator, which
determination shall be conclusive. Landlord and
Tenant explicitly agree that exclusion of evidence by
the arbitrator on grounds of irrelevance or
redundancy shall not be ground for failure to confirm
and enforce the award or decision.
(iii) If no arbitration hearing is held, the parties and
the arbitrator shall agree upon a date on which the
parties shall submit to the arbitrator a memorandum
setting forth their respective position regarding the
arbitratable issue(s). Within five (5) business days
after receipt of the parties' original
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memoranda, each party may submit to the arbitrator a
response. Any award or decision by the arbitrator
shall be rendered within thirty (30) days after the
submission of the response.
(e) Expenses. All expenses and fees of the arbitrator and
expenses for hearing facilities and other expenses of the arbitration
shall be borne equally by Landlord and Tenant unless they agree
otherwise or unless the arbitrator in the award or decision assesses
such expenses other than equally between the parties. The parties shall
bear their own counsel fees and the expenses of their witnesses, except
to the extent otherwise provided in this Lease or by applicable law.
"LANDLORD"
CTC INVESTMENTS II LIMITED., a Florida
limited partnership
By: CTB Investments, Inc., a Florida
corporation, its managing general partner
By:_________________________________
Thomas F. Beeckler, President
"TENANT"
NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation authorized to
transact business in the State
of Florida as "National Auto Finance
Company, Inc. of Delaware"
By:_________________________________________
William Magro, Vice President
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EXHIBIT B
RULES AND REGULATIONS
Tenant agrees that Tenant and each of Tenant's employees, agents, and invitees
shall comply with the following rules and regulations and with all reasonable
modifications and additions thereto which Landlord may from time to time make
(1) Any sign, lettering, picture, notice or advertisement installed
within the Premises which is visible from the public corridors
within the Building shall be installed in such manner and be of
such character and style as Landlord shall approve in writing. No
sign, lettering, picture, notice or advertisement shall be placed
on any outside window or in a position to be visible from outside
the Building;
(2) Tenant shall not use the name of the Building for any purpose other
than Tenant's business address;
(3) Sidewalks, entrances, passages, courts, corridors, halls, in and
about the Premises shall not be obstructed nor shall objects be
placed against glass partitions, doors or windows which would be
unsightly from the corridors of the Building or from the exterior
of the Building;
(4) No animals, pets, bicycles or other vehicles shall be brought or
permitted to be in the Building or the Premises;
(5) No locks or similar devices shall be attached to any door except by
Landlord and Landlord shall have the right to retain a key to all
such locks;
(6) Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage.
(7) Only machinery or mechanical devices of a nature directly related
to Tenant's ordinary use of the Premises shall be installed, placed
or used in the Premises and the installation and use of all such
machinery and mechanical devices is subject to the other rules
contained in these Rules and Regulations and the other portions of
this Lease;
(8) Safes, furniture, equipment, machines and other large or bulky
articles shall be brought to the Building and into and out of the
Premises at such times and in such manner as the Landlord shall
reasonably direct and at Tenant's sole risk and cost. Prior to
Tenant's removal of such articles from the Building, Tenant shall
obtain written authorization of the office of the Building and
shall present such authorization to a designated employee of
Landlord;
(9) Tenant shall not in any manner deface or damage the Building;
(10) Tenant shall not permit the use of any apparatus for sound
production or transmission in such manner that the sound so
transmitted or produced shall be audible or vibrations therefrom
shall be detectable beyond the Premises;
Page 1 of 2
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(11) Tenant shall keep all electrical and mechanical apparatus free of
vibration, noise and air waves which may be transmitted beyond the
Premises;
(12) Tenant shall not permit objectionable odors or vapors to emanate
from the Premises;
(13) Tenant shall not place a load upon any floor of the Premises
exceeding the floor load capacity for which such floor was designed
or allowed by law to carry; and
(14) Tenant shall comply with all rules and regulations established by
Landlord pursuant to Article of this Lease.
Page 2 of 2
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EXHIBIT "C"
WORK LETTER
The provisions of this Work Letter shall govern construction of the Premises
pursuant to the Lease.
A. LANDLORD'S WORK
1. Landlord shall construct and/or install, at no cost to
Tenant, the following items which shall constitute the
Landlord's Work:
(a) all work per base building plans and specifications
produced by The Stellar Group, except for the
installation of overhead doors which have been
deleted;
(b) operational sprinkler system;
(c) installation of storefront window system in south
elevation per Exhibit "C-1" (drawing of elevation);
(d) 3000 amp 208 volt electrical service to the base
building with 2000 amps dedicated to the Premises
(including house panel and switchgear associated with
the 3000 amp service to the Building);
(e) all site work including roads, parking lots,
sidewalks, and landscaping;
(f) one 4" diameter telephone conduit from public
right-of-way to interior of the Premises adjacent to
existing 3" conduit;
(g) drawings detailing structural modifications necessary
for Tenant's HVAC equipment;
(h) install a directory monument for all tenants (with
lettering regarding Tenant to be at Tenant's sole
cost and expense), subject to the approval and
agreement of the developer of Deerwood Office Park.
2. During Tenant's construction of the Premises, Landlord
agrees to provide reasonable use of site utilities
including electricity and water at no charge to Tenant.
3. Landlord agrees to perform Landlord's Work in a good and
workmanlike manner, with such work to be Substantially
Completed in accordance with the construction schedule set
forth on Exhibit "C-2" attached hereto. The Landlord's
Work will be considered "Substantially Completed" for all
purposes under this Work Letter and the Lease when such
work has been completed except for "punch list" items.
When Landlord is of the opinion that such work is
substantially completed, then Landlord will notify Tenant.
Tenant agrees that upon such notification, Tenant will
promptly (and not later than three (3) days after the day
of Landlord's notice
Page 1 of 5
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and in any event prior to Tenant moving its equipment and
property into the Premises) inspect the Premises and
execute a punch list ("Punch List") generated by Landlord
which will identify any uncompleted items of such work,
and the dates upon which such item will be completed by
Landlord. Tenant agrees that, at the request of Landlord
from time to time thereafter, Tenant will promptly furnish
to Landlord a revised Punch List reflecting completion of
any prior Punch List items. It is mutually agreed that if
the Punch List or any revised Punch List consists only of
items, the non-completion of which would not materially
impair Tenant's use or occupancy of the Premises, or such
work is otherwise substantially completed, then, in such
event, the Premises will be deemed to be complete and
Tenant will acknowledge in writing that the Premises are
complete and accept possession or execute a Punch List
that acknowledges the completion of all Punch List items.
Landlord will complete all Punch List items as soon as
reasonably possible, and in any event on or before the
date indicated on the Punch List.
4. The Staubach Company Design and Construction Consulting
Services group will assist in the design, bidding and
construction process, and overall project management.
Therefore, The Staubach Company must be afforded complete
access to the premises during building shell construction
and site work.
5. Landlord's workmen and contractors shall work in harmony
with, and not interfere with, labor employed by Tenant,
Tenant's workmen or contractors.
6. Time shall be of the essence with respect to the performance of
Landlord's Work.
B. TENANT'S PLANS AND SPECIFICATIONS; TENANT'S ADDITIONAL RIGHTS
1. Tenant shall deliver to Landlord all plans and
specifications with respect to the Tenant's Work on June
3, 1997, or as soon thereafter as is reasonably possible.
Landlord shall, within three (3) days after delivery of
such plans and specification, either approve or disapprove
the same; Landlord agreeing that such approval shall not
be unreasonably withheld, conditioned or delayed. If
Landlord disapproves of any portion of the plans or
specifications, it shall advise Tenant, with
particularity, as to what changes shall be made therein to
make the same acceptable to Landlord.
2. Tenant shall have the right, subject to Landlord's review
of Tenant's plans and specifications, in accordance with
paragraph B(1) above, to:
(a) Exclusive use of one existing 3" and one 4"
communications conduit serving the Building;
(b) Specify, purchase and utilize its own cosmetic and/or
decorative materials including, but not limited to,
floor coverings, paint and wall covering;
(c) Install Tenant's own security access system including
the main entrance to the Building for after-hours
access;
(d) Secure the Premises during and after business hours;
Page 2 of 5
<PAGE>
(e) Have reasonable access to the Premises for delivery
and installation of building materials and equipment
no later than June 12, 1997;
(f) Have reasonable access to construction parking area
at no cost to Tenant;
(g) Install a back up generator and/or HVAC equipment in
the truck court.
(h) Install security system card readers and/or security
cameras on the exterior of the Building.
C. TENANT IMPROVEMENTS ALLOWANCE
1. Landlord shall provide Tenant with the following
allowances (collectively the "Tenant Improvement
Allowance"):
(a) $25.00 per rentable square foot in the Premises for
construction of Tenant's Work;
(b) a lump sum not to exceed $12,000 for modifications to
existing roof structure for support of Tenant's HVAC
units; the actual amount will be determined through
bidding to subcontractors by Tenant's contractor;
(c) a lump sum amount of $300.00 as a credit for 3
overhead doors deleted from Landlord's base building
scope of work;
(d) upon Tenant's request, an additional allowance of up
to $5.00 per rentable square foot in the Premises;
provided, however, that the amortized sum of such
additional allowance (together with a sum equal to
Landlord's closing costs in connection with the
borrowing of such funds, not to exceed Five Thousand
Five Hundred Fifty and No/100 Dollars ($5,550.00))
shall be added to the Monthly Base Rent payable under
the Lease (such amortization to be based on an
assumed interest rate of 10.5% per annum).
2. So long as Tenant is not in default under the terms of
this Lease, beyond any applicable grace or cure period,
Landlord shall disburse the Tenant Improvements Allowance
to or for the account of Tenant in accordance with the
terms of this Work Letter and this Lease.
3. The Tenant Improvements Allowance shall only be used for
the design and construction of the Tenant's Work, and for
no other purposes; provided, however, that any unused
Tenant Improvement Allowance (up to a maximum of $5.00 per
rentable square feet in the Premises) shall be credited
against the Rent first accruing under this Lease.
4. All costs and charges of any nature in connection with the
construction of the Tenant's Work in excess of the Tenant
Improvements Allowance shall be at the sole cost and
expense of Tenant.
Page 3 of 5
<PAGE>
D. TENANT'S WORK
1. Tenant shall perform Tenant's Work in a good and
workmanlike manner, in accordance with Tenant's plans and
specifications, in compliance with all applicable federal,
state and municipal laws and regulations. To complete the
Tenant's Work, Tenant will enter into a construction
contract ("Tenant's Contract") with Schultz- Angelo
Construction Company ("Tenant's Contractor"), who Tenant
certifies to be a licensed Florida general contractor.
Tenant shall furnish to Landlord true and correct copies
of Tenant's Contract, and any modifications or amendments
thereto.
2. All proceeds of the Tenant's Improvements Allowance shall
be disbursed by Landlord in checks jointly payable to
Tenant and Tenant's Contractor or, at Tenant's written
direction, to such other parties as are rendering
construction related services.
3. Each request for an advance of proceeds of the Tenant
Improvements Allowance shall be on AIA Form G702 or G703,
accompanied by receipted invoices for all portions of
Tenant's Work which have been paid prior to the request
for such advance, and by invoices not receipted with
respect to costs of the Tenant's Work which are due and
payable, but which have not been paid. Each such request
shall also be accompanied by a certificate of the Tenant,
Tenant's Contractor and Tenant's Architect that all bills
for labor, materials and services then incurred and
payable in connection with the Tenant's Work have been
paid or will be paid from the advance being requested;
that all work and materials are in accordance with
Tenant's plans and specifications; that such request for
advance is in accordance with the draw schedule and other
terms and conditions of Tenant's Contract except that
draws shall be made no more frequently than monthly; that
all certifications and approvals which may be necessary or
customary at such stage of construction have been
received; and that all work has been done according to all
applicable laws, regulations, building codes, covenants
and restrictions and in a good and workmanlike manner,
together with lien waivers from any contractor,
subcontractor, sub-subcontractor, laborer or materialman
furnishing labor, services or materials in connection with
Tenant's Work. Landlord will pay each requested advance
within fifteen (15) days after receipt of the foregoing
documentation.
4. Tenant acknowledges and agrees that all disbursements of
the proceeds of the Tenant Improvements Allowance by
Landlord to Tenant and/or Tenant's Contractor are being
made at Tenant's request and for Tenant's convenience, and
Landlord shall have no responsibility or obligation to see
to the application of such funds by Tenant's Contractor,
or to otherwise oversee or monitor Tenant's Work, and
Tenant agrees to indemnify and hold harmless Landlord
against any claims by Tenant's Contractor or other any
other parties in connection with the construction of
Tenant's Work disbursement obligations of Landlord
hereunder.
5. Tenant and Tenant's Contractor shall at all times comply
with Chapter 713, Florida Statutes, regarding construction
liens, as the same may be amended from time to time.
Page 4 of 5
<PAGE>
6. Tenant's workmen and contractors shall work in harmony
with, and not interfere with, labor employed by Landlord,
Landlord's workmen or contractors, or by any other tenant
or their contractors.
7. Tenant and Tenant's contractors and workmen shall maintain
Workmen's Compensation, public liability insurance,
builder's risk and property damage insurance, with
hold-harmless provisions, all in amounts and with
companies in a form satisfactory to Landlord, and Tenant
shall provide certificates of such insurance to Landlord,
with Landlord designated as an additional insured.
8. Tenant's entry onto the property of Landlord in connection
with the construction of Tenant's Work shall be deemed to
be under all of the terms, covenants, provisions and
conditions of this Lease.
9. Upon completion of Tenant's Work, Tenant shall provide to
Landlord final lien waivers regarding Tenant's Work; a
final certificate from Tenant, Tenant's Contractor and
Tenant's Architect that all bills for labor, materials and
services have been paid; that all materials and work are
in accordance with Tenant's plans and specifications; that
all certifications and approvals which may be necessary or
customary have been received; and that all work has been
done according to all applicable laws, regulations,
building codes, covenants and restrictions, and in a good
and workmanlike manner; and Landlord and/or Landlord's
Contractor or other representative shall have the right to
inspect Tenant's Work to ensure compliance with all the
foregoing. In addition, upon completion of construction of
Tenant's Work, Tenant shall obtain a satisfactory final
inspection of the Premises from the City of Jacksonville.
Page 5 of 5
<PAGE>
Exhibit "C-1"
Drawing of Elevation
<PAGE>
Exhibit "C-2"
Construction Schedule for Landlord's Work
1. Premises cleaned and broom swept on or before the execution of the
Lease.
2. Sprinkler system operational and signed off on by Landlord and
Landlord's contractor on or before the execution of the Lease.
3. Storefront window system installed on South and West elevations of
the Premises on or before June 20, 1997.
4. Lime rocked access to rear of Building for equipment and material
delivery prior to completion of storefront installation.
5. Balance of base building shell (which shall exclude item 6 and
landscaping) construction Substantially Completed on or before
July 1, 1997.
6. 3000 amp electrical service installed on or before August 4, 1997.
7. Site work and paving Substantially Completed on or before June 23,
1997, subject to weather delays.
8. All remaining Landlord's Work to be Substantially Completed on or
before August 1, 1997.
Page 2 of 5
<PAGE>
EXHIBIT "D"
Such signage as may be approved in writing by Landlord, subject to the zoning
code and municipal ordinances of the City of Jacksonville, Florida.
Page 3 of 5
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "Amendment") dated this _____ day of
______________, 1997, by and between CTC INVESTMENTS II LIMITED, a Florida
limited partnership ("Landlord"), and NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation authorized to transact business in the State of Florida as
"National Auto Finance Company, Inc. of Delaware" ("Tenant").
W I T N E S S E T H:
RECITATIONS
(i) Landlord and Tenant have previously entered into that certain Lease
Agreement dated June 16, 1997 (the "Lease"), regarding certain leased premises
located in Building 1, Broadway Center, at 10302 Deerwood Park Boulevard, in
Jacksonville, Florida, consisting of approximately 37,000 square feet (the
"Existing Premises").
(ii) Tenant has requested that Landlord lease to it additional space in
the building consisting of approximately 7,000 square feet, as more particularly
described on EXHIBIT "A-2" attached hereto, the exact square footage of which
shall be determined in accordance with the terms of the Lease (the "Additional
Premises"), and Landlord has agreed to lease the Additional Premises to Tenant,
subject to the terms and conditions of the Lease, as hereinafter modified and
amended.
Accordingly, in consideration of the mutual covenants, promises and
agreements hereinafter contained, the parties agree, each with the other, as
follows:
1. RECITATIONS. The foregoing recitations of fact are true and accurate.
2. DEFINITIONS.
(a) All terms when capitalized herein shall have the same meanings
as when capitalized in the Lease, except as specifically provided herein.
(b) The term "Lease" shall hereafter mean the Lease, as modified by
this Amendment.
(c) The term "Premises" shall hereafter include within its meaning
the "Additional Premises".
3. COMMENCEMENT DATE. The "Commencement Date" with respect to the
Additional Premises shall be the earlier to occur of (i) seventy-five (75) days
after the date of this Amendment, or (ii) the date that Tenant first occupies
all or any part of the Additional Premises for the conduct of business provided,
however, that the Commencement Date shall be extended by the number of days of
delay incurred in the preparation of the Additional Premises for Tenant's
occupancy (in accordance with the Work Letter attached hereto as EXHIBIT "C") as
a result of an event of Force Majeure (as defined in Section 30.5 of the Lease)
or Landlord delay, such total number of days of delay to be calculated without
duplication. Notwithstanding any provision of the Lease or this Amendment to the
contrary, the Commencement Date with respect to the Existing Premises is hereby
modified to be the earlier to occur of (i) the date that Tenant first occupies
all or any part of the Premises for the conduct of business, or (ii) September
15, 1997.
<PAGE>
4. TERM OF THE LEASE. The Term of the Lease shall remain six (6) years
from the Commencement Date as determined with respect to the Existing Premises,
it being the intent of the parties that the Term of the Lease with respect to
the Additional Premises shall be co-terminus with the Term regarding the
Existing Premises, as provided in the Lease.
5. MONTHLY BASE RENT. From and after the Commencement Date with respect to
the Additional Premises, the Monthly Base Rent for the Additional Premises shall
be at the rate of $0.00 per square foot for a period of five (5) months from and
after such Commencement Date. Thereafter, the Monthly Base Rent with respect to
the Additional Premises shall accrue at the Monthly Base Rent per square foot
then in effect with respect to the Existing Premises, as provided in Section
1.1(h) of the Lease, and shall thereafter be at the same Monthly Base Rent and
shall change at such times and shall be subject to adjustment, as provided in
Section 1.1(h). In addition to the foregoing, the Monthly Base Rent per square
foot provided in the Lease for Month 6 is hereby modified to be .85 x $1.0042.
6. PARKING. Article 26 of the Lease is hereby modified to provide that
Landlord shall make available for Tenant, its employees, agents, visitors and
invitees, twenty-four (24) "reserved" parking spaces for Tenant's exclusive use,
which shall consist of three (3) spaces marked "Reserved for NAFI Visitor" and
twenty-one (21) spaces marked "Reserved NAFI- [#] ". In addition, Tenant, its
employees, agents, visitors and invitees may use two hundred thirty-eight (238)
additional parking spaces in common with other tenants to whom similar rights
are granted. Except as modified in this Amendment, the remaining terms of
Article 26 shall remain in full force and effect.
7. NET RENTABLE SQUARE FEET OF THE PREMISES. From and after the
Commencement Date with respect to the Additional Premises, the net rentable
square feet of the Premises upon which annual rent and adjusted rent is
calculated, as provided in Section 1.1(i) of the Lease, is hereby amended to be:
44,000 square feet, subject to adjustment pursuant to Section 2.3 of the Lease.
8. TENANT'S PROPORTIONATE SHARE. From and after the Commencement Date with
respect to the Additional Premises, Tenant's Proportionate Share, as defined in
Section 1.1(m) of the Lease, is hereby modified to be: 30.94%, subject to
adjustment pursuant to Section 2.3 of the Lease.
9. EXHIBITS. The following Exhibits attached to this Amendment shall
hereafter amend, replace, and supersede the corresponding Exhibits originally
attached to the Lease:
Exhibit "A" - Tenant Location in Building
Exhibit "A-1" - Preliminary Layout Plan of Premises ("Layout Plan")
Exhibit "C" - Work Letter
Exhibit "C-1" - Drawing of Elevation
Exhibit "E" - Parking Site Plan
The remaining Exhibits attached to the Lease remain unchanged and in full force
and effect.
10. ABSENCE OF DEFAULT. The parties warrant and represent to each other
that, to the best of their knowledge, as of the date hereof, no event has
occurred and is continuing which constitutes, or which, with the passage of time
or the giving of notice would constitute, an Event of Default under the Lease.
11. CONTINUING EFFECT OF LEASE. Except as specifically provided herein,
all terms and provisions of the Lease shall remain unchanged and in full force
and effect.
- 2 -
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
executed as of the day and year first above written.
"LANDLORD"
CTC INVESTMENTS II LIMITED, a Florida limited
partnership
By: CTB Investments, Inc., a Florida
corporation, its managing general partner
By:_________________________________
Thomas F. Beeckler, President
"TENANT"
NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation authorized to
transact business in the State of Florida
as "National Auto Finance Company, Inc.
of Delaware"
By:_________________________________________
William Magro, Executive Vice President
and Service Center President
- 3 -
TRUST AGREEMENT
between
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
WILMINGTON TRUST COMPANY
Owner Trustee
Dated as of July 21, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Definitions........................................................1
SECTION 1.1 Capitalized Terms.............................................1
SECTION 1.2. Other Definitional Provisions................................3
SECTION 1.3. Action by or Consent of Noteholders and Certificateholders...4
SECTION 1.4 Material Adverse Effect.......................................4
ARTICLE II Organization......................................................5
SECTION 2.1. Name.........................................................5
SECTION 2.2. Office.......................................................5
SECTION 2.3. Purposes and Powers..........................................5
SECTION 2.4. Appointment of Owner Trustee.................................5
SECTION 2.5. Initial Capital Contribution of Trust Estate.................5
SECTION 2.6. Declaration of Trust.........................................5
SECTION 2.7. Liability....................................................6
SECTION 2.8. Title to Trust Property......................................6
SECTION 2.9. Situs of Trust...............................................6
SECTION 2.10. Representations and Warranties of the Depositor.............7
SECTION 2.11. Federal Income Tax Allocations..............................8
SECTION 2.12. Covenants of the Depositor..................................8
SECTION 2.13. Covenants of the Certificateholders.........................9
ARTICLE III Certificates and Transfer of Interests..........................10
SECTION 3.1. Initial Ownership...........................................10
SECTION 3.2. The Certificates............................................10
SECTION 3.3. Authentication of Certificates..............................10
SECTION 3.4. Registration of Transfer and Exchange of Certificates.......10
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates...........13
SECTION 3.6. Persons Deemed Certificateholders...........................13
SECTION 3.7. Access to List of Certificateholders' Names and Addresses...13
SECTION 3.8. Maintenance of Office or Agency.............................14
SECTION 3.9. ERISA Restrictions..........................................14
ii
<PAGE>
SECTION 3.10. Securities Matters.........................................14
ARTICLE IV Voting Rights and Other Actions..................................14
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters.....14
SECTION 4.2. Action by Certificateholders with Respect to
Certain Matters.............................................15
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.....15
SECTION 4.4. Restrictions on Certificateholders' Power...................15
SECTION 4.5. Majority Control............................................16
SECTION 4.6. Rights of Insurer...........................................16
ARTICLE V Certain Duties....................................................17
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholders, the Internal Revenue Service and Others.17
SECTION 5.2. Signature on Returns; Tax Matters Partner...................17
SECTION 5.3. Underwriting Agreement......................................17
ARTICLE VI Authority and Duties of Owner Trustee............................17
SECTION 6.1. General Authority...........................................17
SECTION 6.2. General Duties..............................................18
SECTION 6.3. Action upon Instruction.....................................18
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions................................................19
SECTION 6.5. No Action Except under Specified Documents or Instructions..19
SECTION 6.6. Restrictions................................................20
ARTICLE VII Concerning the Owner Trustee....................................20
SECTION 7.1. Acceptance of Trusts and Duties.............................20
SECTION 7.2. Furnishing of Documents.....................................21
SECTION 7.3. Representations and Warranties..............................21
SECTION 7.4. Reliance; Advice of Counsel.................................22
SECTION 7.5. Not Acting in Individual Capacity...........................22
SECTION 7.6. Owner Trustee Not Liable for Certificates or Receivables....22
SECTION 7.7. Owner Trustee May Own Certificates and Notes................23
SECTION 7.8. Payments from Owner Trust Estate............................23
SECTION 7.9. Doing Business in Other Jurisdictions.......................23
ARTICLE VIII Compensation of Owner Trustee..................................24
SECTION 8.1. Owner Trustee's Fees and Expenses...........................24
iii
<PAGE>
SECTION 8.2. Indemnification.............................................24
SECTION 8.3. Payments to the Owner Trustee...............................24
ARTICLE IX Termination of Trust Agreement...................................24
SECTION 9.1. Termination of Trust Agreement..............................25
ARTICLE X Successor Owner Trustees and Additional Owner Trustees............26
SECTION 10.1. Eligibility Requirements for Owner Trustee.................26
SECTION 10.2. Resignation or Removal of Owner Trustee....................26
SECTION 10.3. Successor Owner Trustee....................................27
SECTION 10.4. Merger or Consolidation of Owner Trustee...................28
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee..............28
ARTICLE XI Miscellaneous....................................................29
SECTION 11.1. Supplements and Amendments.................................29
SECTION 11.2. No Legal Title to Owner Trust Estate in Certificateholders.30
SECTION 11.3. Limitations on Rights of Others............................30
SECTION 11.4. Notices....................................................30
SECTION 11.5. Severability...............................................31
SECTION 11.6. Separate Counterparts......................................31
SECTION 11.7. Assignments; Insurer.......................................31
SECTION 11.8. No Petition................................................31
SECTION 11.9. No Recourse................................................32
SECTION 11.10. Headings..................................................32
SECTION 11.11. GOVERNING LAW.............................................32
SECTION 11.12. Servicer..................................................32
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
Exhibit C Form of Purchaser Representation Letter
Exhibit D Form of Transferee Representation Letter
iv
<PAGE>
TRUST AGREEMENT dated as of July 21, 1997 between NATIONAL FINANCIAL
AUTO FUNDING TRUST, a Delaware business trust (the "Depositor"), and WILMINGTON
TRUST COMPANY, a Delaware banking corporation, as Owner Trustee.
ARTICLE I
Definitions
- --------------------------------------------------------------------------------
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
- --------------------------------------------------------------------------------
"Affiliate" shall mean with respect to any specified Person, a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, or owns, directly or
indirectly, 50% or more of, the Person specified.
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Certificate
of Trust, the Sale and Servicing Agreement, the Spread Account Agreement, the
Insurance Agreement, the Indenture and the other documents and certificates
delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.9.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code ss.. 3801 et. seq. as the same may be amended
from time to time.
"Certificate" means a trust certificate evidencing the
beneficial ownership interest of a Certificateholder in the Trust, substantially
in the form of Exhibit A attached hereto.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section 3.4.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration, or at such other address as the Owner
Trustee may designate by notice to the Certificateholders and the Depositor, or
the principal corporate trust office of any successor Owner Trustee (the address
<PAGE>
of which the successor owner trustee will notify the Certificateholders and the
Depositor).
"Definitive Certificates" shall mean Certificates issued in
certificated, fully registered form.
"Depositor" shall mean National Financial Auto Funding Trust
in its capacity as Depositor hereunder.
"Depositor Trust Agreement" shall mean the First Amended and
Restated Trust Agreement, dated as of December 8, 1994, between National Auto
Finance Company, Inc. and The Chase Manhattan Bank (Delaware), as trustee, as
the same may be amended and supplemented from time to time.
"Distribution Account" shall mean the account designated as
such as established and maintained pursuant to the Sale and Servicing Agreement.
"ERISA" shall have the meaning assigned to such term in
Section 3.9.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose
name a Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Indenture" shall mean the Indenture dated as of June 29,
1997, between the Issuer and Harris Trust and Savings Bank, as Trust Collateral
Agent and Indenture Trustee, as the same may be amended and supplemented from
time to time in accordance with the terms thereof.
"Indenture Trustee" shall mean, initially Harris Trust and
Savings Bank, in its capacity as indenture trustee, including its successors in
interest, until and unless a successor Person shall have become the Indenture
Trustee pursuant to the Sale and Servicing Agreement and thereafter "Indenture
Trustee" shall mean such successor Person.
"Insurer" shall mean Financial Security Assurance Inc., or its
successor in interest.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3.
"Owner Trust Estate" shall mean all right, title and interest
of the Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and all other property of the Trust from time to
time, including any rights of the Owner Trustee and the Trust pursuant to the
Sale and Servicing Agreement and the Spread Account Agreement.
2
<PAGE>
"Owner Trustee" shall mean Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor Owner Trustee hereunder.
"Record Date" shall mean with respect to any Distribution
Date, the close of business on the last Business Day immediately preceding such
Distribution Date.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement among the Trust, National Financial Auto Funding Trust, as
Seller, National Auto Finance Company, Inc., as Servicer and the Trust
Collateral Agent, dated as of June 29, 1997, as the same may be amended and
supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Security Majority" means a majority by principal amount of
the Noteholders so long as the Notes are outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Spread Account" shall mean the Series Spread Account
established and maintained pursuant to the Spread Account Agreement.
"Spread Account Agreement" shall mean the Spread Account
Agreement, dated as of July 23, 1997, among National Financial Auto Funding
Trust, the Insurer, and Harris Trust and Savings Bank, as Trust Collateral Agent
and as Collateral Agent, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Accounts" shall have the meaning ascribed thereto in
the Sale and Servicing Agreement.
"Trust Collateral Agent" shall mean, initially, Harris Trust
and Savings Bank, in its capacity as collateral agent, including its successors
in interest, until and unless a successor Person shall have become the Trust
Collateral Agent pursuant to the Sale and Servicing Agreement, and thereafter
"Trust Collateral Agent" shall mean such successor Person.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined have
the meanings assigned to them in the Sale and Servicing Agreement or,
if not defined therein, in the Spread Account Agreement or in the
Indenture.
3
<PAGE>
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Agreement or in any such certificate or other
document, and accounting terms partly defined in this Agreement or in
any such certificate or other document to the extent not defined, shall
have the respective meanings given to them under generally accepted
accounting principles as in effect on the date of this Agreement or any
such certificate or other document, as applicable. To the extent that
the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such certificate or
other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement; Section and Exhibit references contained in this Agreement
are references to Sections and Exhibits in or to this Agreement unless
otherwise specified; and the term "including" shall mean "including
without limitation."
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
SECTION 1.3. Action by or Consent of Noteholders and
Certificateholders. Whenever any provision of this Agreement refers to action to
be taken, or consented to, by Noteholders or Certificateholders, such provision
shall be deemed to refer to the Certificateholder or Noteholder, as the case may
be, of record as of the Record Date immediately preceding the date on which such
action is to be taken, or consent given, by Noteholders or Certificateholders.
Solely for the purposes of any action to be taken, or consented to, by
Noteholders, any Note registered in the name of the Seller or any Affiliate
thereof shall be deemed not to be outstanding; provided, however, that, solely
for the purpose of determining whether the Indenture Trustee or the Trust
Collateral Agent is entitled to rely upon any such action or consent, only Notes
which the Owner Trustee, the Indenture Trustee or the Trust Collateral Agent,
respectively, knows to be so owned shall be so disregarded.
SECTION 1.4. Material Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Noteholders or Certificateholders (or any similar or analogous
determination), such determination shall be made without taking into account the
funds available from claims under the Policy.
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ARTICLE II
Organization
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SECTION 2.1 Name. There is hereby formed a trust to be known as
"National Auto Finance 1997-1 Trust", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
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SECTION 2.2. Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Certificateholders and the
Depositor.
SECTION 2.3. Purposes and Powers. (a) The purpose of the Trust is, and
the Trust shall have the power and authority, to engage in the following
activities: (i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement, and to sell the Notes; (ii) with the
proceeds of the sale of the Notes, to fund the Pre-Funding Account, the
Pre-Funding Period Reserve Account and the Spread Account and to pay the
organizational, start-up and transactional expenses of the Trust and to pay the
balance to the Depositor pursuant to the Sale and Servicing Agreement; (iii) to
assign, grant, transfer, pledge, mortgage and convey the Owner Trust Estate
(other than the Distribution Account) to the Trust Collateral Agent pursuant to
the Indenture for the benefit of the Insurer and the Indenture Trustee on behalf
of the Noteholders and to hold, manage and distribute to the Certificateholders
and the Depositor pursuant to the terms of the Sale and Servicing Agreement any
portion of the Owner Trust Estate released from the Lien of, and remitted to the
Trust pursuant to, the Indenture; (iv) to enter into and perform its obligations
under the Basic Documents to which it is a party; (v) to engage in those
activities, including entering into agreements, that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith; and (vi) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation of the
Owner Trust Estate and the making of distributions to the Certificateholders and
the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the Basic Documents.
SECTION 2.4. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Distribution Account. The Depositor shall pay
organizational expenses of the Trust as they may arise.
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SECTION 2.6. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, solely for income tax purposes, the Trust shall be treated as a branch;
provided, however, that in the event Certificates are owned by more than one
Certificateholder, it is the intention of the parties hereto that, solely for
income and franchise tax purposes, the Trust shall then be treated as a
partnership and that, unless otherwise required by appropriate tax authorities,
only after such time the Trust will file or cause to be filed annual or other
necessary returns, reports and other forms consistent with the characterization
of the Trust as a partnership for such tax purposes. Effective as of the date
hereof, the Owner Trustee shall have all rights, powers and duties set forth
herein and to the extent not inconsistent herewith, in the Business Trust
Statute with respect to accomplishing the purposes of the Trust. The Owner
Trustee shall file the Certificate of Trust with the Secretary of State.
SECTION 2.7. Liability. (a) The Depositor shall pay organizational
expenses of the Trust as they may arise or shall, upon the request of the Owner
Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the
Owner Trustee.
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(b) No Holder, other than to the extent set forth in
clause (a), shall have any personal liability for any liability or
obligation of the Trust.
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SECTION 2.8. Title to Trust Property. (a) Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
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(b) The Holders shall not have legal title to any part of
the Trust Property. The Holders shall be entitled to receive
distributions with respect to their undivided ownership interest
therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title or interest by any
Certificateholder of its ownership interest in the Owner Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the Trust Property.
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SECTION 2.9. Situs of Trust. The Trust will be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York. Payments will be received by the Trust only in Delaware or New York
and payments will be made by the Trust only from Delaware or New York. The Trust
shall not have any employees in any state other than Delaware; provided,
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however, that nothing herein shall restrict or prohibit the Owner Trustee, the
Servicer or any agent of the Trust from having employees within or without the
State of Delaware. The only office of the Trust will be at the Corporate Trust
Office in Delaware.
SECTION 2.10. Representations and Warranties of the Depositor. The
Depositor makes the following representations and warranties on which the Owner
Trustee relies in accepting the Owner Trust Estate in trust and issuing the
Certificates and upon which the Insurer relies in issuing the Note Policy.
(a) Organization and Good Standing. The Depositor is duly
organized and validly existing as a Delaware business trust 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 is proposed to be conducted pursuant to this Agreement and the
Basic Documents.
(b) Due Qualification. It is duly qualified to do business and in
good standing, and has obtained all necessary licenses and approvals,
in all jurisdictions in which the ownership or lease of its property,
the conduct of its business and the performance of its obligations
under this Agreement and the Basic Documents requires such
qualification.
(c) Power and Authority. The Depositor has the trust power and
authority to execute and deliver this Agreement and to carry out its
terms; the Depositor has full power and authority to sell and assign
the property to be sold and assigned to and deposited with the Trust
and the Depositor has duly authorized such sale and assignment and
deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement has been duly
authorized by the Depositor by all necessary trust action.
(d) No Consent Required. To the best knowledge of the Depositor,
no consent, license, approval or authorization or registration or
declaration with, any Person or with any governmental authority, bureau
or agency is required in connection with the execution, delivery or
performance of this Agreement and the Basic Documents, except for such
as have been obtained, effected or made.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do 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)
a default under, the organizational documents of the Depositor, or any
material indenture, agreement or other instrument to which the
Depositor is a party or by which it is 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 pursuant to the Basic Documents); nor violate any law or,
to the best of the Depositor's knowledge, any order, rule or regulation
applicable to the Depositor of any court or of any Federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its
properties.
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(f) No Proceedings. There are no proceedings or investigations
pending or, to its knowledge threatened against it before any court,
regulatory body, administrative agency or other tribunal or
governmental instrumentality having jurisdiction over it or its
properties (A) asserting the invalidity of this Agreement or any of the
Basic Documents, (B) seeking to prevent the issuance of the
Certificates or the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the Basic
Documents, (C) seeking any determination or ruling that might
materially and adversely affect its performance of its obligations
under, or the validity or enforceability of, this Agreement or any of
the Basic Documents, or (D) seeking to adversely affect the federal
income tax or other federal, state or local tax attributes of the
Certificates.
SECTION 2.11. Federal Income Tax Allocations. In the event that the
Trust is treated as a partnership for Federal income tax purposes, net income
(to the extent of available net income) and net losses of the Trust for any
month as determined for Federal income tax purposes (and each item of income,
gain, loss, credit and deduction entering into the computation thereof) shall be
allocated among the Certificateholders as of the first Record Date following the
end of such month, in proportion to their percentage ownership of the
Certificate on such date. The Depositor is authorized to modify the allocations
in this paragraph if necessary or appropriate, in its sole discretion, for the
allocations to fairly reflect the economic income, gain or loss to the
Certificateholders, or as otherwise required by the Code.
SECTION 2.12. Covenants of the Depositor. The Depositor agrees and
covenants for the benefit of each Certificateholder, the Insurer and the Owner
Trustee, during the term of this Agreement, and to the fullest extent permitted
by applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as
permitted by the Depositor Trust Agreement and the Basic Documents;
(b) it shall not, for any reason, institute proceedings for the
Trust to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the Trust,
or file a petition seeking or consenting to reorganization or relief
under any applicable federal or state law relating to the bankruptcy of
the Trust, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Trust or a substantial part of the property of the Trust or cause or
permit the Trust to make any assignment for the benefit of creditors,
or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the
debt of the Trust or take any action in furtherance of any such action;
(c) it shall obtain from each counterparty to each Basic Document
to which it or the Trust is a party and each other agreement entered
into on or after the date hereof to which it or the Trust is a party,
an agreement by each such counterparty that prior to the occurrence of
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the event specified in Section 9.1(e) such counterparty shall not
institute against, or join any other Person in instituting against, it
or the Trust, any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings or other similar proceedings under the laws
of the United States or any state of the United States; and
(d) it shall not, for any reason, withdraw or attempt to withdraw
from this Agreement, dissolve, institute proceedings for it to be
adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition
seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of it 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 declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
SECTION 2.13. Covenants of the Certificateholders. Each
Certificateholder agrees:
(a) to be bound by the terms and conditions of the Certificates
and of this Agreement, including any supplements or amendments hereto
and to perform the obligations of a Certificateholder as set forth
therein or herein, in all respects as if it were a signatory hereto.
This undertaking is made for the benefit of the Trust, the Owner
Trustee, the Insurer and all other Certificateholders present and
future;
(b) to hereby appoint the Depositor as such Certificateholder's
agent and attorney-in-fact to sign any federal income tax information
return filed on behalf of the Trust, if any, and agree that, if
requested by the Trust, it will sign such federal income tax
information return in its capacity as holder of an interest in the
Trust. Each Certificateholder also hereby agrees that in its tax
returns it will not take any position inconsistent with those taken in
any tax returns that may be filed by the Trust;
(c) if such Certificateholder is other than an individual or
other entity holding its Certificate through a broker who reports
securities sales on Form 1099-B, to notify the Owner Trustee of any
transfer by it of a Certificate in a taxable sale or exchange, within
30 days of the date of the transfer;
(d) until the completion of the events specified in Section
9.1(e), not to, for any reason, institute proceedings for the Trust or
the Depositor to be adjudicated a bankrupt or insolvent, or consent to
the institution of bankruptcy or insolvency proceedings against the
Trust, or file a petition seeking or consenting to reorganization or
relief under any applicable federal or state law relating to
bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Trust or a substantial part of its property, or cause or permit the
Trust to make any assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due,
or declare or effect a moratorium on its debt or take any action in
furtherance of any such action; and
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(e) that there shall not be more than 98 other holders of
Certificates.
ARTICLE III
Certificates and Transfer of Interests
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SECTION 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the sale of the
Certificates by the Depositor, the Depositor, as the sole Certificateholder,
shall be the sole beneficiary of the Trust.
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SECTION 3.2. The Certificates shall be executed on behalf of the Trust
by manual or facsimile signature of an authorized officer of the Owner Trustee.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be validly issued and entitled to the benefit of this
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of authentication and
delivery of such Certificates. A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder, upon due registration of such
Certificate in such transferee's name pursuant to Section 3.4.
SECTION 3.3. Authentication of Certificates. Concurrently with the
initial sale of the Receivables to the Trust pursuant to the Sale and Servicing
Agreement, the Owner Trustee shall cause the Certificates to be executed on
behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, its treasurer or any assistant treasurer without further corporate
action by the Depositor. No Certificate shall entitle its holder to any benefit
under this Agreement, or shall be valid for any purpose, unless there shall
appear on such Certificate a certificate of authentication substantially in the
form set forth in Exhibit A, executed by the Owner Trustee, by manual signature;
such authentication shall constitute conclusive evidence that such Certificate
shall have been duly authenticated and delivered hereunder. All Certificates
shall be dated the date of their authentication.
SECTION 3.4. Registration of Transfer and Exchange of Certificates. The
Certificate Registrar shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 3.8, a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Owner Trustee shall provide
for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. The Owner Trustee shall be the initial
Certificate Registrar.
The Certificates have not been registered under the Securities Act of
1933, as amended (the "Securities Act") or any state securities law. The
Certificate Registrar shall not register the transfer of any Certificate unless
such resale or transfer is pursuant to an effective registration statement under
the Securities Act or is to the Seller or unless it shall have received (i) a
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representation letter substantially in the form of Exhibit C hereto or (ii) such
other representations (or an Opinion of Counsel) satisfactory to the Owner
Trustee to the effect that such resale or transfer is made (A) in a transaction
exempt from the registration requirements of the Securities Act and applicable
state securities laws, or (B) to a person who the transferor of the Certificate
reasonably believes is a qualified institutional buyer (within the meaning of
Rule 144A under the Securities Act) that is aware that such resale or other
transfer is being made in reliance upon Rule 144A. Until the earlier of (i) such
time as the Certificates shall be registered pursuant to a registration
statement filed under the Securities Act and (ii) the date two years from the
later of the date of the original authentication and delivery of the
Certificates and the date any Certificate was acquired from the Seller or any
affiliate of the Seller, the Certificates shall bear a legend as follows:
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND SUCH STATE
SECURITIES LAWS. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE
UNLESS SUCH RESALE OR TRANSFER (A) IS MADE IN ACCORDANCE WITH SECTION 3.4 OF THE
OWNER TRUST AGREEMENT PERTAINING TO THE NATIONAL AUTO FINANCE 1997-1 TRUST (THE
"AGREEMENT") AND (B) IS MADE (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (ii) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, (iii)
TO THE SELLER OR (iv) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A AND (C) UPON THE SATISFACTION OF CERTAIN OTHER
REQUIREMENTS SPECIFIED IN THE AGREEMENT. NEITHER THE SELLER, THE SERVICER, THE
TRUST NOR THE OWNER TRUSTEE IS OBLIGATED TO REGISTER THE CERTIFICATES UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
The Certificate Registrar shall provide the Trust Collateral Agent with
a list of the names and addresses of the Certificateholders on the Closing Date
in the form which such information is provided to the Certificate Registrar by
the Depositor. Upon any transfers of Certificates, the Certificate Registrar
shall notify the Trust Collateral Agent of the name and address of the
transferee in writing, by facsimile, on the day of such transfer.
Upon surrender for registration of transfer of any Certificate at the
office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like class percentage ownership
interest in the Trust dated the date of authentication by the Owner Trustee or
any authenticating agent. At the option of a Holder, Certificates may be
exchanged for other Certificates of the same class of a like percentage
ownership interest in the Trust upon surrender of the Certificates to be
exchanged at the office or agency maintained pursuant to Section 3.8.
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Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Certificate Registrar duly executed by
the Certificateholder or his attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in the Securities Transfer Agent's Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Certificate Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act. Each Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by the
Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
Notwithstanding the preceding provisions of this Section, the Owner
Trustee shall be required to make, and the Certificate Registrar shall not be
required to register, transfers and exchanges of Certificates for a period of 15
days preceding the due date for any payment with respect to the Certificate.
The Seller shall not sell, transfer, assign, convey or pledge any
Certificate at any time subsequent to the Closing Date to any Person that is an
Affiliate of the Seller, unless, prior to such sale, transfer, assignment,
conveyance or pledge, the Seller delivers to Financial Security an Opinion of
Counsel substantially similar in form and substance to the Opinion of Counsel
delivered on the Closing Date as to non-consolidation of the assets and
liabilities of (x) the Seller and NAFI or (y) the Seller and any such Person
that is an Affiliate of the Seller (other than NAFI), of which a copy shall be
delivered to each Rating Agency.
In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that is has no right to or interest in any monies at any time held pursuant to
the Spread Account Agreement or prior to the release of such monies pursuant to
Section 5.7(b) of the Sale and Servicing Agreement or Section 3.03 of the Spread
Account Agreement, such monies being held in trust for the benefit of the
Noteholders and the Insurer. Notwithstanding the foregoing, in the event that it
is ever determined that the monies held in the Spread Account constitute a
pledge of collateral, then the provisions of the Sale and Servicing Agreement
and the Spread Account Agreement shall be considered to constitute a security
agreement and the Seller and the Certificateholders hereby grant to the
Collateral Agent for the benefit of the Indenture Trustee on behalf of the
Noteholders and the Insurer a first priority perfected security interest in such
amounts, to be applied as set forth in Section 3.03 of the Spread Account
Agreement. In addition, each Certificateholder, be acceptance of its
Certificate, hereby appoints the Depositor as its agent to pledge a first
priority perfected security interest in the Spread Account, and any amounts held
therein from time to time, to the Collateral Agent for the benefit of the
Indenture Trustee and the Insurer pursuant to the Spread Account Agreement and
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agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc. as well as any financing statements, in each case the Insurer
shall consider reasonably necessary in order to perfect the Collateral Agent's
Security Interest in the Collateral (as such terms are defined in the Spread
Account Agreement).
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar, the Owner Trustee and (unless an Insurer Default
shall have occurred and be continuing) the Insurer, such security or indemnity
as may be required by them to save each of them harmless, then in the absence of
notice that such Certificate shall have been acquired by a bona fide purchaser,
the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
class, and percentage ownership interest in the Trust. In connection with the
issuance of any new Certificate under this Section, the Owner Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Certificate issued pursuant to this Section shall constitute
conclusive evidence of an ownership interest in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
SECTION 3.6. Persons Deemed Certificateholders. Every Person by virtue
of becoming a Certificateholder in accordance with this Agreement and the rules
and regulations of the Certificate Registrar shall be deemed to be bound by the
terms of this Agreement. Prior to due presentation of a Certificate for
registration of transfer, the Owner Trustee, the Certificate Registrar and the
Insurer and any agent of the Owner Trustee, the Certificate Registrar and the
Insurer, may treat the Person in whose name any Certificate shall be registered
in the Certificate Register as the owner of such Certificate for the purpose of
receiving distributions pursuant to the Sale and Servicing Agreement and for all
other purposes whatsoever, and none of the Owner Trustee, the Certificate
Registrar or the Insurer nor any agent of the Owner Trustee, the Certificate
Registrar or the Insurer shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.
The Owner Trustee shall furnish or cause to be furnished to the Servicer, the
Depositor or (unless an Insurer Default shall have occurred and be continuing)
the Insurer, within 15 days after receipt by the Owner Trustee of a request
therefor from such Person in writing, a list, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more Holders
of Certificates or one or more Holders of Certificates evidencing not less than
25% of the percentage ownership interest in the Trust apply in writing to the
Owner Trustee, and such application states that the applicants desire to
communicate with other Certificateholders with respect to their rights under
this Agreement or under the Certificates and such application is accompanied by
a copy of the communication that such applicants propose to transmit, then the
Owner Trustee shall, within five Business Days after the receipt of such
application, afford such applicants access during normal business hours to the
current list of Certificateholders. Each Holder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Depositor,
the Servicer, the Owner Trustee or the Insurer or any agent thereof accountable
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by reason of the disclosure of its name and address, regardless of the source
from which such information was derived.
SECTION 3.8. Maintenance of Office or Agency. The Owner Trustee shall
maintain in Wilmington, Delaware, an office or offices or agency or agencies
where Certificates may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Owner Trustee in respect of the
Certificates and the Basic Documents may be served. The Owner Trustee initially
designates its Corporate Trust Office for such purposes. The Owner Trustee shall
give prompt written notice to the Depositor, the Certificateholders and the
Insurer of any change in the location of the Certificate Register or any such
office or agency.
SECTION 3.9. ERISA Restrictions. The Certificates may not be acquired
by or for the account of (i) an employee benefit plan (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1985, as
amended, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its beneficial ownership interest in its Certificate, the
Holder thereof shall be deemed to have represented and warranted that it is not
a Benefit Plan.
SECTION 3.10. Securities Matters. Notwithstanding anything contained
herein to the contrary, the Owner Trustee shall not be responsible for
ascertaining whether any transfer complies with the registration provisions or
exemptions from the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, applicable state securities law or the Investment Company Act;
provided, however, that if a certificate is specifically required to be
delivered to the Owner Trustee by a purchaser or transferee of a Certificate,
the Owner Trustee shall be under a duty to examine the same to determine whether
it conforms to the requirements of this Trust Agreement and shall promptly
notify the party delivering the same if such certificate does not so conform.
ARTICLE IV
Voting Rights and Other Actions
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SECTION 4.1.Prior Notice to Holders with Respect to Certain Matters.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 10 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Certificateholders shall not have notified the Owner Trustee in writing
prior to the 10th day after such notice is given that such Certificateholders
have withheld consent or provided alternative direction:
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(a) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed
under the Business Trust Statute or unless such amendment would not
materially and adversely affect the interests of the Holders);
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(b) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and
such amendment materially adversely affects the interest of the
Certificateholders; or
(d) except pursuant to Section 13.1(b) of the Sale and Servicing
Agreement, the amendment, change or modification of the Sale and
Servicing Agreement, except to cure any ambiguity or defect or to amend
or supplement any provision in a manner that would not materially
adversely affect the interests of the Certificateholders.
The Owner Trustee shall notify the Certificateholders in writing
of any appointment of a successor Note Registrar, Trust Collateral Agent or
Certificate Registrar within five Business Days thereof.
SECTION 4.2. Action by Certificateholders with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Insurer or, in the event that an Insurer Default shall have occurred and
be continuing, the Security Majority in accordance with the Basic Documents, to
(a) remove the Servicer under the Sale and Servicing Agreement or (b) except as
expressly provided in the Basic Documents, sell the Receivables after the
termination of the Indenture. The Owner Trustee shall take the actions referred
to in the preceding sentence only upon written instructions signed by the
Insurer or the Securityholders, as the case may be, and the furnishing of
indemnification satisfactory to the Owner Trustee by the Certificateholders.
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.
Until the Notes have been paid in full, the Owner Trustee shall not have the
power to, and shall not, commence any proceeding or other actions contemplated
by Section 2.12(d) relating to the Trust without the prior written consent of
the Insurer (unless an Insurer Default shall have occurred and be continuing) or
the Security Majority upon an Insurer Default. After the Notes have been paid in
full, all amounts due to the Insurer under the Insurance Agreement have been
paid in full, the Term of the Policy has expired and the Trust Collateral Agent
has surrendered the Policy to the Insurer, the Owner Trustee shall not have the
power to, and shall not, commence any proceeding or other actions contemplated
by Section 212(d) relating to the Trust without the prior written consent of all
of the Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of written certification that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholders' Power. (a) The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 or otherwise contrary to law nor
shall the Owner Trustee be obligated to follow any such direction, if given.
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No Certificateholder (other than the Depositor as sole
Certificateholder) shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this
Agreement or any Basic Document, unless the Certificateholders are the
Instructing Party pursuant to Section 6.3 and unless a
Certificateholder previously shall have given to the Owner Trustee a
written notice of default and of the continuance thereof, as provided
in this Agreement, and also unless Certificateholders evidencing not
less than 25% of the percentage ownership interest in the Trust shall
have made written request upon the Owner Trustee to institute such
action, suit or proceeding in its own name as Owner Trustee under this
Agreement and shall have offered to the Owner Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities
to be incurred therein or thereby, and the Owner Trustee, for 30 days
after its receipt of such notice, request, and offer of indemnity,
shall have neglected or refused to institute any such action, suit, or
proceeding, and during such 30-day period no request or waiver
inconsistent with such written request has been given to the Owner
Trustee pursuant to and in compliance with this Section or Section 6.3;
it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Owner
Trustee, that no one or more Holders of Certificates shall have any
right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb, or
prejudice the rights of the Holders of any other of the Certificates,
or to obtain or seek to obtain priority over or preference to any other
such Holder, or to enforce any right under this Agreement, except in
the manner provided in this Agreement and for the equal, ratable, and
common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 4.4, each and every
Certificateholder and the Owner Trustee shall be entitled to such
relief as can be given either at law or in equity.
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SECTION 4.5. Majority Control. No Certificateholder shall have any
right to vote or in any manner otherwise control the operation and management of
the Trust except as expressly provided in this Agreement. Except as expressly
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of Certificates evidencing not less
than a majority of the percentage ownership interest in the Trust. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Agreement shall be effective if signed by
Certificateholders evidencing not less than a majority of the percentatge
ownership interest in the Trust at the time of the delivery of such notice.
SECTION 4.6. Rights of Insurer. Notwithstanding anything to the
contrary in the Basic Documents, without the prior written consent of the
Insurer or if an Insurer Default shall have occurred and be continuing, the
Security Majority, the Owner Trustee shall not (i) remove the Servicer, the
Backup Servicer, or any Sub-Servicer, (ii) initiate any claim, suit or
proceeding by the Trust or compromise any claim, suit or proceeding brought by
or against the Trust, other than with respect to the enforcement of any
Receivable or any rights of the Trust thereunder, (iii) authorize the merger or
consolidation of the Trust with or into any other business trust or other entity
(other than in accordance with Section 3.10 of the Indenture), (iv) amend the
Certificate of Trust or (v) amend this Agreement in accordance with Section 11.1
of this Agreement.
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ARTICLE V
Certain Duties
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SECTION 5.1 Accounting and Records to the Noteholders,
Certificateholders, the Internal Revenue Service and Others. Subject to Sections
12.1(b)(iii) and 12.1(c) of the Sale and Servicing Agreement, the Depositor
shall (a) maintain (or cause to be maintained) the books of the Trust on a
calendar year basis on the accrual method of accounting, including, without
limitation, the allocations of net income under Section 2.11, (b) deliver (or
cause to be delivered) to each Certificateholder, as may be required by the Code
and applicable Treasury Regulations, such information as may be required
(including Schedule K-1, if applicable) to enable each Certificateholder to
prepare its Federal and state income tax returns, (c) file or cause to be filed,
if necessary, such tax returns relating to the Trust (including a partnership
information return, Form 1065), and direct the Owner Trustee or the Servicer, as
the case may be, to make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a branch, or if
applicable, as a partnership, for Federal income tax purposes and (d) collect or
cause to be collected any withholding tax as described in and in accordance with
Section 5.9(c) of the Sale and Serving Agreement with respect to income or
distributions to Certificateholders and the appropriate forms relating thereto.
The Owner Trustee or the Servicer, as the case may be, shall make all elections
pursuant to this Section as directed in writing by the Depositor. The Owner
Trustee shall sign all tax information returns, if any, filed pursuant to this
Section 5.1 and any other returns as may be required by law, and in doing so
shall rely entirely upon, and shall have no liability for information provided
by, or calculations provided by, the Depositor or the Servicer. The Owner
Trustee shall elect under Section 1278 of the Code to include in income
currently any market discount that accrues with respect to the Receivables. The
Owner Trustee shall not make the election provided under Section 754 of the
Code.
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SECTION 5.2. Signature on Returns; Tax Matters Partner. (a)
Notwithstanding the provisions of Section 5.1 and in the event that the Trust is
characterized as a partnership, the Owner Trustee shall sign on behalf of the
Trust the tax returns of the Trust, unless applicable law requires a
Certificateholder to sign such documents, in which case such documents shall be
signed by the Depositor.
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In the event that the Trust is characterized as a
partnership, the Depositor shall be the "tax matters partner" of the
Trust pursuant to the Code.
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SECTION 5.3. Underwriting Agreement. The Servicer is hereby authorized
to execute and deliver the Underwriting Agreement with respect to the Notes.
ARTICLE VI
Authority and Duties of Owner Trustee
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SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Depositor shall approve
as evidenced conclusively by the Owner Trustee's execution thereof, and on
behalf of the Trust, to direct the Indenture Trustee to authenticate and deliver
the Notes in the aggregate principal amount of $66,891,200. In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, to take
all actions required of the Trust pursuant to the Basic Documents. The Owner
Trustee is further authorized from time to time to take such action as the
Instructing Party recommends with respect to the Basic Documents so long as such
activities are consistent with the terms of the Basic Documents.
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SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and to administer the Trust in the interest of the
Holders, subject to the Basic Documents and in accordance with the provisions of
this Agreement. Notwithstanding the foregoing, the Owner Trustee shall be deemed
to have discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Servicer has agreed in the Sale and Servicing
Agreement to perform any act or to discharge any duty of the Trust or the Owner
Trustee hereunder or under any Basic Document, and the Owner Trustee shall not
be liable for the default or failure of the Servicer to carry out its
obligations under the Sale and Servicing Agreement.
SECTION 6.3. Action upon Instruction. (a) Subject to Article IV and the
terms of the Spread Account Agreement, the Insurer (so long as an Insurer
Default shall not have occurred and be continuing) or the Certificateholders (if
an Insurer Default shall have occurred and be continuing) (the "Instructing
Party") shall have the exclusive right to direct the actions of the Owner
Trustee in the management of the Trust, so long as such instructions are not
inconsistent with the express terms set forth herein or in any Basic Document.
The Instructing Party shall not instruct the Owner Trustee in a manner
inconsistent with this Agreement or the Basic Documents.
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(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such
action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or
is otherwise contrary to law.
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(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of
this Agreement or any Basic Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the
circumstances) to the Instructing Party requesting instruction as to
the course of action to be adopted, and to the extent the Owner Trustee
acts in good faith in accordance with any written instruction of the
Instructing Party received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not
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have received appropriate instruction within ten days of such notice
(or within such shorter period of time as reasonably may be specified
in such notice or may be necessary under the circumstances) it may, but
shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall
deem to be in the best interests of the Certificateholders, and shall
have no liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or
any such provision is ambiguous as to its application, or is, or
appears to be, in conflict with any other applicable provision, or in
the event that this Agreement permits any determination by the Owner
Trustee or is silent or is incomplete as to the course of action that
the Owner Trustee is required to take with respect to a particular set
of facts, the Owner Trustee may give notice (in such form as shall be
appropriate under the circumstances) to the Instructing Party
requesting instruction and, to the extent that the Owner Trustee acts
or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account
of such action or inaction, to any Person. If the Owner Trustee shall
not have received appropriate instruction within 10 days of such notice
(or within such shorter period of time as reasonably may be specified
in such notice or may be necessary under the circumstances) it may, but
shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall
deem to be in the best interests of the Certificateholders, and shall
have no liability to any Person for such action or inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Commission filing for the Trust or to
record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any Liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee (solely in its
individual capacity) and that are not related to the ownership or the
administration of the Owner Trust Estate.
SECTION 6.5. No Action Except under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
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accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6. Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation or a publicly traded partnership for
Federal income tax purposes. The Certificateholders shall not direct the Owner
Trustee to take action that would violate the provisions of this Section.
ARTICLE VII
Concerning the Owner Trustee
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SECTION 7.1. Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all monies actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence, (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the Owner
Trustee in its individual capacity, (iii) for liabilities arising from the
failure of the Owner Trustee to perform obligations expressly undertaken by it
in the last sentence of Section 6.4 hereof, (iv) for any investments issued by
the Owner Trustee or any branch or affiliate thereof in its commercial capacity
or (v) for taxes, fees or other charges on, based on or measured by, any fees,
commissions or compensation received by the Owner Trustee. In particular, but
not by way of limitation (and subject to the exceptions set forth in the
preceding sentence):
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(a) the Owner Trustee shall not be liable for any error of
judgment made by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the
instructions of the Instructing Party, the Depositor, the Servicer or
any Certificateholder;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur
any financial liability in the performance of any of its rights or
powers hereunder or under any Basic Document if the Owner Trustee shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
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(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiency of this Agreement or for the due
execution hereof by the Depositor or for the form, character,
genuineness, sufficiency, value or validity of any of the Owner Trust
Estate or for or in respect of the validity or sufficiency of the Basic
Documents, other than the certificate of authentication on the
Certificates, and the Owner Trustee shall in no event assume or incur
any liability, duty or obligation to the Depositor, the Insurer,
Trustee, Trust Collateral Agent, the Collateral Agent, any Noteholder
or to any Certificateholder, other than as expressly provided for
herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Depositor, the Insurer, the Trustee, the Trust
Collateral Agent or the Servicer under any of the Basic Documents or
otherwise and the Owner Trustee shall have no obligation or liability
to perform the obligations under this Agreement or the Basic Documents
that are required to be performed by the Depositor under this
Agreement, by the Trustee under the Indenture or the Trust Collateral
Agent or the Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee 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
otherwise or in relation to this Agreement or any Basic Document, at
the request, order or direction of the Instructing Party or any of the
Certificateholders, unless such Instructing Party or Certificateholders
have offered to the Owner Trustee security or indemnity satisfactory to
it against the costs, expenses and liabilities that may be incurred by
the Owner Trustee therein or thereby. The right of the Owner Trustee to
perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee
shall not be answerable for other than its negligence, bad faith or
willful misconduct in the performance of any such act.
SECTION 7.2. Furnishing of Documents. The Owner Trustee shall furnish
to the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
SECTION 7.3. Representations and Warranties. The Owner Trustee hereby
represents and warrants, in its individual capacity, to the Depositor, the
Holders and the Insurer (which shall have relied on such representations and
warranties in issuing the Policies), that:
(a) It is a Delaware banking corporation, duly organized and
validly existing in good standing under the laws of the State of
Delaware. It has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
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(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will
be executed and delivered by one of its officers who is duly authorized
to execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any federal or Delaware state law, governmental rule or
regulation governing the banking or trust powers of the Owner Trustee
or any judgment or order binding on it, or constitute any default under
its charter documents or by-laws or any indenture, mortgage, contract,
agreement or instrument to which it is a party or by which any of its
properties may be bound.
SECTION 7.4. Reliance; Advice of Counsel. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed by it to be signed
by the proper party or parties. The Owner Trustee may accept a certified copy of
a resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
method of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer, secretary or other
authorized officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Owner Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon.
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(b) In the exercise or administration of the trusts hereunder and
in the performance of its duties and obligations under this Agreement
or the Basic Documents, the Owner Trustee (i) may act directly or
through its agents or attorneys pursuant to agreements entered into
with any of them, and the Owner Trustee shall not be liable for the
conduct or misconduct of such agents or attorneys if such agents or
attorneys shall have been selected by the Owner Trustee with reasonable
care, and (ii) may consult with counsel, accountants and other skilled
persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the written opinion or
advice of any such counsel, accountants or other such persons and
according to such opinion not contrary to this Agreement or any Basic
Document.
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SECTION 7.5. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Wilmington Trust
Company acts solely as Owner Trustee hereunder and not in its individual
capacity and
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all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6. Owner Trustee Not Liable for Certificates or Receivables.
The recitals contained herein and in the Certificates (other than the signature
and countersignature of the Owner Trustee on the Certificates) shall be taken as
the statements of the Depositor and the Owner Trustee assumes no responsibility
for the correctness thereof. The Owner Trustee makes no representations as to
the validity or sufficiency of this Agreement, of any Basic Document or of the
Certificates (other than the signature and countersignature of the Owner Trustee
on the Certificates) or the Notes, or of any Receivable or related documents.
The Owner Trustee shall at no time have any responsibility or liability for or
with respect to the legality, validity and enforceability of any Receivable, or
the perfection and priority of any security interest created by any Receivable
in any Financed Vehicle or the maintenance of any such perfection and priority,
or for or with respect to the sufficiency of the Owner Trust Estate or its
ability to generate the payments to be distributed to Certificateholders under
this Agreement or the Noteholders under the Indenture, including, without
limitation: the existence, condition and ownership of any Financed Vehicle; the
existence and enforceability of any insurance thereon; the existence and
contents of any Receivable on any computer or other record thereof; the validity
of the assignment of any Receivable to the Trust or of any intervening
assignment; the completeness of any Receivable; the performance or enforcement
of any Receivable; the compliance by the Depositor, the Servicer or any other
Person with any warranty or representation made under any Basic Document or in
any related document or the accuracy of any such warranty or representation or
any action of the Trustee or the Servicer or any subservicer taken in the name
of the Owner Trustee.
SECTION 7.7. Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledge
of Certificates or Notes and may deal with the Depositor, the Trustee and the
Servicer in banking transactions with the same rights as it would have if it
were not Owner Trustee.
SECTION 7.8. Payments from Owner Trust Estate. All payments to be made
by the Owner Trustee under this Agreement or any of the Basic Documents to which
the Trust or the Owner Trustee is a party shall be made only from the income and
proceeds of the Owner Trust Estate and only to the extent that the Owner Trust
shall have received income or proceeds from the Owner Trust Estate to make such
payments in accordance with the terms hereof. Wilmington Trust Company, or any
successor thereto, in its individual capacity, shall not be liable for any
amounts payable under this Agreement or any of the Basic Documents to which the
Trust or the Owner Trustee is a party.
SECTION 7.9. Doing Business in Other Jurisdictions. Notwithstanding
anything contained to the contrary, neither Wilmington Trust Company or any
successor thereto, nor the Owner Trustee shall be required to take any action in
any jurisdiction other than in the State of Delaware if the taking of such
action will, even after the appointment of a co-trustee or separate trustee in
accordance with Section 10.5 hereof, (i) require the consent or approval or
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authorization or order of or the giving of notice to, or the registration with
or the taking of any other action in respect of, any state or other governmental
authority or agency of any jurisdiction other than the State of Delaware; (ii)
result in any fee, tax or other governmental charge under the laws of the State
of Delaware becoming payable by Wilmington Trust Company (or any successor
thereto); or (iii) subject Wilmington Trust Company (or any successor thereto)
to personal jurisdiction in any jurisdiction other than the State of Delaware
for causes of action arising from acts unrelated to the consummation of the
transactions by Wilmington Trust Company (or any successor thereto) or the Owner
Trustee, as the case may be, contemplated hereby.
ARTICLE VIII
Compensation of Owner Trustee
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SECTION 8.1. Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Depositor and the
Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Depositor for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder and under the
Basic Documents.
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SECTION 8.2. Indemnification. The Depositor shall be liable as primary
obligor for, and shall indemnify the Owner Trustee (in its individual and trust
capacities) and its officers, directors, successors, assigns, agents and
servants (collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reasonable
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may (in its trust or individual capacities) at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Basic Documents, the Owner Trust Estate, the administration of the Owner Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the Depositor shall not be liable for or required to indemnify the Owner
Trustee from and against Expenses arising or resulting from any of the matters
described in the third sentence of Section 7.1. The indemnities contained in
this Section and the rights under Section 8.1 shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Depositor which approval shall not be
unreasonably withheld.
SECTION 8.3. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
SECTION 8.4. Non-recourse Obligations. Notwithstanding anything in this
Agreement or any Basic Document, the Owner Trustee agrees in its individual
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capacity and in its capacity as Owner Trustee for the Trust that all obligations
of the Trust to the Owner Trustee individually or as Owner Trustee for the Trust
shall be recourse to the Owner Trust Estate only and specifically shall not be
recourse to the assets of any Certificateholder.
ARTICLE IX
Termination of Trust Agreement
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SECTION 9.1. Termination of Trust Agreement. (a) This Agreement and the
Trust shall terminate and be of no further force or effect upon the latest of
(i) the maturity or other liquidation of the last Receivable (including the
purchase by the Servicer at its option of the corpus of the Trust as described
in Section 11.1 of the Sale and Servicing Agreement) and the subsequent
distribution of amounts in respect of such Receivables as provided in the Basic
Documents or (ii) the payment to Certificateholders of all amounts required to
be paid to them pursuant to this Agreement and the payment to the Insurer of all
amounts payable or reimbursable to it pursuant to the Sale and Servicing
Agreement; provided, however, that the rights to indemnification under Section
8.2 and the rights under Section 8.1 shall survive the termination of the Trust.
The Servicer shall promptly notify the Owner Trustee and the Insurer of any
prospective termination pursuant to this Section 9.1. The bankruptcy,
liquidation, dissolution, death or incapacity of any Certificateholder shall not
(x) operate to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or Owner Trust Estate nor (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
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(b) Except as provided in clause (a), neither the Depositor nor
any other Certificateholder shall be entitled to revoke or terminate
the Trust.
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(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender
their Certificates to the Trust Collateral Agent for payment of the
final distribution and cancellation, shall be given by the Owner
Trustee by letter to Certificateholders mailed within five Business
Days of receipt of notice of such termination from the Servicer given
pursuant to Section 11.1(c) of the Sale and Servicing Agreement,
stating (i) the Distribution Date upon or with respect to which final
payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Trust Collateral
Agent therein designated, (ii) the amount of any such final payment,
(iii) that the Record Date otherwise applicable to such Distribution
Date is not applicable, payments being made only upon presentation and
surrender of the Certificates at the office of the Trust Collateral
Agent therein specified and (iv) interest will cease to accrue on the
Certificates. The Owner Trustee shall give such notice to the
Certificate Registrar (if other than the Owner Trustee) and the Trust
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Collateral Agent at the time such notice is given to
Certificateholders. Upon presentation and surrender of the
Certificates, the Trust Collateral Agent shall cause to be distributed
to Certificateholders amounts distributable on such Distribution Date
pursuant to Section 5.7 of the Sale and Servicing Agreement. In the
event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee
shall give a second written notice to the remaining Certificateholders
to surrender their Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second
notice all the Certificates shall not have been surrendered for
cancellation, the Owner Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the
cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds remaining in the Trust
after exhaustion of such remedies shall be distributed, subject to
applicable escheat laws, by the Owner Trustee to the Depositor and
Holders shall look solely to the Depositor for payment.
(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall
be distributed by the Owner Trustee to the Depositor.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by
filing a certificate of cancellation with the Secretary of State in
accordance with the provisions of Section 3810 of the Business Trust
Statute. (f) Written notice of the termination of this Agreement and
the Trust shall be given to each Rating Agency by the Owner Trustee.
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
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SECTION 10.1. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation (i) satisfying the provisions of
Section 3807(a) of the Business Trust Statute; (ii) authorized to exercise
corporate trust powers; (iii) having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by Federal or State
authorities; (iv) having (or having a parent which has) a rating of at least
Baa3 by Moody's and A-1 by Standard & Poors; and (v) acceptable to the Insurer
in its sole discretion, so long as an Insurer Default shall not have occurred
and be continuing. If such corporation shall publish reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Owner Trustee shall cease to be eligible
in accordance with the provisions of this Section, the Owner Trustee shall
resign immediately in the manner and with the effect specified in Section 10.2.
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26
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SECTION 10.2. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Depositor (or in the event that the
Depositor is not the sole Certificateholder, the Holders of Certificates
evidencing not less than a majority of the percentage ownership interest in the
Trust), the Insurer and the Servicer. Upon receiving such notice of resignation,
the Depositor shall promptly appoint a successor Owner Trustee, meeting the
qualifications set forth in Section 10.1 herein, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and one copy to the successor Owner Trustee, provided that the
Depositor shall have received written confirmation from each of the Rating
Agencies that the proposed appointment will not result in an increased capital
charge to the Insurer by either of the Rating Agencies. If no successor Owner
Trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning Owner Trustee
or the Insurer may petition any court of competent jurisdiction for the
appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Depositor, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor with the consent of the Insurer (so long as an
Insurer Default shall not have occurred and be continuing) may remove the Owner
Trustee. If the Depositor shall remove the Owner Trustee under the authority of
the immediately preceding sentence, the Depositor shall promptly appoint a
successor Owner Trustee, meeting the qualifications set forth in Section 10.1
herein, by written instrument, in duplicate, one copy of which instrument shall
be delivered to the outgoing Owner Trustee so removed, one copy to the Insurer
and one copy to the successor Owner Trustee and payment of all fees owed to the
outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Depositor shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Depositor, the Servicer, the Insurer and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee, without any further act, deed or conveyance,
shall become fully vested with all the rights, powers, duties and
27
<PAGE>
obligations of its predecessor under this Agreement, with like effect as if
originally named as Owner Trustee. The predecessor Owner Trustee shall upon
payment of its fees and expenses deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Agreement; and the
Depositor and the predecessor Owner Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for fully
and certainly vesting and confirming in the successor Owner Trustee all such
rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Servicer shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Trustee, the Noteholders and the Rating
Agencies. If the Servicer shall fail to mail such notice within 10 days after
acceptance of appointment by the successor Owner Trustee, the successor Owner
Trustee shall cause such notice to be mailed at the expense of the Servicer.
SECTION 10.4. Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
further that the Owner Trustee shall mail notice of such merger or consolidation
to the Rating Agencies.
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Financed Vehicle may at the time be located,
the Servicer and the Owner Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Owner Trustee and the Insurer to act as co-trustee, jointly with the Owner
Trustee, or separate trustee or separate trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Servicer and
the Owner Trustee may consider necessary or desirable. If the Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee subject, unless an Insurer Default shall
have occurred and be continuing, to the approval of the Insurer (which approval
shall not be unreasonably withheld) shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee
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<PAGE>
jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Owner
Trustee joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are to be
performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Servicer and the Owner Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer and the Insurer.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
ARTICLE XI
Miscellaneous
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SECTION 11.1. Supplements and Amendments. (a) This Agreement may be
amended by the Depositor and the Owner Trustee, with the prior written consent
of the Insurer (so long as an Insurer Default shall not have occurred and be
continuing) and with prior written notice to the Rating Agencies, without the
consent of any of the Noteholders or, in the event that the Depositor is not the
sole Certificateholder, the Certificateholders, (i) to cure any ambiguity or
defect or (ii) to correct, supplement or modify any provisions in this
Agreement; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel which may be based upon a certificate of the Servicer,
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<PAGE>
adversely affect in any material respect the interests of any Noteholder or
Certificateholder.
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(b) This Agreement may also be amended from time to time, with
the prior written consent of the Insurer (so long as an Insurer Default
shall not have occurred and be continuing) by the Depositor and the
Owner Trustee, with prior written notice to the Rating Agencies, to the
extent such amendment materially and adversely affects the interests of
the Noteholders, with the consent of the Noteholders evidencing not
less than a majority of the Outstanding Amount of the Notes and, the
consent of the Certificateholders evidencing not less than a majority
of the percentage ownership interest in the Trust (which consent of any
Holder of a Certificate or Note given pursuant to this Section or
pursuant to any other provision of this Agreement shall be conclusive
and binding on such Holder and on all future Holders of such
Certificate or Note and of any Certificate or Note issued upon the
transfer thereof or in exchange thereof or in lieu thereof whether or
not notation of such consent is made upon the Certificate or Note) for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Noteholders or the Certificateholders;
provided, however, that, subject to the express rights of the Insurer
under the Basic Documents, no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing
of, collections of payments on Receivables or distributions that shall
be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes and the Certificates, the Holders of
which are required to consent to any such amendment, without the
consent of the Holders of all the outstanding Notes and Holders of all
outstanding Certificates.
-----------------------------------------------------------------------
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Trustee and each of the
Rating Agencies.
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Trustee pursuant to this Section to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe. Promptly after the execution of
any amendment to the Certificate of Trust, the Owner Trustee shall cause the
filing of such amendment with the Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
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<PAGE>
SECTION 11.2. Limitations on Rights of Others. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Certificateholders, the Servicer and, to the extent
expressly provided herein, the Insurer, the Trustee and the Noteholders, and
nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim in the
Owner Trust Estate or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
SECTION 11.3. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt personally delivered, delivered by overnight courier
or mailed first class mail or certified mail, in each case return receipt
requested, and shall be deemed to have been duly given upon receipt, if to the
Owner Trustee, addressed to the Corporate Trust Office; if to the Depositor,
addressed to National Financial Auto Funding Trust, One Park Place, Suite 200,
621 N.W. 53rd Street, Boca Raton, Florida 33487; if to the holder of the
Insurer, addressed to Insurer, Financial Security Assurance Inc., 350 Park
Avenue, New York, NY 10022, Attention: Surveillance Department, Re: National
Auto Finance 1997-1 Trust, 6.35% Automobile Receivables-Backed Notes, Telex No.:
(212) 688-3101, Confirmation: (212) 826-0100, Telecopy Nos.: (212) 339-3518,
(212) 339-3529 (in each case in which notice or other communication to the
Insurer refers to an Event of Default, a claim on the Note Policy or with
respect to which failure on the part of Financial Security to respond shall be
deemed to constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of the General Counsel and
the Head-Financial Guaranty Group "URGENT MATERIAL ENCLOSED"); or, as to each
party, at such other address as shall be designated by such party in a written
notice to each other party.
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(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid,
at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
- --------------------------------------------------------------------------------
SECTION 11.4. Severability. Any provision of this Agreement that is
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 11.5. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.6. Assignments; Insurer. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. This Agreement shall also inure to the benefit
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of the Insurer for so long as an Insurer Default shall not have occurred and be
continuing. Without limiting the generality of the foregoing, all covenants and
agreements in this Agreement which confer rights upon the Insurer shall be for
the benefit of and run directly to the Insurer, and the Insurer shall be
entitled to rely on and enforce such covenants, subject, however, to the
limitations on such rights provided in this Agreement and the Basic Documents.
The Insurer may disclaim any of its rights and powers under this Agreement (but
not its duties and obligations under the Policies) upon delivery of a written
notice to the Owner Trustee.
SECTION 11.7. No Petition. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Certificate, and the Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenants and
agrees that they will not at any time institute against the Depositor, or join
in any institution against the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Certificates, the Notes, this Agreement or any
of the Basic Documents.
SECTION 11.8. No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Servicer, the Depositor, the Owner Trustee, the Trustee, the
Insurer or any Affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Agreement, the Certificates or the Basic Documents.
SECTION 11.9. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.11. Servicer. The Servicer is authorized to prepare, or
cause to be prepared, execute and deliver on behalf of the Trust all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Trust or Owner Trustee to prepare, file or deliver pursuant
to the Basic Documents. Upon written request, the Owner Trustee shall execute
and deliver to the Servicer a limited power of attorney appointing the Servicer
the Trust's agent and attorney-in-fact to prepare, or cause to be prepared,
execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized as of
the day and year first above written.
WILMINGTON TRUST COMPANY,
Owner Trustee,
By:_________________________________
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST,
Depositor,
By:_________________________________
Name: Keith B. Stein
Title: Secretary
Acknowledged and Agreed:
NATIONAL AUTO FINANCE COMPANY, INC.,
Servicer,
By:____________________________
Name: Keith B. Stein
Title: Treasurer
33
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
NUMBER
1
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND SUCH STATE
SECURITIES LAWS. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE
UNLESS SUCH RESALE OR TRANSFER (A) IS MADE IN ACCORDANCE WITH SECTION 3.4 OF THE
OWNER TRUST AGREEMENT PERTAINING TO THE NATIONAL AUTO FINANCE 1997-1 TRUST (THE
"AGREEMENT") AND (B) IS MADE (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (ii) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, (iii)
TO THE SELLER OR (iv) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A AND (C) UPON THE SATISFACTION OF CERTAIN OTHER
REQUIREMENTS SPECIFIED IN THE AGREEMENT. NEITHER THE SELLER, THE SERVICER, THE
TRUST NOR THE OWNER TRUSTEE IS OBLIGATED TO REGISTER THE CERTIFICATES UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
TRUST CERTIFICATE
evidencing a beneficial ownership interest in certain distributions of the
Trust, as defined below, the property of which includes a pool of retail
installment sale contracts secured by new or used automobiles, vans or light
duty trucks and sold to the Trust by National Financial Auto Funding Trust.
(This Certificate does not represent an interest in or obligation of National
Financial Auto Funding Trust or any of its Affiliates, except to the extent
described below.)
THIS CERTIFIES THAT National Financial Auto Funding Trust is the
registered owner of a nonassessable, fully-paid, beneficial ownership interest
<PAGE>
in certain distributions of National Auto Finance 1997-1 Trust (the "Trust")
formed by National Financial Auto Funding Trust, a Delaware business trust (the
"Depositor").
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within mentioned
Trust Agreement.
WILMINGTON TRUST COMPANY not in its individual capacity but solely as Owner
Trustee
by ________________________________ Authenticating Agent
by _______________________________
The Trust was created pursuant to a Trust Agreement dated as of July ,
1997 (the "Trust Agreement"), between the Depositor and Wilmington Trust
Company, as owner trustee (the "Owner Trustee"), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates designated
as "Trust Certificates" (herein called the "Certificates"). This Certificate is
issued under and is subject to the terms, provisions and conditions of the Trust
Agreement, to which Trust Agreement the holder of this Certificate by virtue of
the acceptance hereof assents and by which such holder is bound. The property of
the Trust includes a pool of retail installment sale contracts secured by new
and used automobiles, vans or light duty trucks (the "Receivables"), all monies
due thereunder on or after Initial Cutoff Date, security interests in the
vehicles financed thereby, certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and certain other rights
under the Trust Agreement and the Sale and Servicing Agreement, all right, to
and interest of the Depositor in and to the Purchase and Contribution Agreement
dated as of June 29, 1997 between National Auto Finance Company, Inc. and
National Financial Auto Funding Trust and all proceeds of the foregoing.
Under the Trust Agreement, there will be distributed on the 21st day of
each month or, if such 21st day is not a Business Day, the next Business Day
(the "Distribution Date"), commencing on July 21, 1997, to the Person in whose
name this Certificate is registered at the close of business on the Business Day
preceding such Distribution Date (the "Record Date") such Certificateholder's
fractional undivided interest in the amount to be distributed to
Certificateholders on such Distribution Date.
The holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Sale and Servicing Agreement, the
Indenture and the Trust Agreement, as applicable.
<PAGE>
The holder of this Certificate, by acceptance of this Certificate,
specifically acknowledges that it has no right to or interest in any monies at
any time held pursuant to the Spread Account Agreement or prior to the release
of such monies pursuant to Section 5.7(b) of the Sale and Servicing Agreement,
such monies being held in trust for the benefit of the Noteholders and the
Insurer. Notwithstanding the foregoing, in the event that it is ever determined
that the monies held in the Spread Account constitute a pledge of collateral,
then the provisions of the Sale and Servicing Agreement and the Spread Account
Agreement shall be considered to constitute a security agreement and the holder
of this Certificate hereby grants to the Trust Collateral Agent for the benefit
of the Trustee and the Insurer a first priority perfected security interest in
such amounts, to be applied as set forth in Section 3.03 of the Spread Account
Agreement. In addition, each Certificateholder, by acceptance of its
Certificate, hereby appoints the Seller as its agent to pledge a first priority
perfected security interest in the Spread Account, and any amounts held therein
from time to time to the Collateral Agent for the benefit of the Trustee and the
Insurer pursuant to the Spread Account Agreement and agrees to execute and
deliver such instruments of conveyance, assignment, grant, confirmation, etc.,
as well as any financing statements, in each case as the Insurer shall consider
reasonably necessary in order to perfect the Trust Collateral Agent's security
interest in the Collateral.
It is the intent of the Depositor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a branch. In the event that the Certificates are held more than one
Holder, it is the intent of the Depositor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a partnership and the Certificateholders will be treated as partners
in that partnership. The Depositor and any other Certificateholders, by
acceptance of a Certificate, agree to treat, and to take no action inconsistent
with the treatment of, the Certificates for such tax purposes as partnership
interests in the Trust. Each Certificateholder, by its acceptance of a
Certificate, covenants and agrees that such Certificateholder will not at any
time institute against the Trust or the Depositor, or join in any institution
against the Trust or the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Certificates, the Notes, the Trust Agreement or
any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Sale
and Servicing Agreement by the Trust Collateral Agent by wire transfer or check
mailed to the Certificateholder of record in the Certificate Register without
the presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the Corporate Trust Office.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual signature,
this Certificate shall not entitle the holder hereof to any benefit under the
Trust Agreement or the Sale and Servicing Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
NATIONAL AUTO FINANCE 1997-1 TRUST
By: WILMINGTON TRUST COMPANY not in its
individual capacity but solely as
Owner Trustee
Dated: By:__________________________________
By: ____________________________
Name:
Title:
<PAGE>
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Servicer, the Owner Trustee or any Affiliates of any of them
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated herein or in the Trust Agreement, the
Indenture or the Basic Documents. In addition, this Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections with respect to the Receivables, as more
specifically set forth herein and in the Sale and Servicing Agreement. A copy of
each of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Depositor, and at
such other places, if any, designated by the Depositor, by any Certificateholder
upon written request.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Depositor and the rights of the Certificateholders under the Trust Agreement at
any time by the Depositor and the Owner Trustee with the prior written consent
of Financial Security Assurance Inc. (the "Insurer") so long as no Insurer
Default has occurred and is continuing, and with the consent of the holders of
the Notes and the Certificates evidencing not less than a majority of the
outstanding Notes and the percentage ownership interest of the Trust. Any such
consent by the holder of this Certificate shall be conclusive and binding on
such holder and on all future holders of this Certificate and of any Certificate
issued upon the transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent is made upon this Certificate. The Trust
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the holders of any of the Certificates (other than the
Depositor or the Insurer).
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Owner Trustee in the Corporate Trust Office, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
evidencing the same percentage ownership interest in the Trust will be issued to
the designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is Wilmington Trust Company.
Except for Certificates issued to the Depositor, the Certificates are
issuable only as registered Certificates. As provided in the Trust Agreement and
subject to certain limitations therein set forth, Certificates are exchangeable
for new Certificates evidencing the same aggregate percentage ownership interest
in the Trust, as requested by the holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
<PAGE>
The Owner Trustee, the Certificate Registrar and any agent of the Owner
Trustee, the Certificate Registrar or the Insurer may treat the person in whose
name this Certificate is registered as the owner hereof for all purposes, and
none of the Owner Trustee, the Certificate Registrar nor any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement and
the Sale and Servicing Agreement and the disposition of all property held as
part of the Trust. The Servicer of the Receivables may at its option purchase
the corpus of the Trust at a price specified in the Sale and Servicing
Agreement, and such purchase of the Receivables and other property of the Trust
will effect a transfer of the Certificates; however, such right of purchase is
exercisable, subject to certain restrictions, only as of the last day of any
Monthly Period as of which the Pool Balance is 10% or less of the Original Pool
Balance.
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e) (1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By accepting and holding this
Certificate, the Holder hereof shall be deemed to have represented and warranted
that it is not a Benefit Plan.
The recitals contained herein shall be taken as the statements of the
Depositor or the Servicer, as the case may be, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Certificate or of any
Receivable or related document.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual or facsimile
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Trust Agreement or the Sale and Servicing Agreement or be valid for
any purpose.
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
<PAGE>
constituting and appointing
____________________ Attorney to transfer said Certificate on the books of the
Certificate Registrar, with full power of substitution in the premises.
Dated:
__________________________ *
Signature Guaranteed:
__________________________ *
- ------------
* NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Certificate in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST OF
NATIONAL AUTO FINANCE 1997-1 TRUST
This Certificate of Trust of National Auto Finance 1997-1 Trust (the
"Trust"), dated as of July 21, 1997, is being duly executed and filed by
Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 et
seq.).
1. Name. The name of the business trust formed hereby is
National Auto Finance 1997-1 Trust.
2. Delaware Trust. The name and business address of the
Trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
Attn: Corporate Trust Administration.
3. This Certificate of Trust will be effective July 21, 1997.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY not in its individual
capacity but solely as owner trustee of the Trust.
By:_________________________________
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF INVESTMENT LETTER
[lETTERHEAD OF PURCHASER]
[Date]
Wilmington Trust Company, as trustee
of National Auto Finance 1997-1 Trust
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Ladies and Gentlemen:
The undersigned (the "Purchaser") proposes to purchase the Trust
Certificates issued pursuant to that certain Trust Agreement, dated as of July
21, 1997 (the "Trust Agreement"), between National Financial Auto Funding Trust,
a Delaware business trust, and Wilmington Trust Company, as trustee (the
"Trustee"). Unless the context or use indicates another or different meaning,
each capitalized term used herein and not otherwise defined herein shall have
the meaning ascribed to it in the Trust Agreement.
1. The undersigned hereby certifies that, as indicated below, the
undersigned is a duly authorized officer of the Purchaser.
2. In connection with the purchase by the Purchaser of the Trust
Certificates, the undersigned hereby certifies to you, and, if you act as broker
for one or more customers, to such customers, that the Purchaser is a "qualified
institutional buyer" as defined in Rule 144A ("Rule 144A") promulgated under the
Securities Act of 1933, as amended, because the Purchaser is an entity described
in paragraph (a) (1) ___ [refer to applicable subparagraph] of Rule 144A.
3. The Purchaser certifies and acknowledges that it is familiar with
Rule 144A and understands that you and your customers (if you act as a broker
for one or more customers) are relying on the statements made therein.
4. The Purchaser certifies that the Purchaser is purchasing the Trust
Certificates in the capacity marked below (check one):
[ ] The Purchaser certifies that the Purchaser is purchasing the Trust
Certificates for its own account only; or
<PAGE>
[ ] The Purchaser certifies that the Purchaser is purchasing the Trust
Certificates for the account of [one] [specify number] other qualified
institutional buyer(s), [each of] which is a "qualified institutional buyer."
5. The Purchaser certifies that it has received from the Trust the
information that satisfies the requirements of paragraph (d)(4) of Rule 144A
(the "Rule 144A Information").
6. The Purchaser certifies that it will comply with all applicable
federal and state securities laws in connection with any subsequent resale by
the Purchaser of the Trust Certificates.
7. The Purchaser understands and acknowledges that the Trust
Certificates have not been and will not be registered under the Securities Act
of 1933, as amended, or any state securities laws and may be resold only if (a)
the Trust Certificates are registered pursuant to the provisions of the
Securities Act of 1933, as amended, and such state securities laws, or (b) if an
exemption from such registration is available. The Purchaser understands and
acknowledges that the Trust is not required to register the Trust Certificates
and that any transfer must comply with Section 3.4 of the Trust Agreement. The
Trustee is not obligated to provide Rule 144A Information.
8. The Purchaser additionally represents (check one):
( ) The Purchaser is not a Plan for ERISA purposes.
( ) The Purchaser's acquisition of the Trust Certificates
will not cause the assets of the Trust to be assets of any Plan for ERISA
purposes.
Very truly yours,
[Purchaser]
By:
Name:
Title:
================================================================================
NATIONAL AUTO FINANCE 1997-1 TRUST
6.35% AUTOMOBILE RECEIVABLES-BACKED NOTES
- --------------------------------------------------------------------------------
INDENTURE
DATED AS OF JUNE 29, 1997
- --------------------------------------------------------------------------------
HARRIS TRUST AND SAVINGS BANK
INDENTURE TRUSTEE AND TRUST COLLATERAL AGENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.1 Definitions............................................................................2
SECTION 1.2 Incorporation by Reference of the Trust Indenture Act..................................9
SECTION 1.3 Rules of Construction..................................................................9
SECTION 1.4 Action by or Consent of Noteholders...................................................10
SECTION 1.5 Material Adverse Effect...............................................................10
SECTION 1.6 Conflict with TIA.....................................................................10
ARTICLE II
THE NOTES
SECTION 2.1 Form..................................................................................10
SECTION 2.2 Execution, Authentication and Delivery................................................11
SECTION 2.3 Temporary Notes.......................................................................11
SECTION 2.4 Registration; Registration of Transfer and Exchange...................................12
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes............................................13
SECTION 2.6 Persons Deemed Owner..................................................................14
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest.................................14
SECTION 2.8 Cancellation..........................................................................15
SECTION 2.9 Release of Collateral.................................................................16
SECTION 2.10 Book-Entry Notes......................................................................16
SECTION 2.11 Notices to Clearing Agency............................................................17
SECTION 2.12 Definitive Notes......................................................................17
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest.....................................................18
SECTION 3.2 Maintenance of Office or Agency.......................................................18
SECTION 3.3 Money for Payments to be Held in Trust................................................18
SECTION 3.4 Existence.............................................................................20
SECTION 3.5 Protection of Trust Property..........................................................20
SECTION 3.6 Opinions as to Trust Property.........................................................21
SECTION 3.7 Performance of Obligations; Servicing of Receivables..................................21
<PAGE>
SECTION 3.8 Negative Covenants....................................................................22
SECTION 3.9 Annual Statement as to Compliance.....................................................23
SECTION 3.10 Trust May Consolidate, Etc. Only on Certain Terms.....................................23
SECTION 3.11 [Reserved]............................................................................23
SECTION 3.12 No Other Business.....................................................................23
SECTION 3.13 No Borrowing..........................................................................24
SECTION 3.14 Servicer's Obligations................................................................24
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities.....................................24
SECTION 3.16 Capital Expenditures..................................................................24
SECTION 3.17 Compliance with Laws..................................................................24
SECTION 3.18 Restricted Payments...................................................................24
SECTION 3.19 Notice of Events of Default...........................................................25
SECTION 3.20 Further Instruments and Acts..........................................................25
SECTION 3.21 Amendments of Sale and Servicing Agreement and Trust Agreement........................25
SECTION 3.22 Income Tax Characterization...........................................................25
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture...............................................25
SECTION 4.2 Application of Trust Money............................................................27
SECTION 4.3 Repayment of Monies Held by Note Paying Agent.........................................27
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default.....................................................................27
SECTION 5.2 Rights Upon Event of Default..........................................................29
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............30
SECTION 5.4 Remedies..............................................................................33
SECTION 5.5 Optional Preservation of the Receivables..............................................34
SECTION 5.6 Priorities............................................................................35
SECTION 5.7 Limitation of Suits...................................................................36
SECTION 5.8 Unconditional Rights of Noteholders To Receive Principal and Interest.................37
SECTION 5.9 Restoration of Rights and Remedies....................................................37
SECTION 5.10 Rights and Remedies Cumulative........................................................37
SECTION 5.11 Delay or Omission Not a Waiver........................................................37
SECTION 5.12 Control by Noteholders................................................................37
SECTION 5.13 Waiver of Past Defaults...............................................................38
<PAGE>
SECTION 5.14 Undertaking for Costs.................................................................38
SECTION 5.15 Waiver of Stay or Extension Laws......................................................39
SECTION 5.16 Action on Notes.......................................................................39
SECTION 5.17 Performance and Enforcement of Certain Obligations....................................39
SECTION 5.18 Subrogation...........................................................................40
SECTION 5.19 Preference Claims.....................................................................40
ARTICLE VI
THE INDENTURE TRUSTEE AND THE TRUST COLLATERAL AGENT
SECTION 6.1 Duties of Indenture Trustee...........................................................41
SECTION 6.2 Rights of Indenture Trustee and the Trust Collateral Agent............................43
SECTION 6.3 Individual Rights of Indenture Trustee................................................45
SECTION 6.4 Indenture Trustee's Disclaimer........................................................45
SECTION 6.5 Notice of Defaults....................................................................45
SECTION 6.6 Reports by Indenture Trustee to Holders...............................................45
SECTION 6.7 Compensation and Indemnity............................................................45
SECTION 6.8 Replacement of Indenture Trustee......................................................46
SECTION 6.9 Successor Indenture Trustee by Merger.................................................48
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................48
SECTION 6.11 Eligibility: Disqualification.........................................................49
SECTION 6.12 Preferential Collection of Claims Against Trust.......................................50
SECTION 6.13 Appointment and Powers................................................................50
SECTION 6.14 Performance of Duties.................................................................50
SECTION 6.15 Limitation on Liability...............................................................50
SECTION 6.16 Reliance Upon Documents...............................................................51
SECTION 6.17 Successor Trust Collateral Agent......................................................51
SECTION 6.18 Compensation..........................................................................53
SECTION 6.19 Representations and Warranties of the Indenture Trustee and the Trust
Collateral Agent....................................................................53
SECTION 6.20 Waiver of Setoffs.....................................................................53
SECTION 6.21 Control by the Controlling Party......................................................54
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Trust To Furnish To Indenture Trustee Names and Addresses of Noteholders..............54
SECTION 7.2 Preservation of Information; Communications to Noteholders............................54
SECTION 7.3 Reports by Trust......................................................................55
SECTION 7.4 Reports by Indenture Trustee..........................................................55
<PAGE>
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money...................................................................56
SECTION 8.2 Release of Trust Property.............................................................56
SECTION 8.3 Opinion of Counsel....................................................................56
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders................................57
SECTION 9.2 Supplemental Indentures with Consent of Noteholders...................................58
SECTION 9.3 Execution of Supplemental Indentures..................................................60
SECTION 9.4 Effect of Supplemental Indenture......................................................60
SECTION 9.5 Conformity With Trust Indenture Act...................................................60
SECTION 9.6 Reference in Notes to Supplemental Indentures.........................................60
ARTICLE X
REDEMPTION OF NOTES........
SECTION 10.1 Redemption............................................................................61
SECTION 10.2 Form of Redemption Notice.............................................................61
SECTION 10.3 Notes Payable on Redemption Date......................................................62
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.............................................62
SECTION 11.2 Form of Documents Delivered to Indenture Trustee......................................64
SECTION 11.3 Acts of Noteholders...................................................................65
SECTION 11.4 Notices, etc. to Indenture Trustee, Trust and Rating Agencies.........................65
SECTION 11.5 Notices to Noteholders; Waiver........................................................67
SECTION 11.6 Alternate Payment and Notice Provisions...............................................67
SECTION 11.7 Conflict with Trust Indenture Act.....................................................67
SECTION 11.8 Effect of Headings and Table of Contents..............................................68
SECTION 11.9 Successors and Assigns................................................................68
SECTION 11.10 Separability..........................................................................68
SECTION 11.11 Benefits of Indenture.................................................................68
SECTION 11.12 Legal Holidays........................................................................68
SECTION 11.13 Governing Law.........................................................................68
<PAGE>
SECTION 11.14 Counterparts..........................................................................68
SECTION 11.15 Recording of Indenture................................................................69
SECTION 11.16 Trust Obligation......................................................................69
SECTION 11.17 No Petition...........................................................................69
SECTION 11.18 Inspection............................................................................69
SECTION 11.19 Limitation of Liability...............................................................70
</TABLE>
EXHIBIT
Exhibit A -- Form of Note
<PAGE>
INDENTURE dated as of June 29, 1997, between NATIONAL AUTO FINANCE
1997-1 TRUST, a Delaware business trust (the "Trust"), and HARRIS TRUST AND
SAVINGS BANK, an Illinois banking corporation, as indenture trustee (the
"Indenture Trustee") and Trust Collateral Agent.
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Trust's 6.35% Automobile
Receivables-Backed Notes (the "Notes"):
As security for the payment and performance by the Trust of its
obligations under this Indenture and the Notes, the Trust has agreed to assign
the Collateral (as defined below) to the Trust Collateral Agent for the benefit
of the Indenture Trustee on behalf of the Noteholders.
Financial Security Assurance Inc. (the "Insurer") has issued and
delivered a financial guaranty insurance policy, dated the Closing Date (with
endorsements, the "Note Policy"), pursuant to which the Insurer guarantees
Scheduled Payments, as defined in the Note Policy.
As an inducement to the Insurer to issue and deliver the Note Policy,
the Trust and the Insurer have executed and delivered the Insurance and
Indemnity Agreement, dated as of July 23, 1997 (as amended from time to time,
the "Insurance Agreement"), among the Insurer, the Trust, National Auto Finance
Company, Inc. ("NAFI") and National Financial Auto Funding Trust.
As an additional inducement to the Insurer to issue the Note Policy,
and as security for the performance by the Trust of the Insurer Trust Secured
Obligations and as security for the performance by the Trust of the Trustee
Trust Secured Obligations, the Trust has agreed to assign the Collateral (as
defined below) to the Trust Collateral Agent for the benefit of the Trust
Secured Parties, as their respective interests may appear.
GRANTING CLAUSE
The Trust hereby Grants to the Trust Collateral Agent at the Closing
Date, for the benefit of the Trust Secured Parties all of the Trust's right,
title and interest in and to (a) the Initial Receivables and all monies received
thereon on or after the Initial Cutoff Date (including amounts due on or before
the Initial Cutoff Date but received by NAFI, the Seller or the Issuer on or
after the Initial Cutoff Date); (b) any proceeds and the right to receive
proceeds with respect to the Initial Receivables from claims on any physical
damage, credit life or disability insurance policies or other insurance policies
covering Financed Vehicles or Obligors, including rebates of insurance premiums
relating to the Receivables and any proceeds from the liquidation of the Initial
Receivables; (c) all rights against Dealers pursuant to Dealer Agreements or
against Originators pursuant to Originator Agreements; (d) the related
Receivables Files and any and all other documents that NAFI keeps on file in
accordance with its customary procedures relating to the Receivables, the
Obligors or the Financed Vehicles; (e) property (including the right to receive
<PAGE>
future Liquidation Proceeds) that secures a Receivable and that has been
acquired by or on behalf of the Trust pursuant to liquidation of such
Receivable; (f) all funds on deposit from time to time in the Trust Accounts
(less all investments and proceeds thereof), and all rights of the Issuer
therein; (g) the rights and benefits, but none of its obligations or burdens,
under the Conveyance Agreements, including the delivery requirements,
representations and warranties and the cure and repurchase obligations of NAFI
under the Purchase Agreement; and (h) the proceeds of any and all of the
foregoing.
The foregoing Grant is made in trust to the Trust Collateral Agent, for
the benefit first, of the Indenture Trustee on behalf of the Holders of the
Notes, and second, for the benefit of the Insurer. The Trust Collateral Agent
hereby acknowledges such Grant, accepts the trusts under this Indenture.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Definitions. Except as otherwise specified herein, the following terms have
the respective meanings set forth below for all purposes of this Indenture.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Sale and Servicing Agreement.
SECTION 1.1
Act: As defined in Section 11.3(a) hereof.
Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under 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. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
Authorized Officer: With respect to the Trust and the Servicer, any
officer or agent acting pursuant to a power of attorney of the Owner Trustee or
the Servicer, as applicable, who is authorized to act for the Owner Trustee or
the Servicer, as applicable, in matters relating to the Trust and who is
identified on the list of Authorized Officers delivered by each of the Owner
Trustee and the Servicer to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter).
Book Entry Notes: A beneficial interest in the Notes, ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 2.10 hereof.
<PAGE>
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which commercial banks in Florida, Illinois, Delaware or the state of New
York are authorized or obligated by law, executive order or governmental decree
to be closed.
Certificate of Trust: The certificate of trust of the Trust
substantially in the form of Exhibit B to the Trust Agreement.
Clearing Agency: An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
Clearing Agency Participant: A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
Closing Date: July 23, 1997.
Collateral: As defined in the Granting Clause hereof.
Controlling Party: The Insurer, so long as no Insurer Default shall
have occurred and be continuing, and the Indenture Trustee, for so long as an
Insurer Default shall have occurred and be continuing.
Conveyance Agreements: The Sale and Servicing Agreement, the Sale
Agreement, the Assignment Agreement and the Purchase and Contribution Agreement.
Corporate Trust Office: The principal office of the Indenture Trustee
at which at any particular time its corporate trust business shall be
administered which office at date of the execution of this Agreement is located
at 311 West Monroe Street, 12th Floor, Chicago, Illinois 60606, Attention:
Indenture Trust Division or at such other address as the Indenture Trustee may
designate from time to time by notice to the Noteholders, the Insurer, the
Servicer and the Trust, or the principal corporate trust office of any successor
Indenture Trustee (the address of which the successor Indenture Trustee will
notify the Noteholders and the Trust).
Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.
Definitive Notes: As defined in Section 2.10 hereof.
Event of Default: As defined in Section 5.1 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Final Scheduled Distribution Date: The Distribution Date occurring in
November, 2003.
Grant: Means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other monies payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to door
receive thereunder or with respect thereto.
<PAGE>
Holder or Noteholder: The Person in whose name a Note is registered on
the Note Register.
Indebtedness: With respect to any Person at any time, (a) indebtedness
or liability of such Person for borrowed money whether or not evidenced by
bonds, debentures, notes or other instruments, or for the deferred purchase
price of property or services (including trade obligations); (b) obligations of
such Person as lessee under leases which should have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases; (c) current liabilities of such Person in respect of unfunded vested
benefits under plans covered by Title IV of ERISA; (d) obligations issued for or
liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities; (f) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (g) obligations of such Person
secured by any lien on property or assets of such Person, whether or not the
obligations have been assumed by such Person; or (h) obligations of such Person
under any interest rate or currency exchange agreement.
Indenture: This Indenture as amended and supplemented from time to
time.
Indenture Trustee: Harris Trust and Savings Bank, an Illinois banking
corporation, not in its individual capacity but as indenture trustee under this
Indenture, or any successor indenture trustee under this Indenture.
Independent: When used with respect to any specified Person, that the
person (a) is in fact independent of the Trust, any other obligor upon the
Notes, the Seller and any Affiliate of any of the foregoing persons, (b) does
not have any direct financial interest or any material in direct financial
interest in the Trust, any such other obligor, the Seller or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Trust, any such
other obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions.
Independent Certificate: A certificate or opinion to be delivered to
the Trust Collateral Agent and the Indenture Trustee under the circumstances
described in, and otherwise complying with, the applicable requirements of
Section 11.1 hereof, prepared by an Independent appraiser or other expert
appointed pursuant to a Trust Order and approved by the Trust Collateral Agent
in the exercise of reasonable care, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Indenture and
that the signer is Independent within the meaning thereof.
<PAGE>
Initial Cut-off Date: June 29, 1997.
Insurance Agreement Indenture Cross Default: As defined in the
Insurance Agreement.
Insurer Trust Secured Obligations: All amounts and obligations which
the Trust may at any time owe to or on behalf of the Insurer under this
Indenture, the Insurance Agreement or any other Transaction Document.
Interest Rate: 6.35% per annum, computed on the basis of a 360-day year
consisting of twelve 30-day months.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
Note or Notes: The 6.35% Automobile Receivables-Backed Notes,
substantially in the form of Exhibit A.
Note Owner: With respect to a Book-Entry Note, the person who is the
owner of such Book-Entry Note, as reflected on the books of the Clearing Agency,
or on the books of a Person maintaining an account with such Clearing Agency
(directly as a Clearing Agency Participant or as an indirect participant, in
each case in accordance with the rules of such Clearing Agency).
Note Paying Agent The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Trust to make payments to and distributions from the
Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Trust.
Note Policy: The insurance policy issued by the Insurer with respect to
the Notes, including any endorsements thereto.
Note Policy Claim Amount: As defined in the Sale and Serving Agreement.
Note Prepayment Amount: As of the Distribution Date on or immediately
following the last day of the Pre-Funding Period, after giving effect to any
transfer of Additional Receivables on such date, an amount equal to the
remaining Pre-Funded Amount in the Pre-Funding Account on the Mandatory
Redemption Date.
Note Register and Note Registrar As defined in Section 2.4 hereof.
Officer's Certificate: A certificate signed by any Authorized Officer
of the Trust, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1 and TIA ss.314, and delivered
to the Indenture Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
<PAGE>
any Authorized Officer of the Trust. Each certificate with respect to compliance
with a condition or covenant provided for in this Agreement shall include (1) a
statement that the Authorized Officer signing the certificate has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such
certificate are based; (3) a statement that in the opinion of such person, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
Opinion of Counsel: One or more opinions of counsel who may, except as
otherwise expressly provided in this Indenture, be employees of or counsel to
the Trust and, if addressed to the Insurer, satisfactory to the Insurer, and
which shall comply with any applicable requirements of Section 11.1, and if
addressed to the Insurer, satisfactory to the Insurer.
Outstanding As of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Note Paying Agent in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor, satisfactory to the Indenture Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser;
provided, however, that Notes which have been paid with proceeds of the Note
Policy shall continue to remain Outstanding for purposes of this Indenture until
the Insurer has been paid as subrogee hereunder or reimbursed pursuant to the
Insurance Agreement as evidenced by a written notice from the Insurer delivered
to the Indenture Trustee, and the Insurer shall be deemed to be the Holder
thereof to the extent of any payments thereon made by the Insurer; provided,
further, that in determining whether the Holders of the requisite Outstanding
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Transaction Document, Notes
owned by the Trust, any other obligor upon the Notes, the Seller or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Indenture Trustee shall
be protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that a Responsible Officer of the
Indenture Trustee either actually knows to be so owned or has received written
notice thereof shall be so disregarded. Notes so owned that have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Indenture Trustee the pledgees right so to act with respect
to such Notes and that the pledgee is not the Trust, any other obligor upon the
Notes, the Seller or any Affiliate of any of the foregoing Persons.
<PAGE>
Outstanding Amount: The aggregate principal amount of all Notes
Outstanding at the date of determination.
Predecessor Note: With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
and delivered under Section 2.5 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
Preference Claim: As defined in Section 5.19(b) hereof.
Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.
Rating Agency: Each of Moody's and Standard & Poor's, so long as such
Persons maintain a rating on the Notes; and if either Moody's or Standard &
Poor's no longer maintains a rating on the Notes, such other nationally
recognized statistical rating organization selected by the Seller and (so long
as an Insurer Default shall not have occurred and be continuing) acceptable to
the Insurer.
Rating Agency Condition: With respect to any action, that each Rating
Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer, the Insurer, the
Indenture Trustee, the Owner Trustee and the Trust in writing that such action
will not result in a reduction or withdrawal of the then current rating of the
Notes.
Record Date: With respect to a Distribution Date or Redemption Date,
the close of business on the Business Day immediately preceding such
Distribution Date or Redemption Date.
Redemption Date: In the case of a redemption of the Notes pursuant to
Section 10.1(a) or a payment to Noteholders pursuant to Section 10.1(b), the
Distribution Date specified by the Servicer or the Trust pursuant to Section
10.1(a) or (b) as applicable.
Redemption Price: (a) In the case of a redemption of the Notes pursuant
to Section 10.1(a), an amount equal to the unpaid principal amount of the then
outstanding principal amount of each class of Notes being redeemed plus accrued
and unpaid interest thereon to but excluding the Redemption Date, or (b) in the
case of a payment made to Noteholders pursuant to Section 10.1(b), the amount on
deposit in the Note Distribution Account, but not in excess of the amount
specified in clause (a) above.
Responsible Officer: With respect to the Indenture Trustee, the Trust
Collateral Agent or the Owner Trustee (as defined in the Trust Agreement), any
officer within the Corporate Trust Office of the Indenture Trustee or the Owner
Trustee, as the case may be, including any Managing Director, Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary or any other
officer of the Indenture Trustee or the Owner Trustee, as the case may be,
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
<PAGE>
Sale and Servicing Agreement: The Sale and Servicing Agreement dated as
of June 29, 1997, among the Seller, the Servicer, the Trust and the Trust
Collateral Agent, as the same may be amended or supplemented from time to time
in accordance with the terms thereof.
Scheduled Payments: As defined in the Note Policy.
Service Contract: With respect to a Financed Vehicle, the agreement, if
any, financed under the related Receivable that provides for the repair of such
Financed Vehicle.
State: Any one of the 50 states of the United States of America or the
District of Columbia.
Transaction Documents: As defined in the Insurance Agreement.
Termination Date: The latest of (i) the expiration of the Note Policy
and the return of the Note Policy to the Insurer for cancellation, (ii) the date
on which the Insurer shall have received payment and performance of all Insurer
Trust Secured obligations, and (iii) the date on which the Indenture Trustee
shall have received payment and performance of all Trustee Trust Secured
Obligations.
Trust: The party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
Trust Collateral Agent: Initially, Harris Trust and Savings Bank, in
its capacity as trust collateral agent on behalf of the Trust Secured Parties,
including its successors in interest, until and unless a successor Person shall
have become the Trust Collateral Agent pursuant to Section 6.17 hereof, and
thereafter "Trust Collateral Agent" shall mean such successor Person.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as amended
and as in force on the date hereof, unless otherwise specifically provided.
Trust Order and Trust Request: A written order or request signed in the
name of the Trust by any one of its Authorized Officers and delivered to the
Indenture Trustee.
Trust Property: All money, instruments, rights and other property that
are subject or intended to be subject to the lien and security interest of this
Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Trust Collateral Agent), including all proceeds
thereof.
<PAGE>
Trust Secured Obligations: The Insurer Trust Secured Obligations and
the Trustee Trust Secured Obligations.
Trust Secured Parties: Each of the Indenture Trustee in respect of the
Trustee Trust Secured Obligations and the Insurer in respect of the Insurer
Trust Secured Obligations.
Trustee Trust Secured Obligations: All amounts and obligations which
the Trust may at any time owe to or on behalf of the Indenture Trustee for the
benefit of the Noteholders under this Indenture or the Notes.
UCC: The Uniform Commercial Code, as in effect in the relevant
jurisdiction, as amended from time to time.
SECTION 1.2 Incorporation by Reference of the Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Trust.
All other TIA terms used in this Indenture that are defined by the TIA,
or defined by Commission rule have the meaning assigned to them by such
definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in effect
from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the plural
include the singular.
<PAGE>
SECTION 1.4 Action by or Consent of Noteholders. Whenever any provision of this
Agreement refers to action to be taken, or consented to, by Noteholders, such
provision shall be deemed to refer to the Noteholder of record as of the Record
Date immediately preceding the date on which such action is to be taken, or
consent given, by Noteholders. Solely for the purposes of any action to be
taken, or consented to, by Noteholders, any Note registered in the name of
National Financial Auto Funding Trust or any Affiliate thereof shall be deemed
not to be outstanding; provided, however, that, solely for the purpose of
determining whether the Indenture Trustee or the Trust Collateral Agent is
entitled to rely upon any such action or consent, only Notes which the Owner
Trustee, the Indenture Trustee or the Trust Collateral Agent, respectively,
knows to be so owned shall be so disregarded.
SECTION 1.5 Material Adverse Effect. Whenever a determination is to be made
under this Agreement as to whether a given event, action, course of conduct or
set of facts or circumstances could or would have a material adverse effect on
the Noteholders (or any similar or analogous determination), such determination
shall be made without taking into account the funds available from claims under
the Policy.
SECTION 1.6 Conflict with TIA. If any provision hereof limits, qualifies or
conflicts with a provision of the TIA that is required under the TIA to be part
of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the TIA that
may be so modified or excluded, the latter provisions shall be deemed to apply
to this Indenture as so modified or to be excluded, as the case may be.
ARTICLE II
THE NOTES
Form. The Notes, together with the Indenture Trustee's certificate of
authentication, shall be in substantially the form set forth in Exhibit A, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may, consistently herewith, be determined by the officers executing such
Notes, as evidenced by their execution of the Notes. Any portion of the text of
any Note may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Note set forth in Exhibit A are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall be executed
on behalf of the Trust by any of its Authorized Officers. The signature of any
such Authorized Officer on the Notes may be original or facsimile.
<PAGE>
Notes bearing the original or facsimile signature of individuals who
were at any time Authorized Officers of the Trust shall bind the Trust,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon receipt of the Note Policy and Trust
Order for authentication and delivery, authenticate and deliver the Notes for
original issue in an aggregate principal amount of $66,891,200. The Notes
outstanding at any time may not exceed such amount except as provided in Section
2.5.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $20,000 and
in integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears attached to such Note
a certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate attached to any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION 2.3 Temporary Notes. Pending the preparation of Definitive Notes, the
Trust may execute, and upon receipt of a Trust Order the Indenture Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, of the tenor of the Definitive
Notes in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Trust will cause Definitive Notes to
be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Trust to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Trust shall
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as Definitive Notes.
SECTION 2.4 Registration; Registration of Transfer and Exchange. The Trust shall
cause to be kept a register (the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Trust shall provide for the
registration of Notes and the registration of transfers of Notes. The Indenture
Trustee shall be "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. Upon any resignation of any Note
Registrar, the Trust shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Note Registrar.
<PAGE>
If a Person other than the Indenture Trustee is appointed by the Trust
as Note Registrar, the Trust will give the Indenture Trustee prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Indenture Trustee shall
have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof. The Indenture Trustee shall have the right to rely
conclusively upon a certificate executed on behalf of the Note Registrar by an
Authorized Officer thereof as to the names and addresses of the Holders of the
Notes and the principal amounts and number of such Notes.
Upon surrender for registration or transfer of any Note at the office
or agency of the Trust to be maintained as provided in Section 3.2, and if the
requirements of Section 8-401(1) of the UCC are met, the Trust shall execute or
cause the Indenture Trustee to authenticate one or more new Notes, in any
authorized denominations and for the same aggregate principal amount. A
Noteholder may also obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations and for the same aggregate principal amount. Such requirements
shall not be deemed to create a duty in the Indenture Trustee to monitor the
compliance by the Trust with Section 8-401 of the UCC.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations and for the same aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, and if the requirements of Section
8-401(1) of the UCC are met, the Trust shall execute and upon its request the
Indenture Trustee shall authenticate the Notes which the Noteholder making the
exchange is entitled to receive. Such requirements shall not be deemed to create
a duty in the Indenture Trustee to monitor the compliance by the Trust with
Section 8-401 of the UCC.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Trust, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be (i) duly endorsed by, or be accompanied by a written
instrument of transfer in the form attached to Exhibit A, duly executed by the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar which requirements include membership or
participation in Securities Transfer Agents Medallion Program ("Stamp") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, Stamp, all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Note Registrar
may require.
The Notes may not be transferred, directly or indirectly, to any Person
that is (i) an employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), which is subject
to the provisions of Title I of ERISA, (ii) a plan described in section 4975
(e)(1) of the Internal Revenue Code of 1986, as amended, or (iii) an entity
whose underlying assets are deemed to be assets of a plan described in (I) or
(ii) above by reason of such plan's investment in the entity (any such entityt
described in clauses (i) through (iii) , a "Benefit Plan") unless the
acquisition and holding of the Notes by such Benefit Plan is covered by a
Department of Labor Prohibited Transactions Class Exemption ("PTCE"). By
accepting and holding a Note, the Holder thereof shall be deemed to have
represented and warranted that either it is not a Benefit Plan or its
acquisition and holding of the Note is covered by a PTCE.
<PAGE>
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Note Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
Notwithstanding, the preceding provisions of this section, the Trust
shall not be required to make, and the Note Registrar shall not register,
transfers or exchanges of Notes selected for redemption for a period of 15 days
preceding the Distribution Date.
SECTION 2. If (i) any mutilated Note is surrendered to the Indenture Trustee, or
the Indenture Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee
and the Insurer (unless an Insurer Default shall have occurred and be
continuing) such security or indemnity as may be required by it to hold the
Trust, the Indenture Trustee and the Insurer harmless, then, in the absence of
notice to the Trust, the Note Registrar or the Indenture Trustee that such Note
has been acquired by a bona fide purchaser, and provided that the requirements
of Section 8-405 of the UCC are met, the Trust shall execute and upon its
request the Indenture Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement
Note (such requirement shall not be deemed to create a duty in the Indenture
Trustee to monitor the compliance by the Trust with Section 8-405); provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, the Trust may, instead of issuing a replacement
Note, direct the Indenture Trustee, in writing, to pay such destroyed, lost or
stolen Note when so due or payable or upon the Redemption Date without surrender
thereof. If, after the delivery of such replacement Note or payment of a
destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the Trust,
the Indenture Trustee and the Insurer shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Trust or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the Trust
may require the payment by the Holder of such Note of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other reasonable expenses (including the fees and expenses of the Indenture
Trustee) connected therewith.
<PAGE>
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Trust, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for registration of
transfer of any Note, the Trust, the Indenture Trustee and any agent of the
Trust, the Indenture Trustee, the Insurer may treat the Person in whose name any
Note is registered (as of the Record Date) as the owner of such Note for the
purpose of receiving payments of principal of and interest, if any on such Note
and for all other purposes whatsoever, whether or not such Note be overdue, and
none of the Trust, the Insurer, the Indenture Trustee nor any agent of the Trust
or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest. (a) The Notes
shall accrue interest as provided in the Form of Note set forth in Exhibit A and
such interest shall be payable on each Distribution Date as specified therein.
Any installment of interest or principal, if any, payable on any Note which is
punctually paid or duly provided for by the Trust on the applicable Distribution
Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered on the Record Date, by check mailed
first-class, postage prepaid, to such Person's address as it appears on the Note
Register on such Record Date, except that, unless Definitive Notes have been
issued pursuant to Section 2.12, with respect to Notes registered on the Record
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a
Distribution Date or on the Final Scheduled Distribution Date (and except for
the Redemption Price for any Note called for redemption pursuant to Section
10.1(a)) which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.3.
The principal of the Notes shall be payable in installments on each
Distribution Date as provided in the Form of Note set forth in Exhibit A.
Notwithstanding the foregoing, and subject to Section 5.4, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the date on which an Event of Default shall have occurred and be continuing
and an Insurer Default shall have occurred and be continuing, if the Indenture
Trustee or the Holders of the Notes representing not less than a majority of the
Outstanding Amount of the Notes have declared the Notes to be immediately due
and payable in the manner provided in Section 5.2. Upon written notice from the
Trust, the Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the
Distribution Date on which the Trust expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
or transmitted by facsimile prior to such final Distribution Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
10.2.
<PAGE>
(c) If the Trust defaults in a payment of interest on the Notes, the
Trust shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) at the applicable Interest Rate to the extent lawful. The
Trust may pay such defaulted interest to the Persons who are Noteholders on a
subsequent special record date, which date shall be at least five Business Days
prior to the payment date. The Trust shall fix or cause to be fixed any such
special record date and payment date, and, at least 15 days before any such
special record date, the Trust shall mail to each Noteholder and the Indenture
Trustee a notice that states the special record date, the payment date and the
amount of defaulted interest to be paid.
(d) Promptly following the date on which all principal of and interest
on the Notes has been paid in full and the Notes have been surrendered to the
Indenture Trustee, the Indenture Trustee shall, upon written notice from the
Servicer of the amounts, if any, that the Insurer has paid in respect of the
Notes under the Note Policy or otherwise which has not been reimbursed to it,
deliver such surrendered Notes to the Insurer to the extent not previously
canceled or destroyed.
SECTION 2.8 Cancellation. Subject to Section 2.7(d), all Notes
surrendered for payment, registration of transfer, exchange or redemption shall,
if surrendered to any Person other than the Indenture Trustee, be delivered to
the Indenture Trustee and shall be promptly canceled by the Indenture Trustee.
Subject to Section 2.7(d), the Trust may at any time deliver to the Indenture
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Trust may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes
shall be authenticated in lieu of or in exchange for any Notes canceled as
provided in this Section, except as expressly permitted by this Indenture.
Subject to Section 2.7(d), all canceled Notes maybe held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time unless the Trust shall direct by a Trust Order that
they be destroyed or returned to it; provided that such Trust Order is timely
and the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.9 Release of Collateral. The Trust Collateral Agent shall, on or after
the Termination Date, release any remaining portion of the Trust Property from
the lien created by this Indenture and deposit in the Collection Account any
funds then on deposit in any other Trust Account. The Trust Collateral Agent
shall release property from the lien created by this Indenture pursuant to this
Section 2.9 only upon receipt of a Trust Request by it and the Indenture Trustee
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA ss.ss. 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
<PAGE>
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will be issued
in the form of typewritten Notes representing the Book-Entry Notes, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Trust. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Note Owner will receive a Definitive Note representing such Note Owner's
interest in such Note, except as provided in Section 2.12. Unless and until
definitive, fully registered Notes (the "Definitive Notes") have been issued to
Note Owners pursuant to Section 2.12:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall be entitled to
deal with the Clearing Agency for all purposes of this Indenture (including the
payment of principal of and interest on the Notes and the giving of instructions
or directions hereunder) as the sole Holder of the Notes, and shall have no
obligation to the Note Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Indenture, the provisions of this Section shall
control;
(iv) the rights of Note Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and agreements
between such Note Owners and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued pursuant to Section
2.12, the initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit payments of principal of
and interest on the Notes to such Clearing Agency Participants;
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a specified
percentage of the Outstanding Amount of the Notes, the Clearing Agency shall be
deemed to represent such percentage only to the extent that it has received
instructions to such effect from Note Owners and/or Clearing Agency Participants
owning or representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the Indenture
Trustee; and
(vi) Note Owners may receive copies of any reports sent to Noteholders
pursuant to this Indenture, upon written request, together with a certification
that they are Note Owners and payment of reproduction and postage expenses
associated with the distribution of such reports, from the Indenture Trustee at
the Corporate Trust Office.
<PAGE>
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.12, the Indenture Trustee shall give all such notices and communications
specified herein to be given to Holders of the Notes to the Clearing Agency, and
shall have no obligation to the Note Owners.
SECTION 2.12 Definitive Notes. If (i) the Servicer advises the Indenture Trustee
in writing that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Notes, and the Servicer is
unable to locate a qualified successor, (ii) the Servicer at its option advises
the Indenture Trustee in writing that it elects to terminate the book-entry
system through the Clearing Agency or (iii) after the occurrence of an Event of
Default, Note Owners representing beneficial interests aggregating at least a
majority of the Outstanding Amount of the Notes advise the Indenture Trustee
through the Clearing Agency in writing that the continuation of a book entry
system through the Clearing Agency is no longer in the best interests of the
Note Owners, then the Clearing Agency shall notify all Note Owners and the
Indenture Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Note Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Note or Notes representing the Book-Entry
Notes by the Clearing Agency, accompanied by registration instructions, the
Trust shall execute and the Indenture Trustee shall authenticate the Definitive
Notes in accordance with the instructions of the Clearing Agency. None of the
Trust, the Note Registrar or the Indenture Trustee shall be liable for any delay
in delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes, the Indenture Trustee shall recognize the Holders of the Definitive Notes
as Noteholders.
ARTICLE III
COVENANTS
Payment of Principal and Interest. The Trust will duly and punctually
pay the principal of and interest on the Notes in accordance with the terms of
the Notes and this Indenture. Without limiting the foregoing, the Trust will
cause to be distributed all amounts on deposit in the Note Distribution Account
on a Distribution Date deposited therein pursuant to the Sale and Servicing
Agreement for the benefit of the Noteholders. Amounts properly withheld under
the Code by any Person from a payment to any Noteholder of interest and/or
principal shall be considered as having been paid by the Trust to such
Noteholder for all purposes of this Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Trust will maintain in New
York, an office or agency where Notes may be surrendered for registration,
transfer or exchange of the Notes, and where notices and demands to or upon the
Trust in respect of the Notes and this Indenture may be served. The Trust hereby
initially appoints the Indenture Trustee to serve as its agent for the foregoing
purposes. The Trust will give prompt written notice to the Indenture Trustee of
the location, and of any change in the location, of any such office or agency.
If at any time the Trust shall fail to maintain any such office or agency or
shall fail to furnish the Indenture Trustee with the address thereof, such
surrenders, notices and demands may be made or served at the Corporate Trust
Office, and the Trust hereby appoints the Indenture Trustee as its agent to
receive all such surrenders, notices and demands.
<PAGE>
SECTION 3.3 Money for Payments to be Held in Trust. On or before each
Distribution Date and Redemption Date, the Trust shall deposit or cause to be
deposited in the Note Distribution Account from the Collection Account an
aggregate sum sufficient to pay the amounts then becoming due under the Notes,
such sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Note Paying Agent is the Indenture Trustee) shall promptly notify
the Indenture Trustee of its action or failure so to act.
The Trust will cause each Note Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee and the Insurer an
instrument in which such Note Paying Agent shall agree with the Indenture
Trustee (and if the Indenture Trustee acts as Note Paying Agent, it hereby so
agrees), subject to the provisions of this Section, that such Note Paying Agent
will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee written notice of any default by the
Trust of which it has actual knowledge (or any other obligor upon the Notes) in
the making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Indenture Trustee, forthwith pay to the Indenture Trustee
all sums so held in trust by such Note Paying Agent;
(iv) immediately resign as a Note Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes if at
any time it ceases to meet the standards required to be met by a Note Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
The Trust may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Trust
Order direct any Note Paying Agent to pay to the Indenture Trustee all sums held
in trust by such Note Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such Note
Paying Agent; and upon such a payment by any Note Paying Agent to the Indenture
Trustee, such Note Paying Agent shall be released from all further liability
with respect to such money.
<PAGE>
Subject to applicable laws with respect to the escheat of funds, any
money held by the Indenture Trustee or any Note Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Trust on Trust Request, with the consent of the
Insurer (unless an Insurer Default shall have occurred and be continuing) and
shall be deposited by the Indenture Trustee in the Collection Account; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Trust for payment thereof (but only to the extent of the amounts so
paid to the Trust), and all liability of the Indenture Trustee or such Note
Paying Agent with respect to such trust money shall thereupon cease; provided,
however, that if such money or any portion thereof had been previously deposited
by the Insurer or the Trust Collateral Agent with the Indenture Trustee for the
payment of principal or interest on the Notes, to the extent any amounts are
owing to the Insurer, such amounts shall be paid promptly to the Insurer upon
receipt of a written request by the Insurer to such effect; and provided,
further, that the Indenture Trustee or such Note Paying Agent, before being
required to make any such repayment, shall at the expense of the Trust cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Trust.
The Indenture Trustee shall also adopt and employ, at the expense of the Trust,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Note Paying Agent, at the last
address of record for each such Holder).
SECTION 3.4 Existence. Except as otherwise permitted by the provisions of
Section 3.10, the Trust will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Trust hereunder is or becomes, organized under the
laws of any other state or of the United States of America, in which case the
Trust will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Trust Property.
SECTION 3.5 Protection of Trust Property. The Trust intends the security
interest Granted pursuant to this Indenture in favor of the Trust Secured
Parties to be prior to all other liens in respect of the Trust Property, and the
Trust shall take all actions necessary to obtain and maintain, in favor of the
Trust Collateral Agent, for the benefit of the Trust Secured Parties, a first
lien on and a first priority, perfected security interest in the Trust Property.
The Trust will from time to time prepare (or shall cause to be prepared),
execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments, and will take such other action necessary or advisable
to:
<PAGE>
(i) Grant more effectively all or any portion of the Trust Property;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) in favor of the Trust Collateral Agent for the benefit of the
Trust Secured Parties created by this Indenture or carry out more effectively
the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the Collateral;
(v) preserve and defend title to the Trust Property and the rights of
the Trust Collateral Agent in such Trust Property against the claims of all
persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the Trust
Property when due.
The Trust hereby designates the Trust Collateral Agent its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required by the Trust Collateral Agent pursuant to this
Section; provided that, such designation shall not be deemed to create a duty in
the Indenture Trustee or the Trust Collateral Agent to monitor the compliance of
the Trust with respect to its duties under this Section 3.5 or the adequacy of
any financing statement, continuation statement or other instrument prepared by
the Trust.
SECTION 3.6 Opinions as to Trust Property. (a) On the Closing Date, the Trust
shall furnish to the Indenture Trustee, the Trust Collateral Agent and the
Insurer an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the first priority lien and security interest in favor of the Trust
Collateral Agent, for the benefit of the Trust Secured Parties, created by this
Indenture and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
Within 90 days after the beginning of each calendar year, beginning
with the first calendar year beginning more than six months after the Closing
Date, the Trust shall furnish to the Indenture Trustee, Trust Collateral Agent
and the Insurer, an Opinion of Counsel either stating that, in the opinion of
such counsel, such action has been taken with respect to the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and with respect to the execution and filing
of any financing statements and continuation statements as are necessary to
maintain the lien and security interest created by this Indenture and reciting
the details of such action or stating that in the opinion of such counsel no
such action is necessary to maintain such lien and security interest. Such
Opinion of Counsel shall also describe the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture.
<PAGE>
SECTION 3.7 Performance of Obligations; Servicing of Receivables. (a) The Trust
will not take any action and will use its best efforts not to permit any action
to be taken by others that would release any Person from any of such Person's
material covenants or obligations under any instrument or agreement included in
the Trust Property or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as ordered by any
bankruptcy or other court or as expressly provided in this Indenture, the
Transaction Documents or such other instrument or agreement.
The Trust may contract with other Persons acceptable to the Insurer (so
long as no Insurer Default shall have occurred and be continuing) to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee and the Insurer in an
Officer's Certificate of the Trust shall be deemed to be action taken by the
Trust. Initially, the Trust has contracted with the Servicer to assist the Trust
in performing its duties under this Indenture.
(c) The Trust will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Transaction
Documents and in the instruments and agreements included in the Trust Property,
including, but not limited, to preparing (or causing to prepared) and filing (or
causing to be filed) all UCC financing statements and continuation statements
required to be filed by the terms of this Indenture and the Sale and Servicing
Agreement in accordance with and within the time periods provided for herein and
therein. Except as otherwise expressly provided therein, the Trust shall not
waive, amend, modify, supplement or terminate any Transaction Document or any
provision thereof without the consent of the Indenture Trustee, the Insurer or
the Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If a Responsible Officer of the Owner Trustee shall have actual
knowledge of the occurrence of a Servicer Termination Event under the Sale and
Servicing Agreement, the Trust shall promptly notify the Indenture Trustee, the
Trust Collateral Agent, the Insurer and the Rating Agencies thereof in
accordance with Section 11.4, and shall specify in such notice, the action, if
any, the Trust is taking in respect of such default. If a Servicer Termination
Event shall arise from the failure of the Servicer to perform any of its duties
or obligations under the Sale and Servicing Agreement with respect to the
Receivables, the Trust shall take all reasonable steps available to it to remedy
such failure.
(e) The Trust agrees that it will not waive timely performance or
observance by the Servicer or the Seller of their respective duties under the
Transaction Documents (x) without the prior consent of the Insurer (unless an
Insurer Default shall have occurred and be controlling) or (y) if the effect
thereof would adversely affect the Holders of the Notes.
<PAGE>
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Trust shall not:
(i) except as expressly permitted by this Indenture or the Transaction
Documents, sell, transfer, exchange or otherwise dispose of any of the
properties or assets of the Trust, including those included in the Trust
Property, unless directed to do so by the Controlling Party;
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly withheld
from such payments under the Code) or assert any claim against any present or
former Noteholder by reason of the payment of the taxes levied or assessed upon
any part of the Trust Property; or
(iii) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien in favor of the Trust Collateral Agent created by
this Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture except as may be
expressly permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this Indenture)
to be created on or extend to or otherwise arise upon or burden the Trust
Property or any part thereof or any interest therein or the proceeds thereof
(other than tax liens, mechanics' liens and other liens that arise by operation
of law, in each case on a Financed Vehicle and arising solely as a result of an
action or omission of the related Obligor), (C) permit the lien of this
Indenture not to constitute a valid first priority (other than with respect to
any such tax, mechanics' or other lien) security interest in the Trust Property
or (D) amend, modify or fail to comply with the provisions of the Transaction
Documents without the prior written consent of the Controlling Party.
SECTION 3.9 Annual Statement as to Compliance. The Trust will deliver
to the Indenture Trustee and the Insurer, within 90 days after the end of each
fiscal year of the Trust (commencing with the fiscal year ended December 31,
1997), and otherwise in compliance with the requirements of TIA ss.314(a)(4) an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that
(i) a review of the activities of the Trust during such year and of
performance under this Indenture has been made under such Authorized Officer's
supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on such
review, the Trust has complied with all conditions and covenants under this
Indenture throughout such year, or, if there has been a default in the
compliance of any such condition or covenant, specifying each such default known
to such Authorized Officer and the nature and status thereof.
<PAGE>
SECTION 3.10 Trust May Consolidate, Etc. Only on Certain Terms. (a) The
Trust shall not consolidate or merge with or into any other Person.
(a) The Trust shall not convey or transfer all or substantially all of its
properties or assets, including those included in the Trust Property, to any
Person.
SECTION 3.11 [Reserved].
SECTION 3.12 No Other Business. The Trust shall not engage in any business other
than financing, purchasing, owning, selling and managing the Receivables in the
manner contemplated by this Indenture and the Transaction Documents and
activities incidental thereto. After the Pre-Funding Period, the Trust shall not
fund the purchase of any Additional Receivables.
SECTION 3.13 No Borrowing. The Trust shall not issue, incur, assume, guarantee
or otherwise become liable, directly or indirectly, for any Indebtedness except
for (i) the Notes, (ii) obligations owing from time to time to the Insurer under
the Insurance Agreement and (iii) any other Indebtedness permitted by or arising
under the Transaction Documents. The proceeds of the Notes shall be used
exclusively to fund the Trust's purchase of the Receivables and the other assets
specified in the Sale and Servicing Agreement, to fund the Pre-Funding Account
and the Spread Account and to pay the Trust's organizational, transactional and
start-up expenses.
SECTION 3.14 Servicer's Obligations. The Trust shall cause the Servicer to
comply with Sections 4.11, 4.12, 4.13 and 5.10 of the Sale and Servicing
Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities. Except as
contemplated by the Sale and Servicing Agreement or this Indenture, the Trust
shall not make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing or otherwise),
endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Trust shall not make any expenditure (by
long-term or operating lease or otherwise) for capital assets (either realty or
personally).
SECTION 3.17 Compliance with Laws. The Trust shall comply with the requirements
of all applicable laws, the non-compliance with which would, individually or in
the aggregate, materially and adversely affect the ability of the Trust to
perform its obligations under the Notes, this Indenture or any Transaction
Document.
<PAGE>
SECTION 3.18 Restricted Payments. The Trust shall not, directly or indirectly,
(i) pay any dividend or make any distribution (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof, to
the Owner Trustee or any owner of a beneficial interest in the Trust or
otherwise with respect to any ownership or equity interest or security in or of
the Trust or to the Servicer, (ii) redeem, purchase, retire or otherwise acquire
for value any such ownership or equity interest or security or (iii) set aside
or otherwise segregate any amounts for any such purpose; provided, however, that
the Trust may make, or cause to be made, distributions to the Servicer, the
Owner Trustee, the Indenture Trustee and the Certificateholders as permitted by,
and to the extent funds are available for such purpose under, the Sale and
Servicing Agreement or Trust Agreement. The Trust will not, directly or
indirectly, make payments to or distributions from the Collection Account except
in accordance with this Indenture and the Transaction Documents.
SECTION 3.19 Notice of Events of Default. Upon a Responsible Officer of the
Owner Trustee having actual knowledge thereof, the Trust agrees to give the
Indenture Trustee, the Insurer and the Rating Agencies prompt written notice of
each Event of Default hereunder and each default on the part of the Servicer or
the Seller of its obligations under the Sale and Servicing Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the Indenture Trustee
or the Insurer, the Trust will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 3.21 Amendments of Sale and Servicing Agreement and Trust Agreement. The
Trust shall not agree to any amendment to Section 13.1 of the Sale and Servicing
Agreement or Section 13.1 of the Trust Agreement to eliminate the requirements
thereunder that the Indenture Trustee or the Holders of the Notes consent to
amendments thereto as provided therein.
SECTION 3.22 Income Tax Characterization. For purposes of federal income, state
and local income and franchise and any other income taxes, the Trust will treat
the Notes as indebtedness of the Trust and hereby instructs the Indenture
Trustee to treat the Notes as indebtedness of the Trust for federal and state
tax reporting purposes.
ARTICLE IV
SATISFACTION AND DISCHARGE
Satisfaction and Discharge of Indenture. This Indenture shall cease to
be of further effect with respect to the Notes except as to (i) rights of
registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12, 3.13, 3.20, 3.21 and 3.22, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.7 and the obligations of the Indenture Trustee
under Section 4.2) and (vi) the rights of Noteholders as beneficiaries hereof
with respect to the property so deposited with the Indenture Trustee payable to
all or any of them, and the Indenture Trustee, on demand of and at the expense
of the Trust, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, when
<PAGE>
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.5 and (ii) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the Trust
and thereafter repaid to the Trust or discharged from such trust, as provided in
Section 3.3) have been delivered to the Indenture Trustee for cancellation and
the Note Policy has expired and been returned to the Insurer for cancellation;
or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
(i) have become due and payable,
(ii) will become due and payable on the Final Scheduled Distribution
Date, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Trust,
and the Trust, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited
with the Trust Collateral Agent cash or direct obligations of
or obligations guaranteed by the United States of America
(which will mature prior to the date such amounts are
payable), in trust for such purpose, in an amount sufficient
to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for
cancellation when due on the Final Scheduled Distribution Date
or Redemption Date (if Notes shall have been called for
redemption pursuant to Section 10.1(a)), as the case may be;
(B) the Trust has paid or caused to be paid all Insurer Trust Secured
Obligations and all Trustee Trust Secured Obligations; and
(C) the Trust has delivered to the Indenture Trustee, the Trust
Collateral Agent and the Insurer an Officer's Certificate, an Opinion of Counsel
and if required by the TIA, the Indenture Trustee, the Trust Collateral Agent or
the Insurer (so long as an Insurer Default shall not have occurred and be
continuing) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.1(a) and
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with. Upon such
satisfaction and discharge, the Indenture Trustee shall give prompt written
notice thereof to each Rating Agency.
<PAGE>
SECTION 4.2 Application of Trust Money. All monies deposited
with the Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Note Paying Agent, as
the Indenture Trustee may determine, to the Holders of the particular Notes for
the payment or redemption of which such monies have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or in the Sale and Servicing Agreement or required by
law.
SECTION 4.3 Repayment of Monies Held by Note Paying Agent. In connection with
the satisfaction and discharge of this Indenture with respect to the Notes, all
monies then held by any Note Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Trust, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Note Paying Agent shall be released from all
further liability with respect to such monies.
ARTICLE V
REMEDIES
Events of Default. "Event of Default", wherever used herein, means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when the same
becomes due and payable, and such default shall continue for a period of five
days (solely for purposes of this clause, a payment on the Notes funded by the
Insurer or the Collateral Agent pursuant to the Spread Account Agreement shall
be deemed to be a payment made by the Trust); or
(ii) default in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable and such default
shall continue for a period of five days (solely for purposes of this clause, a
payment on the Notes funded by the Insurer or the Collateral Agent pursuant to
the Spread Account Agreement, shall be deemed to be a payment made by the
Trust); or
(iii) so long as an Insurer Default shall not have occurred and be
continuing, an Insurance Agreement Indenture Cross Default shall have occurred;
provided, however, that the occurrence of an Insurance Agreement Indenture Cross
Default may not form the basis of an Event of Default unless the Insurer shall,
upon prior written notice to the Rating Agencies, have delivered to the Trust
and the Indenture Trustee, and not rescinded, a written notice specifying that
such Insurance Agreement Indenture Cross Default constitutes an Event of Default
under this Indenture; or
<PAGE>
(iv) default in the observance or performance of any covenant or
agreement of the Trust made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section specifically dealt with) or in any certificate or other writing
delivered in connection herewith, or any representation or warranty of the Trust
made in this Indenture or in any certificate or other writing delivered pursuant
hereto proving to have been incorrect in any material respect as of the time
when the same shall have been made, and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given, by
registered or certified mail, to the Trust by the Insurer or the Indenture
Trustee or to the Trust, the Indenture Trustee and the Insurer by the Holders of
at least 25% of the Outstanding Amount of the Notes, a written notice specifying
such default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
provided, however, so long as an Insurer Default shall not have occurred and be
continuing, the occurrence of any such event described in this clause (iv) may
not form the basis of an Event of Default unless the Insurer shall, upon prior
written notice to the Rating Agencies, have delivered to the Trust and the
Indenture Trustee, and not rescinded, a written notice specifying that any such
event constitutes an Event of Default under this Indenture; or
(v) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Trust or any substantial part of
the Collateral in an involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Trust or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Trust's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; provided, however, so long as an Insurer Default shall not have occurred
and be continuing, the occurrence of any such event described in this clause (v)
may not form the basis of an Event of Default unless the Insurer shall, upon
prior written notice to the Rating Agencies, have delivered to the Trust and the
Indenture Trustee, and not rescinded, a written notice specifying that any such
event constitutes an Event of Default under this Indenture; or
(vi) the commencement by the Trust of a voluntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Trust to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Trust to
the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Trust or for any
substantial part of the Collateral, or the making by the Trust of any general
assignment for the benefit of creditors, or the failure by the Trust generally
to pay its debts as such debts become due, or the taking of action by the Trust
in furtherance of any of the foregoing; provided, however, so long as an Insurer
Default shall not have occurred and be continuing, the occurrence of any such
event described in this clause (vi) may not form the basis of an Event of
Default unless the Insurer shall, upon prior written notice to the Rating
Agencies, have delivered to the Trust and the Indenture Trustee, and not
rescinded, a written notice specifying that any such event constitutes an Event
of Default under this Indenture.
<PAGE>
The Trust shall deliver to the Indenture Trustee, the Owner Trustee,
the Insurer and each Rating Agency, within five days after the occurrence
thereof, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii), its status and what action the Trust is taking or
proposes to take with respect thereto.
SECTION 5.2 Rights Upon Event of Default. (a) If an Insurer Default shall not
have occurred and be continuing and an Event of Default shall have occurred and
be continuing, the Notes shall become immediately due and payable at par,
together with accrued interest thereon. If an Event of Default shall have
occurred and be continuing, the Controlling Party may exercise any of the
remedies specified in Section 5.4(a). In the event of any acceleration of any
Notes by operation of this Section 5.2, the Indenture Trustee shall continue to
be entitled to make claims under the Note Policy pursuant to the Sale and
Servicing Agreement for Scheduled Payments on the Notes. Payments under the Note
Policy following acceleration of any Notes shall be applied by the Indenture
Trustee:
FIRST: to Noteholders for amounts due and unpaid on the Notes for
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest;
and
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal.
In the event any Notes are accelerated due to an Event of Default, the
Insurer shall have the right (in addition to its obligation to pay Scheduled
Payments on the Notes in accordance with the Note Policy), but not the
obligation, to make payments under the Note Policy or otherwise of interest and
principal due on such Notes, in whole or in part, on any date or dates following
such acceleration as the Insurer, in its sole discretion, shall elect.
(c) If an Insurer Default shall have occurred and be continuing and an
Event of Default shall have occurred and be continuing, the Indenture Trustee in
its discretion may, or if so requested in writing by Holders holding Notes
representing not less than a majority of the Outstanding Amount of the Notes,
subject to Section 6.2(f), declare by written notice to the Trust that the Notes
shall become immediately due and payable at par, together with accrued interest
thereon.
<PAGE>
(d) If an Insurer Default shall have occurred and be continuing, then
at any time after such declaration of acceleration of maturity has been made and
before a judgment or decree for payment of the money due has been obtained by
the Indenture Trustee as hereinafter in this Article V provided, the Holders of
Notes representing a majority of the Outstanding Amount of the Notes, by written
notice to the Trust and the Indenture Trustee, may rescind and annul such
declaration and its consequences if:
(i) the Trust has paid or deposited with the Indenture Trustee a sum
sufficient to pay
(A) all payments of principal of and interest on all Notes and all
other amounts that would then be due hereunder or upon such Notes if the Event
of Default giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee and its agents and counsel; and (ii) all Events of Default,
other than the nonpayment of the principal of the Notes that has become due
solely by such acceleration, have been cured or waived as provided in Section
5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture
Trustee. (a) The Trust covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable (solely for
purposes of this clause, a payment on the Notes funded by the Insurer pursuant
to the Note Policy or the Collateral Agent pursuant to the Spread Account shall
be deemed to be payment made by the Trust), and such default continues for a
period of five days, or (ii) default is made in the payment of the principal of
or any installment of the principal of any Note when the same becomes due and
payable (solely for purposes of this clause, a payment on the Notes funded by
the Insurer pursuant to the Note Policy or the Collateral Agent pursuant to the
Spread Account shall be deemed to be payment made by the Trust), and such
default continues for a period of five days, the Trust will, upon demand of the
Indenture Trustee, pay to it, for the benefit of the Holders of the Notes, the
whole amount then due and payable on such Notes for principal and interest, with
interest upon the overdue principal, and, to the extent payment at such rate of
interest shall be legally enforceable, upon overdue installments of interest, at
the applicable Interest Rate and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.
<PAGE>
Each Trust Secured Party hereby irrevocably and unconditionally
appoints the Controlling Party as the true and lawful attorney-in-fact of such
Trust Secured Party for so long as such Trust Secured Party is not the
Controlling Party, with full power of substitution, to execute, acknowledge and
deliver any notice, document, certificate, paper, pleading or instrument and to
do in the name of the Controlling Party as well as in the name, place and stead
of such Trust Secured Party such acts, things and deeds for or on behalf of and
in the name of such Trust Secured Party under this Indenture (including
specifically under Section 5.4) and under the Transaction Documents which such
Trust Secured Party could or might do or which may be necessary, desirable or
convenient in such Controlling Party's sole discretion to effect the purposes
contemplated hereunder and under the Transaction Documents and, without
limitation, following the occurrence of an Event of Default, exercise full
right, power and authority to take, or defer from taking, any and all acts with
respect to the administration, maintenance or disposition of the Trust Property.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may in its discretion but with the consent of the Controlling Party and
shall, at the direction of the Controlling Party (except as provided in Section
5.3(d) below), proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Indenture Trustee or the
Controlling Party shall deem most effective to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.
(d) Notwithstanding anything to the contrary contained in this
Indenture (including, without limitation, Sections 5.4(a), 5.12, 5.13 and 5.17)
and regardless of whether an Insurer Default shall have occurred and be
continuing, if the Trust fails to perform its obligations under Section 10.1(b)
hereof when and as due, the Indenture Trustee may in its discretion (and without
the consent of the Controlling Party) proceed to protect and enforce its rights
and the rights of the Noteholders by such appropriate proceedings as the
Indenture Trustee shall deem most effective to protect and enforce any such
rights, whether for specific performance of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Indenture
Trustee by this Indenture or by law; provided that the Indenture Trustee shall
only be entitled to take any such actions without the consent of the Controlling
Party to the extent such actions (x) are taken only to enforce the Trust's
obligations to redeem the principal amount of Notes and (y) are taken only
against the portion of the Collateral, if any, consisting of the Pre-Funding
Account, any investments therein and any proceeds thereof.
(e) In case there shall be pending, relative to the Trust or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Property, proceedings under Title 11 of the United States Code or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Trust or its property or such other obligor or Person,
or in case of any other comparable judicial proceedings relative to the Trust or
other obligor upon the Notes, or to the creditors or property of the Trust or
such other obligor, the Indenture Trustee, irrespective of whether the principal
of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
<PAGE>
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order to have the
claims of the Indenture Trustee (including any claim for reasonable compensation
to the Indenture Trustee and each predecessor Indenture Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture Trustee and
each predecessor Indenture Trustee, except as a result of negligence, bad faith
or willful misconduct) and of the Noteholders allowed in such proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby trustee
or person performing similar functions in any such proceedings;
(iii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Indenture Trustee on their
behalf; and
(iv) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Indenture Trustee
or the Holders of Notes allowed in any judicial proceedings relative to the
Trust, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(f) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar person.
(g) All rights of action and of asserting claims under this Indenture,
the Spread Account Agreement or under any of the Notes, may be enforced by the
Indenture Trustee without the possession of any of the Notes or the production
thereof in any trial or other proceedings relative thereto, and any such action
or proceedings instituted by the Indenture Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment, subject to
the payment of the expenses, disbursements and compensation of the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Holders of the Notes.
<PAGE>
(h) In any proceedings brought by the Indenture Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture or
the Spread Account Agreement), the Indenture Trustee shall be held to represent
all the Holders of the Notes, and it shall not be necessary to make any
Noteholder a party to any such proceedings.
SECTION 5.4 Remedies. (a) If an Event of Default shall have occurred
and be continuing, the Controlling Party may do one or more of the following
(subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee of an express
trust for the collection of all amounts then payable on the Notes or under this
Indenture with respect thereto, whether by declaration or otherwise, enforce any
judgment obtained, and collect from the Trust and any other obligor upon such
Notes monies adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Property;
(iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies of
the Trust Secured Parties; and
(iv) direct the Trust Collateral Agent in writing to sell the Trust
Property or any portion thereof or rights or interest therein, at one or more
public or private sales called and conducted in any manner permitted by law;
provided, however, that
(A) if the Insurer is the Controlling Party, the Insurer may not sell
or otherwise liquidate the Trust Property following an Insurance Agreement
Indenture Cross Default unless
(I) such Insurance Agreement Indenture Cross Default arises from a
claim being made on the Note Policy or from the insolvency of the Trust or the
Seller, or
(II) the proceeds of such sale or liquidation distributable to the
Noteholders are sufficient to discharge in full all amounts then due and unpaid
upon such Notes for principal and interest; or
(B) if the Indenture Trustee is the Controlling Party, the Indenture
Trustee may not sell or otherwise liquidate the Trust Property following an
Event of Default unless
(I) such Event of Default is of the type described in Section 5.01(i)
or (ii), or
<PAGE>
(II) either
(x) the Holders of 100% of the Outstanding Amount of the
Notes consent thereto,
(y) the proceeds of such sale or liquidation distributable
to the Noteholders are sufficient to discharge in full all
amounts then due and unpaid upon such Notes for principal
and interest, or
(z) the Indenture Trustee determines that the Trust Property
will not continue to provide sufficient funds for the
payment of principal of and interest on the Notes as they
would have become due if the Notes had not been declared due
and payable, and the Indenture Trustee provides prior
written notice to the Rating Agencies and obtains the
consent of Holders of 66-2/3% of the Outstanding Amount of
the Notes.
In determining such sufficiency or insufficiency with respect to clause
(y) and (z), the Indenture Trustee may, but need not, obtain and rely
conclusively upon an opinion of an Independent investment banking or accounting
firm of national reputation as to the feasibility of such proposed action and as
to the sufficiency of the Trust Property for such purpose.
SECTION 5.5 Optional Preservation of the Receivables. If the Indenture Trustee
is the Controlling Party and if the Notes have been declared to be due and
payable under Section 5.2 following an Event of Default and such declaration and
its consequences have not been rescinded and annulled, the Indenture Trustee
may, but need not, elect to direct the Trust Collateral Agent to maintain
possession of the Trust Property. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to direct the Trust
Collateral Agent to maintain possession of the Trust Property. In determining
whether to direct the Trust Collateral Agent to maintain possession of the Trust
Property, the Indenture Trustee may, but need not, obtain and rely conclusively
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Property for such purpose which opinion shall be at the
expense of the Trust.
SECTION 5.6 Priorities.
(a) Following (1) the acceleration of the Notes pursuant to Section 5.2 or (2)
if an Insurer Default shall have occurred and be continuing, the occurrence of
an Event of Default pursuant to Section 5.1(i), 5.1(ii), 5.1(iii), 5.1(v) or
5.1(vi) of the Indenture or (3) the receipt of Insolvency Proceeds pursuant to
Section 11.1(b) of the Sale and Servicing Agreement, the Distribution Amount,
including any money or property collected pursuant to Section 5.4 of the
Indenture and any such Insolvency Proceeds, shall be applied by the Trust
Collateral Agent on the related Distribution Date in the following order of
priority:
<PAGE>
FIRST: amounts due and owing and required to be distributed
to the Servicer, the Owner Trustee, the Indenture Trustee,
the Collateral Agent and the Trust Collateral Agent,
respectively, pursuant to priorities (i) and (ii) of Section
5.7(b) of the Sale and Servicing Agreement and to the
Indenture Trustee and Trust Collateral Agent pursuant to
Section 6.7 hereof, and not previously distributed, in the
order of such priorities and without preference or priority
of any kind within such priorities;
SECOND: to Noteholders for amounts due and unpaid on the
Notes for interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the
Notes for interest;
THIRD: to Noteholders for amounts due and unpaid on the
Notes for principal, ratably, without preference or priority
of any kind, according to the amounts due and payable on the
Notes for principal;
FOURTH: to the Insurer, to the extent of any amounts owing
to the Insurer under the Insurance Agreement and not paid;
FIFTH: to the Collateral Agent to be applied as provided in
the Spread Account Agreement;
SIXTH: to the Certificateholders, any remaining Available
Funds;
provided that any amounts collected from the Pre-Funding Account shall be paid,
first, for amounts due and unpaid on the Notes for principal and interest, if
any, for distribution to Noteholders in accordance with Section 10.1(b) and,
second, in accordance with priorities FIRST through SIXTH above.
(b) The Indenture Trustee may fix a record date and payment date for any payment
to Noteholders pursuant to this Section. At least 15 days before such record
date the Trust shall mail to each Noteholder and the Indenture Trustee a notice
that states the record date, the payment date and the amount to be paid.
SECTION 5.7 Limitation of Suits. No Holder of any Note shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
<PAGE>
(ii) the Holders of not less than 25% of the Outstanding Amount of the
Notes have made written request to the Indenture Trustee to institute such
proceeding in respect of such Event of Default in its own name as Indenture
Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
indemnity reasonably satisfactory to it against the costs, expenses (including
legal fees and expenses) and liabilities to be incurred in complying with such
request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such proceedings;
(v) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Holders of a majority
of the Outstanding Amount of the Notes; and
(vi) an Insurer Default shall have occurred and be continuing;
it being understood and intended that no Holders of Notes
shall have any right in any manner whatsoever by virtue of, or by availing of,
any provision of this Indenture to affect, disturb or prejudice the rights of
any other Holders of Notes or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.8 Unconditional Rights of Noteholders To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Redemption Date) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 5.9 Restoration of Rights and Remedies. If the Controlling Party or any
Noteholder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, then and in every such case the Trust, the Indenture Trustee and the
Noteholders shall, subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Indenture Trustee and the Noteholders shall
continue as though no such proceeding had been instituted.
<PAGE>
SECTION 5.10 Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Controlling Party or to the Noteholders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.11 Delay or Omission Not a Waiver. No delay or omission of the
Controlling Party or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 5.12 Control by Noteholders. If the Indenture Trustee is the Controlling
Party, the Holders of a majority of the Outstanding Amount of the Notes shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided that
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) subject to the express terms of Section 5.4, any direction to the
Indenture Trustee to sell or liquidate the Trust Property shall be by the
Holders of Notes representing not less than 100% of the Outstanding Amount of
the Notes;
(iii) the Noteholders shall provide indemnity satisfactory to the
Indenture Trustee against any and all loss, liability or expense incurred by it
in connection with its performance of its duties under this Section 5.12;
(iv) if the conditions set forth in Section 5.5 have been satisfied and
the Indenture Trustee elects to retain the Trust Property pursuant to such
Section, then any direction to the Indenture Trustee by Holders of Notes
representing less than 100% of the Outstanding Amount of the Notes to sell or
liquidate the Trust Property shall be of no force and effect; and
(v) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Indenture
Trustee need not take any action that it determines might involve it in
liability or might materially adversely affect the rights of any Noteholders not
consenting to such action.
<PAGE>
SECTION 5.13 Waiver of Past Defaults. If an Insurer Default shall have occurred
and be continuing, prior to the declaration of the acceleration of the maturity
of the Notes as provided in Section 5.4, the Holders of Notes of not less than a
majority of the Outstanding Amount of the Notes may waive any past Default or
Event of Default and its consequences except a Default (a) in payment of
principal of or interest on any of the Notes or (b) in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
Holder of each Note. In the case of any such waiver, the Trust, the Indenture
Trustee and the Holders of the Notes shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.14 Undertaking for Costs. All parties to this Indenture agree, and
each Holder of any Note by such Holder's acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.15 Waiver of Stay or Extension Laws. The Trust covenants (to the
extent that it may lawfully do so) that it will not at anytime insist upon, or
plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Trust (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.16 Action on Notes. The Indenture Trustee's right to seek and recover
judgment on the Notes or under this Indenture shall not be affected by the
seeking, obtaining or application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Trust or by the levy of any
execution under such judgment upon any portion of the Trust Property or upon any
of the assets of the Trust.
<PAGE>
SECTION 5.17 Performance and Enforcement of Certain Obligations. (a) Promptly
following a request from the Indenture Trustee to do so and at the Servicer's
expense, the Trust agrees to take all such lawful action as the Indenture
Trustee may request to compel or secure the performance and observance by the
Seller and the Servicer, as applicable, of each of their obligations to the
Trust under or in connection with the Sale and Servicing Agreement in accordance
with the terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Trust under or in connection with the Sale
and Servicing Agreement to the extent and in the manner directed by the
Indenture Trustee, including the transmission of notices of default on the part
of the Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Sale and Servicing
Agreement.
If the Indenture Trustee is a Controlling Party and if an
Event of Default has occurred and is continuing, the Indenture Trustee may, and,
at the written direction of the Holders of 66-2/3% of the Outstanding Amount of
the Notes shall, exercise all rights, remedies, powers, privileges and claims of
the Trust against the Seller or the Servicer under or in connection with the
Sale and Servicing Agreement, including the right or power to take any action to
compel or secure performance or observance by the Seller or the Servicer of each
of their obligations to the Trust thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Sale and Servicing
Agreement, and any right of the Trust to take such action shall be suspended.
SECTION 5.18 Subrogation. The Trust Collateral Agent shall (i) receive as
attorney-in-fact of each Noteholder any Note Policy Claim Amount from the
Insurer and (ii) deposit the same in the Note Distribution Account for
distribution to Noteholders. Any and all Note Policy Claim Amounts disbursed by
the Indenture Trustee from claims made under the Note Policy shall not be
considered payment by the Trust or from the Spread Account with respect to such
Notes, and shall not discharge the obligations of the Trust with respect
thereto. The Insurer shall, to the extent it makes any payment with respect to
the Notes, become subrogated to the rights of the recipient of such payments to
the extent of such payments. Subject to and conditioned upon any payment with
respect to the Notes by or on behalf of the Insurer, the Indenture Trustee shall
assign to the Insurer all rights to the payment of interest or principal with
respect to the Notes which are then due for payment to the extent of all
payments made by the Insurer, and the Insurer may exercise any option, vote
right, power or the like with respect to the Notes to the extent that it has
made payment pursuant to the Note Policy. To evidence such subrogation, the Note
Registrar shall note the Insurer's rights as subrogee upon the register of
Noteholders upon receipt from the Insurer of proof of payment by the Insurer of
any Noteholders' Interest Distributable Amount or Noteholders' Principal
Distributable Amount. The foregoing subrogation shall in all cases be subject to
the rights of the Noteholders to receive all Scheduled Payments in respect of
the Notes.
<PAGE>
SECTION 5.19 Preference Claims.
(a) In the event that the Indenture Trustee has received a certified copy of an
order of the appropriate court that any Scheduled Payment (as defined in the
Note Policy) paid on a Note has been avoided in whole or in part as a preference
payment under applicable bankruptcy law, the Indenture Trustee shall so notify
the Insurer, shall comply with the provisions of the Note Policy to obtain
payment by the Insurer of such avoided payment, and shall, at the time it
provides notice to the Insurer, notify Holders of the Notes by mail that, in the
event that any Noteholder's payment is so recoverable, such Noteholder will be
entitled to payment pursuant to the terms of the Note Policy. The Indenture
Trustee shall furnish to the Insurer at its written request, the requested
records it holds in its possession evidencing the payments of principal of and
interest on Notes, if any, which have been made by the Indenture Trustee and
subsequently recovered from Noteholders, and the dates on which such payments
were made. Pursuant to the terms of the Note Policy, the Insurer will make such
payment on behalf of the Noteholder to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order (as defined in
the Note Policy) and not to the Indenture Trustee or any Noteholder directly
(unless a Noteholder has previously paid such payment to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy, in which case the
Insurer will make such payment to the Indenture Trustee for distribution to such
Noteholder upon proof of such payment reasonably satisfactory to the Insurer).
(b) The Indenture Trustee shall promptly notify the Insurer of any proceeding or
the institution of any action (of which the Indenture Trustee has actual
knowledge) seeking the avoidance as a preferential transfer under applicable
bankruptcy, insolvency, receivership, rehabilitation or similar law (a
"Preference Claim") of any distribution made with respect to the Notes. Each
Holder, by its purchase of Notes, and the Indenture Trustee hereby agree that so
long as an Insurer Default shall not have occurred and be continuing, the
Insurer may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim including,
without limitation, (i) the direction of any appeal of any order relating to any
Preference Claim and (ii) the posting of any surety, supersede as or performance
bond pending any such appeal at the expense of the Insurer, but subject to
reimbursement as provided in the Insurance Agreement. In addition, and without
limitation of the foregoing, as set forth in Section 5.18(c), the Insurer shall
be subrogated to, and each Noteholder and the Indenture Trustee hereby delegate
and assign, to the fullest extent permitted by law, the rights of the Indenture
Trustee and each Noteholder in the conduct of any proceeding with respect to a
Preference Claim, including, without limitation, all rights of any party to an
adversary proceeding action with respect to any court order issued in connection
with any such Preference Claim.
ARTICLE VI
THE INDENTURE TRUSTEE AND THE TRUST COLLATERAL AGENT
Duties of Indenture Trustee. (a) If an Event of Default has occurred
and is continuing, of which a Responsible Officer of the Indenture Trustee and
the Trust Collateral Agent, as the case may be, has actual knowledge, then the
Indenture Trustee or the Trust Collateral Agent, as the case may be, shall
exercise the rights and powers vested in it by this Indenture and the
Transaction Documents and use the same degree of care and skill in its exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
<PAGE>
Except during the continuance of an above-mentioned Event of
Default:
(i) each of the Indenture Trustee and the Trust Collateral Agent
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture and no implied covenants or obligations shall be read
into this Indenture against the Indenture Trustee and the Trust Collateral
Agent, respectively; and
(ii) in the absence of bad faith on its part, each of the Indenture
Trustee and the Trust Collateral Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee or the Trust
Collateral Agent, as the case may be and conforming to the requirements of this
Indenture; however, the Indenture Trustee and the Trust Collateral Agent shall
examine the certificates and opinions to determine whether or not they conform
on their face to the requirements of this Indenture.
(c) Each of the Indenture Trustee and the Trust Collateral Agent may
not be relieved from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) each of the Indenture Trustee and the Trust Collateral Agent shall
not be liable for any error of judgment made in good faith by a Responsible
Officer unless it is proved that the Indenture Trustee or the Trust Collateral
Agent was negligent in ascertaining the pertinent facts; and
(iii) each of the Indenture Trustee and the Trust Collateral Agent
shall not be liable with respect to any action it takes or omits to take in good
faith in accordance with a direction received by it pursuant to Section 5.12.
(d) The Indenture Trustee and the Trust Collateral Agent shall not be
liable for interest on any money received by it except as the Indenture Trustee
may agree in writing with the Trust.
(e) Money held in trust by the Indenture Trustee or the Trust
Collateral Agent need not be segregated from other funds except to the extent
required by law or the terms of this Indenture or the Sale and Servicing
Agreement.
<PAGE>
(f) No provision of this Indenture shall require the Indenture Trustee
or the Trust Collateral Agent 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 it shall have reasonable grounds to
believe that repayment of such funds or indemnity reasonably satisfactory to it
against such risk or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conductor
affecting the liability of or affording protection to the Indenture Trustee or
the Trust Collateral Agent shall be subject to the provisions of this Section
and to the provisions of the TIA.
(h) The Indenture Trustee or the Trust Collateral Agent shall, upon two
Business Day's prior written notice to the Indenture Trustee or the Trust
Collateral Agent, as the case may be, permit any representative of the Insurer,
during the Indenture Trustee's or the Trust Collateral Agent, as the case may
be, normal business hours, to examine all books of account, records, reports and
other papers of the Indenture Trustee or the Trust Collateral Agent, as the case
may be, relating to the Notes, to make copies and extracts therefrom and to
discuss the Indenture Trustee's or the Trust Collateral Agent's affairs and
actions, as such affairs and actions relate to the Indenture Trustee's or the
Trust Collateral Agent's duties with respect to the Notes, with the Indenture
Trustee's or the Trust Collateral Agent's officers and employees responsible for
carrying out the Indenture Trustee's or the Trust Collateral Agent's duties with
respect to the Notes at the sole cost and expense of the Trust.
(i) The Indenture Trustee shall, and hereby agrees that it will, hold
the Note Policy in trust, and will hold any proceeds of any claim on the Note
Policy in trust solely for the use and benefit of the Noteholders.
(j) Without limiting the generality of this Section 6.1, the Indenture
Trustee shall have no duty (i) to see to any recording, filing or depositing of
this Indenture or any agreement referred to herein or any financing statement
evidencing a security interest in 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 Trust, (iv) to confirm or verify the contents of
any reports or certificates delivered to the Indenture Trustee pursuant to this
Indenture or the Sale and Servicing Agreement believed by the Indenture Trustee
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 of observance of any of the Trust's, the Seller's
or the Servicer's representations, warranties or covenants or the Servicer's
duties and obligations as Servicer and as custodian of the Receivable Files
under the Sale and Servicing Agreement.
<PAGE>
(k) In no event shall Harris Trust and Savings Bank, in any of its
capacities hereunder, be deemed to have assumed any duties of the Owner Trustee
under the Delaware Business Trust Statute, common law, or the Trust Agreement.
SECTION 6.2 Rights of Indenture Trustee and the Trust Collateral Agent.
(a) The Indenture Trustee and the Trust Collateral Agent may rely conclusively
on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee and the Trust Collateral
Agent need not investigate any fact or matter stated in the document.
Before the Indenture Trustee or the Trust Collateral Agent acts or
refrains from acting, it may require an Officer's Certificate or an Opinion of
Counsel. The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officer's Certificate or Opinion
of Counsel.
(c) The Indenture Trustee or the Trust Collateral Agent may execute any
of the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys or a custodian or nominee, and the
Indenture Trustee or the Trust Collateral Agent shall not be responsible for any
misconduct or negligence on the part of, or for the supervision of, NAFI,
including in its capacity as Servicer, or any other such agent, attorney,
custodian or nominee appointed with due care by it hereunder.
(d) The Indenture Trustee or the Trust Collateral Agent shall not be
liable for any action it takes or omits to take in good faith which it believes
to be authorized or within its rights or powers; provided, however, that the
Indenture Trustee's or the Trust Collateral Agent's conduct does not constitute
willful misconduct, negligence or bad faith.
(e) The Indenture Trustee and the Trust Collateral Agent may consult
with counsel, and the advice or opinion of counsel with respect to legal matters
relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(f) The Indenture Trustee and the Trust Collateral Agent shall be under
no obligation to institute, conduct, defend any litigation or take any action
under this Indenture or in relation to this Indenture, at the request, order or
direction of any of the Holders of Notes or the Controlling Party, pursuant to
the provisions of this Indenture, unless such Holders of Notes or the
Controlling Party shall have offered to the Indenture Trustee and the Trust
Collateral Agent reasonable security or indemnity against the costs, expenses
and liabilities that may be incurred therein or thereby; provided, however that
the Indenture Trustee and the Trust Collateral Agent shall, upon the occurrence
of an Event of Default (that has not been cured), exercise the rights and powers
vested in it by this Indenture and the Transaction Documents and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
<PAGE>
(g) The Indenture Trustee and the Trust Collateral Agent shall not be
bound to make any investigation into the facts or 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 to do so by the Insurer (so long as no Insurer Default
shall have occurred and be continuing) or (if an Insurer Default shall have
occurred and be continuing) by the Holders of Notes evidencing not less than 25%
of the Outstanding Amount thereof; provided, however, that if the payment within
a reasonable time to the Indenture Trustee and the Trust Collateral Agent of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Indenture Trustee or the Trust
Collateral Agent, not reasonably assured to the Indenture Trustee or the Trust
Collateral Agent by the security afforded to it by the terms of this Indenture
or the Sale and Servicing Agreement, the Indenture Trustee or the Trust
Collateral Agent may require indemnity reasonably satisfactory to it against
such cost, expense (including legal fees and expenses) or liability as a
condition to such proceeding; the reasonable expense of every such examination
shall be paid by the Person making such request, or, if paid by the Indenture
Trustee or the Trust Collateral Agent, shall be reimbursed by the Person making
such request upon demand.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Trust or its Affiliates with the same rights it
would have if it were not Indenture Trustee. Any Note Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. Each of the Indenture Trustee and
the Trust Collateral Agent shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Trust
Property or the Notes, it shall not be accountable for the Trust's use of the
proceeds from the Notes, and it shall not be responsible for any statement of
the Trust in the Indenture or in any document issued in connection with the sale
of the Notes or in the Notes other than the Indenture Trustee's certificate of
authentication.
SECTION 6.5 Notice of Defaults. If an Event of Default occurs and is continuing
and if it is either actually known by, or written notice of the existence
thereof has been delivered to, a Responsible Officer of the Indenture Trustee,
the Indenture Trustee shall mail to each Noteholder notice of the Default within
90 days after such knowledge or notice occurs. Except in the case of a Default
in payment of principal of or interest on any Note (including payments pursuant
to the mandatory redemption provisions of such Note), the Indenture Trustee may
withhold the notice if and so long as a Responsible Officer in good faith
determines that withholding the notice is in the interests of Noteholders.
SECTION 6.6 Reports by Indenture Trustee to Holders. Upon written request, the
Note Paying Agent or the Servicer shall on behalf of the Trust deliver to each
Noteholder such information as may be reasonably required to enable such Holder
to prepare its Federal and state income tax returns required by law.
SECTION 6.7 Compensation and Indemnity. (a) Pursuant to Section 5.7(b) of the
Sale and Servicing Agreement and subject to Section 6.18 herein, the Trust
shall, or shall cause the Servicer to, pay to the Indenture Trustee and the
Trust Collateral Agent from time to time compensation for its services. The
Indenture Trustee's and the Trust Collateral Agent's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Trust
shall or shall cause the Servicer to reimburse the Indenture Trustee and the
Trust Collateral Agent for all reasonable out-of-pocket expenses incurred or
<PAGE>
made by it, including costs of collection, in addition to the compensation for
its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Indenture Trustee's and the Trust
Collateral Agent's agents, counsel, accountants and experts. The Trust shall or
shall cause the Servicer to indemnify the Indenture Trustee, the Trust
Collateral Agent and their respective officers, directors, employees and agents
against any and all loss, liability or expense (including attorneys' fees and
expenses) incurred by each of them in connection with the acceptance or the
administration of this trust and the performance of its duties hereunder. The
Indenture Trustee or the Trust Collateral Agent shall notify the Trust and the
Servicer promptly of any claim for which it may seek indemnity. Failure by the
Indenture Trustee or the Trust Collateral Agent to so notify the Trust and the
Servicer shall not relieve the Trust of its obligations hereunder or the
Servicer of its obligations under Article XII of the Sale and Servicing
Agreement. The Trust shall or shall cause the Servicer to defend the claim, the
Indenture Trustee or the Trust Collateral Agent may have separate counsel and
the Trust shall or shall cause the Servicer to pay the fees and expenses of such
counsel. Neither the Trust nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee or the Trust Collateral Agent through the Indenture Trustee's or the
Trust Collateral Agent's own willful misconduct, negligence or bad faith.
The Trust's payment obligations to the Indenture Trustee
pursuant to this Section shall survive the discharge of this Indenture or the
earlier resignation or removal of the Indenture Trustee or the Trust Collateral
Agent. When the Indenture Trustee incurs expenses after the occurrence of a
Default specified in Section 5.1(iv) or (v) with respect to the Trust, the
expenses are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law. Notwithstanding anything else set forth in this
Indenture or the Transaction Documents, the Indenture Trustee agrees that the
obligations of the Trust (but not the Servicer) to the Indenture Trustee
hereunder and under the Transaction Documents shall be recourse to the Trust
Property only and specifically shall not be recourse to the assets of the Trust
or any Securityholder. In addition, the Indenture Trustee agrees that its
recourse to the Trust, the Trust Property, the Seller and amounts held pursuant
of the Spread Account Agreement shall be limited to the right to receive the
distributions referred to in Section 5.7(b) of the Sale and Servicing Agreement
or Section 3.03 of the Spread Account Agreement.
SECTION 6.8 Replacement of Indenture Trustee. The Indenture Trustee may resign
at any time by so notifying the Trust and the Insurer. The Trust may and, at the
request of the Insurer (unless an Insurer Default shall have occurred and be
continuing) shall, remove the Indenture Trustee, if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect of the
Indenture Trustee in an involuntary case or proceeding under federal or state
banking or bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, shall
have entered a decree or order granting relief or appointing a receiver,
liquidator, assignee, custodian, trustee, conservator, sequestrator (or similar
official) for the Indenture Trustee or for any substantial part of the Indenture
Trustee's property, or ordering the winding-up or liquidation of the Indenture
Trustee's affairs;
<PAGE>
(iii) an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law is commenced with respect to the Indenture Trustee and
such case is not dismissed within 60 days;
(iv) the Indenture Trustee commences a voluntary case under any federal
or state banking or bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, conservator, sequestrator (or other
similar official) for the Indenture Trustee or for any substantial part of the
Indenture Trustee's property, or makes any assignment for the benefit of
creditors or fails generally to pay its debts as such debts become due or takes
any corporate action in furtherance of any of the foregoing;
(v) the Indenture Trustee otherwise becomes incapable of acting; or
(vi) the rating assigned to the long-term unsecured debt obligations of
the Indenture Trustee by the Rating Agencies shall be lowered below the rating
of "BBB", "Baa3" or equivalent rating or be withdrawn by either of the Rating
Agencies.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Trust
shall promptly appoint a successor Indenture Trustee acceptable to the Insurer
(so long as an Insurer Default shall not have occurred and be continuing). If
the Trust fails to appoint such a successor Indenture Trustee, the Insurer may
appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Trust. Thereupon the
resignation or removal of the retiring Indenture Trustee the Insurer (provided
that no Insurer Default shall have occurred and be continuing) shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the retiring Indenture Trustee under this Indenture subject to
satisfaction of the Rating Agency Condition. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Trust or the Holders of a majority in Outstanding Amount
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
<PAGE>
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee pursuant to any of the provisions of this Section
shall not become effective until acceptance of appointment by the successor
Indenture Trustee pursuant to Section 6.8 and payment of all fees and expenses
owed to the outgoing Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Trust's and the Servicer's obligations under Section 6.7 shall
continue for the benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Indenture Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Trust may at the time be located, the Indenture Trustee with the consent
of the Insurer (so long as an Insurer Default shall not have occurred and be
continuing) shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trust
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.8 hereof.
<PAGE>
Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised or
performed by the Indenture Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Indenture Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder, including acts or omissions of
predecessor or successor trustees; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, dissolve, become insolvent, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall invest in and be exercised by the Indenture Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
SECTION 6.11 Eligibility: Disqualification. The Indenture Trustee shall
at all times satisfy the requirements of TIA ss.310(a). The Indenture Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition and it shall have a long
term debt rating of Baa3 or better by the Rating Agencies. The Indenture Trustee
shall provide copies of such reports to the Insurer upon request. The Indenture
Trustee shall comply with TIA ss.310(b), including the optional provision
permitted by the second sentence of TIA ss.310(b)(9); provided, however, that
there shall be excluded from the operation of TIA ss.310(b)(1) any indenture or
indentures under which other securities of the Trust are outstanding if the
requirements for such exclusion set forth in TIA ss.310(b)(1) are met.
<PAGE>
SECTION 6.12 Preferential Collection of Claims Against Trust. The Indenture
Trustee shall comply with TIA ss.311(a), excluding any creditor relationship
listed in TIA ss.311(b). A Indenture Trustee who has resigned or been removed
shall be subject to TIA ss.311(a) to the extent indicated.
SECTION 6.13 Appointment and Powers. Subject to the terms and conditions hereof,
each of the Trust Secured Parties hereby appoints Harris Trust and Savings Bank
as the Trust Collateral Agent with respect to the Collateral, and Harris Trust
and Savings Bank hereby accepts such appointment and agrees to act as Trust
Collateral Agent with respect to the Indenture Collateral for the Trust Secured
Parties, to maintain custody and possession of such Indenture Collateral (except
as otherwise provided hereunder) and to perform the other duties of the Trust
Collateral Agent in accordance with the provisions of this Indenture and the
other Transaction Documents. Each Trust Secured Party hereby authorizes the
Trust Collateral Agent to take such action on its behalf, and to exercise such
rights, remedies, powers and privileges hereunder, as the Controlling Party may
direct and as are specifically authorized to be exercised by the Trust
Collateral Agent by the terms hereof, together with such actions, rights,
remedies, powers and privileges as are reasonably incidental thereto. The Trust
Collateral Agent shall act upon and in compliance with the written instructions
of the Controlling Party delivered pursuant to this Indenture promptly following
receipt of such written instructions; provided that the Trust Collateral Agent
shall not act in accordance with any instructions (i) which are not authorized
by, or in violation of the provisions of, this Indenture or (ii) for which the
Trust Collateral Agent has not received reasonable indemnity. Receipt of such
instructions shall not be a condition to the exercise by the Trust Collateral
Agent of its express duties hereunder, except where this Indenture provides that
the Trust Collateral Agent is permitted to act only following and in accordance
with such instructions.
SECTION 6.14 Performance of Duties. The Trust Collateral Agent shall have no
duties or responsibilities except those expressly set forth in this Indenture
and the other Transaction Documents to which the Trust Collateral Agent is a
party or as directed by the Controlling Party in accordance with this Indenture.
The Trust Collateral Agent shall not be required to take any discretionary
actions hereunder except at the written direction and with indemnification from
the Controlling Party. The Trust Collateral Agent shall, and hereby agrees that
it will, perform all of the duties and obligations required of it under the Sale
and Servicing Agreement.
SECTION 6.15 Limitation on Liability. Neither the Trust Collateral Agent nor any
of its directors, officers, employees and agents shall be liable for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith,
except that the Trust Collateral Agent shall be liable for its negligence, bad
faith or willful misconduct; nor shall the Trust Collateral Agent be responsible
for the validity, effectiveness, value, sufficiency or enforceability against
the Trust of this Indenture or any of the Indenture Collateral (or any part
thereof). Notwithstanding any term or provision of this Indenture, the Trust
Collateral Agent shall incur no liability to the Trust or the Trust Secured
Parties for any action taken or omitted by the Trust Collateral Agent in
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connection with the Indenture Collateral, except for the negligence, bad faith
or willful misconduct on the part of the Trust Collateral Agent, and, further,
shall incur no liability to the Trust Secured Parties except for negligence, bad
faith or willful misconduct in carrying out its duties to the Trust Secured
Parties. Subject to Section 6.16, the Trust Collateral Agent shall be protected
and shall incur no liability to any such party in conclusively relying upon the
accuracy, acting in reliance upon the contents, and assuming the genuineness of
any notice, demand, certificate, signature, instrument or other document
reasonably believed by the Trust Collateral Agent to be genuine and to have been
duly executed by the appropriate signatory, and (absent actual knowledge to the
contrary) the Trust Collateral Agent shall not be required to make any
independent investigation with respect thereto. The Trust Collateral Agent shall
at all times be free independently to establish to its reasonable satisfaction,
but shall have no duty to independently verify, the existence or nonexistence of
facts that are a condition to the exercise or enforcement of any right or remedy
hereunder or under any of the Transaction Documents. The Trust Collateral Agent
may consult with counsel, and shall not be liable for any action taken or
omitted to be taken by it hereunder in good faith and in accordance with the
advice of such counsel. The Trust Collateral Agent shall not be under any
obligation to exercise any of the remedial rights, obligations or powers vested
in it by this Indenture or to follow any direction from the Controlling Party
unless it shall have received security or indemnity satisfactory to the Trust
Collateral Agent against the costs, expenses and liabilities which might be
incurred by it.
SECTION 6.16 Reliance Upon Documents. In the absence of negligence, bad faith or
willful misconduct on its part, the Trust Collateral Agent shall be entitled to
rely conclusively on any communication, instrument, paper or other document
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons and shall have no liability in acting, or
omitting to act, where such action or omission to act is in reasonable reliance
upon any statement or opinion contained in any such document or instrument.
SECTION 6.17 Successor Trust Collateral Agent.
(a) Merger. Any Person into which the Trust Collateral Agent may be converted or
merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Trust Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Trust Collateral Agent hereunder) be and
become a successor Trust Collateral Agent hereunder and be vested with all of
the title to and interest in the Indenture Collateral and all of the trusts,
powers, discretions, immunities, privileges and other matters as was its
predecessor without the execution or filing of any instrument or any further
act, deed or conveyance on the part of any of the parties hereto, anything
herein to the contrary notwithstanding, except to the extent, if any, that any
such action is necessary to perfect, or continue the perfection of, the security
interest of the Trust Secured Parties in the Indenture Collateral; provided that
any such successor shall also be the successor Indenture Trustee under Section
6.9.
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(b) Resignation. The Trust Collateral Agent and any successor Trust Collateral
Agent may resign at any time by so notifying the Trust and the Insurer; provided
that the Trust Collateral Agent shall not so resign unless it shall also resign
as Indenture Trustee hereunder.
(c) Removal. Absent a Financial Security Default (as defined in the
Master Spread Account Agreement), the Trust Collateral Agent may be removed by
the Controlling Party at any time (and should be removed at any time that the
Indenture Trustee has been removed), with or without cause, by an instrument or
concurrent instruments in writing delivered to the Trust Collateral Agent, the
other Trust Secured Party and the Trust. A temporary successor may be removed at
any time to allow a successor Trust Collateral Agent to be appointed pursuant to
subsection (d) below. Any removal pursuant to the provisions of this subsection
(c) shall take effect only upon the date which is the latest of (i) the
effective date of the appointment of a successor Trust Collateral Agent and the
acceptance in writing by such successor Trust Collateral Agent of such
appointment and of its obligation to perform its duties hereunder in accordance
with the provisions hereof, and (ii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 3.6.
(d) Acceptance by Successor. The Controlling Party shall have the sole
right to appoint each successor Trust Collateral Agent. Every temporary or
permanent successor Trust Collateral Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and to the Indenture Trustee, each
Trust Secured Party and the Trust an instrument in writing accepting such
appointment hereunder and the relevant predecessor shall execute, acknowledge
and deliver such other documents and instruments as will effectuate the delivery
of all Indenture Collateral to the successor Trust Collateral Agent, whereupon
such successor, without any further act, deed or conveyance, shall become fully
vested with all the estates, properties, rights, powers, duties and obligations
of its predecessor. Such predecessor shall, nevertheless, on the written request
of either Trust Secured Party or the Trust, execute and deliver an instrument
transferring to such successor all the estates, properties, rights and powers of
such predecessor hereunder. In the event that any instrument in writing from the
Trust or a Trust Secured Party is reasonably required by a successor Trust
Collateral Agent to more fully and certainly vest in such successor the estates,
properties, rights, powers, duties and obligations vested or intended to be
vested hereunder in the Trust Collateral Agent, any and all such written
instruments shall, at the request of the temporary or permanent successor Trust
Collateral Agent, be forthwith executed, acknowledged and delivered by the
Indenture Trustee or the Trust, as the case may be. The designation of any
successor Trust Collateral Agent and the instrument or instruments removing any
Trust Collateral Agent and appointing a successor hereunder, together with all
other instruments provided for herein, shall be maintained with the records
relating to the Indenture Collateral and, to the extent required by applicable
law, filed or recorded by the successor Trust Collateral Agent in each place
where such filing or recording is necessary to effect the transfer of the
Indenture Collateral to the successor Trust Collateral Agent or to protect or
continue the perfection of the security interests granted hereunder.
<PAGE>
SECTION 6.18 Compensation. The Trust Collateral Agent shall not be
entitled to any compensation for the performance of its duties hereunder other
than the compensation it is entitled to receive in its capacity as Indenture
Trustee. Upon termination of the Indenture Trustee, the Trust Collateral Agent's
duties hereunder shall also terminate.
SECTION 6.19 Representations and Warranties of the Indenture Trustee and the
Trust Collateral Agent. Each of the Trust Collateral Agent and the Indenture
Trustee represents and warrants to the Trust and to each Trust Secured Party as
follows:
(a) Due Organization. The Indenture Trustee and the Trust Collateral
Agent is a New York banking corporation, duly organized, validly existing and in
good standing under the laws of New York and is duly authorized and licensed
under applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Indenture Trustee and the Trust Collateral
Agent has all requisite right, power and authority to execute and deliver this
Indenture and to perform all of its duties as the Indenture Trustee or Trust
Collateral Agent, as the case may be, hereunder.
(c) Due Authorization. The execution and delivery by the Trust
Collateral Agent and the Indenture Trustee of this Indenture and the other
Transaction Documents to which it is a party, and the performance by the Trust
Collateral Agent and the Indenture Trustee of its duties hereunder and
thereunder, have been duly authorized by all necessary corporate proceedings,
are required for the valid execution and delivery by the Trust Collateral Agent
or the Indenture Trustee, or the performance by the Trust Collateral Agent or
the Indenture Trustee, of this Indenture and such other Transaction Documents.
(d) Valid and Binding Indenture. Each of the Indenture Trustee and the
Trust Collateral Agent has duly executed and delivered this Indenture and each
other Transaction Document to which it is a party, and each of this Indenture
and each such other Transaction Document constitutes the legal, valid and
binding obligation of the Indenture Trustee and the Trust Collateral Agent,
enforceable against the Indenture Trustee and the Trust Collateral Agent in
accordance with its terms, except as (i) such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar laws relating to or affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
SECTION 6.20 Waiver of Setoffs. The Indenture Trustee and
the Trust Collateral Agent hereby expressly waives any and all rights of setoff
that the Indenture Trustee or the Trust Collateral Agent may otherwise at any
time have under applicable law with respect to any Account and agrees that
amounts in the Accounts shall at all times be held and applied solely in
accordance with the provisions hereof.
SECTION 6.21 Control by the Controlling Party. The Indenture Trustee and the
Trust Collateral Agent shall comply with notices and instructions given by the
Trust only if accompanied by the written consent of the Controlling Party,
except that if any Event of Default shall have occurred and be continuing, the
Indenture Trustee and the Trust Collateral Agent shall act upon and comply with
notices and instructions given by the Controlling Party alone in the place and
stead of the Trust.
<PAGE>
SECTION 6.22 Compensation. The Trust Collateral Agent shall not be entitled to
any compensation for the performance of its duties hereunder other than the
compensation it is entitled to receive in its capacity as Indenture Trustee.
Upon termination of the Indenture Trustee, the Trust Collateral Agent's duties
hereunder shall also terminate.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Trust To Furnish To Indenture Trustee Names and Addresses of
Noteholders. The Trust will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Holders as of such Record Date, (b) at such other times as the Indenture Trustee
may request in writing, within 30 days after receipt by the Trust of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; provided, however, that so long as the
Indenture Trustee is the Note Registrar, no such list shall be required to be
furnished. The Indenture Trustee or, if the Indenture Trustee is not the Note
Registrar, the Trust shall furnish to the Insurer in writing upon their written
request and at such other times as the Insurer may request a copy of the list.
SECTION 7.2 Preservation of Information; Communications to Noteholders. (a) The
Indenture Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders contained in the most recent
list furnished to the Indenture Trustee as provided in Section 7.1 and the names
and addresses of Holders received by the Indenture Trustee in its capacity as
Note Registrar. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.1 upon receipt of a new list so furnished.
Noteholders may communicate pursuant to TIA ss.312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Trust, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss.312(c).
SECTION 7.3 Reports by Trust. (a) The Trust shall:
(i) file with the Indenture Trustee, within 15 days after the Trust is
required to file the same with the Commission, copies of the annual reports and
copies of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Trust may be required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in accordance
with rules and regulations prescribed from time to time by the Commission such
additional information, documents and reports with respect to compliance by the
Trust with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations; and
<PAGE>
(iii) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Noteholders described in TIA ss.313(c)) such summaries
of any information, documents and reports required to be filed by the Trust
pursuant to clauses (i) and (ii) of this Section 7.3(a) as may be required by
rules and regulations prescribed from time to time by the Commission.
(b) Unless the Trust otherwise determines, the fiscal year of the Trust
shall end on December 31 of each year.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA ss.313(a),within 60
days after each August 31, beginning with August 31, 1997, the Indenture Trustee
shall mail to each Noteholder as required by TIA ss.313(c) a brief report dated
as of such date that complies with TIA ss.313(a). The Indenture Trustee also
shall comply with TIA ss.313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Trust shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Collection of Money. Except as otherwise expressly provided herein, the
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Trust Collateral Agent pursuant to this Indenture and the Sale and Servicing
Agreement. The Indenture Trustee shall apply all such money received by it, or
cause the Trust Collateral Agent to apply all money received by it as provided
in this Indenture and the Sale and Servicing Agreement. Except as otherwise
expressly provided in this Indenture or in the Sale and Servicing Agreement, if
any default occurs in the making of any payment or performance under any
agreement or instrument that is part of the Trust Property, the Indenture
Trustee may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
SECTION 8.2 Release of Collateral. (a) Subject to the payment of its fees and
expenses pursuant to Section 6.7, the Trust Collateral Agent may, and when
required by the Trust and the provisions of this Indenture shall, execute
instruments to release property from the lien of this Indenture, in a manner and
under circumstances that are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Trust Collateral
Agent as provided in this Article VIII shall be bound to ascertain the Trust
Collateral Agent's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any monies.
<PAGE>
The Trust Collateral Agent shall, at such time as there are no
Notes outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
have been paid, release any remaining portion of the Trust Property that secured
the Notes from the lien of this Indenture and release to the Trust or any other
Person entitled thereto any funds then on deposit in the Accounts. The Indenture
Trustee shall release property from the lien of this Indenture pursuant to this
Section 8.2(b) only upon receipt of a Trust Request accompanied by an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA) Independent
Certificates in accordance with TIA ss.ss. 314(c) and 314(d)(1) meeting the
applicable requirements of Section 11.1.
SECTION 8.3 Opinion of Counsel. The Trust Collateral Agent shall receive at
least seven days' notice when requested by the Trust to take any action pursuant
to Section 8.2(a), accompanied by copies of any instruments involved, and the
Indenture Trustee shall also require as a condition to such action, an Opinion
of Counsel in form and substance satisfactory to each of the Insurer and the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Noteholders in contravention of the provisions of this Indenture;
provided, however, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Trust Property. Counsel rendering any
such opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Supplemental Indentures Without Consent of Noteholders. (a) Without the
consent of the Holders of any Notes but with the consent of the Insurer (unless
an Insurer Default shall have occurred and be continuing), as evidenced to the
Indenture Trustee, the Trust and the Indenture Trustee, when authorized by a
Trust Order, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and confirm
unto the Trust Collateral Agent any property subject or required to be subjected
to the lien of this Indenture, or to subject to the lien of this Indenture
additional property;
<PAGE>
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Trust, and the assumption by any
such successor of the covenants of the Trust herein and in the Notes contained;
(iii) to add to the covenants of the Trust, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred upon
the Trust;
(iv) to convey, transfer, assign, mortgage or pledge any property to or
with the Trust Collateral Agent;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be inconsistent with any other
provision herein or in any supplemental indenture or to make any other
provisions with respect to matters or questions arising under this Indenture or
in any supplemental indenture; provided that such action shall not adversely
affect the interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to
facilitate the administration of the trusts hereunder by more than one trustee,
pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar federal statute hereafter enacted
and to add to this Indenture such other provisions as may be expressly required
by the TIA.
The Indenture Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Trust and the Indenture Trustee, when authorized by a Trust
Order, may, also without the consent of any of the Holders of the Notes but with
prior notice to the Rating Agencies by the Trust, as evidenced to the Indenture
Trustee, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel, adversely affect
in any material respect the interests of any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders. The Trust and
the Indenture Trustee, when authorized by a Trust Order, also may, with prior
notice to the Rating Agencies, with the consent of the Insurer (unless an
Insurer Default shall have occurred and be continuing) and with the consent of
the Holders of not less than a majority of the outstanding Amount of the Notes,
by Act of such Holders delivered to the Trust and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that, subject to
the express rights of the Insurer under the Transaction Documents, no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
<PAGE>
(i) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof, the interest rate
thereon or the Redemption Price with respect thereto, change the provision of
this Indenture relating to the application of collections on, or the proceeds of
the sale of, the Trust Property to payment of principal of or interest on the
Notes, or change any place of payment where, or the coin or currency in which,
any Note or the interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available
therefor, as provided in Article V, to the payment of any such amount due on the
Notes on or after the respective due dates thereof (or, in the case of
redemption, on or after the Redemption Date);
(iii) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Holders of which is required for any such supplemental indenture,
or the consent of the Holders of which is required for any waiver of compliance
with certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(iv) modify or alter the provisions of the proviso to the definition of
the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Trust to sell or
liquidate the Trust Property pursuant to Section 5.4;
(vi) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Transaction Documents cannot be modified or waived without
the consent of the Holder of each Outstanding Note affected thereby;
(vii) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Distribution Date (including the calculation of any of
the individual components of such calculation) or to affect the rights of the
Holders of Notes to the benefit of any provisions for the mandatory redemption
of the Notes contained herein; or
(viii) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Trust Property
or, except as otherwise permitted or contemplated herein or in any of the
Transaction Documents, terminate the lien of this Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture.
<PAGE>
The Indenture Trustee may determine whether or not any Notes would be
adversely affected by any supplemental indenture upon receipt of an Opinion of
Counsel to that effect and any such determination shall be conclusive upon the
Holders of all Notes, whether theretofore or thereafter authenticated and
delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Trust and the Indenture Trustee of
any supplemental indenture pursuant to this Section, the Indenture Trustee shall
mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or permitting
the additional trusts created by, any supplemental indenture permitted by this
Article IX or the modifications thereby of the trusts created by this Indenture,
the Indenture Trustee shall be entitled to receive, and subject to Sections 6.1
and 6.2, shall be fully protected in relying upon, an Opinion of Counsel (and,
if requested, an Officer's Certificate) stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Indenture Trustee may, but shall not be obligated to, enter into any such
supplemental indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to the Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Trust and the Holders of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity With Trust Indenture Act. Every amendment of this
Indenture and every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect
so long as this Indenture shall then be qualified under the Trust Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes authenticated
and delivered after the execution of any supplemental indenture pursuant to this
<PAGE>
Article IX may, and if required by the Indenture Trustee shall, bear a notation
in form approved by the Indenture Trustee as to any matter provided for in such
supplemental indenture. If the Trust or the Indenture Trustee shall so
determine, new Notes so modified as to conform, in the opinion of the Indenture
Trustee and the Trust, to any such supplemental indenture may be prepared and
executed by the Trust and authenticated and delivered by the Indenture Trustee
in exchange for Outstanding Notes.
ARTICLE X
REDEMPTION OF NOTES
Redemption. (a) The Notes are subject to redemption in whole, but not
in part, at the direction of the Seller pursuant to Section 11.1(a) of the Sale
and Servicing Agreement, on any Distribution Date on which the Servicer or
Seller exercises its option to purchase the Trust Property pursuant to said
Section 11.1(a), for a purchase price equal to the Redemption Price. The
Servicer or the Trust shall furnish the Insurer and each Rating Agency notice of
such redemption. If the Notes are to be redeemed pursuant to this Section
10.1(a), the Servicer or the Trust shall furnish notice of such election to the
Indenture Trustee not later than 35 days prior to the Redemption Date and the
Trust shall deposit with the Indenture Trustee in the Note Distribution Account
the Redemption Price of the Notes within Five Business Days prior to the
Redemption Date whereupon all such Notes shall be due and payable on the
Redemption Date upon the furnishing of a notice complying with Section 10.2.
In the event that on the Distribution Date on which the Pre-Funding
Period ends (or on the Distribution Date on or immediately following the last
day of the Pre-Funding Period, if the Pre-Funding Period does not end on a
Distribution Date), any Pre-Funded Amount remains on deposit in the Pre-Funding
Account after giving effect to the purchase of all Additional Receivables,
including any such purchase on such Redemption Date, the Notes will be redeemed
in part and paid sequentially in an aggregate principal amount equal to the
Prepayment Amount.
(c) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(c), the Servicer or the
Trust shall, to the extent practicable, furnish written notice of such event to
the Indenture Trustee not later than 45 days prior to the Redemption Date
whereupon all such amounts shall be payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice. (a) Notice of redemption supplied to the
Indenture Trustee by the Servicer under Section 10.1(a) shall be given by the
Indenture Trustee by facsimile or by first-class mail, postage prepaid,
transmitted or mailed prior to the applicable Redemption Date to each Holder of
Notes or record, as of the close of business on the date which is 5 days prior
to the applicable Redemption Date, at such Holder's address appearing in the
Note Register.
<PAGE>
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such Redemption Date
is not applicable and that payments shall be made only upon presentation and
surrender of such Notes and the place where such Notes are to be surrendered for
payment of the Redemption Price (which shall be the office or agency of the
Trust to be maintained as provided in Section 3.2); and
(iv) that interest on the Notes shall cease to accrue on the Redemption
Date.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Trust. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.1(b) is not required to
be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date. The Notes to be redeemed shall,
following notice of redemption as required by Section 10.2 (in the case of
redemption pursuant to Section 10.1(a) or (c)), on the Redemption Date become
due and payable at the Redemption Price and (unless the Trust shall default in
the payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price.
ARTICLE XI
MISCELLANEOUS
Compliance Certificates and Opinions, etc. (a) Upon any application or
request by the Trust to the Indenture Trustee or the Trust Collateral Agent to
take any action under any provision of this Indenture, the Trust shall furnish
to the Indenture Trustee or the Trust Collateral Agent, as the case may be, and
to the Insurer (i) an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, (ii) an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
<PAGE>
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion has
read or has caused to be read such covenant or condition and the definitions
herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to enable
such signatory to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such signatory
such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Trust Collateral Agent that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Trust shall, in addition to any obligation imposed in Section 11.1(a) or
elsewhere in this Indenture, furnish to the Trust Collateral Agent and the
Insurer an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
deposit) to the Trust of the Collateral or other property or securities to be so
deposited. Such certificate or opinion of fair value shall satisfy the
requirements of Section 314 of the TIA, as amended.
Whenever the Trust is required to furnish to the Trust Collateral Agent
and the Insurer an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (i) above, the Trust
shall also deliver to the Trust Collateral Agent and the Insurer an Independent
Certificate as to the same matters, if the fair value to the Trust of the
securities to be so deposited and of all other such securities made the basis of
any such withdrawal or release since the commencement of the then-current fiscal
year of the Trust, as set forth in the certificates delivered pursuant to clause
(i) above and this clause (ii), is 10% or more of the Outstanding Amount of the
Notes; provided, that such a certificate need not be furnished with respect to
any securities so deposited, if the fair value thereof to the Trust as set forth
in the related Officer's Certificate is less than $25,000 or less than 1%
percent of the Outstanding Amount of the Notes.
<PAGE>
(iii) Other than with respect to the release of any Purchased
Receivables or Liquidated Receivables, whenever any property or securities are
to be released from the lien of this Indenture, the Trust shall also furnish to
the Trust Collateral Agent and the Insurer an Officer's Certificate certifying
or stating the opinion of each person signing such certificate as to the fair
value (within 90 days of such release) of the property or securities proposed to
be released and stating that in the opinion of such person the proposed release
will not impair the security under this Indenture in contravention of the
provisions hereof.
(iv) Whenever the Trust is required to furnish to the Indenture Trustee
and the Insurer an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Trust
shall also furnish to the Trust Collateral Agent and the Insurer an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property other than Purchased Receivables and
Defaulted Receivables, or securities released from the lien of this Indenture
since the commencement of the then current calendar year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals 10% or
more of the Outstanding Amount of the Notes; provided, that such certificate
need not be furnished in the case of any release of property or securities if
the fair value thereof as set forth in the related Officer's Certificate is less
than $25,000 or less than 1 percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other provision of this Section,
the Trust may (A) collect, liquidate, sell or otherwise dispose of Receivables
as and to the extent permitted or required by the Transaction Documents and (B)
make cash payments out of the Accounts as and to the extent permitted or
required by the Transaction Documents.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Trust may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any such certificate of an Authorized Officer or Opinion of
Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Servicer, the Seller or the Trust, stating that the information with respect to
such factual matters is in the possession of the Servicer, the Seller or the
Trust, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
<PAGE>
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Trust
shall deliver any document as a condition of the granting of such application,
or as evidence of the Trust's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Trust to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to conclusively rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Article VI.
SECTION 11.3 Acts of Noteholders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Noteholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Noteholders in person
or by agents duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Indenture Trustee, and, where it is hereby expressly
required, to the Trust. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act" of
the Noteholders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Indenture Trustee and the Trust, if made in the
manner provided in this Section.
The fact and date of the execution by any person of any such instrument
or writing may be proved in any customary manner of the Indenture Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Trust in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc. to Indenture Trustee, Trust and Rating Agencies. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder or by the Trust shall be
sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed first-class and shall be deemed to have been duly
given upon receipt to the Indenture Trustee at its Corporate Trust Office, or
<PAGE>
(b) The Trust by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered, delivered by
facsimile or overnight courier or mailed first class, and shall deemed to have
been duly given upon receipt to the Trust addressed to: National Auto Finance
1997-1 Trust, in care of Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, DE 19890-0001 Attention: Corporate Trust
Administration, or at any other address previously furnished in writing to the
Indenture Trustee by Trust. The Trust shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee.
(c) The Insurer by the Trust or the Indenture Trustee shall be
sufficient for any purpose hereunder if in writing and mailed by first-class
mail personally delivered or telexed or telecopied to the recipient as follows:
To the Insurer: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: National Auto Finance 1997-1 Trust, 6.35% Automobile
Receivables-Backed Notes
Telex No.: (212) 688-3101
Confirmation: (212) 826-3518
Telecopy Nos.: (212) 339-3518 or
(212) 339-3529
(In each case in which notice or other communication to the Insurer refers to an
Event of Default, a claim on the Note Policy or with respect to which failure on
the part of the Insurer to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication should also be
sent to the attention of the General Counsel and the Head--Financial Guaranty
Group "URGENT MATERIAL ENCLOSED.")
Notices required to be given to the Rating Agencies by the Trust, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered, delivered by overnight courier or first class or via facsimile to (i)
in the case of Moody's, at the following address: Moody's Investors Service,
Inc., Attn: ABS Monitoring Department, 99 Church Street, New York, New York
10004, Fax No: (212) 533-0355 and (ii) in the case of S&P, at the following
address: Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York,
New York 10004, Attention: Asset Backed Surveillance Department, Fax No: (212)
412-0224; or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture provides for
notice to Noteholders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Noteholder affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Noteholders is given by mail, neither the failure to
mail such notice nor any defect in any notice so mailed to any particular
Noteholder shall affect the sufficiency of such notice with respect to other
Noteholders, and any notice that is mailed in the manner herein provided shall
conclusively be presumed to have been duly given.
<PAGE>
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding any
provision of this Indenture or any of the Notes to the contrary, the Trust may
enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Note Paying Agent to such
Holder, that is different from the methods provided for in this Indenture for
such payments or notices, provided that such methods are reasonable and
consented to by the Indenture Trustee (which consent shall not be unreasonably
withheld). The Trust will furnish to the Indenture Trustee a copy of each such
agreement and the Indenture Trustee will cause payments to be made and notices
to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision hereof limits,
qualifies or conflicts with another provision hereof that is required to be
included in this indenture by any of the provisions of the Trust Indenture Act,
such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
<PAGE>
SECTION 11.9 Successors and Assigns. All covenants and agreements in this
Indenture and the Notes by the Trust shall bind its successors and assigns,
whether so expressed or not. All agreements of the Indenture Trustee in this
Indenture shall bind its successors. All agreements of the Trust Collateral
Agent in this Indenture shall bind its successors.
SECTION 11.10 Separability. In case any provision in this Indenture or in the
Notes shall be invalid, illegal or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 11.11 Benefits of Indenture. The Insurer and its successors and assigns
shall be a third-party beneficiary to the provisions of this Indenture, and
shall be entitled to rely upon and directly to enforce such provisions of this
Indenture so long as no Insurer Default shall have occurred and be continuing.
Nothing in this Indenture or in the Notes, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder, and the
Noteholders, and any other party secured hereunder, and any other person with an
Ownership interest in any part of the Trust Property, any benefit or any legal
or equitable right, remedy or claim under this Indenture. The Insurer may
disclaim any of its rights and powers under this Indenture (in which case the
Indenture Trustee may exercise such right or power hereunder), but not its
duties and obligations under the Note Policy, upon delivery of a written notice
to the Indenture Trustee.
SECTION 11.12 Legal Holidays. In any case where the date on which any payment is
due shall not be a Business Day, then (notwithstanding any other provision of
the Notes or this Indenture) payment need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date an which nominally due, and no interest shall accrue for the
period from and after any such nominal date.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to recording
in any appropriate public recording offices, such recording is to be effected by
the Trust and at its expense accompanied by an Opinion of Counsel (which may be
counsel to the Trust or any other counsel reasonably acceptable to the Indenture
Trustee and the Insurer) to the effect that such recording is necessary either
for the protection of the Noteholders or any other person secured hereunder or
for the enforcement of any right or remedy granted to the Indenture Trustee or
the Trust Collateral Agent under this Indenture or the Collateral Agent under
the Spread Account Agreement.
<PAGE>
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Trust, the Seller, the
Servicer, the Owner Trustee, the Trust Collateral Agent or the Indenture Trustee
on the Notes or under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) the Seller, the
Servicer, the Trust Collateral Agent, the Indenture Trustee or the Owner Trustee
in its individual capacity, (ii) any owner of a beneficial interest in the Trust
or (iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Seller, the Servicer, the Trust Collateral Agent, the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Trust, the Seller, the Trust Collateral Agent, the
Servicer, the Owner Trustee or the Indenture Trustee or of any successor or
assign of the Seller, the Servicer, the Trust Collateral Agent, the Indenture
Trustee or the Owner Trustee in its individual capacity, except as any such
Person may have expressly agreed (it being understood that the Indenture
Trustee, the Trust Collateral Agent and the Owner Trustee have no such
obligations in their individual capacity) and except that any such owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations of the Trust
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
SECTION 11.17 No Petition. The Indenture Trustee and the Trust Collateral Agent,
by entering into this Indenture, and each Noteholder, by accepting a Note,
hereby covenant and agree that they will not at any time institute against the
Seller, or the Trust, or join in any institution the Seller, or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, this Indenture or any of the Transaction Documents.
SECTION 11.18 Inspection. The Trust agrees that, on reasonable prior notice, it
will permit any representative of the Indenture Trustee or of the Insurer,
during the Trust's normal business hours, to examine all the books of account,
records, reports, and other papers of the Trust, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants, and to discuss the Trust's affairs, finances and accounts with the
Trust's officers, employees, and independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The
Indenture Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its Obligations hereunder.
SECTION 11.19 Limitation of Liability. It is expressly understood and agreed by
the parties hereto that (a) this Agreement is executed and delivered by
Wilmington Trust Company, not individually or personally but solely as Owner
Trustee of the Trust under the Trust Agreement, in the exercise of the powers
and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
<PAGE>
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Trust, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company individually or personally, to perform any
covenant either expressed or implied contained herein, all such liability, if
any, being expressly waived by the parties to this Agreement and by any person
claiming by, through or under them and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Trust or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaking by the
Trust under this Agreement or any related documents.
<PAGE>
IN WITNESS WHEREOF, the Trust, the Indenture Trustee and the Trust
Collateral Agent have caused this Indenture to be duly executed by their
respective officers, hereunto duly authorized, all as of the day and year first
above written.
NATIONAL AUTO FINANCE 1997-1 TRUST
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner Trustee,
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as
Indenture Trustee and Trust Collateral
Agent,
By:
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF NOTE
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE FOR NOTES IN DEFINITIVE FORM,
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS NOTE
IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO TREAT THIS NOTE AS
INDEBTEDNESS FOR FEDERAL INCOME TAX PURPOSES.
<PAGE>
Note Rate: Denomination:
$
First Distribution Date: Aggregate Principal Balance of
Note: $
CUSIP No.:
Final Scheduled Distribution Date: Note No.:
1
<PAGE>
National Auto Finance 1997-1 Trust
% AUTOMOBILE RECEIVABLES-BACKED NOTE,
SERIES 1997-1
evidencing indebtedness of the trust, the property of which includes a pool of
motor vehicle retail installment sale contracts, formed by the National
Financial Auto Funding Trust (the "Seller"). This Note is one of a duly
authorized issue of Notes designated as National Auto Finance 1997-1 Trust %
Automobile Receivables-Backed Notes of the Series specified hereon (herein
called the "Notes").
Except as provided in the Agreement referred to below, this Note does not
represent an obligation of or interest in the Seller, National Auto Finance
Company, Inc. (the "Servicer") or Harris Trust and Savings Bank or any of their
affiliates. Neither this Note nor the underlying Receivables are guaranteed by
any governmental agency or instrumentality. THIS NOTE IS NOT A DEPOSIT AND IS
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION .
This certifies that CEDE & CO. is the registered owner of the aggregate
principal balance evidenced by this Note, secured by the Trust Property, which
includes a pool (the "Pool") of motor vehicle installment sale contracts and
notes (the "Receivables") and the benefits of a financial guaranty insurance
policy (the "Note Policy") issued by Financial Security Assurance Inc. (the
"Insurer"). The Trust Property was created pursuant to an Indenture (the
"Indenture"), dated as of June 29, 1997, among National Auto Finance 1997-1
Trust and Harris Trust and Savings Bank, not in its individual capacity but
solely as trust collateral agent (the "Trust Collateral Agent") and indenture
trustee (the "Indenture Trustee"), a summary of certain of the pertinent
provisions of which is set forth hereinafter. Capitalized terms used but not
defined herein have the meanings assigned to them in the Indenture. This Note is
issued under and is subject to the terms, provisions and conditions of the
Indenture, to which Indenture, as amended from time to time, the Holder of this
Note by virtue of the acceptance hereof assents and by which such Holder is
bound. In the event of a conflict between the terms of this Note and the
Indenture, the Indenture shall control.
Pursuant to the terms of the Sale and Servicing Agreement, the Trust
Collateral Agent shall distribute on the 21st day of each month or, if such 21st
day is not a Business Day, the Business Day immediately following (the
"Distribution Date"), commencing on the first Distribution Date specified above,
to the Person in whose name this Note is registered at the close of business on
the last day of the preceding calendar month of such distribution (the "Record
Date"), an amount equal to the Noteholders' Distributable Amount required to be
distributed to Holders of Notes on such Distribution Date.
Pursuant to the Note Policy, the Insurer has unconditionally and
irrevocably guaranteed the full and complete payment of the Scheduled Payments
(as defined in the Note Policy) with respect to each Distribution Date.
<PAGE>
Distributions on this Note on each Distribution Date shall be applied
first to accrued and unpaid interest due on this Note and then to unpaid
principal.
Distributions on this Note will be made by the Trust Collateral Agent
in immediately available funds (by wire transfer or otherwise) for the account
of the Person entitled thereto if such Person holds Notes evidencing an
aggregate denomination of at least $1,000,000 and has so notified the Trust
Collateral Agent, or, if such Person does not hold Notes having such aggregate
denomination or holds such aggregate denomination but has not so notified the
Trust Collateral Agent, by check mailed to the address of the Person entitled
thereto, as such name and address shall appear on the Note Register.
Notwithstanding the above, the final distribution on this Note will be made
after due notice by the Trust Collateral Agent of the pendency of such
distribution and only upon presentation and surrender of this Note at the office
or agency appointed by the Trust Collateral Agent for that purpose in Chicago,
Illinois.
As provided in the Sale and Servicing Agreement, withdrawals from the
Distribution Account shall be made by the Trust Collateral Agent from time to
time for purposes other than distributions to Noteholders, such purposes
including payment to the Servicer of the Servicing Fee, reimbursement to the
Servicer of certain expenses incurred by it, payment to the Trust Collateral
Agent of its fees and expenses and payment to the Insurer of the premiums and
other amounts owed to it under an Insurance and Indemnity Agreement among
National Auto Finance 1997-1 Trust, the Seller, National Auto Finance Company,
Inc. and the Insurer.
The Sale and Servicing Agreement permits, with certain exceptions
therein provided, the amendment of the Sale and Servicing Agreement and the
modification of the rights and obligations of the Seller, the Servicer and the
Trust Collateral Agent and the rights of the Noteholders under the Agreement at
any time by the Seller, the Servicer and the Trust Collateral Agent, with the
written consent of the Insurer (unless an Insurer Default has occurred and is
continuing), and the consent of the Holders of Notes pursuant to Section 13.1 of
the Sale and Servicing Agreement. Any such consent by the Holder of this Note
shall be conclusive and binding on such Holder and upon all future Holders of
this Note and of any Note issued upon the transfer hereof or in exchange
therefor or in lieu hereof whether or not notation of such consent is made upon
the Note. The Sale and Servicing Agreement, also permits the amendment thereof
in certain circumstances without the consent of the Holders of any of the Notes
but with the written consent of the Insurer (unless a Insurer Default has
occurred and is continuing).
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable in the Note Register upon
surrender of this Note for registration of transfer at the offices or agencies
appointed by the Indenture Trustee in Chicago, Illinois, duly endorsed by, or
accompanied by an assignment in the form below or other written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Notes of authorized denominations evidencing the same
aggregate outstanding principal balance will be issued to the designated
transferee or transferees.
The Notes are issuable only as registered Notes without coupons in
denominations specified in the Indenture. As provided in the Indenture and
subject to certain limitations therein set forth, Notes are exchangeable for new
Notes of authorized denominations evidencing the same aggregate Percentage
Interests, as requested by the Holder surrendering the same.
<PAGE>
No service charge will be made for any such registration of
transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Issuer, the Seller, the Servicer and the Indenture Trustee
and any agent of the the Issuer, the Seller, the Servicer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, and neither the Issuer, the Seller, the Servicer, the
Indenture Trustee, the Trust Collateral Agent, nor any such agent shall be
affected by notice to the contrary.
No transfer of any Note or interest therein shall be made to
any transferee or purchaser who is, or who is purchasing such Note or interest
therein directly or indirectly on behalf of (i) an employee benefit plan or
other retirement arrangement, individual retirement account or keogh plan
subject to either Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975 of the Code (each, a "Plan"), or (ii)
an entity whose assets are deemed to include Plan assets as a result of a Plan's
investment in such entity under Department of Labor Regulation Section
2510.3-101. Any prospective transferee shall be deemed to represent that it is
not purchasing directly or indirectly on behalf of a Plan or Plan Entity and the
Seller and Servicer shall be entitled to rely thereon.
It is the intent of the Issuer and the Noteholders that, for
federal, state and local income and franchise tax purposes, the Notes will be
evidence of indebtedness of the Issuer secured by the Trust Property. The Issuer
and the Noteholder, by the acceptance of this Note, agree to treat this Note for
federal, state and local income and franchise tax purposes as indebtedness of
the Issuer secured by the Trust Property.
Notwithstanding anything contained herein to the contrary (i)
the Indenture and the Sale and Servicing Agreement have been executed by Harris
Trust and Savings Bank not in its individual capacity but solely as Indenture
Trustee and Trust Collateral Agent, respectively, and in no event shall Harris
Trust and Savings Bank have any liability for the representations, warranties,
covenants, agreements or other obligations of the the Issuer or the Seller
thereunder or in any of the Notes, notices or agreements delivered pursuant
thereto, as to all of which recourse shall be had solely to the assets provided
for therein, and (ii) under no circumstances shall Harris Trust and Savings Bank
be personally liable for the payment of any indebtedness or expenses arising in
connection with the Indenture, the Sale and Servicing Agreement or the Notes or
otherwise. Notwithstanding the foregoing, the Trust Collateral Agent shall
remain and be liable for any breach of its duties and obligations under the Sale
and Servicing Agreement.
This Note does not purport to summarize the Indenture or the
Sale and Servicing Agreement and reference is made to the Indenture and the Sale
and Servicing Agreement for information with respect to the interests, rights,
benefits, obligations, proceeds and duties evidenced hereby. Copies of the
Indenture, the Sale and Servicing Agreement and all amendments thereto will be
provided to any Noteholder free of charge upon a written request to the
Indenture Trustee, at its principal corporate trust office, 311 West Monroe
Street, Chicago, Illinois 60606, Attention: Indenture Trust Administration.
<PAGE>
Unless the certificate of authentication herein has been
executed by or on behalf of the Indenture Trustee, by manual signature, this
Note shall not be entitled to any benefit under the Indenture, or be valid for
any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Note to be duly
executed under its official seal.
NATIONAL AUTO FINANCE 1997-1 TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as Owner
Trustee
By:
Authorized Officer
This is one of the Notes referred to in the within mentioned Indenture.
Dated: HARRIS TRUST AND SAVINGS BANK, as Indenture Trustee
By:
Authorized Signatory
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________________________ the within Note
and all (name and address of assignee)
rights thereunder, and hereby irrevocably constitutes and appoints, attorney, to
transfer said Note on the books kept for registration thereof, with full power
of substitution in the premises.
Dated:______________ _______________________(*) Signature Guaranteed:
(*) NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
SALE AND SERVICING
AGREEMENT
among
NATIONAL AUTO FINANCE 1997-1 TRUST,
Issuer,
NATIONAL FINANCIAL AUTO FUNDING TRUST,
Seller,
NATIONAL AUTO FINANCE COMPANY, INC.,
Servicer
and
HARRIS TRUST AND SAVINGS BANK
Trust Collateral Agent and Backup Servicer
Dated as of June 29, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions
SECTION 1.1. Definitions....................................................1
SECTION 1.2. Other Definitional Provisions.................................23
SECTION 1.3. Usage of Terms................................................23
SECTION 1.4. Certain References............................................24
SECTION 1.5. No Recourse...................................................24
SECTION 1.6. Action by or Consent of Noteholders...........................24
SECTION 1.7. Material Adverse Effect.......................................24
SECTION 1.8. Calculations as to Principal and
Interest in Respect of Receivables.........................24
ARTICLE II
Conveyance of Receivables
SECTION 2.1. Conveyance of Initial Receivables.............................25
SECTION 2.2. Conveyance of Subsequent Receivables..........................27
SECTION 2.3. Further Encumbrance of Trust Property.........................29
ARTICLE III
The Receivables
SECTION 3.1. Representations and Warranties of Seller......................31
SECTION 3.2. Repurchase upon Breach........................................32
SECTION 3.3. Custody of Receivables Files..................................33
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1. Duties of the Servicer........................................33
SECTION 4.2. Sub-Servicing Agreements between Servicer
and the Sub-Servicers......................................36
SECTION 4.3. Obligations of the Servicer...................................37
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SECTION 4.4. No Contractual Relationship between a
Sub-Servicer and Trust Collateral Agent
or Noteholders...............................................37
SECTION 4.5. Assumption or Termination of Sub-Servicing
Agreement by Trust Collateral Agent..........................37
SECTION 4.6. Collection of Receivable Payments.............................38
SECTION 4.7. Maintenance of Insurance......................................39
SECTION 4.8. Realization upon Defaulted Receivables........................39
SECTION 4.9. Total Servicing Fee; Payment of Certain Expenses
by Servicer..................................................40
SECTION 4.10. [Reserved]....................................................40
SECTION 4.11. Reports.......................................................40
SECTION 4.12. Annual Statement as to Compliance, Notice of
Servicer Termination Event...................................41
SECTION 4.13. Annual Independent Accountants' Report........................41
SECTION 4.14. Access to Certain Documentation and Information
Regarding Receivables........................................42
SECTION 4.15. Monthly Tape..................................................42
SECTION 4.16. Retention and Termination of Servicer.........................43
SECTION 4.17. Custodial Arrangement.........................................42
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<PAGE>
ARTICLE V
Trust Accounts; Distributions; Statements to Noteholders
SECTION 5.1. Establishment of Trust Accounts...............................43
SECTION 5.2. Pre-Funding Period Reserve Account............................47
SECTION 5.3. Certain Reimbursements to the Servicer........................48
SECTION 5.4. Application of Collections....................................48
SECTION 5.5. Withdrawals from Series 1997-1 Spread Account.................48
SECTION 5.6. Additional Deposits...........................................49
SECTION 5.7. Distributions.................................................49
SECTION 5.8. Note Distribution Account.....................................52
SECTION 5.9. Pre-Funding Account...........................................53
SECTION 5.10. Statements to Noteholders....................................53
SECTION 5.11. Optional Deposits by the Insurer.............................54
ARTICLE VI
The Note Policy
SECTION 6.1. Claims Under Note Policy......................................54
SECTION 6.2. Preference Claims.............................................55
SECTION 6.3. Surrender of Policy...........................................56
SECTION 6.4. Spread Account................................................56
ARTICLE VII
RESERVED
ARTICLE VIII
The Seller
SECTION 8.1. Representations, Warranties and Covenants of
the Seller.................................................56
SECTION 8.2. Corporate Existence...........................................59
SECTION 8.3. Liability of Seller; Indemnities..............................60
SECTION 8.4. Merger or Consolidation of, or Assumption of the
Obligations of, Seller.....................................60
SECTION 8.5. Limitation on Liability of Seller and Others..................61
SECTION 8.6. Seller May Own Notes..........................................61
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<PAGE>
ARTICLE IX
The Servicer
SECTION 9.1. Representations, Warranties and Covenants of the
Servicer.....................................................61
SECTION 9.2. Liability of Servicer; Indemnities............................63
SECTION 9.3. Merger or Consolidation of, or Assumption of the
Obligations of the Servicer or the Trust Collateral
Agent........................................................65
SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral
Agent and Others.............................................66
SECTION 9.5. Delegation of Duties..........................................68
SECTION 9.6. Servicer and Trust Collateral Agent Not to Resign.............68
ARTICLE X
Default
SECTION 10.1. Servicer Termination Event...................................69
SECTION 10.2. Consequences of a Servicer Termination Event.................70
SECTION 10.3. Additional Consequences of a Servicer Termination
Event.......................................................72
SECTION 10.4. Appointment of Successor.....................................72
SECTION 10.5. [RESERVED]...................................................72
SECTION 10.6. Notification to Noteholders and Rating Agencies..............73
SECTION 10.7. Waiver of Past Defaults......................................74
SECTION 10.8. Termination of Trust Collateral Agent........................74
SECTION 10.9. Successor to Servicer........................................75
ARTICLE XI
Termination
SECTION 11.1. Optional Purchase of All Receivables.........................75
ARTICLE XII
Administrative Duties of the Servicer
SECTION 12.1. Administrative Duties........................................76
SECTION 12.2. Records......................................................78
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<PAGE>
SECTION 12.3. Additional Information to be Furnished to the Issuer.........79
ARTICLE XIII
Miscellaneous Provisions
SECTION 13.1. Amendment....................................................79
SECTION 13.2. Protection of Title to Trust.................................80
SECTION 13.3. Notices......................................................82
SECTION 13.4. Assignment...................................................83
SECTION 13.5. Limitations on Rights of Others..............................83
SECTION 13.6. Severability.................................................84
SECTION 13.7. Separate Counterparts........................................84
SECTION 13.8. Headings.....................................................84
SECTION 13.9. Governing Law................................................84
SECTION 13.10. Assignment to Trustee.......................................84
SECTION 13.11. Nonpetition Covenants.......................................84
SECTION 13.12. Limitation of Liability of Owner Trustee and
Trustee....................................................85
SECTION 13.13. Independence of the Servicer................................85
SECTION 13.14. No Joint Venture............................................86
SECTION 13.14. Insurer as Controlling Party................................84
v
<PAGE>
SALE AND SERVICING AGREEMENT dated as of June 29, 1997, among NATIONAL
AUTO FINANCE 1997-1 TRUST, a Delaware business trust (the "Issuer"), NATIONAL
FINANCIAL AUTO FUNDING TRUST, a Delaware business trust (the "Seller"), and
NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation (the "Servicer"),
and HARRIS TRUST AND SAVINGS BANK, an Illinois banking association, in its
capacity as Trust Collateral Agent and Backup Servicer.
WHEREAS the Issuer desires to purchase a portfolio of receivables arising
in connection with motor vehicle retail installment sale contracts acquired by
National Auto Finance Company, Inc. directly or indirectly through motor vehicle
dealers;
WHEREAS the Seller has acquired such receivables from National Financial
Auto Funding Trust II and National Auto Finance Company, Inc. and is willing to
sell such receivables to the Issuer;
WHEREAS the Issuer desires to acquire additional receivables arising in
connection with motor vehicle retail installment sale contracts to be acquired
by National Auto Finance Company, Inc. directly or indirectly through motor
vehicle dealers;
WHEREAS the Seller has an agreement to purchase such additional
receivables from National Auto Finance Company, Inc. and is willing to sell such
receivables to the Issuer;
WHEREAS the Servicer is willing to service all such receivables;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Accountants' Report" means the report of a firm of nationally
recognized independent accountants described in Section 4.14.
"Actuarial Method" means the method of allocating a fixed level
payment on an obligation between principal and interest, pursuant to which the
portion of such payment that is allocated to interest is equal to the product of
(a) 1/12, (b) the fixed rate of interest on such obligation and (c) the
outstanding principal balance of such obligation.
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<PAGE>
"Addition Notice" means, with respect to any transfer of Subsequent
Receivables to the Trust pursuant to Section 2.2 of this Agreement, notice of
the Seller's election to transfer Subsequent Receivables to the Trust, such
notice to designate the related Subsequent Transfer Date and the aggregate
Principal Balance of the Subsequent Receivables to be transferred on such
Subsequent Transfer Date.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any 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.
"Aggregate Principal Balance" means, with respect to any date of
determination, the sum of the Principal Balances for all Receivables (other than
(i) any Receivable that became a Liquidated Receivable during the related Due
Period and (ii) any Receivable that became a Purchased Receivable during the
related Due Period) as of the date of determination.
"Agreement" means this Sale and Servicing Agreement, as the same may
be amended and supplemented from time to time in accordance with the terms
hereof.
"Amount Financed" means, with respect to a Receivable, the original
principal balance of such Receivable reduced by the portion of each payment
received thereon before the applicable Cut-off Date that would represent
principal if such payments were allocated to the principal of and interest on
such Receivable based on the amortization method provided in such Receivable.
"Annual Percentage Rate" or "APR" of a Receivable means the annual
percentage rate of finance charges or service charges, as stated in the related
Contract.
"Assignment Agreement" means the agreement, dated as of June 29,
1997, between Bankers Trust Company, not in its individual capacity but solely
as Trustee of the National Financial Auto Receivables Master Trust, and National
Financial Auto Funding Trust II, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Available Amount" means, with respect to any Distribution Date, an
amount equal to the sum of (i) the amount on deposit in the Distribution Account
on the preceding Distribution Date after giving effect to all withdrawals
therefrom on such preceding Distribution Date, (ii) the amount, if any, to be
transferred by the Trust Collateral Agent to the
2
<PAGE>
Distribution Account from the Pre-Funding Period Reserve Account and/or the
Pre-Funding Account, if any, as provided herein, (iii) the amount to be
transferred by the Trust Collateral Agent to the Distribution Account from the
Collection Account on such Distribution Date pursuant to Section 5.1(c), and
(iv) any amounts paid by the Insurer to the Trust Collateral Agent pursuant to
Section 5.11 hereof for distribution on such Distribution Date.
"Average Default Rate" means, with respect to any Distribution Date,
the arithmetic average of the Default Rates for each of the three Due Periods
immediately preceding the Due Period in which such Distribution Date occurs.
"Average Delinquency Ratio" means, with respect to any Distribution
Date, the arithmetic average of the Delinquency Ratios for each of the three Due
Periods immediately preceding the Due Period in which such Distribution Date
occurs.
"Average Net Loss Rate" means, with respect to any Distribution
Date, the arithmetic average of the Net Loss Rates for each of the three Due
Periods immediately preceding the Due Period in which such Distribution Date
occurs.
"Backup Servicer" means, Harris Trust and Savings Bank, as the
Backup Servicer hereunder, including in its capacity as Servicer, in the event
NAFI resigns or is removed as Servicer.
"Bankruptcy Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
the scheduled payments to be made on a Receivable, an amount equal to the excess
of the principal balance of such Receivable immediately prior to such order over
the principal balance of such Receivable as so reduced or the net present value
(using as the discount rate the higher of the APR on such Receivable or the rate
of interest, if any, specified by the court in such order) of the scheduled
payments as so modified or restructured. A "Bankruptcy Loss" shall be deemed to
have occurred on the date of issuance of such order.
"Base Servicing Fee" means, with respect to any Due Period, the fee
payable to the Servicer for services rendered during such Due Period, which
shall be equal to one-twelfth of the Servicing Fee Rate multiplied by the Pool
Balance as of the close of business on the last day of the preceding Due Period.
"Business Day" means a day other than a Saturday, a Sunday or other
day on which commercial banks located in New York, Illinois, Delaware or Florida
are authorized or obligated to be closed.
3
<PAGE>
"Certificateholder" or "Certificateholders" means a Person in whose
name a Trust Certificate is registered in the Certificate Register maintained
pursuant to the Trust Agreement.
"Closing Date" means July 23, 1997.
"Collateral Agent" means Harris Trust and Savings Bank, in its
capacity as Collateral Agent under the Spread Account Agreement.
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 5.1.
"Computer Tape" means the computer tapes or other electronic media
furnished by the Seller to the Issuer and its assigns describing certain
characteristics of the Initial Receivables as of the Initial Cut-off Date and of
the Subsequent Receivables as of the related Subsequent Cut-off Date.
"Contract" means a motor vehicle retail installment sale contract.
"Controlling Party" means the Insurer, so long as no Insurer Default
shall have occurred and be continuing, and, in the event the Insurer Default
shall have occurred and be continuing, the Trust Collateral Agent for the
benefit of Section 5.10.
"Conveyance Agreements" means the Purchase Agreement, the Sale
Agreement and the Assignment Agreement.
"Corporate Trust Office" means (i) with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee, which at the
time of execution of this agreement is Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890- 0001, Attention: Corporate Trust
Administration, and (ii) with respect to the Trustee and the Trust Collateral
Agent, the principal corporate trust office of the Trustee, which at the time of
execution of this agreement is 311 West Monroe Street, 12th Floor, Chicago, IL
60606.
"Custodial Agreement" means the Custodial Agreement, dated as of
July 23, 1997, between NAFI and OFSA, as assigned to the Trust Collateral Agent
pursuant to Section 4.17 hereof.
"Custodian" means OFSA and any other Person named from time to time
as custodian in any Custodian Agreement acting as agent for the Trust Collateral
Agent, which
4
<PAGE>
Person must be acceptable to the Controlling Party (the Custodian as of the
Closing Date is acceptable to the Insurer as of the Closing Date).
"Custodian Agreement" means the Custodial Agreement and any other
Custodian Agreement from time to time in effect between the Custodian named
therein and the Trust Collateral Agent, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with the terms thereof,
which Custodian Agreement and any amendments, supplements or modifications
thereto shall be acceptable to the Controlling Party (the Custodian Agreement
which is effective on the Closing Date is acceptable to the Controlling Party).
"Cut-off Date" means the Initial Cut-off Date or any Subsequent
Cut-off Date, as applicable.
"Dealer" means a dealer who sold a Financed Vehicle and who
originated and assigned the respective Receivable to NAFI or an Originator under
a Dealer Agreement.
"Dealer Agreement" means any agreement between NAFI or an Originator
and a Dealer relating to the acquisition of Receivables from a Dealer by NAFI or
an Originator.
"Dealer Assignment" means, with respect to a Receivable, the
executed assignment executed by a Dealer conveying such Receivable to an
Originator.
"Dealer Underwriting Guide" means either, (i) the underwriting
guidelines used by or on behalf of NAFI in the origination and purchase of
Receivables as amended from time to time or (ii) the underwriting guidelines
used in the origination of Receivables as reviewed by NAFI prior to the purchase
of Receivables by NAFI.
"Default Rate" means, with respect to any Due Period, the product of
(i) twelve and (ii) the quotient, expressed as a percentage, obtained by
dividing (a) the sum of (x) the aggregate outstanding Principal Balance of all
Defaulted Receivables which became Defaulted Receivables during such Due Period
and (y) the aggregate outstanding Principal Balance of all Receivables that
became Purchased Receivables during such Due Period and were 30 days or more
past due as of the date such Receivables were retransferred hereunder by (b) the
arithmetic average of the Pool Balance as of the end of such Due Period and the
Pool Balance as of the end of the preceding Due Period.
"Defaulted Receivable" means, with respect to any Due Period, a
Receivable with respect to which any of the following has occurred during such
Due Period: (i) all or a part of any Scheduled Payment is 90 days or more
delinquent as of the end of such Due
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<PAGE>
Period, (ii) such Receivable is in default and the Servicer (or Sub-Servicer)
has in good faith determined that payments thereunder are not likely to be
resumed, or (iii) the Financed Vehicle that secures the Receivable has been
repossessed without reinstatement of the Receivable on or before the last day of
such Due Period and any applicable redemption period has expired.
"Deficiency Claim Amount" shall have the meaning set forth in
Section 5.5.
"Deficiency Claim Date" means, with respect to any Distribution
Date, the fourth Business Day immediately preceding such Distribution Date.
"Deficiency Notice" shall have the meaning set forth in Section 5.5.
"Delinquency Rate" means, with respect to any Due Period, the
quotient, expressed as a percentage, obtained by dividing (a) the aggregate
Principal Balance of all Receivables with respect to which a scheduled payment
is 30 or more days past due as of the end of such Due Period, by (b) the Pool
Balance as of the end of such Due Period.
"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof to the Trust Collateral Agent or its
nominee or custodian by physical delivery to the Trust Collateral Agent or
its nominee or custodian endorsed to, or registered in the name of, the
Trust Collateral Agent or its nominee or custodian or endorsed in blank,
and, with respect to a certificated security (as defined in Section 8-102
of the UCC) transfer thereof (i) by delivery of such certificated security
endorsed to, or registered in the name of, the Trust Collateral Agent or
its nominee or custodian or endorsed in blank to a financial intermediary
(as defined in Section 8-313 of the UCC) and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Trust Collateral Agent or its
nominee or custodian and the sending by such financial intermediary of a
confirmation of the purchase of such certificated security by the Trust
Collateral Agent or its nominee or custodian, or (ii) by delivery thereof
to a "clearing corporation" (as defined in Section 8-102(3) of the UCC) and
the making by such clearing corporation of appropriate entries on its books
reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary
by the amount of such certificated security, the identification by the
clearing corporation of the certificated securities for the sole and
exclusive account of the financial intermediary, the maintenance of such
certificated securities by such clearing corporation or a "custodian bank"
(as defined in Section 8-102(4) of the UCC) or the nominee of either
subject to the clearing corporation's exclusive control, the sending of a
confirmation by the financial intermediary of the purchase by the Trust
Collateral
6
<PAGE>
Agent or its nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying such
certificated securities as belonging to the Trust Collateral Agent or its
nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the
name of the Trust Collateral Agent or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate to
effect the complete transfer of ownership of any such Trust Account
Property to the Trust Collateral Agent or its nominee or custodian,
consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
Federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Trust Account Property to an appropriate book-entry
account maintained with a Federal Reserve Bank by a financial intermediary
which is also a "depository" pursuant to applicable Federal regulations and
issuance by such financial intermediary of a deposit advice or other
written confirmation of such book-entry registration to the Trust
Collateral Agent or its nominee or custodian of the purchase by the Trust
Collateral Agent or its nominee or custodian of such book-entry securities;
the making by such financial intermediary of entries in its books and
records identifying such book-entry security held through the Federal
Reserve System pursuant to Federal book-entry regulations as belonging to
the Trust Collateral Agent or its nominee or custodian and indicating that
such custodian holds such Trust Account Property solely as agent for the
Trust Collateral Agent or its nominee or custodian; and such additional or
alternative procedures as may hereafter become appropriate to effect
complete transfer of ownership of any such Trust Account Property to the
Trust Collateral Agent or its nominee or custodian, consistent with changes
in applicable law or regulations or the interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed
by clause (b) above, registration on the books and records of the issuer
thereof in the name of the financial intermediary, the sending of a
confirmation by the financial intermediary of the purchase by the Trust
Collateral Agent or its nominee or custodian of such uncertificated
security, the making by such financial intermediary of entries on its books
and records identifying such uncertificated certificates as belonging to
the Trust Collateral Agent or its nominee or custodian.
(d) in each case of delivery contemplated herein, the Trust Collateral
Agent shall make appropriate notations on its records, and shall cause the
same to be made on the
7
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records of its nominees, indicating that such securities are held in trust
pursuant to and as provided in this Agreement.
"Depositor" shall mean the Seller in its capacity as Depositor under
the Trust Agreement.
"Determination Date" means, with respect to a Distribution Date, the
last day of the Due Period immediately preceding such Distribution Date.
"Distribution Account" means the account established pursuant to
Section 5.1(a)(iv) hereof.
"Distribution Date" means, with respect to each Due Period, the
twenty first day of the following calendar month, or if such day is not a
Business Day, the immediately following Business Day, commencing August 21,
1997.
"Draw Date" means, with respect to any Distribution Date, the fourth
Business Day (as defined in the Note Policy) immediately preceding such
Distribution Date.
"Due Date" means, with respect to a Receivable, the date in each Due
Period on which a scheduled payment on such Receivable is due.
"Due Period" means , with respect to the first Distribution Date,
the period beginning on the close of business on the Initial Cut-off Date and
ending on the close of business on July 31, 1997. With respect to each
subsequent Distribution Date, the period from and including the first day of the
calendar month preceding the month in which such Distribution Date occurs to and
including the last day of the calendar month preceding the month of such
Distribution Date.
"Electronic Ledger" means the electronic master record of the retail
installment sales contracts or installment loans of the Servicer.
"Eligible Bank" means any depository institution (which shall
initially be the Trust Collateral Agent) acceptable to the Insurer (so long as
an Insurer Default shall not have occurred and be continuing), organized under
the laws of the United States of America or any one of the states thereof or the
District of Columbia (or any United States branch or agency of a foreign bank),
which is subject to supervision and examination by federal or state banking
authorities and which at all times (a) has a net worth in excess of $50,000,000
and (b) has either (i) a rating of P-1 from Moody's and A-1 from S&P with
respect to short-term deposit obligations, or (ii) if such institution has
issued long-term unsecured debt obligations, a rating
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of A2 or higher from Moody's and AA from S&P with respect to long-term unsecured
debt obligations. Such depository institution (other than the Trust Collateral
Agent) shall have been approved in writing by the Controlling Party, operating
in its discretion, by written notice to the Trust Collateral Agent.
"Eligible Deposit Account" means (i) a segregated trust account that
is maintained with the corporate trust department of a depository institution or
trust company acceptable to the Insurer (unless a Insurer Default has occurred
and is continuing, in which case such institution shall be one subject to
regulations regarding fiduciary funds on deposit substantially similar to 12 CFR
Section 9.10(b)), or (ii) a segregated direct deposit account maintained with a
depository institution or trust company organized under the laws of the United
States of America, or any of the States thereof, or the District of Columbia,
having a certificate of deposit, short-term deposit or commercial paper rating
of at least "A-1+" from Standard & Poor's and "P-1" from Moody's and (unless a
Insurer Default has occurred and is continuing) acceptable to the Insurer.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct interest-bearing obligations of, and interest-bearing
obligations fully guaranteed as to timely payment of principal and interest by,
the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company organized under the laws of the United
States of America or any state thereof or the District of Columbia (or any
domestic branch of a foreign bank) and subject to supervision and examination by
Federal or state banking or depository institution authorities (including
depository receipts issued by any such institution or trust company as custodian
with respect to any obligation referred to in clause (a) above or portion of
such obligation for the benefit of the holders of such depository receipts);
provided, however, that at the time of the investment or contractual commitment
to invest therein (which shall be deemed to be made again each time funds are
reinvested following each Distribution Date), the commercial paper or other
short-term senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust company
shall have a credit rating from Standard & Poor's of AAA and from Moody's of
Aaa;
(c) commercial paper and demand notes investing solely in commercial
paper that (i) is payable in United States dollars and (ii) has, at the time of
the investment or
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contractual commitment to invest therein, a rating from Standard & Poor's of
A-1+ and from Moody's of P-1;
(d) investments in money market funds (including funds for which the
Trust Collateral Agent or the Owner Trustee in each of their individual
capacities or any of their respective Affiliates is investment manager or
advisor) having a rating from Standard & Poor's of AAA-m or AAAm-G and from
Moody's of Aaa and (other than funds for which the Trust Collateral Agent or the
Owner Trustee in each of their individual capacities or any of their respective
Affiliates is investment manager or advisor) having been approved in writing by
the Insurer;
(e) bankers' acceptances issued by any depository institution or
trust company referred to in clause (b) above;
(f) repurchase obligations pursuant to a written agreement (i) with
respect to any obligation described in clause (a) above, where the Trustee has
taken actual or constructive delivery of such obligation, and (ii) entered into
with the corporate trust department of a depository institution or trust company
organized under the laws of the United States or any State thereof, the deposits
of which are insured by the Federal Deposit Insurance Corporation and the
short-term unsecured debt obligations of which are rated "A-1+" by Standard &
Poor's and "P-1" by Moody's (including, if applicable, the Trustee or any agent
of the Trustee acting in its respective commercial capacities);
(g) any other investment which is consistent with the ratings of the
Notes and acceptable to the Rating Agencies and which, so long as no Insurer
Default shall have occurred and be continuing, has been approved by the Insurer.
Any of the foregoing Eligible Investments may be purchased by or
through the Owner Trustee or the Trust Collateral Agent or any of their
respective Affiliates.
"Eligible Servicer" means the Servicer, the Backup Servicer or
another Person that, at the time of its appointment as Servicer, (i) is
servicing a portfolio of motor vehicle retail installment sales contracts and/or
motor vehicle installment loans, (ii) is legally qualified and has the capacity
to service the Receivables and (iii) has demonstrated the ability professionally
and competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables with
reasonable skill and care.
"Eligible Sub-Servicer" means (x) OFSA or (y) any Person which at
the time of its appointment as Sub-Servicer, (i) is servicing a portfolio of
motor vehicle retail installment
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sales contracts and/or motor vehicle installment loans, (ii) is legally
qualified and has the capacity to service the Receivables, (iii) has
demonstrated the ability professionally and competently to service a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans similar to the Receivables with reasonable skill and care, and
(iv) is qualified and entitled to use, pursuant to a license or other written
agreement, and agrees to maintain the confidentiality of, the software which the
Servicer uses in connection with performing its duties and responsibilities
under this Agreement or otherwise has available software which is adequate to
perform its duties and responsibilities under this Agreement.
"Final Scheduled Distribution Date" means the Distribution Date
occurring in November, 2003.
"Financed Vehicle" means an automobile or light-duty truck, van or
minivan, together with all accessions thereto, securing an Obligor's
indebtedness under the respective Receivable.
"Funding Trust II" means National Auto Funding Trust II, a Delaware
business trust.
"Governmental Authority" means (a) any federal, state, county,
municipal or foregin government or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to the jurisdiction of which such Person has
consented.
"Indenture" means the Indenture dated as of June 29, 1997, among the
Issuer and Harris Trust and Savings Bank, as Trust Collateral Agent and Trustee,
as the same may be amended and supplemented from time to time.
"Initial Cut-off Date" means June 29, 1997.
"Initial Receivables" means any Receivable conveyed to the Trust on
the Closing Date.
"Initial Spread Account Deposit" has the meaning set forth in the
Spread Account Agreement.
"Insurance Agreement" means the Insurance and Indemnity Agreement,
dated as of July 23, 1997, among the Insurer, the Trust, the Seller and NAFI, as
such agreement may
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be amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
"Insurance Agreement Event of Default" means an "Event of Default"
as defined in the Insurance Agreement.
"Insurance Policy" means, with respect to a Receivable, any
insurance policy (including the insurance policies described in Section 4.4
hereof) benefiting the holder of the Receivable providing loss or physical
damage, credit life, credit disability, theft, mechanical breakdown or similar
coverage with respect to the Financed Vehicle or the Obligor.
"Insurer" means Financial Security Assurance Inc., a monoline
insurance company incorporated under the laws of the State of New York, or any
successor thereto, as issuer of the Note Policy.
"Insurer Default" means the occurrence and continuance of any of the
following events:
(a) the Insurer shall have failed to make a payment required under
the Note Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any
case or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made
a general assignment for the benefit of its creditors, or (iii) had an order for
relief entered against it under the United States Bankruptcy Code or any other
similar federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a final and
nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Insurer or for all or any material portion of its
property or (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Insurer (or the taking of possession of all or any
material portion of the property of the Insurer).
"Insurer Optional Deposit" means, with respect to any Distribution
Date, an amount delivered by the Insurer pursuant to Section 5.11, at its sole
option, other than amounts in respect of a Note Policy Claim Amount to the Trust
Collateral Agent for deposit into the Collection Account for any of the
following purposes: (i) to provide funds in respect of the
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payment of fees or expenses of any provider of services to the Trust with
respect to such Distribution Date; or (ii) to include such amount as part of the
Distribution Amount for such Distribution Date to the extent that without such
amount a draw would be required to be made on the Note Policy.
"Interest Rate" means 6.35% per annum (computed on the basis of a
360-day year of twelve 30-day months).
"Investment Earnings" means, with respect to any Distribution Date
and Trust Account, the investment earnings on amounts on deposit in such Trust
Account on such Distribution Date.
"Issuer" means National Auto Finance 1997-1 Trust.
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind.
"Lien Certificate" means, with respect to a Financed Vehicle, an
original certificate of title, certificate of lien or other notification issued
by the Registrar of Titles of the applicable state to a secured party which
indicates that the lien of the secured party on the Financed Vehicle is recorded
on the original certificate of title. In any jurisdiction in which the original
certificate of title is required to be given to the Obligor, the term "Lien
Certificate" shall mean only a certificate or notification issued to a secured
party.
"Liquidated Receivable" means, with respect to any Due Period, a
Receivable with respect to which any of the following has occurred during such
Due Period: (i) 90 days have elapsed since Repossession of the related Financed
Vehicle, (ii) the Servicer (or Sub-Servicer) has in good faith determined that
all amounts that it expects to recover under such Receivable have been received,
or (iii) 90% of any Scheduled Payment on such Receivable is 120 days or more
(or, if the related Obligor is a debtor under Chapter 13 of the U.S. Bankruptcy
Code, 180 days or more) delinquent as of the end of such Due Period.
"Liquidation Expenses" means, reasonable out-of-pocket expenses
which are incurred by the Servicer or any Sub-Servicer in connection with the
liquidation of any Defaulted Receivable. Such expenses shall include, without
limitation, legal fees and expenses, any unreimbursed amount expended by the
Servicer or any Sub-Servicer pursuant to Section 4.8 (to the extent such amount
is reimbursable under the terms of Section 4.8) respecting the related
Receivable, and any related and unreimbursed expenditures for property
restoration or preservation.
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"Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all amounts realized with respect to such Receivable (other than
amounts withdrawn from the Series 1997-1 Spread Account and drawings under the
Note Policy), including any proceeds from any Insurance Policies, net of amounts
that are required to be refunded to the Obligor on such Receivable; provided,
however, that the Liquidation Proceeds with respect to any Receivable shall in
no event be less than zero.
"Lockbox Account" means any bank account maintained at a Lockbox
Bank into which collections under the Receivables are deposited in accordance
with Section 4.6.
"Lockbox Agreement" means a letter agreement among a Lockbox Bank,
the Seller, the Trust Collateral Agent, the Servicer and, if applicable, any
Sub-Servicer, relating to one or more Lockbox Accounts, as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time in accordance with the terms thereof. So long as no Insurer Default shall
have occurred and be continuing, any Lockbox Agreement is also required to be
acceptable to the Insurer.
"Lockbox Bank" means any bank at which a Lockbox Account is
maintained from time to time and whose short-term debt securities are rated A-1+
by S&P and P-1 by Moody's. So long as no Insurer Default shall have occurred and
be continuing, any Lockbox Bank is also required to be acceptable to the
Insurer.
"Mandatory Redemption Date" means the Distribution Date relating to
the Reporting Date next succeeding the last day of the Pre-Funding Period.
"Master Trust" means National Financial Auto Receivables Master
Trust.
"Monthly Pre-Funding Period Reserve Amount" means, with respect to
any Distribution Date occurring on or prior to the Distribution Date next
succeeding termination of the Pre-Funding Period, an amount equal to the excess,
if any, of (i) the product of (a) 1/12th, (b) the Interest Rate and (c) the
average daily balance of funds on deposit in the Pre-Funding Account from and
including the preceding Distribution Date (or, in the case of the first
Distribution Date, the Closing Date) to but not including the current
Distribution Date, over (ii) the amount of interest accrued on Permitted
Investments on deposit in the Pre-Funding Account from and including the
preceding Distribution Date (or, in the case of the first Distribution Date, the
Closing Date) to but not including the current Distribution Date.
"Monthly Records" means all records and data maintained by the
Servicer with respect to the Receivables, including the following with respect
to each Receivable: the account number; the originating Dealer; Obligor name;
Obligor address; Obligor home phone number;
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Obligor business phone number; original Principal Balance; original term; Annual
Percentage Rate; current Principal Balance; current remaining term; origination
date; first payment date; final scheduled payment date; next payment due date;
date of most recent payment; new/used classification; collateral description;
days currently delinquent; number of contract extensions (months) to date;
amount of Scheduled Payment; current Insurance Policy expiration date; and past
due late charges.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"NAFI" means National Auto Finance Company, Inc and its permitted
successors and assigns hereunder in accordance with the terms hereof.
"Net Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all Liquidation Proceeds net of all Liquidation Expenses.
"Net Loss Rate" means, with respect to any Due Period, the product,
expressed as a percentage, of (i) twelve and (ii) a fraction, the numerator of
which equals the excess of (A) the sum of (1) the aggregate Principal Balance of
all Receivables that became Liquidated Receivables in such Due Period and (2)
accrued and unpaid interest on such Principal Balance through the end of such
Due Period and (3) the amount of any Bankruptcy Losses, over (B) the Net
Liquidation Proceeds received by the Trust during such Due Period with respect
to all Liquidated Receivables in the Trust (including Liquidated Receivables
that became Liquidated Receivables in a prior Due Period) and the denominator of
which equals the arithmetic average of the Pool Balance as of the end of such
Due Period and the Pool Balance as of the end of the preceding Due Period.
"Note" or "Notes" has the meaning assigned to such term in the
Indenture.
"Note Balance" means initially, the aggregate principal amount of
Notes issued on the Closing Date and, thereafter, such principal amount reduced
by all amounts distributed to the Noteholders in respect of the Noteholders'
Principal Distributable Amount.
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 5.1.
"Note Majority" means a majority by aggregate outstanding principal
balance of the Noteholders so long as the Notes are outstanding.
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"Note Policy" means the financial guaranty insurance policy number
50609-N issued by the Insurer to the Trust Collateral Agent, as agent for the
Trustee, for the benefit of the Noteholders.
"Note Policy Claim Amount" means, for any Distribution Date, shall
equal the lesser of (i) the sum of the Scheduled Payments (as defined in the
Policy, including any endorsements thereto) for such Distribution Date and (ii)
the excess, if any, of (x) the amount required to be distributed pursuant to
clauses (i) through (iii) of Section 5.7(b) hereof (other than any Note
Prepayment Amount) over (y) the sum of the Available Amount and Deficiency Claim
Amount with respect to such Distribution Date.
"Note Pool Factor" for the Notes as of the close of business on a
Distribution Date means a seven-digit decimal figure equal to the outstanding
principal amount of such Notes (after giving effect to any distributions
reducing the Note Balance of the Notes on such Distribution Date) divided by the
original outstanding principal amount of such Class of Notes on the Closing
Date.
"Note Prepayment Amount" means, as of the Distribution Date on or
immediately following the last day of the Pre-Funding Period, after giving
effect to any transfer of Subsequent Receivables on such date, an amount equal
to the remaining Pre-Funded Amount on deposit in the Pre-Funding Account.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that was actually deposited in the Note
Distribution Account on such preceding Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, the sum of (i) thirty (30) days of interest
(or, in the case of the initial Distribution Date, the number of days from and
including the Closing Date to but not including such initial Distribution Date)
at the Interest Rate on the Note Balance on such
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Distribution Date (before reduction of the Note Balance by any distributions
made on such Distribution Date) and (ii) interest on the Noteholders' Interest
Carryover Shortfall at the Interest Rate from the preceding Distribution Date
through the current Distribution Date, to the extent permitted by law.
"Noteholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Noteholders' Principal Distributable
Amount and any outstanding Noteholders' Principal Carryover Shortfall from the
preceding Distribution Date over the amount in respect of principal that was
actually deposited in the Note Distribution Account on such Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to
(i) any Distribution Date prior to the Final Scheduled Distribution Date, the
sum of (a) 91% of the Principal Distributable Amount, (b) amounts transferred
from the Pre-Funding Account to the Note Distribution Account on such
Distribution Date, if any, pursuant to Section 5.7(a)(ii), and (c) the
Noteholders' Principal Carryover Shortfall with respect to such Distribution
Date, and (ii) the Final Scheduled Distribution Date, the Note Balance (before
giving effect to any distribution on the Notes on such Final Scheduled
Distribution Date).
"Notice of Claim" means the notice required to file a claim under
the Policy.
"Obligor" on a Receivable means the purchaser or co-purchasers of
the Financed Vehicle and any other Person who owes payments under the
Receivable.
"Officers' Certificate" means a certificate signed by a Co-Trustee
of the Seller or Funding Trust II, as the case may be, or the Chairman of the
Board, President, Executive Vice President, Senior Vice President, Vice
President, or Assistant Vice President of the Custodian, NAFI, or by a Servicing
Official, as the case may be, and delivered to the Trust Collateral Agent, as
required by this Agreement.
"OFSA" means Omni Financial Services of America, Inc., a Florida
corporation, or any substitute Sub-Servicer performing substantially the same
services on behalf of the Servicer as OFSA performs pursuant to the Amended
Restated Servicing Agreement, dated as of December 8, 1994, between the Servicer
and World Omni Financial Corp. ("WOFCO"), as such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and the terms of this Agreement, and the Assignment and Assumption
Agreement dated as of October 23, 1995 between WOFCO and OFSA pursuant to which
WOFCO assigned its subservicing duties to OFSA.
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"Opinion of Counsel" means a written opinion in form reasonably
satisfactory to the Trust Collateral Agent (and the Insurer if such opinion is
addressed to the Insurer) of counsel reasonably satisfactory to the Trust
Collateral Agent (and the Insurer if such opinion is addressed to the Insurer).
Any such counsel may be counsel to the Seller.
"Original Pool Balance" means the sum, as of any date, of the Pool
Balance as of the Initial Cut-off Date.
"Originator" means consumer finance companies, depository
institutions and other financial institutions engaged in the financing of motor
vehicle retail installment sale contracts from whom NAFI acquired Receivables;
provided, however, that "Originators" shall not include Dealers.
"Originator Agreement" means an agreement pursuant to which NAFI
acquired Receivables from an Originator, as any of such agreements has been and
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof..
"Other Conveyed Property" means all property conveyed by the Seller
to the Trust pursuant to Section 2.1(b) through (h) and Section 2.2(a)(ii)
through (x) of this Agreement.
"Owner Trust Estate" has the meaning assigned to such term in the
Trust Agreement.
"Owner Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee under the Trust Agreement, its
successors in interest or any successor Owner Trustee under the Trust Agreement.
"Person" means any individual, corporation, estate, partnership,
joint venture, association, joint stock company, trust (including any
beneficiary thereof), unincorporated organization or government or any agency or
political subdivision thereof or any other entity.
"Physical Property" has the meaning assigned to such term in the
definition of "Delivery" above.
"Pool Balance" means, as of any date of determination, the Original
Pool Balance, plus the aggregate Principal Balance of the Subsequent
Receivables, if any, sold to the Trust, reduced by any principal amounts
previously paid (excluding Purchased Receivables and Liquidated Receivables).
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"Preference Claim" has the meaning set forth in Section 6.2 hereof.
"Pre-Funded Amount" means, with respect to any Distribution Date,
the amount on deposit in the Pre-Funding Account, (exclusive of Pre-Funding
Earnings) which initially shall be $6,689,091.18
"Pre-Funding Account" has the meaning specified in Section 5.1.
"Pre-Funding Earnings" means any Investment Earnings on amounts on
deposit in the Pre-Funding Account.
"Pre-Funding Period" means the period beginning on and including the
Closing Date and ending on the first to occur of (a) the first date on which the
amount on deposit in the Pre-Funding Account (after giving effect to any
transfers therefrom in connection with the transfer of Subsequent Receivables to
the Issuer on such date) is less than $100,000, (b) the date on which an Event
of Default occurs under the Indenture or a Servicer Termination Event occurs and
(c) the close of business on October 30, 1997.
"Pre-Funding Period Reserve Account" means the account designated as
such, established and maintained pursuant to Section 5.2.
"Pre-Funding Period Reserve Account Initial Deposit" means
$86,824.40 deposited on the Closing Date.
"Principal Balance" means, with respect to any Receivable, as of any
date, the Amount Financed minus (i) the principal portion of each payment
applied to such Receivable on or after the applicable Cut-off Date in accordance
with the terms of such Receivable and processed by the Servicer or a
Sub-Servicer on or before such date and (ii) any Bankruptcy Loss in respect of
such Receivable; provided, however, that for any date following the Due Period
in which the remaining principal balance of such Receivable was included in the
Principal Distributable Amount as a Liquidated Receivable or was subject to a
principal prepayment in full (including a repurchase pursuant to Sections 2.2,
2.5, 3.2 or 4.1), the Principal Balance for such Receivable shall be zero.
"Principal Distributable Amount" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date), the sum of
(i) that portion of all collections on the Receivables (other than Liquidated
Receivables and Purchased Receivables and, to the extent included in clause (iv)
below, the Principal Balance of all Retransfer Default Receivables) allocable to
principal, including all full and partial principal prepayments, deposited into
the Collection Account during the related Due Period, (ii) the Principal Balance
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of all Receivables that became Liquidated Receivables during the related Due
Period (other than Liquidated Receivables that became Purchased Receivables
during such Due Period and, to the extent included in clause (iv) below, the
Principal Balance of all Retransfer Default Receivables), (iii) the portion of
the Purchase Amount allocable to principal of all Receivables that became
Purchased Receivables on or prior to the related Reporting Date and subsequent
to the preceding Reporting Date, (iv) in the sole discretion of the Insurer, the
Principal Balance as of the related Reporting Date of all or any part of the
Receivables that were required to be purchased pursuant to Sections 2.2, 2.5,
3.2 and 4.1 but were not purchased, and (v) the aggregate amount of Bankruptcy
Losses that occurred during the related Due Period.
"Purchase Agreement" means the Purchase and Contribution Agreement
between the Seller and NAFI, dated as of July 23, 1997, as such Agreement may be
amended from time to time.
"Purchase Amount" means, with respect to any Receivable required to
be retransferred pursuant to Sections 3.2 or 4.1, an amount equal to the sum of
(I) 100% of the Principal Balance thereof on the date of retransfer and (ii)
unpaid accrued interest thereon from the date to which interest was last paid by
the Obligor to the due Date in the Due Period in which such retransfer occurs.
For purposes of determining the Purchase Amount of any Receivable, the Principal
Balance thereof on the date of retransfer shall not be reduced to zero as a
result of its classification as a Liquidated Receivable.
"Purchased Receivable" means a Receivable purchased as of the close
of business on the last day of a Due Period by the Servicer pursuant to Section
4.7 or repurchased by the Seller or NAFI pursuant to Section 3.2 or Section
11.1(a).
"Rating Agency" means Moody's and Standard & Poor's. If no such
organization or successor maintains a rating on the Notes, "Rating Agency" shall
be a nationally recognized statistical rating organization or other comparable
Person designated by the Insurer.
"Rating Agency Condition" means, with respect to any action, that
each Rating Agency shall have been given 10 days' (or such shorter period as
shall be acceptable to each Rating Agency) prior notice thereof and that each of
the Rating Agencies shall have notified the Seller, the Servicer, the Insurer,
the Owner Trustee and the Trust Collateral Agent in writing that such action
will not result in a reduction or withdrawal of the then current rating of the
Notes.
"Receivable" means each motor vehicle retail installment sale
contract and security agreement (including any and all rights to receive
payments thereunder on and after
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the applicable Cut-off Date and security interests in the Financed Vehicle
securing such contract or note) assigned and transferred to the Issuer hereunder
as of the Closing Date or a Subsequent Transfer Date and not reassigned,
retransferred or otherwise released in accordance herewith, each such Receivable
being identified in a Receivable Schedule attached to a Subsequent Transfer
Agreement.
"Receivable Documents" means, with respect to a Receivable, all
papers and documents (including those contained in the Receivable File) and all
other papers and records (including computerized data) of whatever kind or
description, whether developed or originated by NAFI, a Dealer, an Originator,
the Servicer or another Person, required to document the Receivable or to
service the Receivable.
"Receivable Files" means with respect to a Receivable, the fully
executed original of such Receivable; the assignment of such Receivable by a
Dealer or Originator to NAFI, the original Title Document or UCC financing
statement evidencing that the security interest in a Financed Vehicle granted to
NAFI under such Receivable has been perfected under applicable state law (except
for any Title Documents or UCC financing statements not returned from the
applicable public records office, in which case NAFI will deliver to National
Financial, on the Closing Date or the Subsequent Transfer Date, as the case may
be, an Officer's Certificate of NAFI indicating that the original of such Title
Document has been applied for at, or the original of such UCC financing
statement was delivered to, such public office and shows NAFI as the lienholder
or secured party and that NAFI will deliver the originals thereof when returned
from such office); the original of any assumption agreement or any modification,
extension or refinancing agreement; and the original application of the related
Obligor to obtain the financing extended by such Receivable.
"Receivable Rate" means the annual percentage rate (as such term is
used with respect to the federal Truth-in-Lending Act) of interest borne by, and
indicated on, a Contract.
"Receivables Schedule" means the schedule of Receivables attached
hereto as Schedule A and with respect to Subsequent Receivables delivered
concurrently with the execution and delivery of a Subsequent Transfer Agreement
to the Trust Collateral Agent and attached thereto as Schedule 1, such schedule
identifying each Receivable being transferred and assigned to the Trust pursuant
to this Agreement or the related Subsequent Transfer Agreement by the name of
the Obligor and setting forth as to each such Receivable its Principal Balance
as of the applicable Cut-off Date, loan number, Receivable Rate, scheduled
monthly payment of principal and interest, final maturity date and original
principal amount.
"Record Date" with respect to each Distribution Date means the
Business Day immediately preceding such Distribution Date, unless otherwise
specified in the Agreement.
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"Registrar of Titles" means, with respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.
"Reporting Date" means, with respect to a Distribution Date, the
earlier of (i) the 15th day of the calendar month in which such Distribution
Date occurs, and (ii) the fourth Business Day preceding such Distribution Date.
"Repossession" means any action taken or to be taken pursuant to the
UCC or other applicable laws in connection with recovery on a Defaulted
Receivable (including any Liquidated Receivable), including repossession of the
related Financed Vehicle with or without judicial proceedings, sale of such
Financed Vehicle at public or private sale, retention of such Financed Vehicle
in satisfaction of the Obligor's obligations under such Defaulted Receivable, or
a levy on and sheriff's sale of the related Financed Vehicle in enforcement of a
judgment on such Defaulted Receivable or by voluntary surrender or otherwise.
"Required Reserve Amount" means, with respect to any Distribution
Date, an amount equal to the product of (i) a per annum rate equal to the
Interest Rate less 250 basis points (2.5%), (ii) the amount of funds on deposit
in the Pre-Funding Account after giving effect to any withdrawals therefrom on
such Distribution Date and (iii) a fraction, the numerator of which is the
number of days from and including such Distribution Date to (but excluding) the
Distribution Date immediately following the end of the Pre-Funding Period, and
the denominator of which is 360.
"Requisite Amount" has the meaning specified in the Spread Account
Agreement.
"Responsible Officer" means, with respect to the Trust Collateral
Agent, any officer within the Corporate Trust Office of the Trust Collateral
Agent, including any Managing Director, Vice President, Assistant Vice
President, Assistant Treasurer, Assistant Secretary or any other officer of the
Trust Collateral Agent, customarily performing functions similar to those
performed by any of the above designated officers, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Retransfer Default Receivable" means any Receivable with respect to
which the Seller or the Servicer is required to deposit in the Collection
Account the related Purchase Amount pursuant to Section 2.2, Section 2.5,
Section 3.2 or Section 4.1 and has not so deposited such amount on the Reporting
Date on which it is required to repurchase such
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Receivable following receipt of notice from the Trust Collateral Agent that such
Receivable is required to be retransferred.
"Retransfer Receivable" means any Receivable retransferred to the
Seller or the Servicer pursuant to Sections 2.2, 2.5, 3.2 or 4.1 hereof.
"Sale Agreement" means the Sale Agreement, dated as of even date
herewith, between Funding Trust II and the Seller, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Schedule of Representations" means the Schedule of Representations
and Warranties attached hereto as Schedule B.
"Scheduled Payment" means, with respect to any Due Period for any
Receivable, the amount set forth in such Receivable as required to be paid by
the Obligor in such Due Period. If after the Closing Date, the Obligor's
obligation under a Receivable with respect to a Collection Period has been
modified so as to differ from the amount specified in such Receivable as a
result of (i) the order of a court in an insolvency proceeding involving the
Obligor, (ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended, or (iii) modifications or extensions of the Receivable permitted by
Sections 4.2(b) and (c), the Scheduled Payment with respect to such Due Period
shall refer to the Obligor's payment obligation with respect to such Due Period
as so modified.
"Seller" means National Financial Auto Funding Trust, a Delaware
business trust, and its successors in interest to the extent permitted
hereunder.
"Series 1997-1 Spread Account" means the account designated as such,
established and maintained pursuant to the Spread Account Agreement.
"Servicer" means National Auto Finance Company, Inc., as the
servicer of the Receivables, and each successor Servicer pursuant to Section
10.3.
"Servicer Extension Notice" means the notice specified in Section
4.16.
"Servicer Termination Event" means an event specified in Section
10.1.
"Servicing Fee" has the meaning specified in Section 4.9.
"Servicing Fee Rate" means 2.00% per annum.
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"Servicing Official" means any employee 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 the Trust Collateral
Agent and the Insurer by the Servicer, as such list may from time to time be
amended.
"Servicer's Certificate" means an Officers' Certificate of the
Servicer delivered pursuant to Section 4.12, substantially in the form of
Exhibit B.
"Simple Interest Method" means the method of allocating a fixed
level payment on an obligation between 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 on such obligation multiplied by the
period of time (expressed as a fraction of a year, based on the actual number of
days in the calendar month and 365 days in the calendar year) elapsed since the
preceding payment under the obligation was made.
"Simple Interest Receivable" means a Receivable under which the
portion of the payment allocable to interest and the portion allocable to
principal is determined in accordance with the Simple Interest Method.
"Spread Account Agreement" means the Spread Account Agreement dated
as of July 23, 1997 among the Insurer, the Seller, the Trust Collateral Agent
and the Collateral Agent, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc., or its successor.
"Subsequent Cut-off Date" means, with respect to any Subsequent
Transfer Date, the third Business Day prior thereto.
"Subsequent Purchase Agreement" means an agreement by and between
the Seller and NAFI pursuant to which the Seller will acquire Subsequent
Receivables.
"Subsequent Receivables" means the Receivables transferred to the
Issuer pursuant to Section 2.2, which shall be listed on Schedule A to the
related Subsequent Transfer Agreement.
"Subsequent Transfer Agreement" means the agreement among the
Issuer, the Seller and the Servicer, substantially in the form of Exhibit A.
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"Subsequent Transfer Date" means, with respect to Subsequent
Receivables, any date, occurring not more frequently than once a month, during
the Pre-Funding Period on which Subsequent Receivables are to be transferred to
the Trust pursuant to this Agreement, and a Subsequent Transfer Agreement is
executed and delivered to the Trust and the Insurer.
"Sub-Servicer" means any Eligible Sub-Servicer with whom NAFI has
entered into a Sub-Servicing Agreement. Initially, the Sub-Servicer will be
OFSA.
"Sub-Servicer Account" means the account maintained by OFSA with
Mellon Financial Services to which Obligors have been or will be instructed to
remit payments in respect of the Receivables.
"Sub-Servicing Agreement" means the written contract between NAFI
and any Sub-Servicer relating to servicing and/or administration of the
Receivables as permitted by Section 4.2 hereof.
"Supplemental Servicing Fee" means, with respect to any Due Period,
any payments received from an Obligor or a Dealer in connection with any
application fees, tax processing fees, wire transfer fees, express mail fees,
insurance premiums, late charges, taxes, fees or other charges imposed by any
Governmental Authority (other than any extension fees).
"Term of the Note Policy" has the meaning specified for "Term of
This Policy" in the Note Policy.
"Title Documents" means, with respect to any Financed Vehicle, the
actual motor vehicle title or certificate of title for such Financed Vehicle
issued by the Registrar of Titles or other government agency in the jurisdiction
in which such Financed Vehicle is registered; alternatively, in those certain
jurisdictions whose law requires that the original of the actual motor vehicle
title or certificate of title be possessed by the Obligor, then, in lieu of the
actual title or certificate of title, Title Documents shall mean such duplicate
titles, certificates or other documents as are permitted, required and/or
contemplated to be possessed by the secured party under the laws of such
jurisdiction.
"Transaction Documents" shall have the meaning assigned thereto in
the Insurance Agreement.
"Trigger Event" has the meaning assigned thereto in the Spread
Account Agreement.
"Trust" means the Issuer.
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"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), and all proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 5.1.
"Trust Agreement" means the Trust Agreement dated as of July 21,
1997, between the Seller and the Owner Trustee, as the same may be amended and
supplemented from time to time.
"Trust Certificates" means the certificates issued pursuant to the
Trust Agreement evidencing beneficial ownership interests in the Trust.
"Trust Collateral Agent" means the Person acting as Trust Collateral
Agent hereunder, its successors in interest and any successor Trust Collateral
Agent hereunder.
"Trust Officer" means, (i) in the case of the Trust Collateral
Agent, any officer within the Corporate Trust Office of the Trust Collateral
Agent, including any Managing Director, Vice President, Assistant Vice
President, Assistant Treasurer, Assistant Secretary or any other officer of the
Trust Collateral Agent, customarily performing functions similar to those
performed by any of the above designated officers, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject., and
(ii) in the case of the Owner Trustee, any officer in the Corporate Trust Office
of the Owner Trustee or any agent of the Owner Trustee under a power of attorney
with direct responsibility for the administration of this Agreement or any of
the Transaction Documents on behalf of the Owner Trustee.
"Trust Property" means the property and proceeds conveyed pursuant
to Section 2.1 and Section 2.2. Although the Seller has pledged the Series
1997-1 Spread Account to the Trust Collateral Agent and the Insurer pursuant to
the Spread Account Agreement, the Series 1997-1 Spread Account shall not under
any circumstances be deemed to be a part of or otherwise includable in the Trust
or the Trust Property.
"Trustee" means the Person acting as Indenture Trustee under the
Indenture, its successors in interest and any successor trustee under the
Indenture.
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction on the date of the Agreement.
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"Unearned Finance Charge" means, with respect to any Receivable, the
amount of the add-on finance charge that, under the term of such Receivable,
would be required to be refunded or credited to the related Obligor in
accordance with such Receivable if such Receivable were then prepaid in full.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture, or, if not defined therein,
in the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(c) As used in this Agreement, in any instrument governed hereby and
in any certificate or other document made or delivered pursuant hereto or
thereto, accounting terms not defined in this Agreement or in any such
instrument, certificate or other document, and accounting terms partly defined
in this Agreement or in any such instrument, certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.
(d) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
SECTION 1.3. Usage of Terms. With respect to all terms used in this
Agreement, the singular includes the plural and the plural includes the
singular; words importing any gender include the other gender; 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;
the terms "include" or "including" mean "include without limitation" or
"including without limitation; "the words
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"herein", "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision, and Article, Section, Schedule and Exhibit references, unless
otherwise specified, refer to Articles and Sections of Schedules and Exhibits to
this Agreement.
SECTION 1.4. Certain References. All references to the Principal Balance of
a Receivable as of any date of determination shall refer to the close of
business on such day.
SECTION 1.5. No Recourse. Without limiting the obligations of NAFI
hereunder, no recourse may be taken, directly or indirectly, under this
Agreement or any certificate or other writing delivered in connection herewith
or therewith, against any stockholder, officer or director, as such, of NAFI, or
of any predecessor or successor of NAFI.
SECTION 1.6. Action by or Consent of Noteholders. Whenever any provision of
this Agreement refers to action to be taken, or consented to, by Noteholders,
such provision shall be deemed to refer to the Noteholder of record as of the
Record Date immediately preceding the date on which such action is to be taken,
or consent given, by Noteholders. Solely for the purposes of any action to be
taken, or consented to, by Noteholders, any Note registered in the name of NAFI
or any Affiliate thereof shall be deemed not to be outstanding; provided,
however, that, solely for the purpose of determining whether a Trust Officer of
the Trustee or the Trust Collateral Agent is entitled to rely upon any such
action or consent, only Notes which the Owner Trustee, the Trust Officer of the
Trustee or the Trust Collateral Agent, respectively, actually knows to be so
owned shall be so disregarded.
SECTION 1.7. Material Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Noteholders (or any similar or analogous determination), such
determination shall be made without taking into account the insurance provided
by the Note Policy.
SECTION 1.8. Calculations as to Principal and Interest in Respect of
Receivables. For all purposes of this Agreement the allocation of a payment on a
Receivable between principal and interest shall be made based upon the
amortization method provided in such Receivable. For purposes of allocating a
pay-ahead payment on a Receivable between principal and interest, the pay-ahead
shall be deemed to have been received on the date it was actually due. For all
purposes of this Agreement, no amount shall be treated as collected under a
Receivable until such amount has been deposited into the Collection Account.
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ARTICLE II
Conveyance of Receivables
SECTION 2.1. Conveyance of Initial Receivables. In consideration of the
Issuer's delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the other amounts to be distributed
from time to time to the Seller in accordance with the terms of this Agreement,
the Seller does hereby sell, transfer, assign, set over and otherwise convey to
the Issuer, without recourse (subject to the obligations set forth herein), all
right, title and interest of the Seller in and to the following, whether now
owned or hereafter acquired:
(a) the Initial Receivables and all monies received thereon on or after
the Initial Cut-off Date (including amounts due on or before the Initial Cut-off
Date but received by NAFI, the Seller or the Issuer on or after the Initial
Cut-off Date);
(b) any proceeds and the right to receive proceeds with respect to the
Initial Receivables from claims on any physical damage, credit life, disability
insurance or other policies covering Financed Vehicles or Obligors, including
rebates of insurance premiums relating to the Receivables and any proceeds from
the liquidation of the Initial Receivables;
(c) all rights against Dealers pursuant to Dealer Agreements or against
Originators pursuant to Originator Agreements;
(d) the related Receivables Files and any and all other documents that
NAFI keeps on file in accordance with its customary procedures relating to the
Receivables, the Obligors or the Financed Vehicles;
(e) property (including the right to receive future Liquidation Proceeds)
that secures a Receivable and that has been acquired by or on behalf of the
Trust pursuant to liquidation of such Receivable;
(f) all funds on deposit from time to time in the Trust Accounts (less all
investments and proceeds thereof), and all rights of the Issuer therein;
(g) the rights and benefits, but none of its obligations or burdens, under
the Conveyance Agreements, including the delivery requirements, representations
and warranties and the cure and repurchase obligations of NAFI under the
Purchase Agreement; and
(h) the proceeds of any and all of the foregoing.
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The foregoing transfer and assignment does not constitute and is not
intended to result in an assumption by the Trust Collateral Agent, any
Noteholder or the Insurer of any obligation of the Seller, the Master Trust,
Funding Trust II or NAFI to the Obligors, Dealers, insurers or any other Person
in connection with the Receivables, the Receivable Files, or the insurance
policies or any agreements or instruments relating to any of them. It is the
intention of the Seller that the transfer and assignment contemplated by this
Agreement shall constitute a sale of the Receivables and other Trust Property
from the Seller to the Issuer and the beneficial interest in and title to the
Receivables and the other Trust Property 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. In the event that, notwithstanding the intent
of the Seller, the transfer and assignment contemplated hereby is held not to be
a sale, this Agreement shall constitute a grant of a security interest in the
property referred to in this Section 2.1 for the benefit of the Noteholders and
the Insurer.
The Seller intends that the transfer and assignment of Receivables by the
Seller to the Trust constitute an absolute transfer to the Trust of all the
Seller's right, title, and interest in and to the Receivables and the remainder
of the Trust Property (other than the Note Policy); provided that, in the event
that, notwithstanding the intent of the Seller, the transfer is not held to be a
sale, then it is intended that the conveyance shall be deemed to be a grant of a
security interest in the Receivables and the remainder of the Trust Property. By
the transfer, assignment and set-over contemplated by this Section 2.1, the
Seller further grants and transfers to the Trust Collateral Agent, for the
benefit of all Noteholders and the Insurer, a first priority, perfected security
interest, as their respective interests appear in Section 5.7, in all of the
Seller's right, title and interest in, to and under the Receivables and the
remainder of the Trust Property, whether now existing or hereafter acquired, and
agrees that this Agreement shall also constitute a security agreement under
applicable law. Within two Business Days of the Closing Date, the Seller shall
have filed a UCC financing statement or statements, appropriate under the
applicable UCC, to reflect the assignment of the Receivables and the remainder
of the Trust Property (other than the Note Policy) by the Seller to the Trust
Collateral Agent and the Insurer and to protect the Noteholders' and the
Insurer's interest in the Receivables, their proceeds and the Financed Vehicles,
against all other Persons and shall thereafter file any appropriate continuation
statements in respect thereof. During the term of this Agreement, the Seller
shall not change its name, identity or structure or relocate its chief executive
office or principal place of business without first giving at least 30 days'
advance written notice to the Trust Collateral Agent, the Servicer and the
Insurer; provided however, that the Trust Collateral Agent, the Servicer and the
Insurer shall, subject to the last sentence of this paragraph, have no right or
power to prohibit a change in the Seller's name, identity or structure or a
relocation of, its chief executive office or principal place of business. If any
change in the Seller's name, identity or structure or the relocation of its
chief executive office or principal place of business would make any financing
or continuation statement or notice of
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lien filed in connection with this Agreement misleading within the meaning of
applicable provisions of the UCC or any title statute, the Seller, promptly but
in no event later than thirty days after the effective date of such change,
shall file such amendments or take such other actions as may be required to
preserve and protect the Trust Collateral Agent's interest in the Receivables
and proceeds thereof and the Financed Vehicles and the remainder of the Trust
Property. Promptly after filing such amendments or taking such other action, the
Seller shall deliver to the Trust Collateral Agent and the Insurer an Opinion of
Counsel stating that all financing statements, continuation statements or
amendments thereto necessary to continue the perfection of the interest of the
Trust Collateral Agent in the Trust Property have been filed and reciting the
details thereof.
SECTION 2.2. Conveyance of Subsequent Receivables.
(a) Subject to the conditions set forth in paragraph (b) below, in
consideration of the Issuer's delivery on each related Subsequent Transfer Date
to or upon the order of the Seller of the amount described in Section 5.9(a) to
be delivered to the Seller, the Seller does hereby sell, transfer, assign, set
over and otherwise convey to the Issuer without recourse (subject to the
obligations set forth herein), all right, title and interest of the Seller in
and to:
(i) the Subsequent Receivables listed on Schedule A to the related
Subsequent Transfer Agreement and all monies received thereon on or after
the related Subsequent Cut-off Date (including amounts due on or before
the Subsequent Cut-off Date but received by NAFI, the Seller or the Issuer
on or after the Subsequent Cut-off Date);
(ii) any proceeds and the right to receive proceeds with respect to
such Subsequent Receivables from claims on any physical damage, credit
life, disability or other insurance policies covering the related Financed
Vehicles or Obligors, including rebating of insurance premiums relating to
the Receivables, and any proceeds from the liquidation of the Subsequent
Receivables;
(iii) all rights of the Seller against the Dealers pursuant to
Dealer Agreements; or against Originators pursuant to Originator
Agreements;
(iv) the related Receivables Files; and any and all other documents
that NAFI or the Seller keeps on file in accordance with its customary
procedures relating to the Receivables, the Obligors or the Financed
Vehicles;
(v) property (including the right to receive future Liquidation
Proceeds) that secures a Receivable and that has been acquired by or on
behalf of the Trust pursuant to liquidation of such Receivable;
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(vi) all funds on deposit from time to time in the Trust Accounts
(less all investments and proceeds thereof), and all rights of the Issuer
therein;
(vii) all of the Seller's right, title and interest in its rights
and benefits, but none of its obligations or burdens, under each of the
Subsequent Purchase Agreements, including the delivery requirements,
representations and warranties and the cure and repurchase obligations of
NAFI under each of the Subsequent Purchase Agreements, on or after the
related Subsequent Cut-off Date; and
(viii) the proceeds of any and all of the foregoing.
(b) The Seller shall transfer to the Issuer the Subsequent Receivables and
the other property and rights related thereto described in paragraph (a) above
during the Pre-Funding Period (but not more often than once during each calendar
month or as more frequently consented to in writing by the Insurer) only upon
the satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:
(i) the Seller shall have provided the Trust Collateral Agent, the
Owner Trustee, each Rating Agency and the Insurer with an Addition Notice
not later than ten days prior to such Subsequent Transfer Date and shall
have provided any information reasonably requested by any of the foregoing
with respect to the Subsequent Receivables;
(ii) the Seller shall have delivered the Receivables Schedule for
the Subsequent Receivables to be transferred to the Trust on such
Subsequent Transfer Date to each Rating Agency and the Insurer at least
three Business Days prior to such Subsequent Transfer Date, and the Trust
Collateral Agent and the Insurer shall have received, prior to 10:00 a.m.,
New York City time, on such Subsequent Transfer Date, written notice from
each Rating Agency to the effect that such transfer will result in the
downgrade or withdrawal of the rating then assigned by such Rating Agency
to the Notes;
(iii) the Seller shall have delivered to the Owner Trustee and the
Trust Collateral Agent a duly executed Subsequent Transfer Agreement which
shall include supplements to Schedule A, listing the Subsequent
Receivables and a copy thereof to the Insurer;
(iv) the Seller shall, to the extent required by Section 4.2, have
deposited or caused to be deposited in the Collection Account all
collections in respect of the Subsequent Receivables;
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(v) as of each Subsequent Transfer Date, no Servicer Termination
Event or Insurance Agreement Event of Default shall have occurred and be
continuing;
(vi) after giving effect to any transfer of Subsequent Receivables
on a Subsequent Transfer Date, the Receivables transferred to the Trust
pursuant hereto shall meet the following criteria (based on the
characteristics of the Initial Receivables on the Initial Cut-off Date and
the Subsequent Receivables on the related Subsequent Cut-off Dates): (i)
the weighted average APR of the Receivables transferred to the Trust shall
not be less than 18.0%, unless, with the prior consent of the Rating
Agencies and the Insurer, the Seller increases the Initial Spread Account
Deposit with respect to such Subsequent Receivables by the amount required
by the Insurer; (ii) the weighted average remaining term of the
Receivables transferred to the Trust shall not be greater than 55 months;
(iii) not more than 80% of the Aggregate Principal Balance shall represent
loans to finance the purchase of used Financed Vehicles; and (iv) the
final scheduled payment date on the Receivable with the latest maturity
shall not be later than October 30, 2002;
(vii) each of the representations and warranties made by the Seller
pursuant to Section 8.1 and pursuant to Section 3.1 with respect to the
Subsequent Receivables to be transferred on such Subsequent Transfer Date
shall be true and correct as of the related Subsequent Transfer Date, and
the Seller shall have performed all obligations to be performed by it
hereunder on or prior to such Subsequent Transfer Date, including, without
limitation, its obligations set forth in Section 2.4(b);
(viii) the Insurer (so long as no Insurer Default shall have
occurred and be continuing), in its absolute and sole discretion, shall
have approved the transfer of such Subsequent Receivables to the Trust,
the Insurer shall have been reimbursed for any fees and expenses incurred
by the Insurer in connection with the granting of such approval;
(ix) on or before such Subsequent Transfer Date, the Seller shall
deliver to the Trust Collateral Agent (with copies to the Insurer) (A) an
Officer's Certificate of NAFI substantially in the form attached hereto as
Exhibit 2.2A, (b) an Officer's Certificate of the Seller substantially in
the form attached hereto as Exhibit 2.2B, and (C) a Subsequent Transfer
Agreement executed by the Seller and including, as an attachment thereto,
a Receivables Schedule identifying the Subsequent Receivables being
transferred and assigned to the Trust on such Subsequent Transfer Date;
and
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(x) on or before such Subsequent Transfer Date, the Seller shall
have provided any information reasonably requested by the Rating Agencies,
the Insurer or the Trust Collateral Agent with respect to such Additional
Contracts.
The Seller covenants that in the event any of the foregoing conditions
precedent are not satisfied with respect to any Subsequent Receivable on the
date required as specified above, the Seller will immediately repurchase such
Subsequent Receivable from the Trust, at a price equal to the Purchase Amount
thereof, in the manner specified in Section 4.7.
(c) Within ten Business Days after the last day of the Pre-Funding Period,
the Seller shall, at its cost and expense, cause KPMG Peat Marwick or such other
nationally recognized firm of public accountants as may be acceptable to the
Insurer to deliver to the Insurer a report covering the Receivables then in the
Trust and addressing such procedures as the Seller and the Insurer may agree
upon.
SECTION 2.3. Further Encumbrance of Trust Property. (a) Immediately upon
the conveyance to the Trust by the Seller of any item of the Trust Property
pursuant to Section 2.1 or 2.2, all right, title and interest of the Seller in
and to such item of Trust Property shall terminate, and all such right, title
and interest shall vest in the Trust, in accordance with the Trust Agreement and
Sections 3802 and 3805 of the Business Trust Statute (as defined in the Trust
Agreement).
(b) Immediately upon the vesting of the Trust Property in the Trust, the
Trust shall have the sole right to pledge or otherwise encumber such Trust
Property. Pursuant to the Indenture and contemporaneously with such property
vesting in the Trust pursuant to clause (a) above, the Trust shall grant a
security interest in the Trust Property to secure the repayment of the Notes.
The Certificates shall represent the beneficial ownership interest in the Trust
Property, and the Certificateholders shall be entitled to receive distributions
with respect thereto as set forth herein.
(c) Prior to the payment in full on the Notes, the payment of all amounts
due to the Insurer under the Insurance Agreement, the end of the Term of the
Note Policy and the surrender of the Note Policy by the Collateral Agent to the
Insurer, the Trust Collateral Agent shall hold the Trust Property for the
exclusive benefit of the Trustee on behalf of the Noteholders and the Insurer.
Following the payment in full of the Notes and the release and discharge of the
Indenture, all covenants of the Trust contained in Article III of the Indenture
shall, until payment in full of the Certificates, remain as covenants of the
Trust for the benefit of the Certificateholders, enforceable by the
Certificateholders to the same extent that such covenants were enforceable by
the Noteholders prior to the discharge of the Indenture. Any
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rights of the Trust Collateral Agent under Article III of the Indenture
following discharge of the Indenture shall thereupon vest in Certificateholders.
(d) The Trust Collateral Agent shall, at such time as there are no
Securities outstanding and all sums due to (i) the Trustee or any agent or
counsel thereof pursuant to the Indenture, (ii) the Insurer under the Insurance
Agreement and (iii) the Trust Collateral Agent pursuant to this Agreement, have
been paid, and the Term of the Note Policy has expired and the Trust Collateral
Agent has surrendered the Note Policy to the Insurer, release any remaining
portion of the Trust Property to the Seller.
SECTION 2.4. (a) The Servicer shall be responsible for maintaining, and
shall maintain and cause the respective Sub-Servicers, if any, to maintain, a
complete set of books and records (including tapes and disks for computer use)
for each Receivable to the extent that such books and records were delivered to
the Servicer or such Sub-Servicer or were developed by it during the course of
servicing such Receivable. The Servicer shall, and shall cause the respective
Sub-Servicers to, maintain such books of account and other records as will
enable the Trust Collateral Agent to determine the ownership status of each
Receivable; provided however, that neither the Servicer nor any Sub-Servicer
shall be required to physically mark or segregate any Receivables or other
Receivable Documents to indicate such ownership status. Promptly after the
Closing Date and each Subsequent Transfer Date, the Seller and the Servicer
shall deliver to the Custodian all Receivable Documents in its possession or
under its control, and shall promptly deliver to the Custodian any Receivable
Documents that subsequently come into its possession or within its control. NAFI
hereby warrants, represents and covenants to and with the Trust Collateral Agent
and the Insurer that recordation of the name of NAFI as lienholder in the Title
Documents respecting any Financed Vehicle as well as such lien itself is
maintained by NAFI as agent for the Trust Collateral Agent for the benefit of
the Trust and NAFI has no equitable ownership in the Receivables, except as it
may have by virtue of ownership of a Trust Certificate or an equity interest in
the Seller or any Noteholder.
(b) On the Closing Date, the Seller shall deliver to the Trust Collateral
Agent for deposit in the Collection Account, or to the extent received by the
Servicer or any Sub-Servicer, cause the Servicer to deliver or cause to be
delivered to the Trust Collateral Agent for deposit in the Collection Account,
all payments received on the Receivables on or after the Initial Cut-off Date
and on or before the second Business Day preceding the Closing Date. Within two
Business Days after a Subsequent Transfer Date, the Seller shall deliver to the
Trust Collateral Agent for deposit in the Collection Account, or to the extent
received by the Servicer or any Sub-Servicer, cause the Servicer to deliver or
cause to be delivered to the Trust Collateral Agent for deposit in the
Collection Account, all payments received on the Receivables on or after the
applicable Cut-off Date and on or before such Subsequent Transfer Date.
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SECTION 2.5. The Trust Collateral Agent, based solely upon the
representations of the Custodian, acknowledges receipt by the Custodian as of
the Closing Date and each Subsequent Transfer Date, as the case may be, of a
Receivable File relating to each Receivable. It is understood and agreed that
OFSA makes no representation as to the contents of the Receivable File. If the
Servicer or any such Sub-Servicer subsequently finds any document or documents
constituting a part of a Receivable File to be missing or defective in any
material respect, the Servicer or such Sub-Servicer shall promptly so notify the
Trust Collateral Agent, the Insurer and the Seller in writing, and the Servicer
shall add such item to the exceptions list. The Seller shall use best efforts to
cure each such omission or defect on the exceptions list. If the Seller does not
correct or cure any such omission or defect within sixty (60) days from the date
the Trust Collateral Agent was notified of such omission or defect, then the
Seller shall promptly accept a retransfer of the related Receivable from the
Trust Collateral Agent. The Purchase Amount for the retransferred Receivable
shall be delivered by the Seller to the Trust Collateral Agent for deposit in
the Collection Account and upon receipt of the Purchase Amount by the Trust
Collateral Agent and its receipt of written notice thereof, the Trust Collateral
Agent shall cause the Custodian to release to the Seller the related Receivable
File and the Trust Collateral Agent shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as shall be reasonably
necessary to vest in the Seller or its designee any Receivable released pursuant
hereto. It is understood and agreed that the obligation of the Seller to accept
a retransfer of any Receivable as to which a material defect in or omission of a
constituent document exists shall constitute the sole remedy respecting such
defect or omission available to Noteholders or the Trust Collateral Agent on
behalf of Noteholders.
ARTICLE III
The Receivables
SECTION 3.1. Representations and Warranties of Seller. The Seller makes
the following representations and warranties as to the Receivables and the Other
Conveyed Property on which the Issuer is deemed to have relied in acquiring the
Receivables and upon which the Insurer shall be deemed to rely in issuing the
Note Policy. Such representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date in the case of the Initial
Receivables, and as of the related Subsequent Transfer Date in case of the
Subsequent Receivables (unless another date or time period is otherwise
specified or indicated in the particular representation or warranty), but shall
survive the sale, transfer and assignment of the Receivables to the Issuer and
the pledge thereof to the Trustee pursuant to the Indenture.
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(a) Schedule of Representations. The representations and warranties set
forth on the Schedule of Representations attached hereto as Schedule B are true
and correct.
(b) The representations and warranties set forth in this Section shall
survive assignment of the Receivables to the Trust Collateral Agent and shall
survive as long as any Note is outstanding or this Agreement has not been
terminated.
SECTION 3.2. Repurchase upon Breach.
(a) The Seller, the Servicer, any Sub-Servicer, the Insurer, any Trust
Officer of the Trust Collateral Agent or the Owner Trustee, as the case may be,
shall promptly inform each of the other parties and the Insurer, in writing,
upon the discovery of any breach of the Seller's representations and warranties
made pursuant to Section 3.1 which materially and adversely affects the
interests of the Noteholders or the Insurer in the related Receivable (any
Sub-Servicer being so obligated under the related Sub-Servicing Agreement);
provided, however, that the failure to give any such notice shall not derogate
from any obligations of the Seller under this Section 3.2. In addition, with
respect to any Receivables in respect of which the Title Documents were being
applied for on the Closing Date or the related Subsequent Transfer Date, as
applicable, if such Title Documents have not been received by the Servicer
within 180 days after the Closing Date or such Subsequent Transfer Date, as
applicable, the Servicer shall give the Trust Collateral Agent, the Insurer and
Seller written notice of such fact. If the Seller does not correct or cure such
breach (including delivery of such Title Documents, if applicable) by the
Reporting Date occurring during the second full calendar month following the
calendar month in which the Trust Collateral Agent was notified or the Seller,
any Sub-Servicer or the Servicer became aware, if earlier, of such breach
(including failure to deliver such Title Documents), then the Seller shall
promptly repurchase such Receivables from the Issuer. Any such repurchase by the
Seller shall be in exchange for the delivery by the Seller to the Issuer of the
Purchase Amount and shall be accomplished in the manner set forth in Section 5.6
and the Trust shall execute such assignments and other documents reasonably
requested by such Person in order to effect such repurchase. It is understood
and agreed that the obligation of the Seller to accept a repurchase of any
Receivable as to which such a breach has occurred and is continuing as described
above shall constitute the sole remedy respecting such breach available to the
Servicer, the Noteholders, the Insurer, the Issuer, the Trust Collateral Agent,
the Trustee and the Owner Trustee.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by the Seller or NAFI, the Seller shall
indemnify the Trust, the Trust Collateral Agent, the Insurer, and the
Noteholders and any of their respective officers, directors, employees or agents
against all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
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incurred by any of them as a result of third party claims arising out of the
events or facts giving rise to a breach of the representation.
(b) Pursuant to Section 2.1 and 2.2 of this Agreement, the Seller conveyed
to the Trust all of the Seller's right, title and interest in its rights and
benefits, but none of its obligations or burdens, under the Purchase Agreement
including the Seller's rights under the Purchase Agreement and the delivery
requirements, representations and warranties and the cure or repurchase
obligations of NAFI thereunder. The Seller hereby represents and warrants to the
Trust that such assignment is valid, enforceable and effective to permit the
Trust to enforce such obligations of NAFI under the Purchase Agreement.
SECTION 3.3. Custody of Receivables Files. The Custodian shall maintain
custody and possession of the Receivable Files as custodian and bailee for, in
accordance with and pursuant to the Custodial Agreement.
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1. Duties of the Servicer.
(a) The Servicer shall service and administer the Receivables on behalf of
the Trust and shall have full power and authority, acting alone and/or through
Sub-Servicers as provided in Section 4.2, to do any and all things which it may
deem necessary or desirable in connection with such servicing and administration
and which are consistent with this Agreement. Consistent with the terms of this
Agreement, the Servicer may waive, modify or vary any term of any Receivable or
consent to the postponement of strict compliance with any such term or in any
manner, grant indulgence to any Obligor if, in the Servicer's sole
determination, which shall be conclusive and binding, such waiver, modification,
postponement or indulgence is not materially adverse to the Noteholders or the
Insurer; provided however, that the Servicer may not permit any modification
with respect to any Receivable that would change its Annual Percentage Rate,
defer the payment of any principal or interest (except to the extent permitted
by Section 4.6(a)), reduce the outstanding principal balance (except for actual
payments of principal), or extend (except to the extent permitted by Section
4.6(a)) the final maturity date on such Receivable. Without limiting the
generality of the foregoing, the Servicer in its own name or in the name of the
Seller is hereby authorized and empowered by the Trust Collateral Agent when the
Servicer believes it appropriate in its best judgment to execute and deliver, on
behalf of the Trust, any and all instruments of satisfaction or cancellation, or
of partial or full release or discharge and all other comparable instruments,
with respect to the Receivables and with respect to the Financed Vehicles;
provided however,
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that notwithstanding the foregoing, the Servicer shall not, except pursuant to
an order from a Court of competent jurisdiction, release an Obligor from payment
of any unpaid amount under any Receivable or waive the right to collect the
unpaid balance of any Receivable from the Obligor, except that the Servicer may
forego collection efforts if the amount subject to collection is de minimis and
if it would forego collection in accordance with its customary procedures. If
any Receivable contains a "due-on-sale" provision allowing the holder thereof to
accelerate the Receivable upon sale of the Financed Vehicle financed thereunder,
the Servicer shall take reasonable steps under the circumstances to enforce such
due on sale provision if a Financed Vehicle is sold as soon as practicable after
determining that such Financed Vehicle has been sold; provided however, that the
Servicer shall not be obligated to take any legal action to enforce such
provision.
(b) The Servicer shall service and administer the Receivables by employing
procedures (including collection procedures) and a degree of care consistent
with prudent industry standards and as are customarily employed by servicers in
servicing and administering comparable motor vehicle retail installment sales
contracts and, to the extent more exacting, the degree of skill and attention
that the Servicer exercises from time to time with respect to all comparable
motor vehicle receivables that it services for itself or others. The Servicer
shall take all actions (other than those required to be taken by the Seller
pursuant to this Agreement) that are necessary or desirable to maintain
continuous perfection and first priority of security interests of NAFI in the
Financed Vehicles and to maintain continuous perfection of the security interest
created by each Receivable in the related Finance Vehicle on behalf of the Trust
Collateral Agent, including, but not limited to, using reasonable efforts to
obtain execution by the Obligors and the recording, registering, filing,
re-recording, re-registering and refiling of all Title Documents (it being
understood that Title Documents have not been and need not be endorsed or
delivered to the Trust Collateral Agent and do not and need not identify the
Trust Collateral Agent as the secured party or lienholder with respect to the
Receivables), security agreements, financing statements, continuation statements
or other instruments as are necessary to maintain the security interests granted
by the Obligors under the respective Receivables on behalf of the Trust
Collateral Agent; provided however, that the Servicer is not required to expend
any of its own funds to remove any security interest, lien or other encumbrance
on any Financed Vehicle. The Servicer shall not take any action to impair the
Trust's rights in any Receivable, except to the extent allowed pursuant to this
Agreement or required by law. The Financed Vehicle securing each Receivable
shall not be released in whole or in part from the security interest granted by
the Receivable, except upon payment in full of the Receivable or as otherwise
contemplated herein. The Servicer shall not extend or otherwise amend the terms
of any Receivable, except in accordance with Section 4.1(a). Upon discovery by
either the Servicer or any Sub-Servicer by a Trust Officer of the Trust
Collateral Agent of a default by the Servicer in the performance of its
obligations under this Section 4.1(b) which materially and adversely affects the
interests of the Noteholders or the
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Insurer in the related Receivable, the party discovering such breach shall give
prompt written notice thereof to the other parties and the Insurer. If the
Servicer does not correct or cure such default by the Reporting Date occurring
during the second full calendar month following the calendar month in which the
Trust Collateral Agent was notified, or the Servicer, the Trust Collateral Agent
or the Sub-servicer became aware, if earlier, of such default, then the Servicer
shall promptly purchase such Receivable from the Trust. Any such purchase by the
Servicer shall be in exchange for the delivery by the Servicer to the Trust of
the Purchase Amount. Except as expressly provided in Section 9.2 and subject to
Section 10.1, it is understood and agreed that the obligation of the Servicer to
repurchase any Receivable as to which such a default has occurred and is
continuing as described above shall constitute the sole remedy respecting such
default available to the Seller, the Noteholders, the Insurer or the Indenture
Trustee on behalf of the Noteholders.
(c) Upon the occurrence of an Insurance Agreement Event of Default
pursuant to Section 5.01(b), (c), (d), (e) or (j), the Insurer may (so long as
an Insurer Default shall not have occurred and be continuing) instruct the Trust
Collateral Agent and the Servicer in writing to take or cause to be taken, or,
if an Insurer Default shall have occurred, upon the occurrence of a Servicer
Termination Event, the Trust Collateral Agent and the Servicer shall take or
cause to be taken such action as may, in the opinion of counsel to the
Controlling Party, be necessary to perfect or re-perfect the security interests
in the Financed Vehicles securing the Receivables in the name of the Trust by
amending the title documents of such Financed Vehicles or by such other
reasonable means as may, in the opinion of counsel to the Controlling Party, be
necessary or prudent. NAFI hereby agrees to pay all expenses related to such
perfection or reperfection and to take all action necessary therefor. In
addition, prior to the occurrence of an Insurance Agreement Event of Default,
the Controlling Party may instruct the Trust Collateral Agent and the Servicer
to take or cause to be taken such action as may, in the opinion of counsel to
the Controlling Party, be necessary to perfect or re-perfect the security
interest in the Financed Vehicles underlying the Receivables in the name of the
Trust, including by amending the title documents of such Financed Vehicles or by
such other reasonable means as may, in the opinion of counsel to the Controlling
Party, be necessary or prudent; provided, however, that if the Controlling Party
requests that the title documents be amended prior to the occurrence of an
Insurance Agreement Event of Default, the out-of-pocket expenses of the Servicer
in connection with such action shall be reimbursed to the Servicer by the
Controlling Party.
(d) The Servicer may perform any of its duties pursuant to this Agreement,
including those delegated to it by the Trust Collateral Agent pursuant to this
Agreement, through Persons appointed by the Servicer. Such Persons may include
affiliates of the Servicer and may include the Seller and its affiliates.
Notwithstanding any such delegation of a duty, the
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Servicer shall remain obligated and liable for the performance of such duty as
if the Servicer were performing such duty.
(e) Upon the execution and delivery of this Agreement, the Servicer shall
deliver to the Trust Collateral Agent and the Insurer a list of officers and
employees of the Servicer, upon which the Trust Collateral Agent may
conclusively rely, involved in, or responsible for, the administration and
servicing of the Receivables, which list shall from time to time be updated by
the Servicer as additional officers and employees of the Servicer become
involved, or responsible for, the administration and servicing of the
Receivables or officers or employees of the Servicer previously identified on
any such list become disassociated with the administration and servicing of the
Receivables.
(f) The Servicer may take such actions as are necessary to discharge its
duties as Servicer in accordance with this Agreement, including the power to
execute and deliver on behalf of the Trust such instruments and documents as may
be customary, necessary or desirable in connection with the performance of the
Servicer's duties under this Agreement (including consents, waivers and
discharges relating to the Receivables and the Financed Vehicles and such
instruments or documents as may be necessary to effect foreclosure or other
conversion of the ownership of any Financed Vehicle). In furtherance thereof,
the Trust Collateral Agent hereby irrevocably appoints the Servicer as its
attorney-in-fact, such appointment being coupled with an interest, to execute on
its behalf such documents or instruments as are necessary to effect the
Repossession of Financed Vehicles, to deliver applicable Receivable Files,
Receivable Documents and Title Documents to the Seller upon the sale of a
Receivable to the Seller under this Agreement and to deliver applicable
Receivable Files, Receivable Documents and Title Documents upon liquidation or
final payment of a Receivable. The Trust Collateral Agent, upon receipt of a
certificate of a Servicing Official requesting the same be accepted by the Trust
Collateral Agent and certifying as to the reasons such documents are required,
shall furnish the Servicer with any other powers of attorney or other documents
reasonably necessary or appropriate which the Trust Collateral Agent may legally
execute to enable the Servicer to carry out its servicing and administrative
duties hereunder. Neither the Servicer nor any of its directors, officers,
employees or agents will be under any liability to the Trust, the Trust
Collateral Agent, the Insurer, any Noteholder, or the Seller for the
consequences of any delay resulting from having to obtain such documents from
the Trust Collateral Agent, provided that the Servicer furnished such
certificate to the Trust Collateral Agent reasonably promptly after determining
the necessity therefor in the particular instance.
(g) The Servicer warrants, represents and covenants to the Trust
Collateral Agent that recordation of the name of the Servicer as lienholder in
Title Documents respecting any Financed Vehicle is maintained by the Servicer as
agent for the Trust and that the Servicer has
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no equitable ownership in the Receivables, except as it may have by virtue of
ownership of a Note or an equity interest in the Seller or any Noteholder. The
Servicer acknowledges that it is holding the Receivables coming into its
possession and any other property constituting a part of the Trust held by it,
in trust, for the benefit of the Noteholders and the Insurer.
SECTION 4.2. Sub-Servicing Agreements between Servicer and the
Sub-Servicers. The Servicer may enter into Sub-Servicing Agreements with one or
more Sub-Servicers for the servicing and administration of certain of the
Receivables; provided however, that the Servicer shall not enter into any such
Sub-Servicing Agreement with any Sub-Servicer other than OFSA, without the prior
written consent of the Insurer (so long as a Insurer Default shall not have
occurred and be continuing), which consent shall not be unreasonably withheld;
provided further that the Servicer shall not amend any Sub-Servicing Agreement
without (i) with respect to a material amendment, the consent of the Insurer and
(ii) with respect to all other amendments, upon five (5) days prior written
notice of such amendment. References in this Agreement to actions taken or to be
taken by the Servicer in servicing the Receivables include actions taken or to
be taken by a Sub-Servicer on behalf of the Servicer. Each Servicing Agreement
shall be upon such terms and conditions as are not inconsistent with this
Agreement and as the Servicer and the Sub-Servicer have agreed. Each
Sub-Servicing Agreement shall require that the related Sub-Servicer acknowledge
that it is holding the Receivables and the Receivable Documents for the related
Receivables coming into its possession and any other property constituting a
part of the Trust Property held by it, in trust, for the benefit of the
Noteholders and the Insurer. The Servicer and a Sub-Servicer may enter into
amendments thereto; provided however, that any such amendments or different
forms shall be consistent with and not violate the provisions of this Agreement.
The Servicer shall notify each Rating Agency, the Trust Collateral Agent and the
Insurer upon entering into any Sub-Servicing Agreement.
SECTION 4.3. Obligations of the Servicer. Notwithstanding any
Sub-Servicing Agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer or a Sub-Servicer or reference
to actions taken through a Sub-Servicer or otherwise, the Servicer shall remain
obligated for the servicing and administering of the Receivables in accordance
with the provisions of Section 4.1 of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreements or
arrangements or by virtue of indemnification from a Sub-Servicer and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Receivables. The Servicer shall be entitled to
enter into any agreement with a Sub-Servicer for indemnification of the
Servicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
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SECTION 4.4. No Contractual Relationship between a Sub-Servicer and Trust
Collateral Agent or Noteholders. Any Sub-Servicing Agreement that may be entered
into and any other transactions or services relating to the Receivables
involving a Sub-Servicer in its capacity as such and not as an originator shall
be deemed to be between a Sub-Servicer and the Servicer alone, and the Trust
Collateral Agent, the Trust, the Insurer and Noteholders shall not be deemed
parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to a Sub-Servicer except as expressly set forth in
Section 4.5 or in the applicable Sub-Servicing Agreement; provided that, if the
Servicer is deemed terminated, the Sub-Servicer may be terminated. Servicer
shall promptly provide to the Trust Collateral Agent and the Insurer any notice
received from a Sub-Servicer.
SECTION 4.5. Assumption or Termination of Sub-Servicing Agreement by Trust
Collateral Agent. In the event the Servicer shall for any reason no longer be
the servicer of the Receivables (including by reason of a Servicer Termination
Event), the Trust Collateral Agent, its designee or any successor Servicer will
thereupon assume all of the rights and obligations of the Servicer under one or
more Sub-Servicing Agreements that may have been entered into by giving notice
of such assumption to the related Sub-Servicer or Sub-Servicers within ten (10)
Business Days of the termination of the Servicer as servicer of the Receivables.
Upon the giving of such notice, the Trust Collateral Agent, its designee or the
successor Servicer, shall be deemed to have assumed all of the Servicer's
interest therein and to have replaced the Servicer as a party to the
Sub-Servicing Agreement to the same extent as if the Sub-Servicing Agreement had
been assigned to the assuming party except that the Servicer and the
Sub-Servicer, if any, shall not thereby be relieved of any accrued liability or
obligations under the Sub-Servicing Agreement and the Sub-Servicer, if any,
shall not be relieved of any liability or obligation to the Servicer that
survives the assignment or termination of the Sub-Servicing Agreement. The Trust
Collateral Agent shall notify each Rating Agency and the Insurer if any
Sub-Servicing Agreement is assumed by the Trust Collateral Agent, its designee
or the successor Servicer.
The Servicer shall, upon request of the Trust Collateral Agent but at the
expense of the Servicer, deliver to the assuming party all documents and records
relating to the Sub-Servicing Agreement and the Receivables then being serviced
and an accounting of amounts collected and held by it and otherwise use its
reasonable efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreement to the assuming party.
SECTION 4.6. Collection of Receivable Payments.
(a) The Servicer shall proceed diligently to collect all payments called
for under the terms and provisions of the Receivables, and shall service the
Receivables in a manner consistent with the servicing standards and procedures
generally accepted in the financial
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services industry for similar Receivables, and as otherwise expressly provided
by this Agreement. Consistent with the foregoing, the Servicer may in its
discretion (i) waive any late payment charge and (ii) extend the then current
maturity date of a Receivable by two months, once during each calendar year at
the request of the related Obligor on account of the Obligor's adverse financial
circumstances that affect the Obligor's ability to make payments under such
Receivable; provided however, that the Servicer may not so extend the then
current maturity date of Receivable more than twice during the life of such
Receivable; provided further, that the Average Extension Ratio for any calendar
month, commencing July 1997, shall not exceed 2.5% for each January, August,
September and December and 2.0% for any other calendar month. The Average
Extension Ratio for any calendar month shall equal the arithmetic average of the
Extension Ratios for such calendar month and the two preceding calendar months
(for example, the Average Extension Ratio for July 1997 will equal the
arithmetic average of the Extension Ratios for the months June 1997, July 1997
and August 1997 and will be included in the report delivered by the Servicer
pursuant to Section 4.11 on or before the August 1997 Reporting Date). The
Extension Ratio for any calendar month shall equal the percentage equivalent of
a fraction the numerator of which is the aggregate number of Receivables that
have been extended during such calendar month and the denominator of which is
the aggregate number of Receivables outstanding as of the first day of such
calendar month.
(b) The Servicer shall instruct (or shall cause the Sub-Servicer to
instruct) all Obligors to make all payments due in respect of the Receivables to
the Sub-Servicer Account. The Servicer shall, pursuant to the Sub-Servicing
Agreement, cause the Sub-Servicer to use any amounts other than collections in
respect of motor vehicle financing obligations serviced by the Sub-Servicer. The
Servicer shall cause the Sub-Servicer to use its best efforts to transfer to the
Collection Account all collected funds on deposit in the Sub-Servicer Account
that constitute part of the Trust Property within one Business Day, and in any
event within two Business Days of receipt thereof. If the Servicer, the Seller,
NAFI or any Sub-Servicer receives collections under or other payments in respect
of the Receivables, each such Person shall as soon as practicable, but no later
than two Business Days following receipt of such item by such Person, cause such
payment to be remitted to the Trust Collateral Agent for deposit to the
Collection Account. If the Servicer determines that any amount that is not a
part of the Trust Property has been deposited in any Trust Account, the Servicer
shall promptly instruct the Trust Collateral Agent by facsimile (with prompt
telephone confirmation) to segregate such amount, and shall therein direct the
Trust Collateral Agent to turn over such amounts to the Person entitled thereto
within two Business Days. A copy of any such direction shall be delivered by the
Servicer to the Insurer.
(c) The Servicer shall cause OFSA to maintain the Sub-Servicer Account or
a comparable account, and shall cause any other Sub-Servicer to maintain an
account comparable
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to the Sub-Servicer Account, to which Obligors shall have been directed to remit
payments in respect of the Receivables. If the Sub-Servicer Account or any
comparable account maintained by a Sub-Servicer is terminated for any reason
prior to the establishment of, and notification to Obligors to remit payments
to, a replacement servicing account comparable to the Sub-Servicer Account, the
Servicer shall promptly, and in any event within 30 days of termination of such
Sub-Servicer Account or comparable account, establish a pursuant to a Lockbox
Agreement and notify all Obligors to remit payments in respect of the
Receivables to such Lockbox Account.
(d) Notwithstanding any Lockbox Agreement, or any of the provisions of
this Agreement relating to a Lockbox Agreement, a Lockbox Bank or a Lockbox
Account, the Servicer shall remain obligated and liable to the Trust Collateral
Agent and the Noteholders for servicing and administering the Receivables and
the rest of the Trust Property in accordance with the provisions of this
Agreement without diminution of such obligations or liability by virtue thereof.
SECTION 4.7. Maintenance of Insurance. The Servicer shall use its
reasonable efforts to cause each Obligor to maintain on the related Financed
Vehicle a comprehensive and collision policy providing coverage at least equal
to the lesser of (i) the actual cash value of such Financed Vehicle and (ii) the
unpaid balance owing on the related Receivable, less Unearned Finance Charges;
provided however, that the Servicer shall not be obligated to expend its own
funds to pay any insurance premiums or obtain or maintain any such policy.
Pursuant to Section 4.6 any amounts collected by the Servicer under any such
policies (other than amounts to be applied to the restoration or repair of the
related Financed Vehicles or amounts released to the Obligor in accordance with
the Servicer's normal servicing procedures) shall be deposited in the Collection
Account. All policies required by this paragraph shall be endorsed with clauses
providing for loss payable to the Servicer or the related Sub-Servicer and its
successors and assigns. Servicer shall maintain and keep in place a vendor's
single interest insurance policy.
SECTION 4.8. Realization upon Defaulted Receivables. In the event that a
Receivable becomes and continues to be a Defaulted Receivable, the Servicer
shall take all reasonable and lawful steps necessary for Repossession; provided
however, that the Servicer shall not be obligated to institute any action for
Repossession through judicial proceedings unless it determines in its good faith
judgment, which determination will be conclusive and binding, that Insurance
Proceeds or Liquidation Proceeds that would be realized in connection therewith
or amounts payable pursuant to the last sentence of this Section 4.8 would be
sufficient for the reimbursement in full of its out-of-pocket expenses pursuant
to this Agreement. In connection with such Repossession, the Servicer shall
follow such practices and procedures required by Section 4.1 and make advances
of its own funds for any out-of-pocket expenses incurred. The
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Servicer shall be reimbursed for Liquidation Expenses (including advances) by
retention of the required reimbursement from the first Liquidation Proceeds or
Insurance Proceeds received with respect to such Defaulted Receivable. The
Servicer shall be entitled to receive the following amounts with respect to any
Receivable the Obligor of which has filed bankruptcy or against whom a petition
for involuntary bankruptcy has been filed: a one time fee of $200 in respect of
those Receivables not referred to outside legal counsel, or, in the case of
those Receivables that are so referred, reimbursement of the reasonable fees and
expenses of outside legal counsel, if their retention was necessary in the
reasonable judgment of the Servicer.
SECTION 4.9. Total Servicing Fee; Payment of Certain Expenses by Servicer.
On each Distribution Date, the Servicer shall be entitled to receive out of the
Collection Account the Base Servicing Fee and any Supplemental Servicing Fee for
the related Due Period pursuant to Section 5.7. The Servicer shall be required
to pay all expenses incurred by it in connection with its activities under this
Agreement (including taxes imposed on the Servicer, fees and expenses of any
Sub-Servicer, expenses incurred in connection with distributions and reports
made by the Servicer to Noteholders or the Insurer and all other fees and
expenses of the Owner Trustee, the Trust Collateral Agent or the Trustee, except
taxes levied or assessed against the Trust, and claims against the Trust in
respect of indemnification, which taxes and claims in respect of indemnification
against the Trust are expressly stated to be for the account of NAFI) and shall
not be entitled to reimbursement therefor except as specifically provided
herein. The Servicer shall be liable for the fees, charges and expenses of the
Owner Trustee, the Trust Collateral Agent, the Trustee, the Custodian, the
Collateral Agent, the Lockbox Bank, any Sub-Servicer and their respective agents
(and any fees under the Lockbox Agreement).
SECTION 4.10. [Reserved]
SECTION 4.11. Reports.
(a) Not later than the Reporting Date, the Servicer shall forward to the
Trust Collateral Agent, the Indenture Trustee, each Rating Agency, the Insurer
and the Seller a statement substantially in the form attached hereto as Exhibit
4.11 (as such form may be modified from time to time by agreement between the
Trust Collateral Agent and the Servicer with the prior written consent of the
Insurer), certified by an officer of the Servicer. In addition to the
information required by Exhibit 4.11, the Servicer shall include in the copy of
such statement delivered to the Insurer (i) the Delinquency Ratio, Average
Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate, Average
Net Loss Rate, Average Extension Ratio and Extension Ratio for such Reporting
Date, (ii) whether any Trigger Event has occurred as of such Reporting Date,
(iii) whether any Trigger Event that may have occurred as of a prior Reporting
Date is deemed cured as of such Reporting Date, and
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(iv) whether to the knowledge of the Servicer an Insurance Agreement Event of
Default has occurred.
(b) On the first Business Day after each Determination Date, the Trust
Collateral Agent shall forward by telecopier to the Servicer, the Insurer and
the Seller a statement (and shall also mail a copy to the Servicer, the Insurer
and the Seller) setting forth the amount, if any, on deposit in the Collection
Account, the Distribution Account, the Pre-Funding Account, the Note
Distribution Account and the Pre-Funding Period Reserve Account as of such
Determination Date. Not later than the close of business on the fourth Business
Day prior to each Distribution Date, the Trust Collateral Agent shall forward by
telecopier to the Collateral Agent and the Insurer a copy of the statement
required to be delivered to Noteholders on such Distribution Date pursuant to
Section 5.10 prepared assuming that the Insurer will not exercise its right
under Section 5.11. Not later than five days after each Determination Date, the
Trust Collateral Agent shall forward to the Servicer, the Insurer and the Seller
a statement showing, for the previous Distribution Date, the aggregate of
withdrawals from the Distribution Account and the withdrawals and deposits to
the Spread Account.
SECTION 4.12. Annual Statement as to Compliance, Notice of Servicer
Termination Event.
(a) The Servicer shall deliver or cause to be delivered to each Rating
Agency, the Trustee, the Owner Trustee, the Trust Collateral Agent and the
Insurer on or before April 30 (or 120 days after the end of the Servicer's
fiscal year, if other than December 31) of each year, beginning on April 30,
1998, an Officer's Certificate signed by any responsible officer of the
Servicer, or such Eligible Sub-Servicer who is performing the servicing duties
of the Servicer, dated as of December 31 (or other applicable date) of the
immediately preceding year, stating that (i) a review of the activities of the
Servicer during the preceding calendar year and of performance under this
Agreement has been made under such officer's supervision, (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof and (iii) to the
best of such officer's knowledge, each Sub-Servicer has fulfilled its
obligations under its Sub-Servicing Agreement in all material respects, or if
there has been a material default in the fulfillment of such obligations,
specifying such default known to such employee and the nature and status
thereof.
(b) The Servicer shall deliver to the Trust Collateral Agent, the Insurer,
the Noteholders and each Rating Agency, promptly after having obtained knowledge
thereof, but in no event later than two Business Days thereafter, written notice
in an Officer's Certificate of
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any event which with the giving of notice or lapse of time, or both, would
become a Servicer Termination Event under Section 10.1.
SECTION 4.13. Annual Independent Accountants' Report.
(a) The Servicer shall, at its expense, cause a firm of nationally
recognized independent certified public accountants (the "Independent
Accountants"), who may also render other services to the Servicer or to the
Seller, to deliver to the Trustee, the Owner Trustee, the Trust Collateral
Agent, the Insurer, on or before March 30 (or 90 days after the end of the
Servicer's fiscal year, if other than December 31) of each year, beginning on
March 30, 1998, with respect to the twelve months ended the immediately
preceding December 31 (or other applicable date) (or such other period as shall
have elapsed from the Closing Date to the date of such certificate), a statement
(the "Accountants' Report") addressed to the Board of Directors of the Servicer,
to the Trustee, the Owner Trustee, the Trust Collateral Agent and to the
Insurer, to the effect that such firm has audited the books and records of the
Servicer and that such audit (1) was made in accordance with generally accepted
auditing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as such firm considered necessary in
the circumstances; (2) included an examination of documents and records relating
to the servicing of automobile installment sales contracts under pooling and
servicing agreements substantially similar one to another (such statement to
have attached thereto a schedule setting forth the servicing agreements covered
thereby, including this Agreement); (3) included an examination of the
delinquency and loss statistics relating to the Servicer's portfolio of
automobile installment sales contracts; and (4) except as described in the
statement, disclosed no exceptions or errors in the records relating to
automobile and light truck loans serviced for others that, in the firm's
opinion, generally accepted auditing standards requires such firm to report. The
Accountants' Report shall further state that (1) a review in accordance with
agreed upon procedures was made of three randomly selected Servicer's
Certificates for the Trust; (2) except as disclosed in the Report, no exceptions
or errors in the Servicer's Certificates so examined were found; and (3) the
delinquency and loss information relating to the Receivables contained in the
Servicer Certificates were found to be accurate.
(b) The Accountants' Report shall also indicate that the firm is
independent of the Seller and the Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
(c) A copy of the Accountant's Report may be obtained by any Noteholder by
a request in writing to the Trust Collateral Agent addressed to its Corporate
Trust Office.
SECTION 4.14. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to representatives of the Trust
Collateral Agent and the
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Insurer reasonable access to the documentation regarding the Receivables. Each
of the Seller and Servicer will permit any authorized representative or agent
designated by the Insurer to visit and inspect any of the properties of the
Seller or Servicer, as the case may be, to examine the corporate books and
financial records of the Seller or Servicer, as the case may be, its records
relating to the Receivables, and make copies thereof or extracts therefrom and
to discuss the affairs, finances, and accounts of the Seller or Servicer, as the
case may be, with its principal officers, as applicable, and its independent
accountants. Any expense incident to the exercise by the Insurer of any right
under this Section 4.14 shall be borne by NAFI, so long as NAFI is the Servicer.
In each case, such access shall be afforded without charge but only upon
reasonable request and during normal business hours.
SECTION 4.15. Monthly Tape. On or before the fourth Business Day, but in
no event later than the fifth calendar day, of each month, the Servicer will
deliver or cause to be delivered to the Trust Collateral Agent and the Insurer a
computer tape and a diskette (or any other electronic transmission acceptable to
the Trust Collateral Agent and the Insurer in a format acceptable to the Trust
Collateral Agent and the Insurer, containing the information with respect to the
Receivables as of the preceding Determination Date necessary for preparation of
the Servicer's Certificate relating to the immediately succeeding Determination
Date and necessary to determine the application of collections as provided in
Section 5.4.
SECTION 4.16. Retention and Termination of Servicer. The Servicer hereby
covenants and agrees to act as such under the Agreement for an initial term,
commencing on the Closing Date and ending on September 30, 1997, which term
shall be extendible by the Insurer for successive quarterly terms ending on each
successive March 31, June 30, September 30 and December 31 (or, pursuant to
revocable written standing instructions from time to time to the Servicer and
the Trust Collateral Agent, for any specified number of terms greater than one),
until the termination of the Trust. Each such notice (including each notice
pursuant to standing instructions, which shall be deemed delivered at the end of
successive quarterly terms for so long as such instructions are in effect) (a
"Servicer Extension Notice") shall be delivered by the Insurer to the Trust
Collateral Agent and the Servicer. The Servicer hereby agrees that, as of the
date hereof and upon its receipt of any such Servicer Extension Notice, the
Servicer shall become bound, for the initial term beinning on the date hereof
and for the duration of the term covered by such Notice, to continue as the
Servicer subject to and in accordance with the other provisions of this
Agreement. Until such time as an Insurer Default shall have occurred and be
continuing, the Trust Collateral Agent agrees that, as of the fifteenth day
prior to the last day of any term of the Servicer, if in which the Trust
Collateral Agent shall not have received any Servicer Extension Notice from the
Insurer, the Trust Collateral Agent will, within five days thereafter, give
written notice of such non-receipt to the Insurer, and the Servicer and the
Servicer's term shall not be extended unless a Servicer Extension Notice is
received on or before the last day of such term.
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SECTION 4.17. Custodial Arrangement. The Custodian shall maintain custody
and possession of the Receivable Files as custodian and bailee in accordance
with and pursuant to the Custodial Agreement. The Servicer hereby assigns all of
its right, title and interest in, but none of its obligators thereunder, and to
such Custodial Agreement to the Trust Collateral Agent. To the extent the
Servicer receives any notices with respect to the Custodial Agreement, the
Servicer will forward a copy of such notice to the Trust Collateral Agent and
the Insurer.
ARTICLE V
Trust Accounts; Distributions;
Statements to Noteholders
SECTION 5.1. Establishment of Trust Accounts.
(a) (i) The Trust Collateral Agent, on behalf of the Noteholders,
the Certificateholders and the Insurer, shall establish and maintain in
its own name an Eligible Deposit Account (the "Collection Account"),
bearing a designation clearly indicating that the funds deposited therein
are held for the benefit of the Trust Collateral Agent on behalf of the
Noteholders, the Certificateholders and the Insurer. The Collection
Account shall initially be established with the Trust Collateral Agent.
(ii) The Trust Collateral Agent, on behalf of the Noteholders, shall
establish and maintain in its own name an Eligible Deposit Account (the
"Note Distribution Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the Trust
Collateral Agent on behalf of the Noteholders and the Insurer. The Note
Distribution Account shall initially be established with the Trust
Collateral Agent.
(iii) The Trust Collateral Agent, on behalf of the Noteholders and
the Insurer, shall establish and maintain in its own name an Eligible
Deposit Account (the "Pre-Funding Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Trust Collateral Agent on behalf of the Noteholders and the Insurer.
The Pre-Funding Account shall initially be established with the Trust
Collateral Agent.
(iv) The Trust Collateral Agent, on behalf of the Noteholders, the
Certificateholders and the Insurer, shall establish and maintain in its
own name an Eligible Deposit Account (the "Distribution Account"), bearing
a designation clearly indicating that the funds deposited therein are held
for the benefit of the Trust
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Collateral Agent on behalf of the Noteholders, the Certificateholders and
Insurer. The Distribution Account shall initially be established with the
Trust Collateral Agent.
(b) The Trust Collateral Agent shall deposit the following amounts into
the Collection Account upon receipt: (i) all amounts withdrawn by a Sub-Servicer
from the Sub-Servicer Account and all amounts received by the Servicer, the
Seller, NAFI or any Sub-Servicer and transferred to the Trustee pursuant to
Section 4.6(b); (ii) the Purchase Amount received in respect of any Purchased
Receivables pursuant to Sections 2.4, 3.2 and 4.1 hereof; (iii) all income and
gain from investments of funds in the Collection Account; and (iv) all
Liquidation Proceeds (net of Liquidation Expenses retained by the Servicer or
Sub-Servicer) and other amounts with respect to the Trust Property, if any,
received from the Seller, the Servicer or any Sub-Servicer.
(c) On each Distribution Date, the Trust Collateral Agent shall, at the
written direction of the Servicer, withdraw from the Collection Account and
deposit in the Distribution Account the amount on deposit in the Collection
Account as of the close of business on the related Determination Date (other
than any pay-ahead amounts, as provided in Section 5.4) and any amount deposited
to the Collection Account in respect of Purchased Receivables on or prior to the
related Reporting Date and subsequent to the preceding Reporting Date, less the
sum of (i) the Supplemental Servicing Fee collected with respect to the
Receivables on deposit in the Collection Account as of such Determination Date,
(ii) any income and gain on investments of deposits in the Collection Account as
of such Determination Date, (iii) any collection or other amounts deposited to
the Collection Account in respect of Purchased Receivables other than the
Purchase Amounts. In addition, on each Distribution Date, the Trust Collateral
Agent shall, in accordance with the written direction of the Servicer, withdraw
from the Collection Account and shall pay (i) to the Seller any income and gain
on investments then on deposit in the Collection Account and all late payment
fees then on deposit in the Collection Account and (ii) to pay to the Seller
with respect to each Receivable or property acquired in respect thereof that has
been retransferred to the Seller pursuant to Sections 2.4, 3.2, 4.1 or 11.1, all
amounts received thereon and not distributed as of, or received after, the date
on which the related Principal Balance or Purchase Amount (or, in the case of a
retransfer pursuant to Section 11.1, the purchase amount required therein) is
determined. In the event the Servicer, any Sub-Servicer or the Trust Collateral
Agent shall deposit in the Collection Account any amount in error and such
amount is not required to be deposited therein, the Trust Collateral Agent may
withdraw at any time, on its own behalf if the erroneous deposit was made by the
Trust Collateral Agent and on behalf of the Servicer or Sub-Servicer if the
erroneous deposit was made by the Servicer or Sub-Servicer promptly after
receipt of an Officer's Certificate setting forth the reason for such withdrawal
of such amount from the Collection Account, any provision herein to the contrary
notwithstanding.
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(d) Funds on deposit in the Collection Account, the Pre-Funding Account,
the Note Distribution Account and the Pre-Funding Period Reserve Account
(collectively, the "Trust Accounts") shall be invested by the Trust Collateral
Agent (or any custodian with respect to funds on deposit in any such account) in
Eligible Investments selected in writing by the Servicer (pursuant to standing
instructions or otherwise) which, absent any instruction shall be the
investments specified in clause (d) of the definition of Eligible Investments
set forth herein. Other than as permitted by the Rating Agencies and the
Insurer, funds on deposit in any Trust Account other than the Pre-Funding Period
Reserve Account shall be invested in Eligible Investments that will mature so
that such funds will be available at the close of business on the Business Day
immediately preceding the following Distribution Date. Funds deposited in the
Pre-Funding Account shall be invested by the Trust Collateral Agent pursuant to
written instructions from the Seller in Eligible Investments that mature no
later than the Business Day next preceding the earlier of the date on which such
funds are expected to be needed and the Distribution Date next succeeding the
date of such investment (or on such date or such Distribution Date, as the case
may be, if such Eligible Investment is an obligation of the institution
maintaining the Pre-Funding Account), and no such investment shall be sold prior
to its maturity. Funds deposited in a Trust Account on the day immediately
preceding a Distribution Date upon the maturity of any Eligible Investments are
not required to be invested overnight. All Eligible Investments will be held to
maturity.
(e) All investment earnings of moneys deposited in the Trust Accounts
shall be deposited (or caused to be deposited) by the Trust Collateral Agent in
the Collection Account no later than the close of business on the Business Day
immediately preceding the related Distribution Date, and any loss resulting from
such investments shall be charged to the Collection Account. The Servicer shall
not direct the Trust Collateral Agent to make any investment of any funds held
in any of the Trust Accounts unless the security interest granted and perfected
in such account will continue to be perfected in such investment, in either case
without any further action by any Person, and, in connection with any direction
to the Trust Collateral Agent to make any such investment, if necessary, the
Servicer shall deliver to the Trust Collateral Agent an Opinion of Counsel to
such effect upon which the Trust Collateral Agent may conclusively rely.
(f) The Trust Collateral Agent shall not in any way be held liable by
reason of any insufficiency in any of the Trust Accounts resulting from any loss
on any Eligible Investment included therein except for losses attributable to
the Trust Collateral Agent's negligence or bad faith or its failure to make
payments on such Eligible Investments issued by the Trust Collateral Agent, in
its commercial capacity as principal obligor and not as trustee, in accordance
with their terms.
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(g) If (i) the Servicer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Trust Collateral Agent by
2:00 p.m. Eastern Time (or such other time as may be agreed by the Issuer and
Trust Collateral Agent) on any Business Day; or (ii) a Default or Event of
Default shall have occurred and be continuing with respect to the Notes but the
Notes shall not have been declared due and payable, or, if such Notes shall have
been declared due and payable following an Event of Default, amounts collected
or receivable from the Trust Property are being applied as if there had not been
such a declaration; then the Trust Collateral Agent shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments pursuant to paragraph (b) above.
(h) (i) The Trust Collateral Agent shall possess all right, title
and interest in all funds on deposit from time to time in the Trust
Accounts and in all proceeds thereof (excluding all Investment Earnings on
the Collection Account) and all such funds, investments, proceeds and
income shall be part of the Owner Trust Estate. Except as otherwise
provided herein, the Trust Accounts shall be under the sole dominion and
control of the Trust Collateral Agent for the benefit of the Noteholders
and the Insurer. If, at any time, any of the Trust Accounts ceases to be
an Eligible Deposit Account, the Trust Collateral Agent (or the Servicer
on its behalf) shall within five Business Days (or such longer period as
to which each Rating Agency and the Insurer may consent) establish a new
Trust Account as an Eligible Deposit Account and shall transfer any cash
and/or any investments to such new Trust Account. In connection with the
foregoing, the Servicer agrees that, in the event that any of the Trust
Accounts are not accounts with the Trust Collateral Agent, the Servicer
shall notify the Trust Collateral Agent in writing promptly upon any of
such Trust Accounts ceasing to be an Eligible Deposit Account.
(ii) With respect to the Trust Account Property:
(A) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Deposit Accounts; and,
except as otherwise provided herein, each such Eligible Deposit
Account shall be subject to the exclusive custody and control of the
Trust Collateral Agent, and the Trust Collateral Agent shall have
sole signature authority with respect thereto;
(B) any Trust Account Property that constitutes Physical
Property shall be delivered to the Trust Collateral Agent in
accordance with paragraph (a) of the definition of "Delivery" and
shall be held, pending maturity or disposition, solely by the Trust
Collateral Agent or a financial intermediary (as
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such term is defined in Section 8-313(4) of the UCC) acting solely
for the Trust collateral Agent;
(C) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to Federal
book-entry regulations shall be delivered in accordance with
paragraph (b) of the definition of "Delivery" and shall be
maintained by the Trust Collateral Agent, pending maturity or
disposition, through continued book-entry registration of such Trust
Account Property as described in such paragraph; and
(D) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by
clause (C) above shall be delivered to the Trust Collateral Agent in
accordance with paragraph (c) of the definition of "Delivery" and
shall be maintained by the Trust Collateral Agent, pending maturity
or disposition, through continued registration of the Trust
Collateral Agent's (or its nominee's) ownership of such security.
SECTION 5.2. Pre-Funding Period Reserve Account.
(a) The Servicer shall cause the Trust Collateral Agent to establish and
maintain an Eligible Deposit Account (the "Pre-Funding Period Reserve Account")
with the Trust Collateral Agent, bearing a designation clearly indicating that
the funds deposited therein are held in trust for the benefit of the Noteholders
and the Insurer.
On or prior to the Closing Date, the Seller shall deposit an amount equal
to the Pre-Funding Period Reserve Account Initial Deposit into the Pre-Funding
Period Reserve Account.
(b) (i) On the Distribution Dates occurring on or prior to the
Distribution Date next succeeding termination of the Pre-Funding Period,
the Trust Collateral Agent shall, in accordance with the Servicer's
Certificate, withdraw from the Pre-Funding Period Reserve Account the
Monthly Pre-Funding Period Reserve Amount for such Distribution Date and
deposit such amount in the Collection Account as further provided in
Section 5.7.
(ii) On the Distribution Dates occurring on or prior to the
Distribution Date next succeeding termination of the Pre-Funding Period,
Servicer shall instruct the Trust Collateral Agent in writing to withdraw
from the Pre-Funding Period Reserve Account and pay to the Seller on such
Distribution Date an amount equal to the amount of funds on deposit in the
Pre-Funding Period Reserve Account (after giving effect to any required
transfer pursuant to the preceding clause (i) on such Distribution Date)
in
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excess of the Required Reserve Amount for such Distribution Date. Any
amounts remaining in the Pre-Funding Period Reserve Account on the
Distribution Date which immediately follows the end of the Pre-Funding
Period after taking into account the transfer pursuant to Section
5.7(a)(i) shall be remitted by the Trust Collateral Agent to the Seller.
Upon any such distributions to the Seller, the Noteholders and the Insurer
will have no further rights in, or claims to, such amounts.
SECTION 5.3. Certain Reimbursements to the Servicer. The Servicer will be
entitled to be reimbursed from amounts on deposit in the Collection Account with
respect to a Due Period for amounts previously deposited in the Collection
Account but later determined by the Servicer to have resulted from mistaken or
postings or checks returned for insufficient funds. The amount to be reimbursed
hereunder shall be paid to the Servicer on the related Distribution Date
pursuant to Section 5.7(b)(i) upon certification by the Servicer of such amounts
and the provision of such information to the Trust Collateral Agent and the
Insurer as may be necessary in the opinion of the Insurer to verify the accuracy
of such certification. In the event that the Insurer has not received evidence
satisfactory to it of the Servicer's entitlement to reimbursement pursuant to
this Section, the Insurer shall (unless an Insurer Default shall have occurred
and be continuing) give the Trust Collateral Agent written notice to such
effect, following receipt of which the Trust Collateral Agent shall not make a
distribution to the Servicer in respect of such amount pursuant to Section 5.7,
or if the Servicer prior thereto has been reimbursed pursuant to Section 5.7,
the Trust Collateral Agent shall withhold such amounts from amounts otherwise
distributable to the Servicer on the next succeeding Distribution Date.
SECTION 5.4. Application of Collections. For all purposes of this
Agreement the allocation of a payment on a Receivable between principal and
interest shall be made based upon the amortization method provided in the
related Contract. For purposes of allocating a pay-ahead payment on a Receivable
between principal and interest, the pay-ahead shall be deemed to have been
received on the date it was actually due. For all purposes of this Agreement, no
amount shall be treated as collected under a Receivable until such amount has
been deposited into the Collection Account.
SECTION 5.5. Withdrawals from Series 1997-1 Spread Account.
(a) In the event that the Servicer's Certificate with respect to any
Determination Date shall state that the Available Amount with respect to such
Distribution Date is less than the sum of the amounts payable on the related
Distribution Date pursuant to clauses (i) through (iv) (other than any Note
Prepayment Amount) of Section 5.7(b) (such deficiency being a "Deficiency Claim
Amount"), which notice shall also state if there are not sufficient amounts in
the Spread Account to cover such deficiency, then on the Business Day
immediately
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preceding the related Draw Date, the Trust Collateral Agent shall deliver to the
Collateral Agent, the Owner Trustee, the Insurer and the Servicer, by hand
delivery, telex or facsimile transmission, a written notice (a "Deficiency
Notice") specifying the Deficiency Claim Amount for such Distribution Date and
the Note Policy Claim Amount, if any. Such Deficiency Notice shall direct the
Collateral Agent to remit such Deficiency Claim Amount (to the extent of the
funds available to be distributed pursuant to the Spread Account Agreement) to
the Trust Collateral Agent for deposit in the Collection Account on the related
Distribution Date.
(b) Any Deficiency Notice shall be delivered by 10:00 am., New York City
time, on the Business Day immediately preceding the Draw Date immediately
preceding the related Distribution Date. The amounts distributed by the
Collateral Agent to the Trust Collateral Agent pursuant to a Deficiency Notice
shall be deposited by the Trust Collateral Agent into the Collection Account
pursuant to Section 5.6.
SECTION 5.6. Additional Deposits.
(a) NAFI and the Seller, as applicable, shall deposit or cause to be
deposited in the Collection Account on the Reporting Date following the date on
which such obligations are due the aggregate Purchase Amount with respect to
Purchased Receivables. On or before each Draw Date, the Trust Collateral Agent
shall remit to the Collection Account any amounts delivered to the Trust
Collateral Agent by the Collateral Agent.
(b) The proceeds of any purchase or sale of the assets of the Trust
described in Section 11.1 hereof shall be deposited in the Collection Account.
SECTION 5.7. Distributions.
(a) On each Distribution Date, the Trust Collateral Agent shall (based
solely on the information contained in the Servicer's report delivered pursuant
to Section 4.11 on the related Reporting Date unless the Insurer shall have
notified the Trust Collateral Agent of any errors or deficiencies with respect
thereto) cause to be made the following transfers and distributions in the
amounts set forth in such report for such Distribution Date:
(i) During the Pre-Funding Period, from the Pre-Funding Period
Reserve Account to the Note Distribution Account, in immediately available
funds, the Monthly Pre-Funding Period Reserve Amount for such Distribution
Date; and
(ii) If such Distribution Date is the Mandatory Redemption Date,
from the Pre-Funding Account to the Note Distribution Account, in
immediately available funds,
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the Pre-Funded Amount after giving effect to the purchase of Subsequent
Receivables, if any, on the Mandatory Redemption Date.
(b) On each Distribution Date, the Trust Collateral Agent shall, to the
extent of the Available Amount together with (i) funds withdrawn from the Spread
Account, if any, (ii) the Policy Claim Amount, if any, and (iii) any amount
deposited to the Distribution Account pursuant to Section 5.11 (such amounts so
deposited to be applied only as directed by the Insurer) make the following
payments (in case of the withdrawals from the Spread Account, for payments of
the Servicing Fee, the Noteholders' Distributable Amount and any amounts owing
to the Insurer pursuant to clause (iv) below, and in the case of the Policy
Claim Amount, for Scheduled Payments (as defined in the Policy) only) from the
Distribution Account in the following order of priority:
(i) to the Servicer, the Servicing Fee for the related Due Period,
Period, and any unpaid Servicing Fees from prior Due Periods to the extent
not previously paid;
(ii) to each of the Trust Collateral Agent, the Indenture Trustee,
the Owner Trustee, the Collateral Agent and the Custodian, their
respective accrued and unpaid fees to the extent not paid by the Servicer;
(iii) to the Note Distribution Account, the Noteholders'
Distributable Amount;
(iv) to the Insurer (or any designee thereof), to the extent of any
amounts owing to the Insurer under the Insurance Agreement, the Indenture
or this Agreement and not paid;
(v) to the Collateral Agent for deposit to the Spread Account, an
amount, if necessary, required to increase the amount therein to the
Requisite Amount (after taking into account all withdrawals from the
Spread Account on such Distribution Date);
(vi) to the Pre-Funding Period Reserve Account, the amount by which
the Required Reserve Amount exceeds the amount of funds on deposit therein
after giving effect to any withdrawals from the Pre-Funding Period Reserve
Account on such Distribution Date;
(vii) to the Indenture Trustee and the Owner Trustee for any
unreimbursed expenses and to pay any indemnities owed by the Seller to the
Indenture Trustee under the Indenture or to the Owner Trustee under the
Trust Agreement;
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(viii) to reimburse the Servicer for any expense of an Opinion of
Counsel incurred in connection with an amendment to the Indenture, and any
expenses incurred by the Servicer in connection with a realization upon a
Defaulted Receivable;
(ix) to reimburse the Backup Servicer for expenses incurred by the
Backup Servicer and to reimburse the Servicer for expenses incurred by and
reimbursable, or any indemnities payable by the Seller, to the Servicer
pursuant to this Agreement;
(x) to reimburse the Seller for expenses incurred by and
reimbursable to the Seller pursuant to the Indenture and this Agreement;
and
(xi) to the holder(s) of the Trust Certificates, the balance of any
funds remaining in the Distribution Account after application pursuant to
the preceding clauses (i) through (x).
provided, however, that, (A) following an acceleration of the Notes or, (B) if
an Insurer Default shall have occurred and be continuing and an Event of Default
pursuant to Section 5.1(i), 5.1(ii), 5.1(iv), 5.1(v) or 5.1(vi) of the Indenture
shall have occurred and be continuing, in each case, to the extent actually
known by a Trust Officer of the Trust Collateral Agent, or (C) the receipt of
Insolvency Proceeds pursuant to Section 11.1(b), amounts deposited in the Note
Distribution Account (including any such Insolvency Proceeds) and the
Distribution Account shall be paid to the Noteholders and the Certificateholders
pursuant to Section 5.6 of the Indenture.
(c) Each Certificateholder, by its acceptance of its Certificate, will be
deemed to have consented to the provisions of paragraph (b) above relating to
the priority of distributions and will be further deemed to have acknowledged
that no property rights in any amount of or the proceeds of any such amount
shall vest in such Certificateholder until such amount have been distributed to
such Certificateholder pursuant to such provisions; provided, that the foregoing
shall not restrict the right of any Certificateholder, upon compliance with the
provisions hereof, from seeking to compel the performance of the provisions
hereof by the parties hereto.
(d) In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that no amounts shall be received by it, nor shall it have any right to receive
any amounts, unless and until such amounts have been distributed pursuant to
clause (xi) above to such Certificateholder. Each Certificateholder, by
acceptance of its Certificate, further specifically acknowledges that it has no
right to or interest in any monies at any time held pursuant to the Spread
Account Agreement or pursuant hereto prior to the release fo such monies as
aforesaid, such monies being held in trust for the benefit
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of the Noteholders and the Insurer. Notwithstanding the foregoing, in the event
that it is ever determined that the monies held in the Spread Account constitute
a pledge of collateral, then the provisions of this Agreement and the Spread
Account Agreement shall be considered to constitute a security agreement and the
Seller and the Certificateholders hereby grant to the Collateral Agent for the
benefit of the Trustee and the Insurer a first priority perfected security
interest in such amounts, to be applied as set forth in Section 3.03 of the
Spread Account Agreement. In addition, each Certificateholder, by acceptance of
its Certificate, hereby appoints the Seller as its agent to pledge a first
priority perfected security interest in the Spread Account, and any amounts held
therein from time to time to the Collateral Agent for the benefit of the Trustee
and the Insurer pursuant to the Spread Account Agreement and agrees to execute
and deliver such instruments of conveyance, assignment, grant, confirmation,
etc., as well as any financing statements, in each case as the Insurer shall
consider reasonably necessary in order to perfect the Collateral Agent's
Security Interest in the Collateral (as such terms are defined in the Spread
Account Agreement).
(e) In the event that the Collection Account is maintained with an
institution other than the Trust Collateral Agent, the Servicer shall instruct
and cause such institution to make all deposits and distributions pursuant to
Section 5.7(b) on the related Distribution Date.
SECTION 5.8. Note Distribution Account.
(a) On each Distribution Date, the Trust Collateral Agent shall distribute
all amounts on deposit in the Note Distribution Account, as such amounts on
deposit in the Note Distribution Account are specified on the Monthly Servicer's
Certificate, to Noteholders in respect of the Notes to the extent of amounts due
and unpaid on the Notes for principal and interest in the following amounts and
in the following order of priority:
(i) accrued and unpaid interest on the Notes; provided that if there
are not sufficient funds in the Note Distribution Account to pay the
entire amount of accrued and unpaid interest then due on the Notes, the
amount in the Note Distribution Account shall be applied to the payment of
such interest on the Notes pro rata on the basis of the amount of accrued
and unpaid interest due on the Notes; and
(ii) to the Holders of the Notes, the Noteholders' Principal
Distributable Amount until the outstanding principal balance of the Notes
is reduced to zero.
(b) On each Distribution Date, the Trust Collateral Agent shall send to
each Noteholder the statement provided to the Trust Collateral Agent by the
Servicer pursuant to Section 5.10 hereof on such Distribution Date.
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(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to a Noteholder, such tax shall reduce the
amount otherwise distributable to the Noteholder in accordance with this
Section. The parties hereto hereby agree to provide to the Trust Collateral
Agent the information any such party may have, if any, with respect to any such
withholding tax. The Trust Collateral Agent is hereby authorized and directed to
retain from amounts otherwise distributable to the Noteholders sufficient funds
for the payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Trust Collateral Agent from contesting any
such tax in appropriate proceedings, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The amount of any
withholding tax imposed with respect to a Noteholder shall be treated as cash
distributed to such Noteholder at the time it is withheld by the Trust and
remitted to the appropriate taxing authority. If there is a possibility that
withholding tax is payable with respect to a distribution (such as a
distribution to a non-U.S. Noteholder), the Trust Collateral Agent may in its
sole discretion withhold such amounts in accordance with this clause (c). In the
event that a Noteholder wishes to apply for a refund of any such withholding
tax, the Trust Collateral Agent shall reasonably cooperate with such Noteholder
in making such claim so long as such Noteholder agrees to reimburse the Trust
Collateral Agent for any out-of-pocket expenses incurred.
(d) Distributions required to be made to Noteholders on any Distribution
Date shall be made to each Noteholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if such
Noteholder shall have provided to the Note Registrar appropriate written
instructions at least five Business Days prior to such Distribution Date and
such Holder's Notes in the aggregate evidence a denomination of not less than
$1,000,000 or, if not, by check mailed to such Noteholder at the address of such
holder appearing in the Note Register; provided, however, that, unless
Definitive Notes have been issued pursuant to Section 3.13 of the Trust
Agreement, with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
distributions will be made by wire transfer in immediately available funds to
the account designated by such nominee. Notwithstanding the foregoing, the final
distribution in respect of any Note (whether on the Final Scheduled Distribution
Date or otherwise) will be payable only upon presentation and surrender of such
Note at the office or agency maintained for that purpose by the Note Registrar
pursuant to Section 2.4 of the Indenture.
SECTION 5.9. Pre-Funding Account.
(a) On the Closing Date, the Trust Collateral Agent will deposit, on
behalf of the Seller, in the Pre-Funding Account $6,689,091.18 from the proceeds
of the sale of the Notes. On each Subsequent Transfer Date, the Servicer shall
instruct the Trust Collateral Agent to
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withdraw from the Pre-Funding Account an amount equal to 91% of the Principal
Balance of the Subsequent Receivables transferred to the Issuer on such
Subsequent Transfer Date and to distribute such amount to or upon the order of
the Seller upon satisfaction of the conditions set forth in this Agreement with
respect to such transfer. The Trust Collateral Agent shall also deposit into the
Pre-Funding Account any income or gain earned from the investment of amounts on
deposit in the Pre-Funding Account as received. On each Distribution Date, any
income and gain earned from the investment of amounts on deposit in the
Pre-Funding Account since the previous Distribution Date (or the Closing Date,
in the case of the first Distribution Date) shall be deposited into the Note
Distribution Account.
(b) If the Pre-Funded Amount has not been reduced to zero on the date on
which the Pre-Funding Period ends after giving effect to any reductions in the
Pre-Funded Amount on such date, the Servicer shall instruct the Trust Collateral
Agent to withdraw from the Pre-Funding Account on the Mandatory Redemption Date
the Pre-Funded Amount (exclusive of any Pre-Funding Earnings) and deposit an
amount equal to the Note Prepayment Amount in the Note Distribution Account in
accordance with the priority of payments under Section 5.7(b).
SECTION 5.10. Statements to Noteholders. Concurrently with each
distribution charged to the Note Distribution Account, the Trust Collateral
Agent shall forward by mail to each Noteholder, the Seller, the Servicer, the
Insurer and each Rating Agency, a written statement prepared by the Servicer
substantially in the form attached hereto as Exhibit 5.10.
SECTION 5.11. Optional Deposits by the Insurer. The Insurer shall at any
time, and from time to time, with respect to a Distribution Date, have the
option (but shall not be required, except in accordance with the terms of a
Policy) to deliver amounts to the Trust Collateral Agent for deposit into the
Collection Account for any of the following purposes: (i) to provide funds in
respect of the payment of fees or expenses of any provider of services to the
Trust with respect to such Distribution Date, or (ii) to include such amount to
the extent that without such amount a draw would be required to be made on the
Note Policy.
ARTICLE VI
The Note Policy
SECTION 6.1. Claims Under Note Policy.
(a) In the event that the Trust Collateral Agent has delivered a
Deficiency Notice with respect to any Determination Date pursuant to Section 5.5
hereof, the Trust Collateral Agent shall on the related Draw Date determine the
Note Policy Claim Amount for the related Distribution Date. If the Note Policy
Claim Amount specified on the Deficiency Notice for
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such Distribution Date is greater than zero, the Trust Collateral Agent shall
furnish to the Insurer no later than 12:00 noon New York City time on the
related Draw Date, a completed Notice of Claim (as defined in (b) below) in the
amount of the Note Policy Claim Amount. Amounts paid by the Insurer pursuant to
a claim submitted under this Section 6.1 shall be deposited by the Trust
Collateral Agent into the Note Distribution Account for payment pursuant to
paragraph (b) below to Noteholders on the related Distribution Date.
(b) Any notice delivered by the Trust Collateral Agent to the Insurer
pursuant to subSection 6.1(a) shall specify the Note Policy Claim Amount claimed
under the Note Policy and shall constitute a "Notice of Claim" under the Note
Policy. In accordance with the provisions of the Note Policy, the Insurer is
required to pay to the Trust Collateral Agent the Note Policy Claim Amount
properly claimed thereunder by 12:00 noon, New York City time, on the later of
(i) the third Business Day (as defined in the Note Policy) following receipt on
a Business Day (as defined in the Note Policy) of the Notice of Claim, and (ii)
the applicable Distribution Date. Any payment made by the Insurer under the Note
Policy shall be applied solely to the payment of the Notes, and for no other
purpose.
(c) The Trust Collateral Agent shall (i) receive as attorney-in-fact of
each Noteholder any Note Policy Claim Amount from the Insurer and (ii) deposit
the same in the Note Distribution Account for distribution to Noteholders. Any
and all Note Policy Claim Amounts disbursed by the Trust Collateral Agent from
claims made under the Note Policy shall not be considered payment by the Trust
or from the Spread Account with respect to such Notes, and shall not discharge
the obligations of the Trust with respect thereto. The Insurer shall, to the
extent it makes any payment with respect to the Notes, become subrogated to the
rights of the recipients of such payment, to the extent of such payments.
Subject to and conditioned upon any payment with respect to the Notes by or on
behalf of the Insurer, the Trust Collateral Agent shall assign to the Insurer
all rights to the payment of interest or principal with respect to the Notes
which are then due for payment to the extent of all payments made by the
Insurer, and the Insurer may exercise any option, vote, right, power or the like
with respect to the Notes to the extent that it has made payment pursuant to the
Note Policy. To evidence such subrogation, the Note Registrar (as defined in the
Indenture) shall note the Insurer's rights as subrogee upon the Note Register
upon receipt from the Insurer of proof of payment by the Insurer of any
Noteholders' Interest Distributable Amount or Noteholders' Principal
Distributable Amount. The foregoing subrogation shall in all cases be subject to
the rights of the Noteholders to receive all Scheduled Payments (as defined in
the Note Policy) in respect of the Notes.
(d) The Trust Collateral Agent shall keep a complete and accurate record
of all funds deposited by the Insurer into the Note Distribution Account and the
allocation of such funds to payment of interest on and principal paid in respect
of any Note. The Insurer shall
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have the right to inspect such records at reasonable times upon one Business
Day's prior notice to the Trust Collateral Agent.
(e) The Trust Collateral Agent shall be entitled to enforce on behalf of
the Noteholders the obligations of the Insurer under the Note Policy.
Notwithstanding any other provision of this Agreement or any Transaction
Document, the Noteholders are not entitled to make any claims under the Note
Policy or institute proceedings directly against the Insurer.
SECTION 6.2. Preference Claims.
(a) In the event that the Trust Collateral Agent has received a certified
copy of an order of the appropriate court that any Scheduled Payment (as defined
in the Note Policy) has been avoided in whole or in part as a preference payment
under applicable bankruptcy law, the Trust Collateral Agent shall so notify the
Insurer, shall comply with the provisions of the Note Policy to obtain payment
by the Insurer of such avoided payment, and shall, at the time it provides
notice to the Insurer, notify Holders of the Notes by mail that, in the event
that any Noteholder's payment is so recoverable, such Noteholder will be
entitled to payment pursuant to the terms of the Note Policy. The Trust
Collateral Agent shall furnish to the Insurer its records evidencing the
payments of principal of and interest on Notes, if any, which have been made by
the Trust Collateral Agent and subsequently recovered from Noteholders, and the
dates on which such payments were made. Pursuant to the terms of the Note
Policy, the Insurer will make such payment on behalf of the Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Note Policy) and not to the Trust Collateral Agent
or any Noteholder directly (unless a Noteholder has previously paid such payment
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy, in
which case the Insurer will make such payment to the Trust Collateral Agent for
distribution to such Noteholder upon proof of such payment reasonably
satisfactory to the Insurer).
(b) The Trust Collateral Agent shall promptly notify the Insurer of any
proceeding or the institution of any action (of which the Trust Collateral Agent
has actual knowledge) seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership, rehabilitation or similar law
(a "Preference Claim") of any distribution made with respect to the Notes. Each
Holder, by its purchase of Notes, and the Trust Collateral Agent hereby agree
that so long as an Insurer Default shall not have occurred and be continuing,
the Insurer may at any time during the continuation of any proceeding relating
to a Preference Claim direct all matters relating to such Preference Claim
including, without limitation, (i) the direction of any appeal of any order
relating to any Preference Claim and (ii) the posting of any surety, supersedeas
or performance bond pending any such appeal at the expense of the Insurer, but
subject to reimbursement as provided in the Insurance
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Agreement. In addition, and without limitation of the foregoing, as set forth in
Section 6.1(c), the Insurer shall be subrogated to, and each Noteholder and the
Trust Collateral Agent hereby delegate and assign, to the fullest extent
permitted by law, the rights of the Trust Collateral Agent and each Noteholder
in the conduct of any proceeding with respect to a Preference Claim, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such Preference
Claim.
SECTION 6.3. Surrender of Note Policy. The Trust Collateral Agent shall
surrender the Note Policy to the Insurer for cancellation upon the expiration of
such policy in accordance with the terms thereof.
SECTION 6.4. Spread Account. The Seller agrees, simultaneously with the
execution and delivery of this Agreement, to execute and deliver the Spread
Account Agreement, and pursuant to the terms thereof, to deposit the Initial
Spread Account Deposit in the Spread Account.
ARTICLE VII
RESERVED
ARTICLE VIII
The Seller
SECTION 8.1. Representations, Warranties and Covenants of the Seller. The
Seller hereby represents, warrants and covenants to the Trust Collateral Agent,
the Insurer and the Servicer, which representations, warranties and covenants
shall survive as long as any Note shall be outstanding or this Agreement has not
been terminated, that as of the Closing Date and each Subsequent Transfer Date:
(a) the Seller is a Delaware business trust duly organized, validly
existing, and in good standing under the laws of the State of Delaware and has
all licenses and approvals necessary to carry on its business as now being
conducted and shall appoint and employ agents or attorneys in each jurisdiction
where it shall be necessary to take action under this Agreement and the other
Transaction Documents; the Seller has the full power and authority to own its
property, to carry on its business as presently conducted, and to execute,
deliver and perform this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) and the other Transaction Documents by the
Seller and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized; this
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Agreement evidences the valid, binding and enforceable obligations of the Seller
(subject to applicable bankruptcy and insolvency laws and other similar laws
affecting the enforcement of creditors' rights generally whether enforcement is
sought in a proceeding in equity or at law); and all requisite action has been
taken by the Seller to make this Agreement and the other Transaction Documents
valid and binding upon the Seller (subject as aforesaid in the preceding
clause);
(b) the Seller is not required to obtain the consent of any other party or
obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Transaction Documents;
(c) the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents will not result in the breach of any term or
provision of the trust agreement of the Seller or result in the breach of any
term or provision of, or conflict with or constitute a default (with or without
notice, lapse of time or both) under or result in the acceleration of any
obligation under, any agreement, indenture or loan or credit agreement or other
instrument to which the Seller or its property is subject or result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such agreement, indenture or loan or credit agreement or other
instruments (aside from the lien created pursuant to this Agreement), or result
in the violation of any law (including, without limitation, any bulk transfer or
similar law), rule, regulation, order, judgment or decree to which the Seller or
its property or the Receivables are subject;
(d) no statement, report or other document furnished or to be furnished
pursuant to this Agreement or in connection with the transaction contemplated
hereby contains or will, when furnished, contain any untrue statement of a
material fact or omits or will, when furnished, omit to state a material fact
necessary to make the statements contained therein not misleading, in light of
the circumstances under which they were made;
(e) neither the Seller nor any of its subsidiaries or affiliates is a
party to, bound by or in breach or violation of any indenture or other agreement
or instrument, or subject to or in violation of any statute, order or regulation
of any court, regulatory body, administrative agency or governmental body having
jurisdiction over it, which materially and adversely affects, or may in the
future materially and adversely affect, the ability of the Seller to perform its
obligations under this Agreement or any other Transaction Document;
(f) this Agreement and each Basic Agreement, when duly executed and
delivered, shall effect a valid sale, transfer and assignment of the Receivables
and the remaining Trust Property, enforceable against the Seller and creditors
of and purchasers from the Seller;
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(g) there are no proceedings or investigations pending or, to the Seller's
knowledge, threatened against the Seller or NAFI, before any court, regulatory
body, administrative agency or other tribunal or governmental instrumentality
having jurisdiction over the Seller or its properties (i) asserting the
invalidity of this Agreement or any of the Transaction Documents, (ii) seeking
to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the Transaction Documents,
(iii) seeking any determination or ruling that might materially and adversely
affect the performance by the Seller of its obligations under, or the validity
or enforceability of, this Agreement or any of the Transaction Documents, (iv)
involving the Seller and which might adversely affect the federal income tax or
other federal, state or local tax attributes of the Notes, or (e) that could
have a material adverse effect on the Receivables.
(h) the Seller has obtained or made all necessary consents, approvals,
waivers and notifications of creditors, lessors and other non-governmental
persons, in each case, in connection with the execution and delivery of this
Agreement and the other Transaction Documents, and the consummation of all the
transactions herein and therein contemplated;
(i) the Seller shall not take any action to impair the Trust Collateral
Agent's rights on behalf of the Noteholder and the Insurer in any Contract;
(j) the Seller has filed all federal, state, county, local and foreign
income, franchise and other tax returns required to be filed by it through the
date hereof, and has paid all taxes reflected as due thereon;
(k) since the date of its organization, the Seller has maintained its
chief executive office in the State of Florida or the State of Delaware, and
there have been no other locations of the Seller's principal office during the
four (4) months preceding the Closing Date;
(l) Seller is solvent and will not become insolvent after giving effect to
the transactions contemplated hereunder; Seller is paying its debts as they
become due; Seller, after giving effect to the contemplated transactions, will
have adequate capital to conduct its business;
(m) since February 1995, "National Financial Auto Funding Trust" is the
only trade name under which the Seller has operated its business and, prior to
such date, NAFCO Funding Trust was the only trade name under which the Seller
operated its business;
(n) the Seller shall not engage in any business or activity other than in
connection with or relating to the purchase of auto loan receivables and the
issuance of securities secured by, or evidencing beneficial interests in, such
auto loan receivables;
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(o) the Seller is not and shall not be involved in the day-to-day or other
management of its parent or any of its affiliates;
(p) the Seller's financial statements shall reflect its separate legal
existence from any of its affiliates;
(q) the Seller shall maintain records and books of account of the Seller
and shall not commingle such records and books of account with the records and
books of account of any Person;
(r) the Seller shall act solely in its own name and through the duly
authorized trustees or agents in the conduct of its business, and shall conduct
its business so as not to mislead others as to the identity of the entity with
which they are concerned;
(s) at all times, except in the case of a temporary vacancy, which shall
promptly be filled, the Seller shall have at least one trust collateral agent
who qualifies as an "Independent Trust Collateral Agent" as such term is defined
in the Trust Agreement as in effect on the date hereof.
The Seller shall indemnify the Trust Collateral Agent, the Insurer, the
Servicer, their respective officers, directors, agents and employees and each
Noteholder, and hold each of them harmless against any and all damages
(including all expenses and legal fees) resulting from a breach of the
representations and warranties set forth in this Section 8.1.
The Insurer shall be deemed to have relied on the foregoing
representations, warranties and covenants in executing and delivering the Note
Policy.
SECTION 8.2. Corporate Existence.
(a) During the term of this Agreement, the Seller will keep in full force
and effect its existence, rights and franchises as a business trust under the
laws of Delaware and will obtain and preserve its qualification to do business
in each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, any Subsequent
Transfer Agreement, the Transaction Documents and each other instrument or
agreement necessary or appropriate to the proper administration of this
Agreement and such other agreements and the transactions contemplated hereby and
thereby and the performance of its obligations hereunder and thereunder.
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(b) During the term of this Agreement, the Seller shall observe the
applicable legal requirements for the recognition of the Seller as a legal
entity separate and apart from its Affiliates, including as follows:
(i) the Seller shall maintain business records and books of account
separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the Seller
shall not commingle its assets and funds with those of its Affiliates;
(iii) the Seller shall at all times hold itself out to the public
under the Seller's own name as a legal entity separate and distinct from
its Affiliates; and
(iv) all transactions and dealings between the Seller and its
Affiliates will be conducted on an arm's-length basis.
SECTION 8.3. Liability of Seller; Indemnities. The Seller shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken under this Agreement by the Seller and the representations made by
the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trust, the Insurer, the Trustee, the Trust Collateral Agent
and their respective officers, directors, agents and employees from and against
any taxes that may at any time be asserted against any such Person with respect
to the transactions contemplated in this Agreement and any of the Transaction
Documents (except any income taxes arising out of fees paid to the Owner
Trustee, the Trust Collateral Agent, the Trustee and the Insurer and except any
taxes to which the Owner Trustee, the Trust Collateral Agent or the Trustee may
otherwise be subject to), including any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes (but, in the
case of the Issuer, not including any taxes asserted with respect to, federal or
other income taxes arising out of distributions on the Notes) and costs and
expenses in defending against the same.
(b) The Seller shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trustee, the Trust Collateral Agent, the Insurer, their
respective officers, directors, agents and employees and the Noteholders from
and against any loss, liability or expense incurred by reason of (i) the
Seller's willful misfeasance, bad faith or negligence in the performance of its
duties under this Agreement, or by reason of reckless disregard of its
obligations and duties under this Agreement and (ii) the Seller's or the
Issuer's violation of Federal or state securities laws in connection with the
offering and sale of the Notes.
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(c) The Seller shall indemnify, defend and hold harmless the Owner
Trustee, Trustee and the Trust Collateral Agent and their respective officers,
directors, employees and agents from and against any and all costs, expenses,
losses, claims, damages and liabilities arising out of, or incurred in
connection with the acceptance or performance of the trusts and duties set forth
herein and in the Transaction Documents except to the extent that such cost,
expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or negligence (except for errors in judgment) of the
Owner Trustee.
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee, the Trustee or the Trust Collateral Agent and the
termination of this Agreement or the Indenture or the Trust Agreement or the
Custodian Agreement, as applicable, and shall include reasonable fees and
expenses of counsel and other expenses of litigation. If the Seller shall have
made any indemnity payments pursuant to this Section and the Person to or on
behalf of whom such payments are made thereafter shall collect any of such
amounts from others, such Person shall promptly repay such amounts to the
Seller, without interest.
SECTION 8.4. Merger or Consolidation of, or Assumption of the Obligations
of, Seller. The Seller may not be merged or consolidated with or into any person
or transfer substantially all of its assets to any Person.
SECTION 8.5. Limitation on Liability of Seller and Others. The Seller and
any director or officer or employee or agent of the Seller may rely in good
faith on the written advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising under any Transaction Document. The Seller shall 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.
SECTION 8.6. Seller May Own Notes. The Seller and any Affiliate thereof
may in its individual or any other capacity become the owner or pledgee of Notes
with the same rights as it would have if it were not the Seller or an Affiliate
thereof, except as expressly provided herein or in any Transaction Document.
Notes so owned by the Seller or such Affiliate shall have an equal and
proportionate benefit under the provisions of the Transaction Documents, without
preference, priority, or distinction as among all of the Notes; provided,
however, that any Notes owned by the Seller or any Affiliate thereof, during the
time such Notes are owned by them, shall be without voting rights for any
purpose set forth in the Documents and will not be entitled to the benefits of
the Note Policy. The Seller shall notify the Owner Trustee, the Trustee, the
Trust Collateral Agent and the Insurer promptly after it or any of its
Affiliates become the owner or pledgee of a Note.
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ARTICLE IX
The Servicer
SECTION 9.1. Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents, warrants and covenants to the Trust Collateral
Agent and the Insurer that as of the Closing Date and each Subsequent Transfer
Date:
(a) the Servicer is duly organized, validly existing and in good standing
under the laws of the state of its organization and is qualified to transact
business in and is in good standing under the laws of each state in which it is
necessary for it to be so qualified in order to carry on its business as now
being conducted and has all licenses necessary to carry on its business as now
being conducted; the Servicer has the full power and authority to own its
property, to carry on its business as presently conducted, and to execute,
deliver and perform each of the Transaction Documents to which it is a party;
the execution, delivery and performance of each of the Transaction Documents to
which it is a party (including all instruments of transfer to be delivered
pursuant to any such Transaction Documents to which it is a party) by the
Servicer and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized; each of the Transaction Documents
to which it is a party evidences the valid, binding and enforceable obligation
of the Servicer (subject to applicable bankruptcy and insolvency laws and other
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law) and all requisite partnership action has been
taken by the Servicer to make each of the Transaction Documents to which it is a
party valid and binding upon the Servicer (subject as aforesaid in the preceding
clause);
(b) the Servicer is not required to obtain the consent of any other party
or obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of each of the Transaction Documents to which it is a party;
(c) the consummation of the transactions contemplated by the Basic
Documents will not result in the breach of any term or provision of the
certificate of incorporation or by-laws of the Servicer or result in the breach
of any term or provision of, or conflict with or constitute a default (with or
without notice, lapse of time or both) under or result in the acceleration of
any obligation under, any agreement, indenture or loan or credit agreement or
other instrument to which the Servicer or its property is subject, or result in
the creation or imposition of any Lien upon any of the properties pursuant to
the terms of any such agreement indenture or loan or credit agreement or other
instrument (aside from the lien created pursuant
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to this Agreement) or result in the violation of any law, rule, regulation,
order, judgment or decree to which the Servicer or its property or the
Receivables are subject;
(d) the Servicer is not a party to, bound by or in breach or violation of
any indenture or other agreement or instrument, or subject to or in violation of
any statute, order or regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which materially and
adversely affects, or may in the future materially and adversely affect, the
ability of the Servicer to perform its obligations under this Agreement or the
interest of the Noteholders, the Trust or the Insurer in any material respect;
(e) there are no actions, suits, proceedings or investigations pending or,
to the Servicer's knowledge, threatened against the Servicer, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Agreement or any of the
Transaction Documents, (ii) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by the Transaction
Documents, (iii) 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 or any of the Transaction
Documents, (iv) involving the Servicer and which might adversely affect the
federal income tax or other federal, state or local tax attributes of the Notes,
or (v) that could have a material adverse effect on the Receivables. To the
Servicer's knowledge, there are no proceedings or investigations pending or
threatened against the Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over the Servicer or its properties relating to the Servicer which
might adversely affect the federal income tax or other federal, state or local
tax attributes of the Notes;
(f) the principal office of the Servicer is located at One Park Place, 621
NW 53rd Street, Suite 200, Boca Raton, Florida 33487; and
(g) the Sub-Servicing Agreement is enforceable against the Servicer and
has been duly authorized by all necessary corporate action of the Servicer and
has been duly executed and delivered by the Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 9.1 shall survive delivery of the respective Receivable
Files to the Custodian and the Sub-Servicers, if any, on behalf of the Trust
Collateral Agent and shall survive as long as any Note shall be outstanding or
this Agreement has not been terminated. Upon discovery by the Seller, the
Servicer or a Responsible Officer of the Trust Collateral Agent of a breach of
any of the representations and warranties set forth in this Section 9.1 which
materially and adversely affects the interests of the Noteholders or the Insurer
in any Receivable, the party
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discovering such breach shall give prompt written notice thereof to the other
parties and to the Insurer. In addition to the foregoing, the Servicer shall
indemnify the Seller, the Trust Collateral Agent, the Insurer, the Trust and the
Noteholders against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to a breach of the covenants or
representations and warranties set forth in Section 9.1.
The Insurer shall be deemed to have relied on the foregoing
representations, warranties and covenants in executing and delivering the Note
Policy.
SECTION 9.2. Liability of Servicer; Indemnities.
(a) The Servicer (in its capacity as such) shall be liable hereunder only
to the extent of the obligations in this Agreement specifically undertaken by
the Servicer and the representations made by the Servicer.
(b) The Servicer shall defend, indemnify and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Owner Trustee, the Insurer, their
respective officers, directors, agents and employees, and the Noteholders from
and against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation arising out of or resulting from the use, ownership or operation by
the Servicer or any Affiliate thereof of any Financed Vehicle.
(c) The Servicer shall indemnify, defend and hold harmless the Trustee,
the Trust Collateral Agent and the Owner Trustee and their respective officers,
directors, agents and employees from and against any taxes that may at any time
be asserted against any of such parties with respect to the transactions
contemplated in this Agreement except to the extent that such costs, expenses,
losses, damages, claims and liabilities arise out of the negligence or willfully
misconduct of such parties.
(d) The Servicer (when the Servicer is NAFI) shall indemnify, defend and
hold harmless the Trust, the Trustee, the Trust Collateral Agent, the Owner
Trustee, the Insurer, their respective officers, directors, agents and employees
and the Noteholders from and against any taxes that may at any time be asserted
against any of such parties with respect to the transactions contemplated in
this Agreement, including, without limitation, any sales, gross receipts,
tangible or intangible personal property, privilege or license taxes (but not
including any federal or other income taxes, including franchise taxes asserted
with respect to, and as of the date of, the sale of the Receivables and the
Other Conveyed Property to the Trust or the
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issuance and original sale of the Securities) and costs and expenses in
defending against the same.
(e) The Servicer (when the Servicer is not NAFI) shall indemnify, defend
and hold harmless the Trust, the Trustee, the Trust Collateral Agent, the Owner
Trustee, the Insurer, their respective officers, directors, agents and employees
and the Noteholders from and against any taxes with respect to the sale of
Receivables in connection with servicing hereunder that may at any time be
asserted against any of such parties with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, tangible or intangible personal property, privilege or license taxes
(but not including any federal or other income taxes, including franchise taxes
asserted with respect to, and as of the date of, the sale of the Receivables and
the Other Conveyed Property to the Trust or the issuance and original sale of
the Securities) and costs and expenses in defending against the same.
(f) The Servicer shall indemnify, defend and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Owner Trustee, the Insurer, their
respective officers, directors, agents and employees and the Noteholders from
and against any and all costs, expenses, losses, claims, damages, and
liabilities to the extent that such cost, expense, loss, claim, damage, or
liability arose out of, or was imposed upon the Trust, the Trustee, the Trust
Collateral Agent, the Insurer or the Noteholders by reason of the breach of this
Agreement by the Servicer, the negligence, misfeasance, or bad faith of the
Servicer in the performance of its duties under this Agreement or by reason of
reckless disregard of its obligations and duties under this Agreement or
otherwise incurred in connection with the transactions contemplated hereby.
(g) NAFI shall indemnify, defend and hold harmless the Trust, the Trustee,
the Trust Collateral Agent, the Owner Trustee, the Insurer, their respective
officers, directors, agents and employees and the Noteholders from and against
any loss, liability or expense incurred by reason of the violation by Servicer
or Seller of federal or state securities laws in connection with the
registration or the sale of the Securities.
(h) Indemnification under this Article shall survive the termination of
this Agreement and will survive the early resignation or removal of any of the
parties hereto and shall include, without limitation, reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer has made any
indemnity payments pursuant to this Article and the recipient thereafter
collects any of such amounts from others, the recipient shall promptly repay
such amounts collected to the Servicer, without interest. Notwithstanding any
other provision of this Agreement, the obligations of the Servicer shall not
terminate or be deemed
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released upon the resignation or termination of NAFI as the Servicer and shall
survive any termination of this Agreement.
SECTION 9.3. Merger or Consolidation of, or Assumption of the Obligations
of the Servicer or the Trust Collateral Agent.
(a) During the term of this Agreement, the Servicer will keep in full
force and effect its existence, rights and franchises as a business trust under
the laws of Delaware and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, any
Subsequent Transfer Agreement, the Transaction Documents and each other
instrument or agreement necessary or appropriate to the proper administration of
this Agreement and the transactions contemplated hereby and thereby and the
performance of its obligations hereunder and thereunder.
(b) The Servicer may be merged or consolidated with or into any Person, or
transfer substantially all of its assets to any Person, in which case any Person
resulting from any merger or consolidation to which the Servicer shall be a
party, or any Person succeeding to the business of the Servicer, shall be the
successor of the Servicer hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided however, that the successor or
surviving person to the Servicer shall be an Eligible Servicer and each
successor to the Servicer by virtue of its acquisition of substantially all of
the Servicer's assets shall be deemed to have made the representations and
warranties set forth in Section 9.01 hereof and shall agree in writing to be
bound by each of the Servicer's obligations hereunder; provided further, that,
(i) no representation or warranty of the Servicer is breached at the time of
merger, (ii) no event has occurred that, after notice or lapse of time or both,
would be an Insurance Agreement Event of Default and (iii) an opinion of counsel
to the effect that all conditions precedent to merger have been satisfied and a
security interest opinion have been provided. The Servicer shall provide notice
of any such merger, consolidation or transfer of substantially all of its assets
to the Insurer, the Trust Collateral Agent and the Rating Agencies.
(c) Any Person (i) into which the Trust Collateral Agent may be merged or
consolidated, (ii) resulting from any merger or consolidation to which the Trust
Collateral Agent shall be a party, (iii) which acquires by conveyance, transfer
or lease substantially all of the assets of the Trust Collateral Agent, or (iv)
succeeding to the business of the Trust Collateral Agent, in any of the
foregoing cases shall execute an agreement of assumption to perform every
obligation of the Trust Collateral Agent under this Agreement and, whether or
not such assumption agreement is executed, shall be the successor to the Trust
Collateral Agent under this Agreement without the execution or filing of any
paper or any further act on the
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part of any of the parties to this Agreement, anything in this Agreement to the
contrary notwithstanding. The Trust Collateral Agent or its successor hereunder
shall provide the Servicer and the Insurer with prompt notice of any such
transaction. In the event that the resulting entity does not meet the
eligibility requirements set forth in Section 6.11 of the Indenture, the Trust
Collateral Agent, upon the written request of the Insurer, shall resign. Nothing
contained herein shall be deemed to release the Trust Collateral Agent from any
obligation.
SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral Agent
and Others.
(a) The Servicer will defend and indemnify the Trust Collateral Agent, the
Insurer and their respective officers, directors, employees and agents and the
Noteholders against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, arising out of or resulting from the use or operation of any
Financed Vehicle by the Servicer or any Sub-Servicer. In addition, the Servicer
will defend and indemnify the Trust Collateral Agent, the Insurer and their
respective officers, directors, employees and agents and the Noteholders against
any and all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, arising from
a breach of its obligations to service the Receivables in accordance with this
Agreement; provided however, that the Servicer shall not be liable for any such
costs, expenses, losses, damages, claims or liabilities to the extent that any
thereof resulted from the negligence or willful misconduct of the Trust
Collateral Agent, its officers, directors, employees and agents; and provided
further that the Servicer will not be liable for any such amount that resulted
from any act or omission to act by it done in conformity with the written
instruction of the Trust Collateral Agent. If the Servicer or Seller has made
any indemnity payments to the Noteholders or the Trust Collateral Agent, the
Insurer or their respective officers, directors, employees or agents pursuant to
this paragraph, and the Trust Collateral Agent, the Insurer or their respective
officers, directors, employees or agents thereafter collects any of the amounts
which gave rise to such indemnity payments from others or any such amounts are
received by the Trust Collateral Agent or its officers, directors, employees or
agents, the Trust Collateral Agent or its officers, directors, employees or
agents shall repay such amounts collected to the Servicer or Seller who made
such indemnity payment. These indemnities of the Servicer and the Seller will
survive any transfer of the respective rights, duties and obligations of the
Servicer or the Seller hereunder to another Person, the termination of this
Agreement, any Servicer Termination Event, the termination of the Trust Property
or the resignation or replacement of the Trust Collateral Agent for acts
accruing prior to the transfer, termination of the Trust Property or the
resignation or replacement of the Trust Collateral Agent, but will not cover
actions or omissions of any successor Servicer after a Servicer Termination
Event. Neither the Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Trust Property, the
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Trust Collateral Agent, any Noteholder, the Insurer or the Seller for any action
taken by the Servicer in its capacity as such (and not in any other capacity) in
good faith or for errors in judgment except for any action taken or errors
committed which caused a breach of a representation or warranty of the Servicer
under Section 9.1. The Seller, the Servicer and any director, officer, employee
or agent of any Seller or 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 hereunder.
(b) The Seller, the Servicer and any director, officer, employee or agent
of the Seller or the Servicer shall be indemnified by the Trust Property and
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to this Agreement or the Notes, other than any loss,
liability or expense for which the Seller or Servicer provides an indemnity as
provided in the preceding paragraph (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to this Agreement). Neither the
Seller nor the Servicer shall be under any obligation to appear in, prosecute or
defend any legal action which is not in its reasonable judgment incidental to
its respective duties under this Agreement and which in its reasonable judgment
may subject it to any expense or liability; provided however, that the Servicer
may in its discretion undertake any such action which it may deem necessary or
desirable in respect to this Agreement and the rights and duties of the parties
hereto and the interest of the Noteholders hereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust Property, and the Servicer shall be
entitled to be reimbursed therefor as provided herein. The rights of the
Servicer to indemnity, reimbursement or limitation on its liability pursuant to
this Section 9.4 shall survive the transfer of the rights, duties and
obligations of the Servicer to another Person or any Servicer Default.
(c) The Servicer shall defend, indemnify and hold harmless the Trust, the
Trust Collateral Agent, the Insurer, their respective officers, directors,
agents and employees, and the Noteholders from and against any taxes that may at
any time be asserted against the Trust, the Trust Collateral Agent or the
Noteholders with respect to the transactions contemplated in this Agreement,
including, without limitation, any sales, gross receipts, general corporation,
tangible personal property, privilege or license taxes (but not including any
taxes asserted with respect to, and as of the date of, the sale of the
Receivables and the other Trust Property to the Trust Collateral Agent or the
issuance and original sale of the Notes, or asserted with respect to ownership
of the Receivables, or federal or other income taxes arising out of
distributions on the Notes) and costs and expenses in defending against the
same.
(d) The Servicer shall indemnify, defend and hold harmless the Trust, the
Trust Collateral Agent, the Insurer, their respective officers, directors,
agents and employees and the Noteholders from and against any and all costs,
expenses, losses, claims, damages, and
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liabilities to the extent that such cost, expense, loss, claim, damage, or
liability arose out of, or was imposed upon the Trust Collateral Agent, the
Trust, the Insurer or the Noteholders through the breach of this Agreement, the
negligence, willful misfeasance, or bad faith of the Servicer in the performance
of its duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement.
(e) Notwithstanding anything herein to the contrary, the Trust Collateral
Agent shall not be liable for any obligation of the Servicer contained in this
Agreement, and the Trust Collateral Agent, the Seller, the Insurer and the
Noteholders shall look only to the Servicer to perform such obligations.
(f) The parties expressly acknowledge and consent to Harris Trust and
Savings Bank acting in the possible dual capacity of successor Servicer and in
the capacity as Trust Collateral Agent. Harris Trust and Savings Bank may, in
such dual or other capacity, discharge its separate functions fully, without
hindrance or regard to conflict of interest principles, duty of loyalty
principles or other breach of fiduciary duties to the extent that any such
conflict or breach arises from the performance by Harris Trust and Savings Bank
of express duties set forth in the this Agreement in any of such capacities, all
of which defenses, claims or assertions are hereby expressly waived by the other
parties hereto and the Noteholders except in the case of gross negligence and
willful misconduct by Harris Trust and Savings Bank.
SECTION 9.5. Delegation of Duties. The Servicer may delegate duties under
this Agreement to an Affiliate of NAFI, or, pursuant to Section 4.2, to a
Sub-Servicer with the prior written consent of the Insurer (unless an Insurer
Default shall have occurred and be continuing) and the Trust Collateral Agent;
provided, however, that such consent shall not be required for the initial
delegation to OFSA. The Servicer also may at any time perform through
sub-contractors the specific duties of (i) repossession of Financed Vehicles,
(ii) tracking Financed Vehicles' insurance and (iii) pursuing the collection of
deficiency balances on certain Liquidated Receivables, in each case, without the
written consent of the Insurer and may perform other specific duties through
such sub-contractors in accordance with Servicer's customary servicing policies
and procedures, with the prior consent of the Insurer; provided, however, that
no such delegation or sub-contracting duties by the Servicer shall relieve the
Servicer of its responsibility with respect to such duties. So long as no
Insurer Default shall have occurred and be continuing neither NAFI or any party
acting as Servicer hereunder shall appoint any Sub-Servicer hereunder without
the prior written consent of the Insurer and the Trust Collateral Agent.
SECTION 9.6. Servicer Not to Resign. Subject to the provisions of Section
9.3, the Servicer shall not resign from the obligations and duties imposed on it
by this Agreement as
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Servicer except upon a determination that by reason of a change in legal
requirements the performance of its duties under this Agreement would cause it
to be in violation of such legal requirements in a manner which would have a
material adverse effect on the Servicer, and the Insurer (so long as an Insurer
Default shall not have occurred and be continuing) or a Note Majority (if an
Insurer Default shall have occurred and be continuing) does not elect to waive
the obligations of the Servicer to perform the duties which render it legally
unable to act or to delegate those duties to another Person. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered and acceptable to the Trust
Collateral Agent, the Owner Trustee and the Insurer (unless an Insurer Default
shall have occurred and be continuing). No resignation of the Servicer shall
become effective until, so long as no Insurer Default shall have occurred and be
continuing, the Backup Servicer or an entity acceptable to the Insurer shall
have assumed the responsibilities and obligations of the Servicer or, if an
Insurer Default shall have occurred and be continuing, a successor Servicer that
is an Eligible Servicer shall have assumed the responsibilities and obligations
of the Servicer. Upon the resignation of the Servicer, the Servicer shall give
prompt written notice thereof to the Rating Agencies.
ARTICLE X
Default
SECTION 10.1. Servicer Termination Event. For purposes of this Agreement,
each of the following shall constitute a "Servicer Termination Event" (whatever
the reason for such Servicer Termination Event and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) Any failure by the Servicer to deliver, or cause to be delivered by
any Sub-Servicer, to the Trust Collateral Agent for distribution to Noteholders
or deposit in the Spread Account any proceeds or payment required to be so
delivered by the Servicer or Sub-Servicer under the terms of this Agreement
(including deposits of the Purchase Amount) that continues unremedied for a
period of two Business Days (one Business Day with respect to payment of
Purchase Amounts) after written notice is received by the Servicer from the
Trust Collateral Agent or (unless an Insurer Default shall have occurred and be
continuing) the Insurer or after discovery of such failure by a Responsible
Officer of the Servicer (but in no event later than five Business Days after the
Servicer is required to make such delivery or deposit); or
(b) Any failure by the Servicer to observe or perform any other of the
covenants or agreements on the part of the Servicer in this Agreement, which
failure (i) materially and adversely affects the rights of Noteholders
(determined without regard to the availability of
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funds under the Note Policy) or of the Insurer (unless an Insurer Default shall
have occurred and be continuing), and (ii) continues unremedied for a period of
thirty days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Servicer by the Trust
Collateral Agent, or to the Servicer and the Trust Collateral Agent by the
Insurer (or, if an Insurer Default has occurred and is continuing, Noteholders
evidencing in the aggregate not less than 25% of the aggregate outstanding
Principal Balance of the Notes); or
(c) The entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Servicer in an involuntary case
under the federal bankruptcy laws, as now or hereafter in effect, or another
present or future, federal bankruptcy, insolvency or similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
ordering the winding up or liquidation of the affairs of the Servicer or the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and such case is not dismissed within 60 days; or
(d) The commencement by the Servicer of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future,
federal or state, bankruptcy, insolvency or similar law, or the consent by the
Servicer to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Servicer or of any substantial part of its property or the making by the
Servicer of an assignment for the benefit of creditors or the failure by the
Servicer generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer in furtherance of any of the foregoing; or
(e) Any representation, warranty or statement of the Servicer made in this
Agreement or any certificate, report or other writing delivered pursuant hereto
shall prove to be incorrect in any material respect as of the time when the same
shall have been made, and the incorrectness of such representation, warranty or
statement has a material adverse effect on the interests of the Trust, the
Insurer or the Noteholders (or of the Seller if NAFI is the Servicer) in the
Receivables (determined without regard to the availability of funds under the
Note Policy) and, within 30 days after written notice thereof shall have been
given to the Servicer by the Trust Collateral Agent or the Insurer (or, if an
Insurer Default shall have occurred and be continuing, a Noteholder), the
circumstances or condition in respect of which such representation, warranty or
statement was incorrect shall not have been eliminated or otherwise cured; or
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(f) There shall have occurred an Insurance Agreement Event of Default or
an event of default under any other insurance agreement to which the Insurer and
NAFI and/or the Seller or any other affiliate of NAFI are party; or
(g) The Servicer fails to deliver the report required to be delivered by
the Servicer pursuant to Section 4.12 and such failure remains unremedied for a
period of five days;
(h) A claim is made under the Note Policy; or
(i) so long as an Insurer Default shall not have occurred and be
continuing, the Insurer shall not have delivered a Servicer Extension Notice
pursuant to Section 4.16.
SECTION 10.2. Consequences of a Servicer Termination Event. If a Servicer
Termination Event shall occur, then, and in each and every such case, so long as
such Servicer Termination Event shall not have been remedied, the Trust
Collateral Agent may, with the written consent of the Insurer (unless an Insurer
Default has occurred and is continuing), and at the written direction of the
Insurer (or, if an Insurer Default has occurred and is continuing, Noteholders
evidencing in the aggregate not less than 51% of the aggregate outstanding
Principal Balance of the Notes), the Trust Collateral Agent shall, by notice in
writing to the Servicer, the Seller and the Backup Servicer, (i) terminate all
of the rights and obligations of the Servicer under this Agreement and in and to
any Receivables and the proceeds thereof, subject to compensation, rights of
reimbursement, indemnity and limitation on liability to which the Servicer is
then entitled and the rights of indemnity to which the Trust Collateral Agent
and the Insurer are then entitled pursuant to Section 9.04 hereof, and (ii)
subject to 10.03, appoint the Backup Servicer as the successor Servicer. Such
notice shall specify, to the extent possible, the timing and method of
transition of the servicing of the Receivables from the Servicer to the Backup
Servicer or another successor Servicer appointed pursuant to Section 10.03. On
and after the receipt by the Servicer of such written notice and upon the
effective date of the transfer to the Backup Servicer or such other successor
Servicer specified in such notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Notes or the Receivables or
otherwise, shall pass to and be vested in the Backup Servicer or such other
successor Servicer, pursuant to and under this Section; and, without limitation,
such Person is hereby authorized and empowered to execute and deliver, on behalf
of the Servicer, an attorney-in-fact or otherwise, any and all documents and
other 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 or assignment of the Receivables and
related documents, or otherwise. The Servicer agrees to cooperate with such
Person in effecting the termination of the Servicer's responsibilities and
rights hereunder, including, without limitation, the transfer to such party for
administration by is of all cash amounts which shall thereafter be received with
respect to the Receivables.
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The Trust Collateral Agent shall not be charged with knowledge of any
event referred to in clauses (a) through (f) above unless a Responsible Officer
of the Trust Collateral Agent at the Corporate Trust Office obtains actual
knowledge of such event or receives written notice of such event from the
Servicer, the Insurer or from a Noteholder. The Trust Collateral Agent promptly
shall send written notice to each Rating Agency and the Insurer of each Servicer
Termination Event of which it is charged with knowledge in accordance with the
preceding sentence.
If the Servicer is terminated pursuant to this Section 10.02, then the
Servicer shall bear all of the costs and expenses of transferring the duties and
obligations of the Servicer to a successor Servicer and except as otherwise
agreed by the Insurer such costs and expenses shall not be reimbursable from the
Trust Property nor payable by the Seller or the Trust Collateral Agent. To the
extent not borne by the Servicer as described above, such costs and expenses
(including attorney's fees and expenses) shall be borne by the Trust Property in
accordance with Section 5.7(b)(ix).
SECTION 10.3. Additional Consequences of a Servicer Termination Event. The
successor Servicer is authorized and empowered by this Agreement to execute and
deliver, on behalf of the terminated Servicer, as attorney-in-fact or otherwise,
any and all documents and other 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 the Other Conveyed Property and related documents to show the Trust as
lienholder or secured party on the related Lien Certificates, or otherwise. The
terminated Servicer agrees to cooperate with the successor Servicer in effecting
the termination of the responsibilities and rights of the terminated Servicer
under this Agreement, including, without limitation, the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the terminated Servicer for deposit, or have been deposited
by the terminated Servicer, in the Collection Account or thereafter received
with respect to the Receivables and the delivery to the successor Servicer of
all Receivable Files, Monthly Records and a computer tape in readable form as of
the most recent Business Day containing all information necessary to enable the
successor Servicer or a successor Servicer to service the Receivables and the
Other Conveyed Property. If requested by the Controlling Party, the successor
Servicer shall terminate the Lockbox Agreement and direct the Obligors to make
all payments under the Receivables directly to the successor Servicer (in which
event the successor Servicer shall process such payments in accordance with
Section 4.2(e)), or to a lockbox established by the successor Servicer at the
direction of the Controlling Party, at the terminated Servicer's expense. The
terminated Servicer shall grant the Trust Collateral Agent, the successor
Servicer and the Controlling Party reasonable access to the terminated
Servicer's premises at the terminated Servicer's expense.
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SECTION 10.4. Appointment of Successor.
(a) On and after (i) the time the Servicer receives a notice of
termination pursuant to Section 10.2, (ii) upon non-extension of the servicing
term as referred to in Section 4.14, or (iii) upon the resignation of the
Servicer pursuant to Section 9.5, the Backup Servicer (unless the Insurer shall
have exercised its option pursuant to Section 10.3(b) to appoint an alternate
successor Servicer) shall be the successor in all respects to the Servicer in
its capacity as servicer under this Agreement and the transactions set forth or
provided for in this Agreement, and shall be subject to all the rights,
responsibilities, restrictions, duties, liabilities and termination provisions
relating thereto placed on the Servicer by the terms and provisions of this
Agreement except as otherwise stated herein. The Trust Collateral Agent and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession. If a successor Servicer is acting
as Servicer hereunder, it shall be subject to term-to-term servicing as referred
to in Section 4.14 and to termination under Section 10.2 upon the occurrence of
any Servicer Termination Event applicable to it as Servicer.
(b) The Insurer, or in the event that an Insurer Default shall have
occurred and be continuing, a Note Majority, may exercise at any time its right
to appoint as successor to the Servicer a Person other than the Person serving
as Backup Servicer at the time, and (without limiting its obligations under the
Note Policy) shall have no liability to the Trust Collateral Agent, NAFI, the
Seller, the Person then serving as successor servicer, any Noteholders or any
other Person if it does so. Notwithstanding the above, if the Trust Collateral
Agent shall be legally unable or unwilling to act as Servicer, and an Insurer
Default shall have occurred and be continuing, a Note Majority may petition a
court of competent jurisdiction to appoint any Eligible Sub-Servicer as the
successor to the Servicer. Pending appointment pursuant to the preceding
sentence, the Trust Collateral Agent shall act as successor Servicer unless it
is legally unable to do so, in which event the outgoing Servicer shall continue
to act as Servicer until a successor has been appointed and accepted such
appointment. Subject to Section 9.6, no provision of this Agreement shall be
construed as relieving the Trust Collateral Agent of its obligation to succeed
as successor Servicer upon the termination of the Servicer pursuant to Section
10.2, the resignation of the Servicer pursuant to Section 9.6 or the
non-extension of the servicing term of the Servicer, as referred to in Section
4.14. If upon the termination of the Servicer pursuant to Section 10.2 or the
resignation of the Servicer pursuant to Section 9.6, the Insurer or in the event
that an Insurer Default shall have occurred and be continuing, a Note Majority,
appoints a third party to serve as Servicer other than the Trust Collateral
Agent, the Trust Collateral Agent shall not be relieved of its duties as
successor Servicer hereunder. If the Backup Servicer refuses or is unable to act
as successor Servicer hereunder, the Trust Collateral Agent may, if it shall be
unwilling to so act, or shall, if it is unable to so act, appoint, or petition a
court of competent jurisdiction to appoint, any experienced servicer of
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motor vehicle installment sales contracts and notes having a net worth of not
less than $10,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder. The Trust Collateral Agent shall obtain the prior
written consent of the Insurer (unless an Insurer Default has occurred and is
continuing) before appointing a successor Servicer other than the Backup
Servicer, and any successor Servicer other than the Backup Servicer shall be
satisfactory to the Insurer (unless an Insurer Default has occurred and is
continuing). Pending appointment of a successor to the Servicer hereunder, the
Trust Collateral Agent shall act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Trust Collateral Agent may
make such arrangements for the compensation of such successor out of payments on
Receivables as it and such successor shall agree; provided however, that no such
compensation to such successor Servicer shall be in excess of that permitted the
Servicer hereunder unless (A) the Trust Collateral Agent and the Insurer (or if
an Insurer Default has occurred and is continuing, holders of Notes evidencing a
majority of the aggregate outstanding Principal Amount of the Notes) agree in
writing to a larger Servicing Fee and (B) each Rating Agency delivers a letter
to the Trust Collateral Agent to the effect that such larger Servicing Fee will
not result in a reduction or the withdrawal of the rating assigned by such
Rating Agency to the Notes; and provided further, however, that the Servicing
Fee to a successor Servicer, including the Trust Collateral Agent, shall not
exceed a monthly fee equal to 1/12th of the product of (i) the aggregate amount
of the Outstanding Principal Balances of all Receivables outstanding as of the
last day of the related Due Period and (ii) two percent (2%). The Seller, the
Trust Collateral Agent, any Sub-Servicer and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession.
If the Trust Collateral Agent shall succeed to the Servicer's duties as
Servicer of the Receivables as provided herein, it shall do so in its individual
capacity and not in its capacity as Trust Collateral Agent. In the event that
the Trust Collateral Agent shall not seek to appoint a successor Servicer within
three months of its succession to the Servicer's duties as servicer, it shall
resign as Trust Collateral Agent pursuant to Section 9.6 and the Seller shall,
with the written consent of the Insurer (unless an Insurer Default shall have
occurred and be continuing), appoint, or the Trust Collateral Agent shall
petition a court to appoint, a successor trust collateral agent. To the extent a
successor Servicer is appointed, the Trust Collateral Agent shall not be liable
for the acts or omissions of such successor Servicer.
SECTION 10.5. [RESERVED]
SECTION 10.6. Notification to Noteholders and Rating Agencies. Upon any
termination of, or appointment of a successor to, the Servicer, the Trust
Collateral Agent shall give prompt written notice thereof to each Noteholder and
Rating Agency.
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SECTION 10.7. Waiver of Past Defaults. So long as no Insurer Default shall
have occurred and be continuing, the Insurer (or, if an Insurer Default shall
have occurred and be continuing, the Note Majority) may, on behalf of all
Noteholders, waive any default by the Servicer in the performance of its
obligations hereunder and its consequences. Upon any such waiver of a past
default, such default shall cease to exist, and any Servicer Termination Event
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 thereto. Written notice of such waiver shall be
given promptly to each Rating Agency.
SECTION 10.8. Termination of Trust Collateral Agent. The Trust Collateral
Agent may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Seller and Insurer. Upon receiving such
notice of resignation, the Seller shall, with the written consent of the Insurer
(unless an Insurer Default has occurred and is continuing), promptly appoint a
successor trust collateral agent by written instrument, in triplicate, one copy
of which instrument shall be delivered to the resigning Trust Collateral Agent,
one copy to the Insurer and one copy to the successor trust collateral agent. If
no successor shall have been so appointed and have accepted appointment within
thirty (30) days after the giving of such notice of resignation, the resigning
Trust Collateral Agent may petition any court of competent jurisdiction for the
appointment of a successor trust collateral agent. If the Trust Collateral Agent
shall resign voluntarily, for any reason, except lack of eligibility, then the
Trust Collateral Agent shall bear all of its costs and expenses (including
without limitation its attorney's fees) of transferring the trusteeship to a
successor trustee and such costs and expenses shall not be reimbursable from the
Trust Property nor payable by the Seller or the Servicer.
If any of the following events occur and shall be continuing, the Insurer
(so long as an Insurer Default shall not have occurred and be continuing), or,
in the event that an Insurer Default has occurred and is continuing, the Note
Majority, upon notice to the Noteholders, may terminate all of the duties of the
Trust Collateral Agent under this Agreement:
(i) the Trust Collateral Agent shall cease to meet the eligibility
requirements for the Indenture Trustee as set forth in Section 6.11 of the
Indenture and shall fail to resign after written request therefor by the
Insurer, or
(ii) the Trust Collateral Agent shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trust
Collateral Agent or of its property shall be appointed, or any public
officer shall take charge or control of the Trust Collateral Agent or of
its property or affairs for the purpose of rehabilitation, conservation or
liquidation or
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(iii) the Trust Collateral Agent has failed to perform its duties
hereunder.
On or after the receipt by the Trust Collateral Agent of such written
notice, all authority, power, obligations and responsibilities of the Trust
Collateral Agent under this Agreement, whether with respect to the Notes or the
Other Conveyed Property or otherwise, automatically shall pass to, be vested in
and become obligations and responsibilities of such other successor trust
collateral agent appointed by the Controlling Party. Nothing contained herein
shall be deemed to release the Trust Collateral Agent from any obligation.
The Insurer (or if an Insurer Default shall have occurred and be
continuing, Noteholders holding Notes evidencing in the aggregate a majority of
the outstanding Principal Balance of the Notes) at any time may remove the Trust
Collateral Agent and appoint a successor trust collateral agent by written
instrument or instruments, in triplicate, signed by the Insurer or such Holders,
as the case may be, or their attorneys-in-fact duly authorized, one complete set
of which instruments shall be delivered to the Seller, one complete set to the
Trust Collateral Agent so removed and one complete set to the successor trust
collateral agent so appointed.
SECTION 10.9. Successor to Servicer.
(a) The Trust Collateral Agent, in its capacity as successor to the
Servicer, shall perform such duties and only such duties as are specifically set
forth in this Agreement with respect to the assumption of any servicing duties,
including, without limitation, to supervise, verify, monitor or administer the
performance of the Servicer and no implied covenants or obligations shall be
read into this Agreement against the Trust Collateral Agent.
(b) In the absence of bad faith or negligence on its part, the Trust
Collateral Agent may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trust Collateral Agent and conforming to the requirements of
this Agreement; but in the ease of any such certificates or opinions, which by
any provision hereof are specifically required to be furnished to the Trust
Collateral Agent, the Trust Collateral Agent shall be under a duty to examine
the same and to determine whether or not they conform to the requirements of
this servicing agreement.
(c) The Trust Collateral Agent shall have no liability for any actions
taken or omitted by the Servicer.
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ARTICLE XI
Termination
SECTION 11.1. Optional Purchase of All Receivables.
(a) On the last day of any Due Period as of which the Pool Balance shall
be less than or equal to 10% of the Original Pool Balance plus the aggregate
Principal Balance of the Subsequent Receivables, if any, sold to the Trust, as
of their respective Cut-off Dates, the Seller each shall have the option to
purchase the Owner Trust Estate, other than the Trust Accounts (with the consent
of the Insurer if such purchase would result in a claim on either Policy or
would result in any amount owing to any Noteholder or the Insurer under the
Insurance Agreement remaining unpaid); provided, however, that the amount to be
paid for such purchase (as set forth in the following sentence) shall be
sufficient to pay the full amount of principal, premium, if any, and interest
then due and payable on the Notes. To exercise such option, the Seller shall (i)
deliver written notice of such purchase to the Trust Collateral Agent and the
Servicer not later than the fifteenth day of the month next preceding the month
in which such purchase will occur, and (ii) deposit pursuant to Section 5.6 in
the Collection Account an amount equal to the aggregate Purchase Amount for the
Receivables (including Liquidated Receivables), plus the appraised value of any
other property held by the Trust, such value to be determined by an appraiser
mutually agreed upon by the Servicer, the Insurer and the Trust Collateral
Agent, and shall succeed to all interests in and to the Trust. Written notice of
the exercise of the option to purchase described in this Section 11.1(a) shall
be given to each Rating Agency by the relevant party exercising such option.
(b) Upon any sale of the assets of the Trust pursuant to Section 9.1 of
the Trust Agreement, the Servicer shall instruct the Trust Collateral Agent to
deposit the proceeds from such sale after all payments and reserves therefrom
(including the expenses of such sale) have been made (the "Insolvency Proceeds")
in the Collection Account.
(c) Notice of any termination of the Trust shall be given by the Servicer
to the Owner Trustee, the Trustee, the Trust Collateral Agent, the Insurer and
the Rating Agencies as soon as practicable after the Servicer has received
notice thereof. Such notice shall state (I) the Distribution Date upon or with
respect to which final payment of the Notes shall be made upon presentation and
surrender of the Notes at the office of the Trust Collateral Agent herein
designated, (ii) the amount of any such final payment, (iii) that the Record
Date otherwise applicable to such Distribution Date is not applicable, payments
being made only upon presentation and surrender of the Notes at the office of
the Trust Collateral Agent therein specified and (iv) no amounts will thereafter
be payable under the Notes.
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ARTICLE XII
Administrative Duties of the Servicer
SECTION 12.1. Administrative Duties.
(a) Duties with Respect to the Indenture. The Servicer shall perform all
its duties and the duties of the Issuer under the Indenture. In addition, the
Servicer shall consult with the Owner Trustee as the Servicer deems appropriate
regarding the duties of the Issuer under the Indenture. The Servicer shall
monitor the performance of the Issuer and shall advise the Owner Trustee when
action is necessary to comply with the Issuer's duties under the Indenture. The
Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture, including, without limitation,
pursuant to Sections 2.7, 3.5, 3.6, 3.7, 3.9, 3.10, 3.17, 5.1, 5.4, 7.3, 8.3,
9.2, 9.3, 11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in this
Agreement or any of the Transaction Documents, the Servicer shall perform
such calculations and shall prepare for execution by the Issuer or the
Owner Trustee or shall cause the preparation by other appropriate Persons
of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer or the Owner Trustee to
prepare, file or deliver pursuant to this Agreement or any of the
Transaction Documents or under state and federal tax and securities laws,
and at the request of the Owner Trustee shall take all appropriate action
that it is the duty of the Issuer to take pursuant to this Agreement or
any of the Transaction Documents, including, without limitation, pursuant
to Sections 2.6 and 2.11 of the Trust Agreement. In accordance with the
directions of the Issuer or the Owner Trustee, the Servicer shall
administer, perform or supervise the performance of such other activities
in connection with the Collateral (including the Transaction Documents) as
are not covered by any of the foregoing provisions and as are expressly
requested by the Issuer or the Owner Trustee and are reasonably within the
capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Transaction Documents to the contrary, the Servicer shall be responsible
for promptly notifying the Owner Trustee and the Trust Collateral Agent in
the event that any withholding tax is
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imposed on the Issuer's payments (or allocations of income) to an Owner
(as defined in the Trust Agreement) as contemplated by this Agreement. Any
such notice shall be in writing and specify the amount of any withholding
tax required to be withheld by the Owner Trustee or the Trust Collateral
Agent pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Transaction
Documents to the contrary, the Servicer shall be responsible for
performance of the duties of the Issuer or the Seller set forth in Section
5.1(a), (b), (c) and (d) of the Trust Agreement with respect to, among
other things, accounting and reports to Owners (as defined in the Trust
Agreement).
(iv) The Servicer shall perform the duties of the Servicer specified
in Section 10.2 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any
other duties expressly required to be performed by the Servicer under this
Agreement or any of the Transaction Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into transactions
with or otherwise deal with any of its Affiliates; provided, however, that
the terms of any such transactions or dealings shall be in accordance with
any directions received from the Issuer and shall be, in the Servicer's
opinion, no less favorable to the Issuer in any material respect.
(c) Tax Matters. The Servicer shall prepare and file, on behalf of the
Seller, all tax returns, tax elections, financial statements and such annual or
other reports of the Issuer as are necessary for preparation of tax reports as
provided in Article V of the Trust Agreement, including without limitation forms
1099 and 1066. All tax returns will be signed by the Seller.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article XII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee, Trust Collateral Agent and the Insurer of the proposed action and the
Owner Trustee and, with respect to items (A), (B), (C) and (D) below, the
Insurer shall not have withheld consent or provided an alternative direction.
For the purpose of the preceding sentence, "non-ministerial matters" shall
include:
(A) the amendment of or any supplement to the Indenture;
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(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the
Issuer (other than in connection with the collection of the Receivables);
(C) the amendment, change or modification of this Agreement or any
of the Transaction Documents;
(D) the appointment of successor Note Registrars, successor Paying
Agents and successor Trustees pursuant to the Indenture or the appointment
of Successor Servicers or the consent to the assignment by the Note
Registrar, Paying Agent or Trustee of its obligations under the Indenture;
and
(E) the removal of the Trustee or the Trust Collateral Agent.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the other Transaction
Documents, the Servicer, in its capacity hereunder, shall not be obligated to,
and shall not, (1) make any payments to the Noteholders under the Transaction
Documents, (2) sell the Indenture Trust Property pursuant to Section 5.5 of the
Indenture, (3) take any other action that the Issuer directs the Servicer not to
take on its behalf or (4) in connection with its duties hereunder assume any
indemnification obligation of any other Person.
(f) Notwithstanding anything to the contrary in this Agreement, neither
the Trust Collateral Agent nor any successor Servicer shall be responsible for
any obligations or duties of the Servicer under Section 12.1.
SECTION 12.2. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection by the Issuer
and the Trust Collateral Agent at any time during normal business hours.
SECTION 12.3. Additional Information to be Furnished to the Issuer. The
Servicer shall furnish to the Issuer and the Trust Collateral Agent from time to
time such additional information regarding the Collateral as the Issuer and the
Trust Collateral Agent shall reasonably request.
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ARTICLE XIII
Miscellaneous Provisions
SECTION 13.1. Amendment.
(a) This Agreement may be amended from time to time by the parties hereto,
with the consent of the Trustee (which consent may not be unreasonably
withheld), with the prior written consent of the Insurer (so long as no Insurer
Default has occurred and is continuing) but without the consent of any of the
Noteholders, to cure any ambiguity, to correct or supplement any provisions in
this Agreement, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement or the
Insurance Agreement; provided, however, that such action shall not adversely
affect in any material respect the interests of any Noteholder or the Insurer.
This Agreement may also be amended from time to time by the parties
hereto, with the consent of the Insurer, the consent of the Trustee and the
consent of the Holders of Notes evidencing not less than a majority of the
outstanding principal amount of the Notes (which consent of such Holders of
Notes given pursuant to this Section 13.1 or pursuant to any other provision of
this Agreement shall be conclusive and binding on such Holder and on all future
Holders of such securities and of any Security issued upon the transfer thereof
or in exchange thereof or in lieu thereof whether or not notation of such
consent is made upon the security) for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on Receivables or
distributions that shall be required to be made for the benefit of the
Noteholders, or (b) reduce the aforesaid percentage of the outstanding principal
amount of the Notes and the Note Balance, the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all the
outstanding Notes.
Promptly after the execution of any such amendment or consent, the Trust
Collateral Agent shall furnish written notification of the substance of such
amendment or consent to each Noteholder and each Rating Agency. In addition, a
copy of the final executed amendment shall be delivered to each Rating Agency.
It shall not be necessary for the consent of Noteholders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents (and
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any other consents of Noteholders provided for in this Agreement) and of
evidencing the authorization of any action by Noteholders shall be subject to
such reasonable requirements as the Trustee or the Owner Trustee, as applicable,
may prescribe, including the establishment of record dates.
The Owner Trustee, the Trust Collateral Agent and the Trustee may, but
shall not be obligated to, enter into any amendment which affects the Issuer's,
the Owner Trustee's, the Trust Collateral Agent's or the Trustee's, as
applicable, own rights, duties or immunities under this Agreement or otherwise.
Prior to the execution of any amendment to this Agreement, the Trustee and
the Trust Collateral Agent shall be entitled to receive and rely conclusively
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied.
(b) Notwithstanding anything to the contrary contained in subSection
13.1(a) above, the provisions of the Agreement relating to (i) the Spread
Account Agreement, the Series 1997- 1 Spread Account, the Requisite Amount, a
Trigger Event or any component definition of a Trigger Event and (ii) any
additional sources of funds which may be added to the Series 1997- 1 Spread
Account or uses of funds on deposit in the Series 1997-1 Spread Account may be
amended in any respect by the Seller, the Servicer, the Insurer and the
Collateral Agent (the consent of which shall not be withheld or delayed with
respect to any amendment that does not adversely affect the Collateral Agent)
without the consent of, or notice to, the Noteholders.
SECTION 13.2. Protection of Title to Trust.
(a) The Seller 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 interest of the Issuer and the interests of the Trust Collateral Agent and
the Insurer in the Receivables and the Other Conveyed Property and in the
proceeds thereof. The Seller shall deliver (or cause to be delivered) to the
Insurer, the Owner Trustee and the Trust Collateral Agent file-stamped copies
of, or filing receipts for, any document filed as provided above, as soon as
available following such filing.
(b) Neither the Seller nor 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(7) of the UCC, unless
it shall have given the Insurer, the Owner
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Trustee, the Trust Collateral Agent and the Trustee at least thirty days' prior
written notice thereof and shall have promptly filed appropriate amendments to
all previously filed financing statements or continuation statements. Promptly
upon such filing, the Seller or the Servicer, as the case may be, shall deliver
an Opinion of Counsel in form and substance reasonably satisfactory to the
Insurer, the Trust Collateral Agent and the Trustee, stating either (A) all
financing statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the Issuer and
the Trust Collateral Agent in the Receivables, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details are
given, or (B) no such action shall be necessary to preserve and protect such
interest.
(c) Each of the Seller and the Servicer shall have an obligation to give
the Insurer, the Owner Trustee, the Trust Collateral Agent and the Trustee at
least 60 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 of any previously filed financing or
continuation statement or of any new financing statement and shall promptly file
any such amendment. The Servicer shall at all times maintain each office from
which it shall service Receivables, and its principal executive office, within
the United States of America.
(d) The Servicer shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Collection Account in respect of such
Receivable.
(e) The Servicer shall maintain or cause to be maintained, a computer
systems so that, from and after the time of sale under this Agreement of the
Receivables to the Issuer, such master computer records (including any backup
archives) that refer to a Receivable shall indicate clearly the interest of the
Trust in such Receivable and that such Receivable is owned by the Trust.
Indication of the Trust's interest in a Receivable shall be deleted from or
modified on such computer systems when, and only when, the related Receivable
shall have been paid in full or repurchased by NAFI or the Seller.
(f) If at any time the Seller or NAFI 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
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate
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clearly that such Receivable has been sold and is owned by the Trust unless such
Receivable has been paid in full or repurchased by NAFI or the Seller.
(g) Upon request, the Servicer shall furnish or cause to be furnished to
the Insurer, the Owner Trustee or to the Trustee, at any time upon request, a
list of all Receivables (by contract number and name of Obligor) then held as
part of the Trust, together with a reconciliation of such list to the
Receivables Schedule and to each of the Servicer's Certificates furnished before
such request indicating removal of Receivables from the Trust. The Trustee shall
hold any such list and Receivables Schedule for examination by interested
parties during normal business hours at the Corporate Trust Office upon
reasonable notice by such Persons of their desire to conduct an examination.
(h) The Servicer shall deliver to the Insurer, the Owner Trustee, the
Trust Collateral Agent and the Trustee:
(1) simultaneously with the execution and delivery of the Agreement
and, if required pursuant to Section 13.1, of each amendment, an Opinion
of Counsel stating that, in the opinion of such Counsel, in form and
substance reasonably satisfactory to the Insurer, either (A) all financing
statements and continuation statements have been executed and filed that
are necessary fully to preserve and protect the interest of the Trust and
the Trustee in the Receivables, and reciting the details of such filings
or referring to prior Opinions of Counsel in which such details are given,
or (B) no such action shall be necessary to preserve and protect such
interest or (C) any action which is necessary to preserve and protect such
interest during the following 12-month period; and
(2) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months
after the Cut-off Date, an Opinion of Counsel, dated as of a date during
such 90-day period, stating that, in the opinion of such counsel, either
(A) all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Trust and the Trustee in the Receivables, and reciting the
details of such filings or referring to prior Opinions of Counsel in which
such details are given, or (B) no such action shall be necessary to
preserve and protect such interest.
Each Opinion of Counsel referred to in clause (1) or (2) above shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
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(i) The Servicer shall permit the Trustee, the Trust Collateral Agent, the
Insurer and their respective agents, during regular business hours and upon
reasonable advance notice, to inspect and make copies of the records regarding
any Receivables or any other portion of the Receivables.
SECTION 13.3. Notices. All demands, notices and communications upon or to
the Seller, the Servicer, the Owner Trustee, the Trustee, the Insurer or the
Rating Agencies under this Agreement shall be in writing, personally delivered,
or mailed by certified mail, or sent by confirmed telecopier transmission and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller to National Financial Auto Funding Trust, One Park Place, 621 N.W. 53rd
Street, Boca Raton, Florida 33487, (b) in the case of the Servicer to National
Auto Finance Company, Inc., One Park Place, 621 N.W. 53rd Street, Suite 200,
Boca Raton, Florida 33487, (c) in the case of the Issuer or the Owner Trustee,
at 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890;
Attention: Corporate Trust Administration, (d) in the case of the Trustee or the
Trust Collateral Agent, at 311 West Monroe Street, Chicago, Illinois 60606, (e)
in the case of the Insurer, to Financial Security Assurance Inc., 350 Park
Avenue, New York, New York 10022; Attention: Senior Vice President, Surveillance
(in each case in which notice or other communication to the Insurer refers to a
Servicer Termination Event, a claim on a Policy, a Deficiency Notice pursuant to
Section 5.5 of this Agreement or with respect to which failure on the part of
the Insurer to respond shall be deemed to constitute consent or acceptance, then
a copy of such notice or other communication should also be sent to the
attention of each of the General Counsel and the Head -Financial Guaranty Group
and shall be marked to indicate "URGENT MATERIAL ENCLOSED") Telecopier #
212-339-3518, (f) in the case of Moody's, to Moody's Investors Service, Inc.,
ABS Monitoring Department, 99 Church Street, New York, New York 10007,
Telecopier # 212-553-0344, and (g) in the case of Standard & Poor's, to Standard
& Poor's Ratings Group, 25 Broadway - 15th Floor, New York, New York 10004,
Attention: Asset Backed Surveillance Department, Telecopier # 212- 208-1582. Any
notice required or permitted to be mailed to a Noteholder shall be given by
first class mail, postage prepaid, at the address of such Holder as shown in the
Note Register, as applicable. Any notice so mailed within the time prescribed in
the Agreement shall be conclusively presumed to have been duly given, whether or
not the Noteholder shall receive such notice.
SECTION 13.4. Assignment. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything to the contrary contained herein, except as
provided in Sections 8.4 and 9.3 and as provided in the provisions of this
Agreement concerning the resignation of the Servicer, this Agreement may not be
assigned by the Seller or the Servicer without the prior written consent of the
Owner Trustee, the Trust Collateral Agent, the Trustee and the Insurer
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(or if an Insurer Default shall have occurred and be continuing the Holders of
Notes evidencing not less than 66% of the principal amount of the outstanding
Notes).
SECTION 13.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the parties hereto and for the benefit
of the Trustee and the Noteholders, as third-party beneficiaries. The Insurer
and its successors and assigns shall be a third-party beneficiary to the
provisions of this Agreement, and shall be entitled to rely upon and directly
enforce such provisions of this Agreement so long as no Insurer Default shall
have occurred and be continuing. Except as expressly stated otherwise herein,
any right of the Insurer to direct, appoint, consent to, approve of, or take any
action under this Agreement, shall be a right exercised by the Insurer in its
sole and absolute discretion. The Insurer may disclaim any of its rights and
powers under this Agreement (but not its duties and obligations under the Note
Policy) upon delivery of a written notice to the Owner Trustee. Nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Owner Trust Estate
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 13.6. Severability. Any provision of this Agreement that is
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 13.7. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 13.8. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 13.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 13.10. Assignment to Trustee. The Seller hereby acknowledges and
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to
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the Trustee pursuant to the Indenture for the benefit of the Noteholders and the
Insurer of all right, title and interest of the Issuer in, to and under the
Receivables and/or the assignment of any or all of the Issuer's rights and
obligations hereunder to the Trustee.
SECTION 13.11. Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement, the Servicer and the Seller shall not, prior to
the date which is one year and one day after the termination of this Agreement
with respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement, the Servicer
shall not, prior to the date that is one year and one day after the termination
of this Agreement with respect to the Seller, acquiesce to, petition or
otherwise invoke or cause the Seller to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Seller under any federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or other similar official of the Seller or any substantial part of its property,
or ordering the winding up or liquidation of the affairs of the Seller.
SECTION 13.12. Limitation of Liability of Owner Trustee and Trustee.
(a) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Wilmington Trust Company not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall Wilmington Trust Company in its individual capacity or,
except as expressly provided in the Trust Agreement, as Owner Trustee have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII and VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Chase Manhattan Bank Delaware not in its
individual capacity but solely in its capacity as Trustee of the Seller and in
no event shall Chase Manhattan Bank Delaware
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in its individual capacity have any liability for the representations,
warranties, covenants, agreements or other obligations of the Seller hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Seller.
(c) Notwithstanding anything contained herein to the contrary, this
Agreement has been executed and delivered by Harris Trust and Savings Bank not
in its individual capacity but solely as Trust Collateral Agent and in no event
shall Harris Trust and Savings Bank, have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer.
(d) In no event shall Wilmington Trust Company, in any of its capacities
hereunder, be deemed to have assumed any duties of the Owner Trustee under the
Delaware Business Trust Statute, common law, or the Trust Agreement.
SECTION 13.13. Independence of the Servicer. For all purposes of this
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer, the Trust Collateral Agent or the
Owner Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder. Unless expressly authorized by this
Agreement, the Servicer shall have no authority to act for or represent the
Issuer or the Owner Trustee in any way and shall not otherwise be deemed an
agent of the Issuer or the Owner Trustee.
SECTION 13.14. No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Servicer and either of the Issuer or the Owner Trustee as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
SECTION 13.15. Insurer as Controlling Party. Each Noteholder by purchase
of the Notes held by it acknowledges that as partial consideration of the
issuance of the Note Policy, the Insurer shall have certain rights hereunder for
so long as no Insurer Default shall have occurred and be continuing. So long as
an Insurer Default has occurred and is continuing, any provision giving the
Insurer the right to direct, appoint or consent to, approve of, or take any
action under this Agreement shall be inoperative during the period of such
Insurer Default and such right shall instead vest in the Trust Collateral Agent
acting at the written direction of the Holders of Notes. The Insurer may
disclaim any of its rights and powers under this Agreement (but not its duties
and obligations under the Note Policy) upon delivery of a written
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notice to the Trust Collateral Agent. The Insurer may give or withhold any
consent hereunder in its sole and absolute discretion.
IN WITNESS WHEREOF, the parties hereto have caused this Sale and Servicing
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and the year first above written.
NATIONAL AUTO FINANCE 1997-1 TRUST, by the
Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee on behalf of the Trust,
By:
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST,
Seller, by Chase Manhattan Bank Delaware,
not in its individual capacity but solely as
Trustee of National Financial Auto Funding
Trust,
By:
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC., in its
its individual capacity and as Servicer,
By:
Name:
Title:
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HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as Trust
Collateral Agent and Backup Servicer
By:
Name:
Title:
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SCHEDULE A
SCHEDULE OF RECEIVABLES
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Trust Collateral Agent on
behalf of the Noteholders and the Insurer as of the Closing Date with respect to
the Initial Receivables transferred to the Trust on the Closing Date and as of
each Subsequent Transfer Date with respect to the Subsequent Receivables
transferred to the Trust on such Subsequent Transfer Date (unless another date
or time period is otherwise specified or indicated in the particular
representation or warranty):
1. immediately prior to the Closing Date or the Subsequent Transfer Date,
as the case may be, the Seller had a valid and enforceable 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
Trust Collateral Agent;
2. on and after the Closing Date or the Subsequent Transfer Date, as the
case may be, there shall exist under the Receivable a valid, subsisting and
enforceable first priority perfected security interest in the Financed Vehicle
securing such Receivable (other than, as to the priority of such security
interest, any statutory lien arising by operation of law after the Closing Date
or the Subsequent Transfer Date, as the case may be, which is prior to such
interest) and at such time as enforcement of such security interest is sought
there shall exist a valid, subsisting and enforceable first priority perfected
security interest in such Financed Vehicle in favor of the Trust Collateral
Agent (other than, as to the priority of such security interest, any statutory
lien arising by operation of law after the Closing Date or the Subsequent
Transfer Date, as the case may be, which is prior to such interest);
3. no Receivable has been sold, assigned or pledged to any other Person
other than an endorsement to the Servicer for purposes of servicing or any such
pledge has been released; immediately prior to the transfer and assignment
herein contemplated, the Seller has good and marketable title thereto free and
clear of any lien, encumbrance, equity, pledge, charge, claim or security
interest and is the sole owner thereof and has full right to transfer such
Receivable to the Trust Collateral Agent. No Dealer has a participation in, or
other right to receive, proceeds of any Receivable. None of NAFI, the Master
Trust, Funding Trust II nor the Seller has taken any action to convey any right
to any Person that would result in such Person having a right to payments
received under the related insurance policies, Dealer Agreements or Originator
Agreements or to payments due under such Receivable;
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4. upon the transfers pursuant to Sections 2.1 and 2.2, the Trust
Collateral Agent will have a first priority ownership or security interest in
each such Receivable free and clear of any encumbrance, lien, pledge, charge,
claim, security interest or rights of others; the purchase of each such
Receivable by NAFI from a Dealer or Originator was not an extension of financing
to such Dealer or Originator;
5. no such Receivable is delinquent for more than thirty days in payment
as to any scheduled payment;
6. there is no lien against any related Financed Vehicle for delinquent
taxes;
7. there is no right of rescission, offset, defense or counterclaim to the
obligation of the related Obligor to pay the unpaid principal or interest due
under such Receivable; the operation of the terms of such Receivable or the
exercise of any right thereunder will not render such Receivable unenforceable
in whole or in part or subject to any right of rescission, offset, defense or
counterclaim, and no such right of rescission, offset, defense or counterclaim
has been asserted;
8. no Receivable is assumable by another Person in a manner which would
release the Obligor thereon from such Obligor's obligations to the Seller with
respect to such Receivable;
9. there are no prior liens or claims for work, labor or material
affecting any related Financed Vehicle which are or may become a lien prior to
or equal with the security interest granted by such Receivable;
10. each such Receivable, and the sale of the Financed Vehicle securing
such Receivable, where applicable, complied, at the time it was made and as of
the Closing Date or related Subsequent Transfer Date, as applicable, 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 law, the Federal Trade Commission Act, and
applicable state laws regulating retail installment sales contracts and loans in
general and motor vehicle retail installment sales contracts and loans in
particular, and the transfer of such Receivable to the Trust will not violate
any such laws;
11. each such Receivable is a legal, valid and binding obligation of the
Obligor thereunder and is enforceable in accordance with its terms, except only
as such enforcement may be limited by laws affecting the enforcement of
creditors' rights generally whether enforcement is sought in a proceeding in
equity or at law, and all parties to such Receivable
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had full legal capacity to execute such Receivable and all documents related
thereto and to grant the security interest purported to be granted thereby at
the time of execution and grant;
12. as of the Closing Date or such Subsequent Transfer Date, as the case
may be, the terms of each such Receivable have not been impaired, waived,
altered or modified in any respect, except by written instruments that are part
of the Receivable Documents, and no such Receivable has been satisfied,
subordinated or rescinded;
13. at the time of origination of each such Receivable, the proceeds of
such Receivable were fully disbursed, there is no requirement for future
advances thereunder, and all fees and expenses in connection with the
origination of such Receivable have been paid;
14. there is no default, breach, violation or event of acceleration
existing under any such Receivable (except payment delinquencies permitted by
paragraph 5 above) 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 or would otherwise affect the value or
marketability of such contract; NAFI and the Seller have not waived any such
default, breach, violation or event of acceleration; and as of the applicable
Cut-off Date, the related Financed Vehicle has not been repossessed;
15. at the origination date of each such Receivable, the related Financed
Vehicle was covered by a comprehensive and collision insurance policy (a) in an
amount at least equal to the lesser of (i) the actual cash value of the related
Financed Vehicle or (ii) the unpaid balance owing of such Receivable, less the
related Unearned Finance Charge, (b) naming NAFI as a loss payee and (c)
insuring against loss and damage due to fire, theft, transportation, collision
and other risks generally covered by comprehensive and collision coverage; each
Receivable requires the Obligor to maintain physical loss and damage insurance,
naming NAFI as an additional insured party;
16. each such Receivable was acquired by NAFI from either a Dealer with
which it ordinarily does business or from an Originator; such Dealer or
Originator, as applicable, had full right to assign to NAFI such Receivable and
the security interest in the related Financed Vehicle (and the Dealer that
assigned any such Receivable to any such Originator had full right to assign to
such Originator such Receivable and the security interest in the related
Financed Vehicle) and the Dealer's or Originator's assignment thereof to NAFI is
legal, valid and binding (and any assignment by an Dealer to any Originator is
legal, valid and binding) and NAFI had full right to assign to the Seller such
Receivable and the respective security interest in the related Financed Vehicle
and NAFI's respective assignment thereof to the Seller is legal, valid and
binding;
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17. each 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;
18. scheduled payments under each such Receivable are due monthly (or, in
the case of the first payment, no later than the forty-fifth day after the date
of the Receivable) in substantially equal amounts to maturity (other than with
respect to those Receivables designated as balloon contracts on the related
Receivable Schedule), and will be sufficient to fully amortize such Receivable
at maturity, assuming that each scheduled payment is made on its Due Date; such
scheduled payments are applicable only to payment of principal and interest on
such Receivable and not to the payment of any insurance premiums (although the
proceeds of the extension of credit on such Receivable may have been used to pay
insurance premiums); and the original term to maturity of each such Receivable
was not more than 60 months;
19. the collection practices used with respect to each such Receivable
have been in all material respects legal, proper, prudent and customary in the
automobile installment sales contract or installment loan servicing business;
20. there is only one original of each such Receivable, the Servicer or a
Sub-Servicer is currently in possession of the Receivable Documents for such
Receivable and there are no custodial agreements in effect adversely affecting
the rights of the Seller to make the deliveries required hereunder on the
Closing Date or the Subsequent Transfer Date, as the case may be;
21. as of the Cut-off Date or Subsequent Cut-off Date, as applicable, no
Obligor was the subject of a current bankruptcy proceeding;
22. with respect to each Due Period, the aggregate of the interest due on
all the Receivables in such Due Period from scheduled payments is in excess of
the sum of (i) the Servicing Fee due and any fees due to the Trust Collateral
Agent and the Insurer, each with respect to such Due Period and (ii) the amount
of interest payable on the Notes with respect to such Due Period, in each case
assuming that each scheduled payment is made on its Due Date;
23. the Receivables constitute "chattel paper" within the meaning of the
UCC as in effect in the applicable jurisdiction and all filings (including
without limitation, UCC filings) required to be made and all actions required to
be taken or performed by any Person in any jurisdiction to give the Trust
Collateral Agent a first priority perfected lien on, or ownership interest in,
the Receivables and the proceeds thereof and the remaining Trust Property have
been made, taken or performed;
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24. the information regarding such Receivables set forth in the applicable
Receivable Schedule is true and correct in all material respects at the
applicable Cut-off Date and the Closing Date or Subsequent Closing Date, as
applicable; each Receivable was originated in the United States of America and
at the time of origination, materially conformed to all requirements of the NAFI
underwriting policies and guidelines then in effect; and no Obligor is the
United States of America or any state or any agency, department, subdivision or
instrumentality thereof;
25. by the Closing Date and prior to each Subsequent Transfer Date, as
applicable, NAFI will have caused the portions of NAFI's servicing records
relating to the Receivables to be clearly and unambiguously marked to show that
the Receivables constitute part of the Trust Property and are owned by the Trust
in accordance with the terms of this Agreement;
26. the computer tape or listing made available by NAFI to the Trust
Collateral Agent on the Closing Date and on each Subsequent Transfer Date was
complete and accurate as of the applicable Cut-off Date, and includes a
description of the same Receivables that are described in the applicable
Receivable Schedule;
27. no Receivable was originated in, or is subject to the laws of, any
jurisdiction, the laws of which would make unlawful, void or voidable the sale,
transfer and assignment of such Receivable under this Agreement or the
Subsequent Transfer Agreement, as applicable, or pursuant to transfers of the
Notes. The Seller has not entered into any agreement with any account debtor
that prohibits, restricts or conditions the assignment of any portion of the
Receivables;
28. no selection procedures adverse to the Noteholders or to the Insurer
have been utilized in selecting such Receivable from all other similar
Receivables originated by NAFI;
29. as of the Initial Cut-off Date, the APR of the Initial Receivables was
approximately 19.38% and the weighted average remaining scheduled maturity on
the Initial Receivables was approximately 50.31 months and the percentage of the
aggregate outstanding balance of the Initial Receivables relating to the
financing of used Financed Vehicles was 80.45%. The final scheduled payment date
on the Initial Receivable with the latest maturity is June 29, 2002. Each
Receivable amortizes based on a Simple Interest Method or Actuarial Method; and
30. no Receivable provides for a prepayment penalty.
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EXHIBIT 5.10
FORM OF STATEMENT TO NOTEHOLDERS
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EXHIBIT 2.2A
OFFICER'S CERTIFICATE OF NATIONAL AUTO FINANCE COMPANY, INC.
The undersigned, a duly authorized officer of National Auto Finance
Company, Inc. (the "Company"), hereby certifies that:
1. Capitalized terms used but not defined herein have the meanings set
forth in the Sale and Servicing Agreement (the "Sale and Servicing Agreement"),
dated as of June 29, 1997, among National Financial Auto Funding Trust (the
"Seller"), the Company, as the Servicer, National Auto Finance 1997-1 Trust and
Harris Trust and Savings Bank, not in its individual capacity but solely as
Trust Collateral Agent and Backup Servicer. This certificate is being delivered
pursuant to Section 2.2(b)(ix)(A) of the Sale and Servicing Agreement.
2. The sale and Subsequent Receivables by the Company to the Seller on the
date hereof pursuant to the Purchase and Contribution Agreement and the related
Conveyance (which Conveyance is datd as of the date hereof) was made in good
faith for legitimate business purposes and was not made with intent to hinder,
delay or defraud any Person to which the Company has been, is or will become, on
or after the date hereof, indebted.
3. The Company did not receive less than a reasonably equivalent value in
exchange for the sale of the Subsequent Receivables by the Company to the Seller
on the date hereof pursuant to the Purchase and Contribution Agreement and the
related Conveyance.
4. The Company is not insolvent on the date hereof and will not become
insolvent as a result of the sale of Subsequent Receivables by the Company to
the Seller on the date hereof pursuant to the Purchase and Contribution
Agreement and the related Conveyance.
5. The Company is not engaged in a business or transaction, and is not
about to engage in a business or transaction, for which any property remaining
with the Company after such business or transaction would be an unreasonably
small capital.
6. The Company has not incurred, and does not believe that it will incur,
debts that are beyond the Company's ability to pay as such debts mature.
7. No Servicer Termination Event has occurred and is continuing.
IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to
be duly executed this day of , 19 .
1
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NATIONAL AUTO FINANCE COMPANY, INC., in its
individual capacity and as Servicer,
By:
Name:
Title:
2
<PAGE>
EXHIBIT 2.2B
OFFICER'S CERTIFICATE OF NATIONAL FINANCIAL AUTO FUNDING TRUST
The undersigned, a duly authorized officer of National Financial Auto
Funding Trust (the "Seller"), hereby certifies that:
1. Capitalized terms used but not defined herein have the meanings set
forth in the Sale and Servicing Agreement (the "Sale and Servicing Agreement"),
dated as of June 29, 1997, among the Seller, National Auto Finance Company, Inc.
(the "Company"), as the Servicer, National Auto Finance 1997-1 Trust (the
"1997-1 Trust") and Harris Trust and Savings Bank, not in its individual
capacity but solely as Trust Collateral Agent and Backup Servicer. This
certificate is being delivered pursuant to Section 2.2(b)(ix)(B) of the Sale and
Servicing Agreement.
2. The sale and Subsequent Receivables by the Seller to the 1997-1 Trust
on the date hereof pursuant to the Sale and Servicing Agreement and the related
Subsequent Transfer Agreement (which Subsequent Transfer Agreement is dated as
of the date hereof) was made in good faith for legitimate business purposes and
was not made with intent to hinder, delay or defraud any Person to which the
Funding Trust has been, is or will become, on or after the date hereof,
indebted.
3. The Funding Trust did not receive less than a reasonably equivalent
value in exchange for the sale of the Subsequent Receivables by the Funding
Trust to the 1997-1 Trust on the date hereof pursuant to the Sale and Servicing
Agreement and the related Subsequent Transfer Agreement.
4. The Funding Trust is not insolvent on the date hereof and will not
become insolvent as a result of the sale of Subsequent Receivables by the
Funding Trust to the 1997-1 Trust on the date hereof pursuant to the Sale and
Servicing Agreement and the related Subsequent Transfer Agreement..
5. The Funding Trust is not engaged in a business or transaction, and is
not about to engage in a business or transaction, for which any property
remaining with the Funding Trust after such business or transaction would be an
unreasonably small capital.
6. The Funding Trust has not incurred, and does not believe that it will
incur, debts that are beyond the Funding Trust's ability to pay as such debts
mature.
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7. No Servicer Termination Event has occurred and is continuing.
IN WITNESS WHEREOF, the Funding Trust has caused this Officer's
Certificate to be duly executed this ____ day of ________, 1999___.
NATIONAL FINANCIAL AUTO FUNDING TRUST,
by Chase Manhattan Bank Delaware, not
in its individual capacity but solely
as Trustee of National Financial Auto
Funding Trust,
By:
Name:
Title:
2
<PAGE>
EXHIBIT A
SUBSEQUENT TRANSFER AGREEMENT
TRANSFER No. ___ OF SUBSEQUENT Receivables pursuant to a Sale and
Servicing Agreement dated as of July __, 1997 (the "Sale and Servicing
Agreement"), among NATIONAL AUTO FINANCE 1997-1 TRUST, a Delaware business trust
(the "Issuer"), NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware business trust
(the "Seller"), NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation (the
"Servicer"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation,
not in its individual capacity, but solely as Trust Collateral Agent and Backup
Servicer (the "Trust Collateral Agent").
W I T N E S S E T H:
WHEREAS pursuant to the Sale and Servicing Agreement, the Seller wishes to
convey the Subsequent Receivables to the Issuer; and
WHEREAS, the Issuer is willing to accept such conveyance subject to the
terms and conditions hereof.
NOW, THEREFORE, the Issuer, the Seller, the Servicer and the Trust
Collateral Agent hereby agree as follows:
1. Defined Terms. Capitalized terms used herein shall have the meanings
ascribed to them in the Sale and Servicing Agreement unless otherwise defined
herein.
"Subsequent Cut-off Date" shall mean, with respect to the Subsequent
Receivables conveyed hereby, , 1997.
"Subsequent Transfer Date" shall mean. with respect to the Subsequent
Receivables conveyed hereby, , 1997.
2. Receivables Schedule. Annexed hereto is a supplement to Schedule A to
the Sale and Servicing Agreement listing the Receivables that constitute the
Subsequent Receivables to be conveyed pursuant to this Agreement on the
Subsequent Transfer Date. Such Receivable Schedule is marked as Schedule I to
this Subsequent Transfer Agreement and is hereby incorporated in and made a part
of this Subsequent Transfer Agreement and the Sale and Servicing Agreement.
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3. Conveyance of Subsequent Receivables. In consideration of the Issuer's
delivery to or upon the order of the Seller of $ , the Seller does
hereby sell, transfer, assign, set over and otherwise convey to the Issuer,
without recourse (except as expressly provided in the Sale and Servicing
Agreement) and does hereby grant to the Trustee, in trust for exclusive use and
benefit of all present and future Noteholders and the Insurer, all right, title
and interest of the Seller in and to the following, whether now owned or
hereafter acquired:
(a) the Subsequent Receivables and all moneys received thereon, on and
after the related Subsequent Cut-off Date (including amounts due on or before
the Subsequent Cut-off Date but received by NAFI, the Seller or the Issuer on or
after the Subsequent Cut-off Date);
(b) any proceeds and the right to receive proceeds with respect to the
Subsequent Receivables from claim and the right to receive proceeds on any
physical damage, credit life or disability insurance policies or other policies
covering Financed Vehicles or Obligors, including rebating of insurance premiums
relating to the Receivables, and any proceeds from the liquidation of the
Subsequent Receivables;
(c) all rights of the Seller against the Dealers pursuant to Dealer
Agreements or against Originators pursuant to Originator Agreements;
(d) the related Receivables Files; and any and all other documents that
NAFI keeps on file in accordance with its customary procedures relating to the
Receivables, the Obligors or the Financed Vehicles;
(e) property (including the right to receive future Liquidation Proceeds)
that secures a Receivable and that has been acquired by or on behalf of the
Trust pursuant to liquidation of such Receivable;
(f) all funds on deposit from time to time in the Trust Accounts (less all
investments and proceeds thereof), and all rights of the Issuer therein;
(g) all of the Seller's right, title and interest in its rights and
benefits, but none of its obligations or burdens, under each of the Subsequent
Purchase Agreements, including the delivery requirements, representations and
warranties and the cure and repurchase obligations of NAFI under each of the
Subsequent Purchase Agreements, on or after the related Subsequent Cut-off Date;
and
(h) the proceeds of any and all of the foregoing.
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<PAGE>
4. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to the Issuer as of the date of this Agreement and as of
the Subsequent Transfer Date that:
(a) Schedule of Representations. The representations and warranties set
forth on the Schedule of Representations attached hereto as Schedule B are true
and correct.
(b) Organization and Good Standing. The Seller is a Delaware business
trust duly organized, validly existing, and 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 are currently owned and such business is
currently conducted, and had at all relevant times, and now has, power,
authority and legal right to acquire, own and sell the Receivables and the Other
Conveyed Property transferred to the Trust.
(c) Due Qualification. The Seller has obtained all necessary licenses and
approvals in all jurisdictions where the failure to do so would materially and
adversely affect Seller's ability to transfer the Receivables and the Other
Conveyed Property to the Trust pursuant to this Agreement, or the validity or
enforceability of the Receivables and the Other Conveyed Property or to perform
Seller's obligations hereunder and under the Seller's Transaction Documents.
(d) Power and Authority. The Seller has the power and authority to execute
and deliver this Agreement and its Transaction Documents and to carry out its
terms and their terms, respectively; the Seller has full power and authority to
sell and assign the Receivables and the Other Conveyed Property to be sold and
assigned to and deposited with the Trust by it and has duly authorized such sale
and assignment to the Trust; and the execution, delivery and performance of this
Agreement and the Seller's Transaction Documents have been duly authorized by
the Seller.
(e) Valid Sale, Binding Obligations. This Agreement effects a valid sale,
transfer and assignment of the Receivables and the Other Conveyed Property,
enforceable against the Seller and creditors of and purchasers from the Seller;
and this Agreement and the Seller's Transaction Documents, when duly executed
and delivered, shall constitute legal, valid and binding obligations of the
Seller enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by
equitable limitations on the availability of specific remedies, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
3
<PAGE>
(f) No Violation. The consummation of the transactions contemplated by
this Agreement and the Transaction Documents and the fulfillment of the terms of
this Agreement and the Transaction Documents shall not conflict with, result in
any breach of any of the terms and provisions of or constitute (with or without
notice, lapse of time or both) a default under the certificate of incorporation
or by-laws of the Seller, or any indenture, agreement, mortgage, deed of trust
or other instrument to which the Seller is a party or by which it is bound, or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed of trust
or other instrument, other than this Agreement, or violate any law, order, rule
or regulation applicable to the Seller of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Seller or any of its properties.
(g) No Proceedings. There are no proceedings or investigations pending or,
to the Seller's knowledge, threatened against the Seller, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Seller or its properties (A)
asserting the invalidity of this Agreement or any of the Transaction Documents,
(B) seeking to prevent the issuance of the Securities or the consummation of any
of the transactions contemplated by this Agreement or any of the Transaction
Documents, (C) seeking any determination or ruling that might materially and
adversely affect the performance by the Seller of its obligations under, or the
validity or enforceability of, this Agreement or any of the Transaction
Documents, or (D) seeking to adversely affect the federal income tax or other
federal, state or local tax attributes of the Securities.
(h) Approvals. All approvals, authorizations, consents, order or other
actions of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery by the Seller of this Agreement and the consummation of
the transactions contemplated hereby have been or will be taken or obtained on
or prior to the Closing Date.
(i) No Consents. The Seller is not required to obtain the consent of any
other party or any consent, license, approval or authorization, or registration
or declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement which has not already been obtained.
(j) Chief Executive Office. The chief executive office of the Seller is at
One Park Place, 621 N.W. 53rd Street, Boca Raton, Florida, 33487.
4
<PAGE>
(k) Principal Balance. The aggregate Principal Balance of the Receivables
listed on the supplement to Schedule A annexed hereto and conveyed to the Issuer
pursuant to this Agreement as of the Subsequent Cut-off Date is $ .
(l) Contract Files. The Seller does hereby deliver to the Custodian the
original motor vehicle retail installment sale contracts and Receivables Files
for each Receivable identified in the Receivable Schedule.
5. Receivable File. The Seller does hereby deliver to the Custodian the
original motor vehicle retail installment sale contracts and Receivables Files
for each Receivable identified in the Receivable Schedule.
6. Conditions Precedent. The obligation of the Issuer to acquire the
Receivables hereunder is subject to the satisfaction, on or prior to the
Subsequent Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Seller in Section 4 of this Agreement and in Section 6.1
of the Sale and Servicing Agreement shall be true and correct as of the date of
this Agreement and as of the Subsequent Transfer Date.
(b) Sale and Servicing Agreement Conditions. Each of the conditions set
forth in Section 2.2(b) to the Sale and Servicing Agreement shall have been
satisfied.
(c) Additional Information. The Seller shall have delivered to the Issuer
such information as was reasonably requested by the Issuer to satisfy itself as
to (i) the accuracy of the representations and warranties set forth in Section 4
of this Agreement and in Section 6.1 of the Sale and Servicing Agreement and
(ii) the satisfaction of the conditions set forth in this Section 5.
7. Ratification of Agreement. As supplemented by this Agreement, the Sale
and Servicing Agreement is in all respects ratified and confirmed and the Sale
and Servicing Agreement as so supplemented by this Agreement shall be read,
taken and construed as one and the same instrument.
8. Counterparts. This Agreement may be executed in two or more
counterparts (and by different parties in separate counterparts), each of which
shall be an original but all of which together shall constitute one and the same
instrument.
5
<PAGE>
9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
10. Third-Party Beneficiaries. This Agreement shall incure to the benefit
of and be binding upon the parties hereto and their respective successor and
permitted assigns. Except as otherwise provided in this Section 9, no other
person shall have any right or obligation hereunder. The Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Agreement, and shall be entitled to rely upon and directly enforce such
provisions of this Agreement so long as no Insurer Default shall have occurred
and be continuing. Except as expressly stated otherwise herein or in the
Transaction Documents, any right of the Insurer to direct, appoint, consent to,
approve of, or take any action under this Agreement, shall be a right exercised
by the Insurer to direct, appoint, consent to, approve of, or take any action
under this Agreement, shall be a right exercised by the Insurer in its sole and
absolute discretion. The Insurer may disclaim any of its rights and powers under
this Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Trustee.
IN WITNESS WHEREOF, the Issuer, the Seller and the Servicer have caused
this Agreement to be duly executed and delivered by their respective duly
authorized officers as of day and the year first above written.
NATIONAL AUTO FINANCE 1997-1 TRUST by
Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee on behalf of the Trust,
By
Title:
6
<PAGE>
NATIONAL FINANCIAL AUTO FUNDING TRUST,
Seller, by Chase Manhattan Bank Delaware,
not in its individual capacity, but solely
as Trustee of National Financial Auto
Funding
Trust,
By
Title:
NATIONAL AUTO FINANCE COMPANY, INC.,
Servicer,
By
Title:
Acknowledged and Accepted:
HARRIS TRUST AND SAVINGS BANK, not in its individual capacity but solely as
Trust Collateral Agent and Backup Servicer
By
Title:
7
<PAGE>
EXHIBIT B
FORM OF SERVICER'S CERTIFICATE
1
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
ENDORSEMENT NO. 1 TO FINANCIAL GUARANTY INSURANCE POLICY
FINANCIAL SECURITY 350 Park Avenue
ASSURANCE INC. New York, New York 10022
OBLIGOR: NATIONAL AUTO FINANCE 1997-1 TRUST
OBLIGATIONS: $66,891,200 6.35% Automobile Receivables-Backed Notes
Policy No.: 50609-N
Date of Issuance: July 23, 1997
1. Definitions. For all purposes of this Policy, the terms specified below
shall have the meanings or constructions provided below. Capitalized terms used
herein and not otherwise defined herein shall have the meanings provided in the
Indenture unless the context shall otherwise require.
"Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in New York, New York, Chicago, Illinois,
Wilmington, Delaware or any other location of any successor Servicer, successor
Owner Trustee, successor Indenture Trustee or successor Trust Collateral Agent
are authorized or obligated by law, executive order or government decree to be
closed.
"Financial Security" means Financial Security Assurance Inc., a New York
stock insurance company.
"Indenture" means the Indenture, dated as of June 29, 1997, between
National Auto Finance 1997-1 Trust and Harris Trust and Savings Bank, as
Indenture Trustee and Trust Collateral Agent, as amended from time to time in
accordance with its terms.
"Policy" means this Financial Guaranty Insurance Policy and includes each
endorsement thereto.
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
"Receipt" and "Received" mean actual delivery to Financial Security and to
its Fiscal Agent (as defined below), if any, prior to 12:00 noon, New York City
time, on a Business Day; delivery either on a day that is not a Business Day, or
after 12:00 noon, New York City time, shall be deemed to be "Receipt" on the
next succeeding Business Day. If any notice or certificate given hereunder by
the Trust Collateral Agent is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and
Financial Security or its Fiscal Agent shall promptly so advise the Trust
Collateral Agent and the Trust Collateral Agent may submit an amended notice.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of June 29, 1997, among National Auto Finance 1997-1 Trust, National
Financial Auto Funding Trust, as Seller, National Auto Finance Company, Inc., as
Servicer, and Harris Trust and Savings Bank, as Trust Collateral Agent and
Back-up Servicer, as amended from time to time in accordance with its terms.
"Scheduled Payments" means, with respect to (i) each Distribution Date, the
Noteholders= Monthly Interest Distributable Amount payable on such Distribution
Date, and (ii) the Final Scheduled Distribution Date, any principal of the
Obligations remaining unpaid on such Final Scheduled Distribution Date, in each
case in accordance with the original terms of the Obligations when issued and
without regard to any amendment or modification of the Obligations, the
Indenture or the Sale and Servicing Agreement, except amendments or
modifications to which Financial Security has given its prior written consent;
provided, however, Scheduled Payments do not include payments that become due on
an accelerated basis as a result of (a) a default by the Obligor, (b) an
election by the Obligor to pay principal on an accelerated basis, (c) the
occurrence of an Event of Default under the Indenture or (d) any other cause,
unless Financial Security elects, in its sole discretion, to pay in whole or in
part such principal due upon acceleration, together with any accrued interest to
the date of acceleration. Scheduled Payments shall not include, nor shall
coverage be provided under this Policy in respect of, (x) any portion of the
Noteholders= Monthly Interest Distributable Amount due to Noteholders because
the appropriate notice and certificate for payment in proper form was not timely
Received by Financial Security, (y) any portion of the Noteholders= Monthly
Interest Distributable Amount due to Noteholders representing interest on any
Noteholders= Interest Carryover Shortfall or (z) any Note Prepayment Amounts,
unless, in each case, Financial Security elects, in its sole discretion, to pay
such amounts in whole or in part. Scheduled Payments shall not include, nor
shall coverage be provided under the Policy in respect of, any amounts due in
respect of the Obligations attributable to any increase in interest rate,
penalty or other sum payable by the Obligor by reason of any default or event of
default in respect of the Obligations, or by reason of any deterioration of the
creditworthiness of the Obligor, nor shall Scheduled Payments include, nor shall
coverage be provided under the Policy in respect of, any taxes, withholding or
other charge imposed by any governmental authority due in connection with the
payment of any Scheduled Payment to a Holder.
2
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
"Term Of This Policy" means the period from and including the Date of
Issuance to and including the latest of the date on which (i) the outstanding
principal amount of the Obligations has been reduced to zero and all
distributions of the Noteholders= Monthly Interest Distributable Amount (other
than any portion of the Noteholders= Monthly Interest Distributable Amount
constituting interest on any Noteholders= Interest Carryover Shortfall) have
been paid on the Obligations, (ii) any period during which any payment on the
Obligations could have been avoided in whole or in part as a preference payment
under applicable bankruptcy, insolvency, receivership or similar law has
expired, and (iii) if any proceedings requisite to avoidance as a preference
payment have been commenced prior to the occurrence of (i) and (ii), a final and
nonappealable order in resolution of each such proceeding has been entered.
"Trust Collateral Agent" means Harris Trust and Savings Bank, an Illinois
banking corporation, in its capacity as Trust Collateral Agent under the Sale
and Servicing Agreement and any successor in such capacity.
2. Notices and Conditions to Payment in Respect of Scheduled Payments.
Following Receipt by Financial Security of a notice and certificate from the
Trust Collateral Agent in the form attached as Exhibit A to this Endorsement,
Financial Security will pay any amount payable hereunder in respect of Scheduled
Payments on the Obligations out of the funds of Financial Security on the later
to occur of (a) 12:00 noon, New York City time, on the third Business Day
following such Receipt; and (b) 12:00 noon, New York City time, on the
Distribution Date to which such claim relates. Payments due hereunder in respect
of Scheduled Payments will be disbursed by wire transfer of immediately
available funds to the Trust Collateral Agent.
Financial Security shall be entitled to pay any amount hereunder in respect
of Scheduled Payments on the Obligations, including any amount due on the
Obligations on an accelerated basis, whether or not any notice and certificate
shall have been Received by Financial Security as provided above. Financial
Security shall be entitled to pay hereunder any amount due on the Obligations on
an accelerated basis at any time or from time to time, in whole or in part,
prior to the scheduled date of payment thereof; Scheduled Payments insured
hereunder shall not include interest, in respect of principal paid hereunder on
an accelerated basis, accruing from and after the date of such payment of
principal. Financial Security's obligations hereunder in respect of Scheduled
Payments shall be discharged to the extent funds are disbursed by Financial
Security as provided herein whether or not such funds are properly applied by
the Trust Collateral Agent.
3. Notices and Conditions to Payment in Respect of Scheduled Payments
Avoided as Preference Payments. If any Scheduled Payment is avoided as a
preference payment under applicable bankruptcy, insolvency, receivership or
similar law, Financial Security will pay such amount out of the funds of
Financial Security on the later of (a) the date when due to be paid pursuant to
the Order (as defined below) or (b) the first to occur of (i) the fourth
Business Day following Receipt by Financial Security from the Trust Collateral
Agent of (A) a certified copy of the order (the "Order") of the court or
3
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
other governmental body which exercised jurisdiction to the effect that the
Noteholder is required to return the amount of any Scheduled Payment distributed
with respect to the Obligations during the Term Of This Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (B) a certificate of the Noteholder that the Order has been entered and is
not subject to any stay and (C) an assignment duly executed and delivered by the
Noteholder, in such form as is reasonably required by Financial Security and
provided to the Noteholder by Financial Security, irrevocably assigning to
Financial Security all rights and claims of the Noteholder relating to or
arising under the Obligations against the debtor which made such preference
payment or otherwise with respect to such preference payment, or (ii) the date
of Receipt by Financial Security from the Trust Collateral Agent of the items
referred to in clauses (A), (B) and (C) above if, at least four Business Days
prior to such date of Receipt, Financial Security shall have Received written
notice from the Trust Collateral Agent that such items were to be delivered on
such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Trust Collateral Agent or any
Noteholder directly (unless a Noteholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Trust Collateral
Agent for distribution to such Noteholder upon proof of such payment reasonably
satisfactory to Financial Security). In connection with the foregoing, Financial
Security shall have the rights provided pursuant to the Sale and Servicing
Agreement and the Indenture.
4. Governing Law. This Policy shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
5. Fiscal Agent. At any time during the Term Of This Policy, Financial
Security may appoint a fiscal agent (the "Fiscal Agent") for purposes of this
Policy by written notice to the Trust Collateral Agent at the notice address
specified in the Sale and Servicing Agreement specifying the name and notice
address of the Fiscal Agent. From and after the date of receipt of such notice
by the Trust Collateral Agent, (i) copies of all notices and documents required
to be delivered to Financial Security pursuant to this Policy shall be
simultaneously delivered to the Fiscal Agent and to Financial Security and shall
not be deemed Received until Received by both and (ii) all payments required to
be made by Financial Security under this Policy may be made directly by
Financial Security or by the Fiscal Agent on behalf of Financial Security. The
Fiscal Agent is the agent of Financial Security only and the Fiscal Agent shall
in no event be liable to any Noteholder for any acts of the Fiscal Agent or any
failure of Financial Security to deposit, or cause to be deposited, sufficient
funds to make payments due under this Policy.
6. Waiver of Defenses. To the fullest extent permitted by applicable law,
Financial Security agrees not to assert, and hereby waives, for the benefit of
each Noteholder, all rights (whether by counterclaim, setoff or otherwise) and
defenses (including, without limitation, the defense of fraud), whether acquired
by subrogation,
4
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
assignment or otherwise, to the extent that such rights and defenses may be
available to Financial Security to avoid payment of its obligations under this
Policy in accordance with the express provisions of this Policy.
7. Notices. All notices to be given hereunder shall be in writing (except
as otherwise specifically provided herein) and shall be mailed by registered
mail or personally delivered or telecopied to Financial Security as follows:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President - Surveillance
Re: National Auto Finance 1997-1 Trust, 6.35% Automobile
Receivables-Backed Notes
Telecopy No.: (212) 339-3518
Confirmation: (212) 826-0100
Financial Security may specify a different address or addresses by writing
mailed or delivered to the Trust Collateral Agent.
8. Priorities. In the event any term or provision of the face of this
Policy is inconsistent with the provisions of this Endorsement, the provisions
of this Endorsement shall take precedence and shall be binding.
9. Exclusions From Insurance Guaranty Funds. This Policy is not covered by
the Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law. This Policy is not covered by the Florida Insurance Guaranty
Association created under Part II of Chapter 631 of the Florida Insurance Code.
In the event Financial Security were to become insolvent, any claims arising
under this Policy are excluded from coverage by the California Insurance
Guaranty Association, established pursuant to Article 14.2 of Chapter 1 of Part
2 of Division 1 of the California Insurance Code.
10. Surrender of Policy. The Holder shall surrender this Policy to
Financial Security for cancellation upon expiration of the Term Of This Policy.
IN WITNESS WHEREOF, FINANCIAL SECURITY ASSURANCE INC. has caused this
Endorsement No. 1 to be executed by its Authorized Officer.
FINANCIAL SECURITY ASSURANCE INC.
By
Authorized Officer
5
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
Exhibit A To Endorsement No. 1
NOTICE OF CLAIM AND CERTIFICATE
[Letterhead of Trust Collateral Agent]
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Re: National Auto Finance 1997-1 Trust
$66,891,200 6.35% Automobile Receivables-Backed Notes
The undersigned, a duly authorized officer of Harris Trust and Savings Bank
(the "Trust Collateral Agent"), hereby certifies to Financial Security Assurance
Inc. ("Financial Security"), with reference to Financial Guaranty Insurance
Policy No. 50609-N dated July 23, 1997 (the "Policy") issued by Financial
Security in respect of the National Auto Finance 1997-1 Trust, 6.35% Automobile
Receivables-Backed Notes (the "Obligations"), that:
(i) The Trust Collateral Agent is the Trust Collateral Agent under the
Sale and Servicing Agreement and the Indenture for the Noteholders.
(ii) The sum of all amounts on deposit (or scheduled to be on deposit)
in the Collection Account, the Distribution Account and the Note
Distribution Account and available for distribution to the Holders pursuant
to the Sale and Servicing Agreement will be $ (the "Shortfall") less
than the Scheduled Payments with respect to the Distribution Date occurring
, 19 .
(iii) The Trust Collateral Agent is making a claim under the Policy
for the Shortfall to be applied to distributions of Scheduled Payments with
respect to the Obligations.
(iv) The Trust Collateral Agent agrees that, following receipt of
funds from Financial Security, it shall (a) hold such amounts in trust and
apply the same directly to the payment of Scheduled Payments on the
Obligations when due; (b) not apply such funds for any other purpose; (c)
not commingle such funds with other funds held by the Trust Collateral
Agent; and (d) maintain an accurate record of such payments with respect to
each Obligation and the corresponding claim on the Policy and proceeds
thereof and, if the Obligation is required to be surrendered or presented
for such payment, shall stamp on each such Obligation the legend "$[insert
applicable
A-1
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
amount] paid by Financial Security and the balance hereof has been canceled
and reissued" and then shall deliver such Obligation to Financial Security.
(v) The Trust Collateral Agent, on behalf of the Holders, hereby
assigns to Financial Security the rights of the Holders with respect to the
Obligations to the extent of any payments under the Policy, including,
without limitation, any amounts due to the Holders in respect of securities
law violations arising from the offer and sale of the Obligations. The
foregoing assignment is in addition to, and not in limitation of, rights of
subrogation otherwise available to Financial Security in respect of such
payments. The Trust Collateral Agent shall take such action and deliver
such instruments as may be reasonably requested or required by Financial
Security to effectuate the purpose or provisions of this clause (v).
(vi) The Trust Collateral Agent, on its behalf and on behalf of the
Holders, hereby appoints Financial Security as agent and attorney-in-fact
for the Trust Collateral Agent and each such Holder in any legal proceeding
with respect to the Obligations. The Trust Collateral Agent hereby agrees
that Financial Security may at any time during the continuation of any
proceeding by or against any debtor with respect to which a Preference
Claim (as defined below) or other claim with respect to the Obligations is
asserted under the United States Bankruptcy Code or any other applicable
bankruptcy, insolvency, receivership, rehabilitation or similar law (an
"Insolvency Proceeding") direct all matters relating to such Insolvency
Proceeding, including without limitation, (A) all matters relating to any
claim in connection with an Insolvency Proceeding seeking the avoidance as
a preferential transfer of any payment made with respect to the Obligations
(a "Preference Claim"), (B) the direction of any appeal of any order
relating to any Preference Claim at the expense of Financial Security but
subject to reimbursement as provided in the Insurance Agreement and (C) the
posting of any surety, supersedeas or performance bond pending any such
appeal. In addition, the Trust Collateral Agent hereby agrees that
Financial Security shall be subrogated to, and the Trust Collateral Agent
on its behalf and on behalf of each Holder, hereby delegates and assigns,
to the fullest extent permitted by law, the rights of the Trust Collateral
Agent and each Holder in the conduct of any Insolvency Proceeding,
including, without limitation, all rights of any party to an adversary
proceeding or action with respect to any court order issued in connection
with any such Insolvency Proceeding.
(vii) Payment should be made by wire transfer directed to [Specify
Account].
Unless the context otherwise requires, capitalized terms used in this
Notice of Claim and Certificate and not defined herein shall have the meanings
provided in the Policy.
A-2
<PAGE>
Policy No.: 50609-N Date of Issuance: July 23, 1997
IN WITNESS WHEREOF, the Trust Collateral Agent has executed and delivered
this Notice of Claim and Certificate as of the day of , .
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely
as Trust Collateral Agent
By
Title:
- --------------------------------------------------------------------------------
For Financial Security or Fiscal Agent Use Only
Wire transfer sent on by
Confirmation Number
A-3
<PAGE>
================================================================================
PURCHASE AND CONTRIBUTION AGREEMENT
BETWEEN
NATIONAL AUTO FINANCE COMPANY, INC.
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST
------------------------------
DATED AS OF JUNE 29, 1997
================================================================================
<PAGE>
PURCHASE AND CONTRIBUTION AGREEMENT
-----------------------------------
PURCHASE AND CONTRIBUTION AGREEMENT, dated as of June 29,
1997, by and between National Auto Finance Company Inc., a Delaware corporation
("NAFI"), and National Financial Auto Funding Trust, a Delaware business trust
("National Financial").
W I T N E S S E T H :
In consideration of the mutual covenants herein contained,
NAFI and National Financial agree as follows:
ARTICLE I
DEFINITIONS
1.1 Incorporation of Definitions. Capitalized terms used but not defined
herein have the meanings ascribed to them in the Sale and Servicing Agreement
(as amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof, the "Sale and Servicing Agreement"), dated as of June
29, 1997, by and among National Financial, as Seller, NAFI, as Servicer,
Wilmington Trust Company, in its capacity as owner trustee of the National Auto
Finance 1997-1 Trust (the "1997-1 Trust"), and Harris Trust and Savings Bank,
not in its individual capacity, but solely as Trust Collateral Agent and Backup
Servicer (the "Trust Collateral Agent").
Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Bankruptcy Event: The occurrence of either of the following
with respect to either NAFI or National Financial:
(a) a case or other proceeding shall be commenced, without the
application or consent of NAFI or National Financial, as applicable,, in any
court, seeking the liquidation, reorganization, debt arrangement, dissolution,
winding up, or composition or readjustment of debts of NAFI or National
Financial, as applicable,, the appointment of a trustee, receiver, custodian,
liquidator, assignee, sequestrator or the like for NAFI or National Financial,
as applicable, or for any substantial part of its assets, or any similar action
with respect to NAFI or National Financial, as applicable, under any law
(foreign or domestic) relating to bankruptcy, insolvency, receivership,
reorganization, winding up or composition or adjustment of debts, and such case
or proceeding shall continue undismissed, or unstayed and in effect, for a
period of 60 (sixty) days or an order for relief in respect of NAFI or National
Financial, as applicable, shall be entered in an involuntary case under the
federal bankruptcy laws or other similar laws (foreign or domestic) now or
hereafter in effect; or
<PAGE>
(b) NAFI or National Financial, as applicable, shall commence
a voluntary case or other proceeding under any applicable bankruptcy,
insolvency, receivership, reorganization, debt arrangement, dissolution or other
similar law now or hereafter in effect, or shall consent to the appointment of
or taking possession by a trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for NAFI or National Financial, as applicable, or for
any substantial part of its assets, or shall make any general assignment for the
benefit of creditors, or shall fail to, or admit in writing its inability to,
pay its debts generally as they become due.
Collection Date: With respect to a Receivable, the date in
each Due Period on which a scheduled payment on such Receivable is due.
Conveyance: As defined in Section 2.3(b).
Cut-off Date: With respect to an Initial Receivable, the
Initial Cut-off Date, and with respect to any Subsequent Receivable, the related
Subsequent Cut-off Date.
Individual Sold Balance: With respect to any Receivable, the
original principal balance of such Receivable reduced by the portion of each
payment received thereon before the applicable Cut-off Date that would represent
principal if such payments were allocated to the principal of and interest on
such Receivable based on the amortization method provided in the Contract.
Insurance Proceeds: Proceeds paid by any insurer pursuant to
any insurance policy covering a Financed Vehicle or the related Obligor.
Liquidation Proceeds: With respect to a Liquidated Receivable,
all amounts (including without limitation, Insurance Proceeds) realized with
respect to such Receivable net of amounts that are required to be refunded to
the Obligor on such Receivable; provided however, that the Liquidation Proceeds
with respect to any Receivable shall in no event be less than zero.
Master Trust: National Financial Auto Receivables Master
Trust.
Purchase Price: As defined in Section 2.1.
Receivable: Each motor vehicle retail installment sale
contract and security agreement (including any and all rights to receive
payments thereunder on and after the applicable Cut-off Date and security
interests in the Financed Vehicle securing such contract or note) assigned and
transferred to National Financial hereunder as of the Closing Date or a
Subsequent Transfer Date and not reassigned, retransferred or otherwise released
in accordance herewith, each such Receivable being identified in the Receivable
Schedule attached hereto as Schedule 1 or a Receivable Schedule attached to a
Transfer Agreement, as applicable.
Receivable Assets: The assets sold, transferred, conveyed and
assigned by NAFI to National Financial pursuant to this Agreement, which consist
of (i) all Receivables identified in the Receivable Schedules attached to the
Conveyances delivered hereunder on each Subsequent Transfer Date and all monies
received thereon on or after the related Cut-off Date (including amounts due on
or before the Cut-off Date but received by NAFI on or after such Cut-off Date);
2
<PAGE>
(ii) any proceeds and the right to receive proceeds with respect to the the
Receivables from claims on any physical damage, credit life or disability
insurance policies covering Financed Vehicles or Obligors, including rebates of
insurance premiums relating to the Receivables and any proceeds from the
liquidation of the Receivables; (iii) all rights against Dealers pursuant to
Dealer Agreements or against Originators pursuant to Originator Agreements; (iv)
the related Receivables Files and any and all other documents that NAFI keeps on
file in accordance with its customary procedures relating to the Receivables,
the Obligors or the Financed Vehicles; (v) property (including the right to
receive future Liquidation Proceeds) that secures a Receivable and that has been
acquired by or on behalf of the Trust pursuant to liquidation of such
Receivable; (vi) all funds on deposit from time to time in the Trust Accounts
(less all investments and proceeds thereof), and all rights of the Issuer
therein; and (vii) the proceeds of any and all of the foregoing.
Receivable Documents: With respect to a Receivable, all
Receivable papers and documents (including those contained in the Receivable
File) and all other papers and records (including computerized data) of whatever
size or description, whether developed or originated by NAFI, a Dealer,
Originator or another Person, required to document the Receivable or to service
the Receivable.
Receivable File: With respect to a Receivable, the fully
executed original of such Receivable; the assignment of such Receivable by a
Dealer or Originator to NAFI, the original Title Document or UCC financing
statement evidencing that the security interest in a Financed Vehicle granted to
NAFI under such Receivable has been perfected under applicable public state law
(except for any Title Documents or UCC financing statements not returned from
the applicable records office, in which case NAFI will deliver to National
Financial, on the Closing Date or the Subsequent Transfer Date, as the case may
be, an Officer's Certificate of NAFI indicating that the original of such Title
Document has been applied for at, or the original of such UCC financing
statement was delivered to, such public office and shows NAFI as the lienholder
or secured party and that NAFI will deliver the originals thereof when returned
from such office); the original of any assumption agreement or any modification,
extension or refinancing agreement; and the original application of the related
Obligor to obtain the financing extended by such Receivable.
Receivable Schedule: The schedule of Receivables attached
hereto as Schedule 1 or attached as Schedule 1 to any Conveyance delivered
hereunder, such schedule identifying each Receivable by name of the Obligor and
setting forth as to each Receivable its Individual Sold Balance as of the
Cut-off-Date, loan number, Receivable Rate, scheduled monthly payment of
principal and interest, final maturity date and original principal amount.
Unearned Financing Charge: With respect to any Receivable, the
amount of the add-on finance charge that, under the term of the Receivable,
would be required to be refunded or credited to the related Obligor in
accordance with such Receivable if such Receivable were then prepaid in full.
3
<PAGE>
ARTICLE II
PURCHASE SALE AND CONTRIBUTION
------------------------------
2.1 Purchase and Contribution. (a) Subject to and on the terms and
conditions set forth herein, NAFI hereby transfers, conveys and assigns, without
recourse except as expressly set forth herein, as a contribution of capital to
National Financial, all of its right, ittle and interest in and to (i) the
Receivables identified on the Receivables Schedule attached hereto as Schedule 1
and all monies received thereon on or after the Initial Cut-off Date (including
amounts due on or before the Initial Cut-off Date but received by NAFI on or
after the Initial Cut-off Date) and (ii) the other Receivable Assets related
thereto.
(b) Pursuant to and in connection with the transfer of certain
retail installment sale contracts or promissory notes or other financing
documents for a new or used motor vehicles and certain other property related
thereto by Bankers Trust Company ("Bankers Trust"), as trustee of the National
Financial Auto Receivables Master Trust (the "Master Trust") to National
Financial Auto Funding Trust II, a Delaware business trust ("Funding Trust II"),
under the Assignment Agreement dated as of June 29, 1997 (the "Assignment
Agreement"), between Bankers Trust and Funding Trust II, and by Funding Trust II
to National Financial under the Sale Agreement dated as of June 29, 1997 (the
"Sale Agreement"), between Funding Trust II and National Financial, NAFI hereby
transfers, conveys and assigns, without recourse except as expressly set forth
herein, all of NAFI's rights against Dealers under the Dealer Agreements and
Originators under the Originator Agreements with respect to such retail
installment sales contracts, promissory notes or other financing documents, to
the extent such rights have not been previously conveyed by NAFI to Funding
Trust II and by Funding Trust II to the Master Trust.
(c) Subject to and on the terms and conditions set forth
herein, NAFI hereby agrees to sell, transfer, convey and assign, without
recourse except as expressly provided herein, all of its right, title and
interest in and to the Receivable Assets to National Financial on each
Subsequent Transfer Date. National Financial agrees to pay to NAFI on each
Subsequent Transfer Date as the purchase price (the "Purchase Price") for the
Receivable Assets sold hereunder on such date an amount equal to 100% of the
Aggregate Principal Balance of the Receivables included in such Receivable
Assets as of the related Cut-off Date.
(d) NAFI may from time to time during the term of this
Agreement and in its sole discretion, elect to contribute capital to National
Financial in the form of Receivables and Receivable Assets conveyed hereunder,
in an amount equal to the excess of (i) the Principal Balance of Receivables
included in Receivable Assets conveyed on any Subsequent Transfer Date over (ii)
the amount of the cash Purchase Price paid by National Financial to NAFI on such
Subsequent Transfer Date.
2.2. Filings. On or prior to the Closing Date, NAFI shall have filed in the
office of the Secretary of State of Florida a UCC financing statement,
appropriate under the applicable UCC, to reflect the transfer of the Receivables
identified on the Receivable Schedule attached hereto as Schedule 1 and the
other Related Assets related thereto by NAFI to National Financial on the
4
<PAGE>
Closing Date and the Receivable Assets to be transferred from NAFI to National
Financial on any Subsequent Transfer Date and to protect National Financial's
interest in the Receivable Assets against all other Persons. NAFI shall
thereafter file any appropriate continuation statements in respect thereof.
Sales. (a) During the Pre-Funding Period, National Financial
shall, to the extent permitted by the Sale and Servicing Agreement, use funds on
deposit in the Pre-Funding Account established under the Sale and Servicing
Agreement to purchase Subsequent Receivables and other Receivable Assets from
NAFI. On or prior to each Subsequent Transfer Date, NAFI shall notify National
Financial in writing of the outstanding principal amount of eligible Receivables
included in Receivable Assets available to be sold and conveyed by NAFI to
National Financial on such Subsequent Transfer Date pursuant to this Agreement,
and subject to the terms and conditions of this Agreement, NAFI shall, on the
applicable Subsequent Transfer Date, sell and convey to National Financial
eligible Receivables and other Receivable Assets having an aggregate outstanding
principal amount equal to the amount specified in such written notice. Each
Subsequent Transfer Date shall be on the date and at the time and place mutually
agreed upon by National Financial and NAFI with the prior written consent of the
Insurer. Payment of the Purchase Price for the Subsequent Receivables and other
Receivable Assets sold and conveyed on a Subsequent Transfer Date shall be made
by National Financial to NAFI. National Financial's obligation to purchase
Subsequent Receivables and other Receivable Assets shall be limited by the
amount of funds available for such purchase in the Pre-Funding Account pursuant
to the Sale and Servicing Agreement and shall be subject to the satisfaction of
the conditions in the Sale and Servicing Agreement.
(b) On or prior to the Closing Date, NAFI shall (i) deliver to
National Financial or such other Person as National shall direct the original
motor vehicle retail installment sale contracts, duly endorsed by NAFI and the
Receivable Files with respect to each Initial Receivable included in the
Receivable Assets then being sold to National Financial, (ii) deliver to
National Financial or such other Person as National Financial shall direct cash
equal to all payments received by NAFI on such Initial Receivables on or after
the Initial Cut-off Date and on or before two Business Days prior to such
Initial Transfer Date. Within two Business Days after such Initial Transfer
Date, NAFI shall deliver to National Financial or such other Person as National
Financial shall direct all other payments received by NAFI on such Initial
Receivables on or after the applicable Cut-off Date and on or before the Closing
Date. National Financial hereby directs NAFI to deliver the materials referenced
in the preceding clause (i) of the second preceding sentence to OFSA, as
Custodian, and hereby directs NAFI to remit any payments received by NAFI and
referenced in the preceding sentence or in clause (ii) of the second preceding
sentence to the Collection Account.
(c) On or prior to any Subsequent Transfer Date, NAFI shall
(i) deliver to National Financial a conveyance instrument substantially in the
form attached hereto as Exhibit A (a "Conveyance") with respect to the
Receivable Assets sold and conveyed hereunder on such Subsequent Transfer Date,
(ii) deliver to National Financial or such other Person as National Financial
shall direct the original motor vehicle retail installment sale contracts, duly
endorsed by NAFI and the Receivable Files with respect to each Subsequent
Receivable included in the Receivable Assets then being sold to National
Financial, (iii) deliver to National Financial or such other Person as National
5
<PAGE>
Financial shall direct cash equal to all payments received by NAFI on such
Subsequent Receivables on or after the applicable Cut-off Date and on or before
two Business Days prior to such Subsequent Transfer Date. Within two Business
Days after such Subsequent Transfer Date, NAFI shall deliver to National
Financial or such other Person as National Financial shall direct all other
payments received by NAFI on such Subsequent Receivables on or after the
applicable Cut-off Date and on or before such Subsequent Transfer Date. National
Financial hereby directs NAFI to deliver the materials referenced in the
preceding clause (ii) of the second preceding sentence to OFSA, as Custodian,
and hereby directs NAFI to remit any payments received by NAFI and referenced in
the preceding sentence or in clause (iii) of the second preceding sentence to
the Collection Account.
2.3. No Recourse. Except as specifically provided in this Agreement, the sale
and purchase of Receivables and other Receivable Assets under this Agreement
shall be without recourse to NAFI; provided that NAFI shall be liable to
National Financial for all representations, warranties and covenants made by
NAFI pursuant to the terms of this Agreement, it being understood that such
obligations of NAFI do not constitute recourse for the credit risk of the
Obligors.
2.4. True Sales. NAFI and National Financial intend that the transactions
contemplated hereby be true sales of Receivables and other Receivable Assets by
NAFI to National Financial providing National Financial with the full benefits
of ownership of the Receivables and other Receivable Assets free and clear of
any Liens, and neither NAFI nor National Financial intends the transactions
contemplated hereby to be, or for a purpose to be characterized as, a loan from
National Financial to NAFI. NAFI shall reflect sales of the Receivable Assets
hereunder on its balance sheet and other financial statements as sales of
assets, and shall treat such sales as sales for all purposes. NAFI will respond
to third party inquiries by indicating that the Receivables have been sold.
2.5. Receipt of Payments after Closing Date and Subsequent Transfer Dates.
National Financial shall be entitled to all payments received or receivable with
respect to any Receivable or Subsequent Receivable sold and conveyed by NAFI to
National Financial hereunder that are received on and after the applicable
Cut-off Date. If NAFI receives any payment on a Receivable belonging to the
Trust, NAFI promptly shall turn such payment over to the Trust Collateral Agent
not later than two Business Days after receipt for deposit in the Collection
Account.
2.6. Servicing of Receivables. Consistent with National Financial's ownership of
the Receivable Assets, National Financial shall have the sole right to service,
administer and collect the Receivables, to assign such right and to delegate
such right to others. In consideration of National Financial's purchase of the
Receivable Assets, NAFI agrees to cooperate fully with National Financial to
facilitate the full and proper performance of such duties and obligations for
the benefit of National Financial.
2.7. Other Sales. Prior to the end of the Pre-Funding Period, NAFI shall not
sell, transfer, convey or assign any motor vehicle retail installment sale
contract originated or purchased by it, except as follows: (i) NAFI may sell,
transfer, convey and assign any such motor vehicle retail installment sale
contract to National Financial pursuant to this Agreement; (ii) NAFI may sell,
transfer, convey and assign to any Person, without limitation, any such motor
vehicle retail installment sale contract that does not comply with the
6
<PAGE>
representations and warranties set forth in Section 4.1(b) or, if included in
the Trust, would result in a violation of clause (v) of Article III; and (iii)
NAFI may sell, transfer, assign and convey such motor vehicle retail installment
sale contract to any Person, without limitation, pursuant to a warehouse
lending, repurchase or other similar arrangement for the financing of the
Receivable Assets pending transfer to NAFI hereunder on the next Subsequent
Transfer Date.
2.8. Protection of Title to Interest.
(a) NAFI shall execute and file such financing statements and
cause to be executed and filed such continuation and other statements, all in
such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of National Financial, the 1997-1 Trust, the
Trust Collateral Agent and the Insurer under this Agreement in the Trust
Property and in the proceeds thereof. NAFI shall deliver (or cause to be
delivered) to National Financial and the Insurer file-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing.
(b) NAFI 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 National Financial in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Trust Collateral Agent and the
Insurer (so long as an Insurer Default shall not have occurred and be
continuing) at least 60 days prior written notice thereof, and shall promptly
file appropriate amendments to all previously filed financing statements and
continuation statements as may be required to preserve and protect National
Financial's interest in the Receivable Assets, which filings shall be made no
later than 30 days after the effective date of any such change.
(c) NAFI shall give National Financial, the Trust Collateral
Agent and the Insurer at least 60 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 of
any previously filed financing or continuation statement or of any new financing
statement, and shall promptly file appropriate amendments to all previously
filed financing statements and continuation statements as may be required to
preserve and protect National Financial's interest in the Receivable Assets,
which filings shall be made no later than 30 days after the effective date of
any such change. NAFI shall at all times maintain each office from which it
services Receivables and its principal executive office within the United States
of America.
(d) If at any time NAFI proposes to sell, grant a security
interest in, or otherwise transfer any interest in automotive receivables to any
prospective purchaser, lender or other transferee, NAFI shall give to such
prospective purchaser, lender or other transferee computer tapes, records or
printouts (including any restored from backup archives) that, if they refer in
any manner whatsoever to any Receivable, indicate clearly that such contract has
been sold and is owned by the 1997-1 Trust unless such Receivable has been paid
in full or repurchased by NAFI, National Financial or the Servicer.
7
<PAGE>
(e) NAFI shall permit National Financial, the Trust Collateral
Agent, the Insurer and their respective agents, at any time to inspect, audit
and make copies of and abstracts from NAFI's records regarding any Receivables
or any other portion of the Trust Property.
(f) NAFI shall furnish to National Financial, the Trust
Collateral Agent and the Insurer at any time upon request a list of all
Receivables then held as part of the Trust, together with a reconciliation of
such list to the Receivable Schedules and to each of the Servicer's statements
furnished before such request indicating removal of Receivables from the Trust.
The Trust Collateral Agent shall hold any such list and Receivable Schedules for
examination by interested parties during normal business hours at the Corporate
Trust Office upon reasonable notice by such Persons of their desire to conduct
an examination.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
National Financial's obligation to purchase Receivable Assets
hereunder on each Subsequent Transfer Date shall be subject to the execution,
delivery and effectiveness of the Sale and Servicing Agreement and the Indenture
and the delivery of the purchase price for the Notes to National Financial by
the initial purchasers thereof. In addition, the obligation of National
Financial to purchase Receivable Assets hereunder on each Subsequent Transfer
Date shall be further subject to the satisfaction of the following conditions on
or before the Closing Date or such Subsequent Transfer Date, as the case may be:
(i) all representations and warranties of NAFI
contained in Section 4.1(a) shall be true and correct and
all representations and warranties of NAFI in Section 4.1(b)
shall be true and correct with respect to the Receivables
sold, transferred, conveyed and assigned to National
Financial on the Subsequent Transfer Date, in each case, on
and as of such Subsequent Transfer Date, as the case may be;
(ii) on such Subsequent Transfer Date, NAFI shall have
duly completed and executed to National Financial a
Conveyance conforming to the requirements of Section 2.03(b)
or 2.4(b), as applicable;
(iii) on or before such Subsequent Transfer Date, (a)
NAFI shall have delivered to National Financial or such
other Person as National Financial shall direct the original
motor vehicle retail installment sale contract, duly
endorsed by NAFI to National Financial, and the Receivable
Files that relate to each Receivable included in the
Receivable Assets then being sold by NAFI to National
Financial and (b) NAFI shall have performed all other
obligations then required to be performed by it pursuant to
this Agreement, including, without limitation, Sections 2.2
and 2.3 (b) or 2.4(b), as applicable;
(iv) no Bankruptcy Event or Servicer Termination Event
shall have occurred and be continuing on and as of such
Subsequent Transfer Date; 8
<PAGE>
(v) as of such Subsequent Transfer Date, the
Receivables then in the Trust, together with the Subsequent
Receivables to be transferred to National Financial on such
Subsequent Transfer Date, shall meet the following criteria
(computed based on the characteristics of the Subsequent
Receivables as of the applicable Subsequent Cut-off Date):
(A) the weighted average Interest Rate of the Receivables
shall not be less than 18.0%, (B) the weighted average
remaining term of the Receivables shall not be greater than
55 months, and (C) not more than 80% of the Aggregate
Principal Balance Receivables shall represent loans to
finance the purchase of used Financed Vehicles and (D) the
final scheduled payment date on the Receivable with the
latest maturity shall not be later than October 30, 2002;
and
(vi) all conditions precedent in Section 2.2 of the
Sale and Servicing Agreement to the transfer and assignment
of such Subsequent Receivables to the Trust pursuant to the
Sale and Servicing Agreement shall have been satisfied.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
(a) NAFI hereby represents, warrants and covenants to National
Financial on and as of the Closing Date and each Subsequent Transfer Date that:
(i) NAFI is a Delaware corporation duly organized,
validly existing, and in good standing under the laws of the
state of its incorporation and has all licenses necessary to
carry on its business as now being conducted and shall
appoint and employ agents or attorneys in each jurisdiction
where it shall be necessary to take action under this
Agreement; NAFI has the full power and authority to own its
property, to carry on its business as presently conducted,
and to execute, deliver and perform this Agreement
(including all instruments of transfer to be delivered
pursuant to this Agreement) by NAFI and the consummation of
the transaction contemplated hereby have been duly and
validly authorized; this Agreement evidences the valid,
binding and enforceable obligation of NAFI (subject to
applicable bankruptcy and insolvency laws and other similar
laws affecting the enforcement of creditors' rights
generally); and all requisite corporate action has been
taken by NAFI to make this Agreement valid and binding upon
NAFI;
(ii) NAFI is not required to obtain the consent of any
other party or obtain the consent, license, approval or
authorization of, or make any registration or declaration
with, any governmental authority, bureau or agency in
connection with the execution, delivery, performance,
validity or enforceability of this Agreement except for
those which have been obtained;
(iii) the consummation of the transactions contemplated
by this Agreement will not result in the breach of any term
or provision of the bylaws of NAFI or result in the breach
of any term or provision of, or conflict with or constitute
a default (with or without notice, lapse of time, or both)
under or result in the acceleration of any obligation under,
any material agreement, indenture or loan or credit
agreement or other
9
<PAGE>
instrument to which NAFI or its property is subject, or
result in the violation of any law (including, without
limitation, any bulk transfer or similar law), rule,
regulation, order, judgment or decree to which NAFI or its
property or the Receivables are subject;
(iv) no statement, report or other document furnished
or to be furnished pursuant to this Agreement or in
connection with the transaction contemplated hereby contains
or will, when furnished, contain any untrue statement of a
material fact or omits or will, when furnished, omit to
state a material fact necessary to make the statements
contained therein not misleading, in light of the
circumstances under which they were made;
(v) neither NAFI nor any of its subsidiaries or
affiliates is a party to, bound by or in breach or violation
of any indenture or other agreement or instrument, or is
subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it,
which materially and adversely affects, or may in the future
materially and adversely affect, the ability of NAFI to
perform its obligations under this Agreement;
(vi) there are no actions, suits or proceedings pending
or, to the knowledge of NAFI, threatened against NAFI,
before or by any court, regulatory body, administrative
agency, arbitrator or governmental body with respect to any
of the transactions contemplated by this Agreement, which
will, if determined adversely to NAFI, affect the validity
or enforceability hereof or materially and adversely affect
NAFI's ability to perform its obligations under this
Agreement;
(vii) NAFI has obtained or made all necessary consents,
approvals, waivers and notifications of creditors, lessors
and other non-governmental persons, in each case, in
connection with the execution and delivery of this
Agreement, and the consummation of all the transactions
herein contemplated;
(viii) NAFI shall not take any action to impair
National Financial's rights in any Receivable; and
(ix) NAFI is solvent and will not become insolvent
after giving effect to the transactions contemplated
hereunder and under the Basic Documents; NAFI is paying its
debts as they become due; NAFI, after giving effect to the
contemplated transactions, will have adequate capital to
conduct its business.
NAFI shall indemnify National Financial and the Insurer and
hold National Financial and the Insurer harmless against any loss and damages
resulting from a breach of the representations and warranties set forth in
Section 4.1(a).
(b) NAFI hereby represents and warrants to National Financial
as of the Closing Date with respect to the Initial Receivables contributed and
conveyed to National Financial on the Closing Date by NAFI pursuant to this
Agreement and
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the Initial Receivables sold and conveyed to National Financial on the Closing
Date by National Financial Auto Funding Trust II ("Funding Trust II") and as of
each Subsequent Transfer Date with respect to the Subsequent Receivables sold
and conveyed to National Financial on such Subsequent Transfer Date by NAFI
(unless another date or time period is otherwise specified or indicated in the
particular representation or warranty):
(i) the information regarding such Receivables set
forth in the applicable Receivable Schedule or Receivables
Schedule is true and correct in all material respects at the
applicable Cut-off Date; each Receivable was originated in
the United States of America and at the time of origination,
materially conformed to all requirements of the NAFI
underwriting policies and guidelines then in effect; and no
Obligor is the United States of America or any state or any
agency, department, subdivision or instrumentality thereof;
(ii) immediately prior to the Closing Date or such
Subsequent Transfer Date, as the case may be, Funding Trust
II or NAFI, as the case may be, had a valid and enforceable
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 exist or may hereafter arise, and Funding
Trust II or NAFI, as applicable, had the full right to
assign such security interest to National Financial;
(iii) on and after the Closing Date or such Subsequent
Transfer Date, as the case may be, there shall exist under
the Receivable a valid, subsisting and enforceable first
priority perfected security interest in the Financed Vehicle
security under such Receivable (other than, as to the
priority of such security interest, any statutory lien
arising by operation of law after the Closing Date or the
Subsequent Transfer Date, as the case may be, which is prior
to such interest) and at such time as enforcement of such
security interest is sought there shall exist a valid,
subsisting and enforceable first priority perfected security
interest in such Financed Vehicle in favor of National
Financial or its assigns (other than, as to the priority of
such security interest, any statutory lien arising by
operation of law after the Closing Date or such Subsequent
Transfer Date which is prior to such interest);
(iv) as of the Closing Date or such Subsequent Transfer
Date, as the case may be, each such Receivable has not been
sold, assigned or pledged to any other Person other than an
endorsement to the Servicer for purposes of servicing or any
such pledge has been released, and immediately prior to the
transfer and assignment contemplated by this Agreement or
the Sale Agreement, NAFI or National Financial Auto Funding
Trust II, as applicable, has good and marketable title to
each such Receivable free and clear of any encumbrance,
equity, pledge, charge, claim or security interest and is
the sole owner thereof and has full right to transfer each
such Receivable to National Financial and, upon the
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transfers pursuant to Article II or the Sale Agreement,
as applicable, National Financial will have good and
marketable title to each such clear of any encumbrance,
lien, pledge, charge, claim, security interest or rights of
others; the purchase of each such Receivable by NAFI from a
Dealer or Originator was not an extension of financing to
such Dealer or Originator. No Dealer or Originator has a
participation in, or other right to receive, proceeds of any
Receivable. NAFI, Funding Trust II, the Master Trust,
National Financial and the Originators have not taken any
action to convey any right to any Person that would result
in such Person having a right to payments received under the
related insurance policies, Dealer Agreement or Originator
Agreement or to payments due under such Receivable;
(v) as of the Closing Date or such Subsequent Transfer
Date, as the case may be, no such Receivable is delinquent
for more than thirty days in payment as to any scheduled
payment;
(vi) as of the Closing Date or such Subsequent Transfer
Date, as the case may be, there is no lien against any
related Financed Vehicle for delinquent taxes;
(vii) as of the Closing Date or such Subsequent
Transfer Date, as the case may be, there is no right of
rescission, offset, defense or counterclaim to the
obligation of the related Obligor to pay the unpaid
principal or interest due under such Receivable; the
operation of the terms of such Receivable or the exercise of
any right thereunder will not render such Receivable
unenforceable in whole or in part or subject to any right of
rescission, offset, defense or counterclaim, and no such
right of rescission, offset, defense or counterclaim has
been asserted;
(viii) as of the Closing Date or such Subsequent
Transfer Date, as the case may be, each such Receivable is
not assumable by another Person in a manner which would
release the Obligor thereon from such Obligor's obligations
to National Financial with respect to such Receivable;
(ix) as of the Closing Date or such Subsequent Transfer
Date, as the case may be, there are no prior liens or claims
for work, labor or material affecting any related Financed
Vehicle which are or may become a lien prior to or equal
with the security interest granted by such Receivable;
(x) each such Receivable, and the sale of the Financed
Vehicle securing such Receivable, where applicable,
complied, at the time it was made and as of the Closing Date
or related Subsequent Transfer Date, as applicable, 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 and loans 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 National Financial will not violate any such
laws;
(xi) each such Receivable is a legal, valid and binding
obligation of the Obligor thereunder and is enforceable in
accordance with its terms,
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except only as such enforcement of creditors' rights
generally whether enforcement is sought in a proceeding in
equity or at law, and all parties to such Receivable had
full legal capacity to execute such Receivable and all
documents related thereto and to grant the security interest
purported to be granted thereby at the time of execution and
grant;
(xii) as of the Closing Date or such Subsequent
Transfer Date, as the case may be, the terms of each such
Receivable have not been impaired, waived, altered or
modified in any respect, except by written instruments that
are part of the Receivable Documents, and no such Receivable
has been satisfied, subordinated or rescinded;
(xiii) at the time of origination of each such
Receivable, the proceeds of such Receivable were fully
disbursed, there is no requirement for future advances
thereunder, and all fees and expenses in connection with the
origination of such Receivable have been paid;
(xiv) as of the Closing Date or such Subsequent
Transfer Date, as the case may be, there is no default,
breach, violation or event of acceleration existing under
any such Receivable (except payment delinquencies permitted
by subparagraph (v) above) 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 or would otherwise
affect the value or marketability of such contract; and
NAFI, Funding Trust II or the Master Trust have not waived
any such default, breach, violation or event of acceleration
and as of the applicable Cut-off Date, the related Finance
Vehicle has not been repossessed;
(xv) at the origination date of each such Receivable,
the related Financed Vehicle was covered by a comprehensive
and collision insurance policy (i) in an amount at least
equal to the lesser of (a) and actual cash value of the
related Financed Vehicle or (b) the unpaid balance owing on
such Receivable, less the related Unearned Financing Charge,
(ii) naming NAFI as a loss payee and (iii) insuring against
loss and damage due to fire, theft, transportation,
collision and other risks generally covered by comprehensive
and collision coverage; each Receivable requires the Obligor
to maintain physical loss and damage insurance, naming NAFI
as an additional insured party;
(xvi) each such Receivable was acquired by NAFI from a
Dealer or Originator with which it ordinarily does business;
such Dealer or Originator had full right to assign to NAFI
such Receivable and the security interest in the related
Financed Vehicle (and the Dealer that assigned any such
Receivable to any such Originator had full right to assign
to such Originator such Receivable and the security interest
in the related Financed Vehicle) and the Dealer's or
Originator's assignment thereof to NAFI is legal, valid and
binding (and any such assignment by any Dealer to any
Originator is legal, valid and binding) and the Master Trust
had full right to assign to NAFI or Funding Trust II, as the
case may be, such Receivable and the security interest in
the related Financed Vehicle and NAFI or Funding Trust II,
as the case may be, had full right to assign to National
Financial such Receivable and the security interest in the
related Financed Vehicle and NAFI's or Funding Trust II's
assignment thereof to National Financial is legal, valid and
binding;
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<PAGE>
(xvii) each 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;
(xviii) scheduled payments under each such Receivable
are due monthly (or, in the case of the first payment, no
later than the forty-fifth day after the date of the
Receivable) in substantially equal amounts to maturity
(other than with respect to those Receivables designated as
balloon contracts on the related Receivable Schedule), and
will be sufficient to fully amortize such Receivable at
maturity, assuming that each scheduled payment is made on
its Due Date; such scheduled payments are applicable only to
payment of principal and interest on such Receivable and not
to the payment of any insurance premiums (although the
proceeds of the extension of credit on such Receivable may
have been used to pay insurance premiums); the original term
to maturity of such Receivable was not more than 60 months;
(xix) the collection practices used with respect to
each such Receivable have been in all material respects
legal, proper, prudent and customary in the automobile
installment sales contract or installment loan servicing
business;
(xx) there is only one original of each such
Receivable, the Servicer is currently in possession of the
Receivable Documents for such Receivable and there are no
custodial agreements in effect adversely affecting the right
of NAFI to make the deliveries required hereunder on the
Closing Date or such Subsequent Transfer Date;
(xxi) as of the Cut-off Date or Subsequent Cut-off
Date, as applicable, no Obligor was the subject of a current
bankruptcy proceeding;
(xxii) with respect to each Due Period, the aggregate
of the interest due on all the Receivables in such Due
Period from scheduled payments is in excess of the sum of
(i) Servicing Fee due and any fees due to the Trust
Collateral Agent and the Insurer, each in such Due Period
and (ii) the amount of interest payable on the Notes with
respect to such Due Period, in each case assuming that each
scheduled payment is made on its Due Date;
(xxiii) the Receivables constitute "chattel paper"
within the meaning of the UCC as in effect in the applicable
jurisdiction, and all filings (including without limitation,
UCC filings) required to be made and all actions required to
be taken or performed by any Person in any jurisdiction to
give National Financial a first priority perfected lien on,
or an ownership interest in the Receivables and the proceeds
thereof and the remaining Trust Property have been made,
taken or performed;
(xxiv) by the Closing Date and prior to each Subsequent
Transfer Date, as applicable, NAFI will have caused the
portions of NAFI's servicing records relating to the
Receivables to constitute part of the Trust Property and to
be owned by the Trust in accordance with the terms of this
Agreement;
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<PAGE>
(xxv) the computer tape or listing made available by
NAFI to the Trust Collateral Agent on the Closing Date and
on each Subsequent Transfer Date was complete and accurate
as of the applicable Cut-off Date, and includes a
description of the same Receivables that are described in
the applicable Receivable Schedule;
(xxvi) no Receivable was originated in, or is subject
to the laws of, any jurisdiction the laws of which would
make unlawful, void or voidable the sale, transfer and
assignment of such contract under this Agreement or the
Transfer Agreement, as applicable, or pursuant to transfers
of the Notes. National Financial has not entered into any
agreement with any account debtor that prohibits, restricts
or conditions the assignment of any portion of the
Receivables;
(xxvii) no selection procedures adverse to the
Noteholders or to the Insurer have been utilized in
selecting such Receivable from all other similar Receivables
originated by NAFI; and
(xxviii) as of the Initial Cut-off Date, the weighted
average annual percentage rate, as such term is used with
respect to the Federal Truth-in Lending Act ("APR") of the
Initial Receivables was approximately 19.38% and the
weighted average remaining scheduled maturity on the Initial
Receivables was approximately 50.31 months and the
percentage of the aggregate outstanding balance of the
Initial Receivables relating to the financing of used
Financed Vehicles was 80.45%. The final scheduled payment
date on the Initial Receivable with the latest maturity is
June 29, 2002. Each Receivable is a Simple Interest or
Actuarial Receivable.
In the event NAFI has breached any of the foregoing
representations and warranties and National Financial has accepted a retransfer
or is required to accept a retransfer of the affected Receivable pursuant to the
Sale and Servicing Agreement, NAFI shall, upon demand, repurchase such
Receivable from National Financial. In addition, with respect to any Receivable
in respect of which the Title Document was being applied for on the Closing Date
or the applicable Subsequent Transfer Date, as the case may be, if such Title
Document has not been received by National Financial or its transferee within
180 days after the Closing Date or such Subsequent Transfer Date, as the case
may be, and National Financial is required to accept a retransfer of such
Receivable pursuant to the Sale and Servicing Agreement, NAFI shall, upon demand
by National Financial, repurchase such Receivable. Any such repurchases by NAFI
shall be at a repurchase price equal to the Purchase Amount determined in the
manner provided in the Sale and Servicing Agreement. Such repurchase price shall
be paid by NAFI at the direction of National Financial and upon receipt of such
repurchase price, National Financial shall release, or cause to be released, to
NAFI the related Receivable File and National Financial or its transferee shall
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<PAGE>
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest in NAFI or its designee any
Receivable released pursuant thereof. Except as expressly provided in the next
sentence, it is understood and agreed that the obligation of NAFI to purchase
any Receivable as to which such a breach has occurred and is continuing as
described above shall constitute the sole remedy respecting such breach
available to National Financial. NAFI shall indemnify, defend and hold National
Financial harmless from and against any and all losses, damages, claims,
expenses and liabilities arising out of or relating to a breach by NAFI of its
representations and warranties in clauses (vii) and (x) of this Section 4.1(b).
Notwithstanding Section 5.1, it is understood and agreed that
the representations, warranties and covenants set forth in this Section 4.1
shall survive until the date upon which the Trust terminates pursuant to Section
11.1 of the Sale and Servicing Agreement.
ARTICLE V
DEFINITIONS
5.1 Term. This Agreement shall commence as of the Closing Date and shall
continue in full force and effect until the close of business on October 30,
1997.
5.2. Notices. All notices, demands and requests that may be given or that are
required to be given hereunder shall be sent by United States certified mail,
postage prepaid, return receipt requested, to the parties at their respective
addresses as follows:
IF TO NAFI: National Auto Finance Company, Inc.
One Park Place
Suite 200
Boca Raton, Florida 33487
Attention: President
Telecopy No.: (800) 787-6232
Confirmation: (800) 999-7535
IF TO NATIONAL FINANCIAL National Financial Auto Funding Trust
One Park Place
Suite 200
Boca Raton, Florida 33487
Attention:
Telecopy No.:
Confirmation: (407) 997-2747
WITH A COPY TO Chase Manhattan Bank Delaware
1201 North Market Street
Wilmington, Delaware 19801
Attn: Corporate Trust Administration
Department
IF TO THE TRUST COLLATERAL AGENT: Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
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<PAGE>
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopy No.: (312) 461-3525
Confirmation: (312) 461-4662
IF TO THE INSURER: Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: NAFI Auto Finance 1997-1 Trust,
6.35% Automobile Receivables-Backed
Notes
Telecopier No.: (212) 339-3518
(212) 339-3529
Confirmation: (212) 836-0100
5.3. CHOICE OF 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 HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
5.4. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
5.5. Amendment. This Agreement may be amended from time to
time by NAFI and National Financial to cure any ambiguity, to correct or
supplement any provisions herein which may be inconsistent with any other
provisions herein or therein, or to make any other provisions with respect to
matters or questions arising under this Agreement which shall not be materially
inconsistent with the provisions of this Agreement, provided that such action
shall not, as evidenced by an Opinion of Counsel delivered to the Trust
Collateral Agent, adversely affect in any material respect the interests of the
Noteholders and provided further that such action shall be consented to in
writing by the Insurer (unless an Insurer default shall have occurred and be
continuing).
5.6. 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 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.
5.7. Assignment. This Agreement may not be assigned by NAFI or
National Financial except as contemplated by this Section and the Sale and
Servicing Agreement; provided however, that simultaneously with the execution
and delivery
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<PAGE>
of this Agreement, National Financial shall assign all of its right, title and
interest under Section 4.1 to the 1997-1 Trust to which NAFI hereby expressly
consents. NAFI agrees to perform its obligations hereunder for the benefit of
the Trust and further agrees that the Trust Collateral Agent or the Insurer may
(but shall have no obligation to) enforce the provisions of Section 4.1 and
exercise the rights of National Financial to enforce the obligations of NAFI
under Section 4.1 on behalf of the Trust Collateral Agent and the Noteholders
without the consent of National Financial.
5.8. Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, and shall also be for the
benefit of the Trust Collateral Agent (for the benefit of the Noteholders) and
the Insurer, each of which shall be considered to be third-party beneficiaries
and shall be entitled to rely on and directly enforce the provisions of this
Agreement. Except as otherwise provided in this Agreement, no other Person will
have any right or obligation hereunder. The Insurer may disclaim any of its
rights and powers under this Agreement upon delivery of a written notice to the
Trust Collateral Agent and NAFI.
5.9. No Petition: NAFI hereby agrees that it will not
institute against National Financial, or join any other Person instituting
against National Financial, any bankruptcy or insolvency proceeding under any
applicable state or federal law so long as any Note issued pursuant to the
Indenture remains outstanding or there shall have not elapsed one year plus one
day since the date of the final payment on the Notes issued pursuant to the
Indenture. The foregoing shall not limit the right of NAFI to file any claim in
or otherwise take any action with respect to any bankruptcy or insolvency
proceeding that was instituted against National Financial by any Person other
than NAFI.
5.10. Limitation of Liability of National Financial Trustee:
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Chase Manhattan Bank Delaware not in its
individual capacity but solely as Trustee and in no event shall Chase Manhattan
Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of National Financial hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of National Financial.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Purchase and Contribution Agreement as of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: Chase Manhattan Bank Delaware, not in its
individual capacity but solely as Trustee of
National Financial Auto Funding Trust,
By: ____________________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.
By: ____________________________________
Name:
Title:
19
<PAGE>
EXHIBIT A
---------
FORM OF CONVEYANCE
CONVEYANCE No. ___, dated as of _______________, 19__, by National Auto
Finance Company, Inc., a Delaware corporation ("Originator"), to National
Financial Auto Funding Trust, a Delaware business trust ("National Financial"),
pursuant to the Purchase and Contribution Agreement referred to below.
WITNESSETH:
----------
WHEREAS, Originator and National Financial are parties to the Purchase
and Contribution Agreement, dated as of July __, 1997 (as such agreement may
have been, or may from time to time be, amended, supplemented or otherwise
modified, the "Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, Originator wishes to sell,
transfer, convey and assign Receivable Assets (as defined in the Purchase
Agreement) to National Financial;
NOW THEREFORE, Originator and National Financial hereby agree as
follows:
1. Defined Terms. All capitalized terms used but not defined
herein shall have meanings ascribed to them in the Purchase Agreement.
"Subsequent Transfer Date" shall mean, with respect to the
Receivable Assets sold hereby, ____________________, 199[ ].
2. Transfer of Receivables. For value received, Originator
hereby sells, transfers, assigns, sets-over and conveys to National Financial,
without recourse except as set forth in the Purchase Agreement, and with the
representations, warranties and covenants set forth in the Purchase Agreement,
on and after the Subsequent Transfer Date, all right, title and interest of
National Financial in, to and under all Subsequent Receivables listed in
Schedule 1 hereto and the Receivable Assets related thereto.
3. Delivery of Receivable Schedule. Originator does hereby
deliver National Financial herewith a Receivable Schedule containing a true and
complete list of each Subsequent Receivable being sold hereby as of the
Subsequent Transfer Date. Such Receivable Schedule is marked as Schedule 1 to
this Conveyance and is hereby incorporated in and made a part of this Conveyance
and the Purchase Agreement.
4. Receivable Files. Originator does hereby deliver to
National Financial or such other Person designated by National Financial the
original motor vehicle retail installment sale contracts and Receivable Files
for each Receivable identified in the Receivable Schedule.
5. Acceptance and Acknowledgment. National Financial hereby
acknowledges its acceptance of all right, title and interest of Originator in,
to and under the
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<PAGE>
Receivables and the other Receivable Assets sold hereby. Originator further
acknowledges that, prior to or simultaneously with the execution and delivery of
this Conveyance the conditions precedent to such sale set forth in Article III
of the Purchase Agreement have been satisfied.
6. Certification; Representations and Warranties. Originator
hereby certifies to National Financial that all applicable requirements of
Article III of the Purchase Agreement have been fully satisfied and that all
representations and warranties of Originator set forth in Section 4.1(a) of the
Purchase Agreement are true and correct on and as of the date hereof and all
representations and warranties of Originator set forth in Section 4.1(b) of the
Purchase Agreement are true and correct on and as of the date hereof with
respect to the Subsequent Receivables sold hereby. The aggregate outstanding
principal balance of the Subsequent Receivables sold hereby as of the applicable
Cut-off Date is $__________________.
7. The Purchase Agreement. The Purchase Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms, and hereby is ratified and confirmed in all respects.
8. Counterparts. This Conveyance may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument.
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SCHEDULE 1
----------
SCHEDULE OF RECEIVABLES
22
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SALE AGREEMENT
BETWEEN
NATIONAL FINANCIAL AUTO FUNDING TRUST II
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST
------------------
DATED AS OF JUNE 29, 1997
- --------------------------------------------------------------------------------
<PAGE>
SALE AGREEMENT
SALE AGREEMENT, dated as of June 29, 1997, by and between NATIONAL
FINANCIAL AUTO FUNDING TRUST, a Delaware business trust ("Funding Trust I"), and
NATIONAL FINANCIAL AUTO FUNDING TRUST II, a Delaware business trust ("Funding
Trust II").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, Funding
Trust I and Funding Trust II agree as follows:
ARTICLE I
DEFINITIONS
1.1. Incorporation of Definitions. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Pooling and
Administration Agreement dated as of December 8, 1994 (the "Pooling and
Administration Agreement"), among Funding Trust II, as transferor, National Auto
Finance Company, Inc. ("NAFI") (as successor to National Auto Finance Company
L.P.), as Administrator, and Bankers Trust Company, as Trustee, or the
Assignment Agreement, dated as of June 29, 1997, between Funding Trust II and
the Trustee.
1.2. Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Cut-Off Date: As defined in Section 2.1.
Closing Date: means July 23, 1997.
Originator Agreement: An agreement pursuant to which NAFI acquired
Receivables from an Originator.
Outstanding Principal Balance: As of any date and with respect to any
Receivable, the outstanding principal balance of such Receivable as of such
date, which shall be computed by reducing the original principal balance of such
Receivable by the portion of each payment received and processed by the Servicer
on or before such date that would represent principal if such payments were
allocated to the principal of and interest on such Receivable based on the
amortization method provided in such Receivable.
Purchase Price: As defined in Section 2.1.
Receivable Assets: The assets described in clauses (i) through (ix),
inclusive, of subsection 2.1 hereof.
<PAGE>
Related Security: means, with respect to any Receivable, the interest
of the Seller in (i) the security interest in the Financed Vehicles granted by
the Obligors or the Receivables and any accessions thereto and (ii) physical
damage, credit life, credit disability or other insurance policies covering
Financed Vehicles or Obligors (including any blanket vendor's single interest
insurance policy).
Receivables Schedule: The schedule of Receivables attached as Schedule
1 hereto, such schedule identifying each Receivable by name of the Obligor and
setting forth as to each Receivable its Outstanding Principal Balance as of the
Cut-off Date, loan number, interest rate, scheduled monthly payment of principal
and interest, final maturity date and original principal amount.
ARTICLE II
PURCHASE AND SALE
2.1. Purchase. Subject to and on the terms and conditions set forth
herein, Funding Trust II hereby sells, transfers, conveys and assigns, without
representation, warranty or recourse, except as specifically set forth herein,
all of its right, title and interest in and to (i) the Receivables identified on
the Receivables Schedule attached hereto as Schedule I, (ii) all monies paid or
payable thereunder on or after June 29, 1997 (the "Cut-off Date"), (iii) the
Related Security with respect to each such Receivable, (iv) all proceeds of the
foregoing, including all Collections or Related Security with respect to such
Receivables, or other recoveries applied to repay or discharge any such
Receivable received on or after the Cut-off Date (including net proceeds of sale
or other disposition of repossessed Financed Vehicles that were the subject of
any such Receivable) or other collateral or property of any Obligor or any other
party directly or indirectly liable for payment of such Receivables, (v) the
Seller Transaction Documents and the Assignment Agreement, dated as of June 29,
1997 between Funding Trust II and Bankers Trust Company, as Trustee of the
National Financial Auto Receivables Master Trust (the "Assignment Agreement"),
(vi) all records relating to any of the foregoing, (vii) all rights of Funding
Trust II assigned to Funding Trust II against Dealers under the Dealer
Agreements and against Originators under the Originator Agreements, (viii) any
other Trust Assets relating to the Receivables Assets and (ix) the proceeds of
the foregoing. Funding Trust I agrees to pay to Funding II on the Closing Date
as the purchase price (the "Purchase Price") for the Receivable Assets sold
hereunder on such date an amount equal to $57,461,207.08 in immediately
available funds to an account at a bank designated by Funding Trust II to
Funding Trust I.
2.2. Filings. (a) On or prior to the Closing Date, Funding Trust II
shall have filed in the office of the Secretary of State of Delaware and the
Office of the Secretary of State of Florida UCC financing statements,
appropriate under the Uniform Commercial Code in effect in Delaware and Florida
to reflect the transfer of the Receivables Assets from Funding Trust II to
Funding Trust I and to protect Funding Trust I's interest in the Receivables
Assets against all other Persons, naming Funding Trust II as debtor, Funding
Trust I as secured party and Harris Trust and Savings Bank ("Harris Trust") as
assignee. During the term of this Agreement, Funding
<PAGE>
Trust II shall not change its name, identity or structure or relocate its chief
executive office or principal place of business without first giving 60 days
prior written notice to Funding Trust I and Financial Security Assurance Inc.
("Financial Security") (for so long as any policy issued Financial Security
Assurance Inc. is in effect with respect to any securities issued by Funding
Trust I or any trust of which Funding Trust I is depositor or transferor);
provided, however, that Funding Trust I has no right or power to prohibit a
change in Funding Trust II's name, identity or structure or, subject to the last
sentence of this paragraph, a relocation of, its chief executive office. If any
change in Funding Trust II's name, identity or structure or the relocation of
its chief executive office or principal place of business would make any
financing or continuation statement or notice of lien filed in connection with
this Agreement seriously misleading within the meaning of applicable provisions
of the UCC or any title statute, Funding Trust II, shall after the effective
date of such change, promptly file or cause to be filed such amendments as may
be required to preserve and protect Funding Trust I's interest in the
Receivables Assets.
(b) On or prior to the Closing Date, Funding Trust II shall deliver to
Funding Trust I or such other Person as Funding Trust I shall direct cash equal
to all payments received on such Receivables on or after the Cut-off Date and on
or before two Business days prior to the Closing Date. Within two Business Days
after the Closing Date, Funding Trust II shall deliver to Funding Trust I or
such other Person as Funding Trust I shall direct all other payments received on
such Receivables on or after the Cut-off Date and on or before the Closing Date.
Funding Trust hereby directs Funding Trust II to deliver cash equal to all such
payments described in this Section 2.2(b) to be delivered to Harris Trust and
Savings Bank ("Harris Trust") in its capacity as Trust Collateral Agent under
the Sale and Servicing Agreement (as defined herein).
2.3. No Recourse. The sale and purchase of Receivables and the other
Receivables Assets under this Agreement shall be without recourse to Funding
Trust II.
2.4. True Sales. Funding Trust II and Funding Trust I intend that the
transactions contemplated hereby be true sales of the Receivables and other
Receivables Assets by Funding Trust II to Funding Trust I providing Funding
Trust I with the full benefits of ownership of the Receivables and other
Receivables Assets free and clear of any liens, and neither Funding Trust II nor
Funding Trust I intends the transactions contemplated hereby to be, or for any
purpose to be characterized as, a loan from Funding Trust I to Funding Trust II.
Funding Trust II shall reflect sales of the Receivables Assets hereunder on the
books and records maintained by Funding Trust II as sales of assets, and shall
treat such sales as sales for all purposes.
2.5. Receipt of Payments after Closing Date. Funding Trust I shall be
entitled to all payments received or receivable with respect to any Receivable
sold and conveyed by Funding Trust II to Funding Trust I hereunder that are
received on and after the Cut-off Date. If Funding Trust II receives any payment
on a Receivable belonging to Funding Trust I, Funding Trust II promptly shall
turn such payment over to Harris Trust, as trustee under the Sale and Servicing
Agreement, dated as of June 29, 1997 (the "Sale and Servicing Agreement"), among
National Auto Finance 1997-1 Trust, Funding Trust I, NAFI and Harris Trust.
<PAGE>
ARTICLE III
MISCELLANEOUS
3.1. Notices. All notices, demands and requests that may be given or
that are required to be given hereunder shall be sent by United States certified
mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as follows:
If to Funding Trust II:
National Financial Auto Funding Trust II
c/o Chase Manhattan Bank Delaware, as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attention: Corporate Administration Trust Department
Telecopier No.: (302) 575-5467
Confirmation: (302) 428-3375
If to Funding Trust I:
National Financial Auto Funding Trust I
c/o Chase Manhattan Bank Delaware, as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attention: Corporate Administration Trust Department
Telecopier No.: (302) 575-5467
Confirmation: (302) 428-3375
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: National Auto Finance 1997-1 Trust, 6.35%
Automobile Receivables Backed Notes
Telecopier No: (212) 339-3518,
(212) 339-3529
Confirmation:(212) 826-0100
<PAGE>
If to Harris Trust:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation: (312) 461-4662
3.2. CHOICE OF 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 HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
3.3. Counterparts. This Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
3.4. Assignment. This Agreement may not be assigned by Funding Trust II
or Funding Trust I except as contemplated by this Section; provided, however,
that simultaneously with the execution and delivery of this Agreement, Funding
Trust I shall assign all of its right, title and interest hereunder to National
Auto Finance 1997-1 Trust pursuant to the Sale and Servicing Agreement, as
provided in Section 2.1 of the Sale and Servicing Agreement.
3.5. Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto and shall also be for the
benefit of Harris Trust (for the benefit of the Noteholders) and Financial
Security, each of which shall be considered to be third-party beneficiaries of
this Agreement and shall be entitled to rely upon and directly enforce the
provisions of this Agreement. Except as otherwise provided in this Agreement, no
other Person will have any right or obligation hereunder. Financial Security may
disclaim any of its rights and powers under this Agreement upon delivery of a
written notice to Funding Trust II and Funding Trust I.
3.6. No Petition. Funding Trust II hereby agrees not to cause the
filing of a petition in bankruptcy against Funding Trust I until one year and
one day after the maturity of any securities securities evidencing a beneficial
interest in or secured by Receivable Assets sold, transferred or otherwise
conveyed by the Trustee to Funding Trust II, NAFI or any affiliate of either.
3.7. Further Assurances. It is Funding Trust II's intention to convey
its entire rights, title and interest in the Receivables Assets or other assets
related thereto acquired from National Financial Auto Receivables Master Trust
pursuant to the Assignment Agreement.
3.8. Limitation of Liability of Funding Trust I Trustee:
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Chase Manhattan Bank Delaware not in its
individual capacity but solely as Trustee and in no event shall Chase Manhattan
Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of Funding Trust I hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of Funding Trust I.
<PAGE>
3.9. Limitation of Liability of Funding Trust II Trustee:
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Chase Manhattan Bank Delaware not in its
individual capacity but solely as Trustee and in no event shall Chase Manhattan
Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of Funding Trust II hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of Funding Trust II.
3.10. Amendment. This Agreement may be amended in writing by the
parties hereto with the prior written consent of Financial Security, to cure any
ambiguity or to correct any provisions in this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING TRUST II
By: Chase Manhattan Bank Delaware, not in its individual
capacity, but solely as Trustee of National Financial
Auto Funding Trust II,
By:
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: Chase Manhattan Bank Delaware, not in its individual
capacity, but solely as Trustee of National Financial
Auto Funding Trust,
By:
Name:
Title:
EXECUTION COPY
INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
FIRST UNION CAPITAL MARKETS CORP.
Dated as of July 23, 1997
National Auto Finance 1997-1 Trust
6.35% Automobile Receivables-Backed Notes
$66,891,200
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions......................................................1
Section 2. Representations, Warranties and
Agreements of Financial Security...........................4
Section 3. Representations, Warranties and
Agreements of the Underwriter..............................7
Section 4. Indemnification..................................................8
Section 5. Indemnification Procedures.......................................9
Section 6. Contribution....................................................10
Section 7. Miscellaneous...................................................11
EXHIBIT A Opinion of Assistant General Counsel
<PAGE>
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of July 23, 1997, among FINANCIAL
SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL FINANCIAL AUTO FUNDING
TRUST (the "Company") and FIRST UNION CAPITAL MARKETS CORP. (the "Underwriter"):
Section Definitions. For purposes of this Agreement, the following terms
shall have the meanings provided below:
"Agreement" means this Indemnification Agreement, as the same may be
amended, supplemented, or otherwise modified from time to time in accordance
with the terms hereof.
"Commission" means the SEC Commission.
"Company Party" means any of the Company, its subsidiaries and affiliates
and any trustee, holder of beneficial ownership interest, director, officer,
employee, agent or "controlling person" (as such term is used in the Securities
Act) of any of the foregoing.
"Federal Securities Laws" means the Securities Act, the Securities
Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company
Act of 1940, the Investment Advisers Act of 1940 and the Public Utility Holding
Company Act of 1935, each as amended from time to time, and the rules and
regulations in effect from time to time under such Acts.
"Financial Security Agreements" means this Agreement, the Spread Account
Agreement and the Insurance Agreement.
"Financial Security Information" has the meaning provided in Section 2(g)
hereof.
"Financial Security Party" means any of Financial Security, its parent,
subsidiaries and affiliates, and any shareholder, director, officer, employee,
agent or "controlling person" (as such term is used in the Securities Act) of
any of the foregoing.
"Indemnified Party" means any party entitled to any indemnification
pursuant to Section 4 hereof.
"Indemnifying Party" means any party required to provide indemnification
pursuant to Section 4 hereof.
<PAGE>
"Indenture" means the Indenture dated as of June 29, 1997, between
National Auto Finance 1997-1 Trust and Harris Trust and Savings Bank, as
Indenture Trustee and Trust Collateral Agent.
"Insurance Agreement" means the Insurance and Indemnity Agreement, dated
as of July 23, 1997, among Financial Security, the Trust, the Company and NAFI,
as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Losses" means (a) any actual out-of-pocket damages incurred by the party
entitled to indemnification or contribution hereunder, (b) any actual
out-of-pocket costs or expenses incurred by such party, including reasonable
fees or expenses of its counsel and other expenses incurred in connection with
investigating or defending any claim, action or other proceeding which entitle
such party to be indemnified hereunder (subject to the limitations set forth in
Section 5 hereof), to the extent not paid, satisfied or reimbursed from funds
provided by any other Person other than an affiliate of such party (provided
that the foregoing shall not create or imply any obligation to pursue recourse
against any such other Person), plus (c) interest on the amount paid by the
party entitled to indemnification or contribution from the date of such payment
to the date of payment by the party who is obligated to indemnify or contribute
hereunder at the statutory rate applicable to judgments for breach of contract.
"NAFI" means National Auto Finance Company, Inc., a Delaware
corporation.
"Offering Document" means the Prospectus and any other material or
documents delivered by the Underwriter or any Underwriter Party to any Person in
connection with the offer or sale of the Securities.
"Person" means any individual, partnership, joint venture, corporation,
limited liability company, limited liability partnership, trust, unincorporated
organization or other organization or entity (whether governmental or private).
"Policy" means the financial guaranty insurance policy delivered by
Financial Security with respect to the Securities.
"Prospectus" means any prospectus or preliminary prospectus relating to
the Securities included in the Registration Statement or filed with the
Commission (including all documents, if any, incorporated by reference therein
and the information, if any, deemed to be part thereof pursuant to the Rules and
Regulations), as the same may be amended or supplemented from time to time;
provided, however, that if any revised prospectus shall be
<PAGE>
provided by the Company for use in connection with the offering of the
Securities which differs from the Prospectus filed with the Commission pursuant
to Rule 424 of the Securities Act (whether or not such revised prospectus is
required to be filed by the Seller pursuant to Rule 424 of the Securities Act),
the term "Prospectus" shall refer to such revised Prospectus from and after the
time it is first provided to the Underwriter or any Underwriter Party for such
use.
"Registration Statement" means the registration statement on Form S-3 (No.
333-28829) including a prospectus and any amendments thereto relating to the
Securities, and any registration statement required to be filed under the
Securities Act or the Rules and Regulations (including all documents, if any,
incorporated by reference therein and the information, if any, deemed to be part
thereof pursuant to the Rules and Regulations), as the same may be amended or
supplemented from time to time.
"Rules and Regulations" means the rules and regulations of the Commission
under the Securities Act.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of June 29, 1997, among the Trust, the Company, NAFI, as Servicer, and
Harris Trust and Savings Bank, not in its individual capacity but solely as
Trust Collateral Agent.
"Securities" means the National Auto Finance 1997-1 Trust $66,891,200
6.35% Automobile Receivables-Backed Notes, described in the Offering Document
and issued pursuant to the Indenture and covered by the Policy.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any rule or regulation in effect from time to time under such Act.
"Spread Account Agreement" means the Master Spread Account Agreement dated
as of July 23, 1997, by and among the Company, Financial Security, the
Collateral Agent and the Trustee specified therein, as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Trust" means the National Auto Finance 1997-1 Trust, a Delaware business
trust.
"Underwriter Information" has the meaning provided in Section 3(c) hereof.
<PAGE>
"Underwriter Party" means any of the Underwriter, its parent, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Underwriting Agreement" means the Underwriting Agreement dated as of July
17, 1997, between the Company and the Underwriter, with respect to the offer and
sale of the Securities, as the same may be amended, amended and restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
Section Representations, Warranties and Agreements of Financial Security.
Financial Security represents, warrants and agrees with the parties hereto as
follows:
Organization, Etc. Financial Security is a stock insurance company
duly organized, validly existing and authorized to transact financial
guaranty insurance business under the laws of the State of New York.
Authorization, Etc. The Policy and the Financial
Security Agreements have been duly authorized, executed and
delivered by Financial Security.
Validity, Etc. The Policy and the Financial Security Agreements
constitute valid and binding obligations of Financial Security,
enforceable against Financial Security in accordance with their terms,
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, rehabilitation, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in
the event of the bankruptcy or insolvency of Financial Security and to the
application of general principles of equity and subject, in the case of
this Agreement, to principles of public policy limiting the right to
enforce the indemnification provisions contained herein.
Exemption From Registration. The Policy is exempt
from registration under the Securities Act.
No Conflicts. Neither the execution or delivery by Financial
Security of the Policy or the Financial Security Agreements, nor the
performance by Financial Security of its obligations thereunder, will
conflict with any provision of the certificate of incorporation or the
bylaws of Financial Security nor result in a breach of, or constitute a
default under, any material agreement or other instrument to which
Financial Security is a party or by which any of its property is bound nor
violate any judgment,
<PAGE>
order or decree applicable to Financial Security of any governmental or
regulatory body, administrative agency, court or arbitrator having
jurisdiction over Financial Security (except that, in the published
opinion of the Commission, the indemnification provisions of this
Agreement, insofar as they relate to indemnification for liabilities
arising under the Securities Act, are against public policy as expressed
in the Securities Act and are therefore unenforceable).
Financial Information. The consolidated balance sheets of
Financial Security as of December 31, 1995 and December 31, 1996 and the
related consolidated statements of income, changes in shareholder's equity
and cash flows for the fiscal years then ended and the interim
consolidated balance sheet of Financial Security as of March 31, 1997, and
the related statements of income, changes in shareholder's equity and cash
flows for the interim period then ended, furnished by Financial Security
to the Underwriter, fairly present in all material respects the financial
condition of Financial Security as of such dates and for such periods in
accordance with generally accepted accounting principles consistently
applied (subject as to interim statements to normal year-end adjustments)
and since the date of the most current interim consolidated balance sheet
referred to above there has been no change in the financial condition of
Financial Security which would materially and adversely affect its ability
to perform its obligations under the Policy.
Financial Security Information. The information in the
Prospectus set forth under the caption "The Insurer", or such additional
information as may be deemed to be included in the Prospectus pursuant to
the second paragraph under the heading "Incorporation of Certain Documents
By Reference" on page S-3 of the Prospectus (as revised from time to time
in accordance with the provisions hereof, the "Financial Security
Information") is limited and does not purport to provide the scope of
disclosure required to be included in a prospectus with respect to a
registrant in connection with the offer and sale of securities of such
registrant registered under the Securities Act. Within such limited scope
of disclosure, however, as of the date of the Prospectus and as of the
date hereof, the Financial Security Information does not contain any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
Additional Information. Financial Security will
furnish to the Underwriter or the Company, upon request of
<PAGE>
the Underwriter or the Company, as the case may be, copies of Financial
Security's most recent financial statements (annual or interim, as the
case may be) which fairly present in all material respects the financial
condition of Financial Security as of the dates and for the periods
indicated, in accordance with generally accepted accounting principles
consistently applied except as noted therein (subject, as to interim
statements, to normal year-end adjustments). In addition, if the delivery
of a Prospectus relating to the Securities is required at any time prior
to the expiration of nine months after the time of issuance of the
Prospectus in connection with the offering or sale of the Securities, the
Company or the Underwriter will notify Financial Security of such
requirement to deliver a Prospectus and Financial Security will promptly
provide the Underwriter and the Company with any revisions to the
Financial Security Information that are in the judgment of Financial
Security necessary to prepare an amended Prospectus or a supplement to the
Prospectus.
Opinion of Counsel. Financial Security will furnish to the
Underwriter and the Company on the closing date for the sale of the
Securities an opinion of its Assistant General Counsel, to the effect set
forth in Exhibit A attached hereto, dated such closing date and addressed
to the Company and the Underwriter.
Consents and Reports of Independent Accountants. Financial
Security will furnish to the Underwriter and the Company, upon request, as
comfort from its independent accountants in respect of its financial
condition, (i) at the expense of the Person specified in the Insurance
Agreement, a copy of the Prospectus, including either a manually signed
consent or a manually signed report of Financial Security's independent
accountants, and (ii) the quarterly review letter by Financial Security's
independent accountants in respect of the most recent interim financial
statements of Financial Security.
Nothing in this Agreement shall be construed as a representation or warranty by
Financial Security concerning the rating of its claims-paying ability by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, or any other rating agency (collectively, the "Rating
Agencies"). The Rating Agencies, in assigning such ratings, take into account
facts and assumptions not described in the Prospectus and the facts and
assumptions considered by the Rating Agencies, and the ratings issued thereby,
are subject to change over time.
<PAGE>
Section Representations, Warranties and Agreements of the Underwriter. The
Underwriter represents, warrants and agrees with the parties hereto as follows:
Compliance With Laws. The Underwriter will comply in all
material respects with all legal requirements in connection with offers
and sales of the Securities and make such offers and sales in the manner
provided in the Offering Document.
Offering Document. The Underwriter will not use, or distribute
to other broker-dealers for use, any Offering Document in connection with
the offer and sale of the Securities unless such Offering Document
includes such information as has been furnished by Financial Security for
inclusion therein and the information therein concerning Financial
Security has been approved by Financial Security in writing. Financial
Security hereby consents to the information in respect of Financial
Security included in the Prospectus. Each Offering Document will include
the following statement:
"The Policy is not covered by the property/ casualty insurance
security fund specified in Article 76 of the New York Insurance
Law".
Each Offering Document including financial information with respect to
Financial Security prepared in accordance with generally accepted
accounting principles will include the following statement immediately
preceding such financial information:
"The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of
a dividend to its stockholders. No consideration is given by the New
York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making
such determinations."
Underwriter Information. All material provided by the
Underwriter for inclusion in the Offering Document (as revised from time
to time, the "Underwriter Information"), insofar as such information
relates to the Underwriter and the manner of offer and sale of the
Securities, is true and correct in all material respects. In respect of
the
<PAGE>
Prospectus, the parties hereto acknowledge and agree that the Underwriter
Information is limited to the following: (i) the fifth paragraph on the
front cover page of the Offering Document concerning market making
activities; (ii) the first sentence of the last paragraph on the front
cover page of the Offering Document concerning the terms of the offering;
(iii) the first paragraph on page S-2 of the Offering Document concerning
market making activities; (iv) the third paragraph on page S-2 of the
Offering Document concerning stabilization activities; and (v) the
information under the caption "Underwriting" in the Offering Document.
Section Indemnification.
Financial Security agrees, upon the terms and subject to the
conditions provided herein, to indemnify, defend and hold harmless each Company
Party and each Underwriter Party against (i) any and all Losses incurred by them
with respect to the offer and sale of the Securities and resulting from
Financial Security's breach of any of its representations, warranties or
agreements set forth in Section 2 hereof and (ii) any and all Losses to which
any Company Party or Underwriter Party may become subject, under the Securities
Act or otherwise, insofar as such Losses arise out of or result from an untrue
statement of a material fact contained in any Offering Document or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or omission was made in the Financial
Security Information included therein in accordance with the provisions hereof.
The Underwriter agrees, upon the terms and subject to the conditions
provided herein, to indemnify, defend and hold harmless each Financial Security
Party and each Company Party against (i) any and all Losses incurred by them
with respect to the offer and sale of the Securities and resulting from the
Underwriter's breach of any of its representations, warranties or agreements set
forth in Section 3 hereof and (ii) any and all Losses to which any Financial
Security Party or Company Party may become subject, under the Securities Act or
otherwise, insofar as such Losses arise out of or result from an untrue
statement of a material fact contained in any Offering Document or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or omission was made in the
Underwriter Information included therein.
Upon the incurrence of any Losses for which a party is
entitled to indemnification hereunder, the Indemnifying Party
<PAGE>
shall reimburse the Indemnified Party promptly upon establishment by the
Indemnified Party to the Indemnifying Party of the Losses incurred.
Section Indemnification Procedures. Except as provided below in Section 6
with respect to contribution, the indemnification provided herein by an
Indemnifying Party shall be the exclusive remedy of any and all Indemnified
Parties for the breach of a representation, warranty or agreement hereunder by
an Indemnifying Party; provided, however, that each Indemnified Party shall be
entitled to pursue any other remedy at law or in equity for any such breach so
long as the damages sought to be recovered shall not exceed the Losses incurred
thereby resulting from such breach. In the event that any action or regulatory
proceeding shall be commenced or claim asserted which may entitle an Indemnified
Party to be indemnified under this Agreement, such party shall give the
Indemnifying Party written or telegraphic notice of such action or claim
reasonably promptly after receipt of written notice thereof. The Indemnifying
Party shall be entitled to participate in and, upon notice to the Indemnified
Party, assume the defense of any such action or claim in reasonable cooperation
with, and with the reasonable cooperation of, the Indemnified Party. The
Indemnified Party shall have the right to employ its own counsel in any such
action in addition to the counsel of the Indemnifying Party, but the fees and
expenses of such separate counsel shall be at the expense of the Indemnified
Party unless (i) the employment of counsel by the Indemnified Party at its
expense have been authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has not in fact employed counsel to assume the defense of
such action or proceeding within a reasonable time after receiving notice of the
commencement of the action or proceeding or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both the
Indemnifying Party and one or more Indemnified Parties, and the Indemnified
Parties shall have been advised by counsel that there may be one or more legal
defenses available to them which are different from or additional to those
available to the Indemnifying Party (it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for all Company Parties, one such
firm for all Underwriter Parties and one such firm for all Financial Security
Parties, as the case may be, which firm shall be designated in writing by the
Company in respect of the Company Parties, by the Underwriter in respect of the
Underwriter Parties and by Financial Security in respect of the Financial
Security Parties), in each of which cases the fees and expenses of counsel will
be at the expense of the
<PAGE>
Indemnifying Party and all such fees and expenses will be reimbursed promptly as
they are incurred. The Indemnifying Party shall not be liable for any settlement
of any such claim or action unless the Indemnifying Party shall have consented
thereto or be in default in its obligations hereunder. Any failure by an
Indemnified Party to comply with the provisions of this Section shall relieve
the Indemnifying Party of liability only if such failure is prejudicial to the
position of the Indemnifying Party and then only to the extent of such
prejudice.
Section Contribution.
To provide for just and equitable contribution if the
indemnification provided by any Indemnifying Party is determined to be
unavailable for any Indemnified Party (other than due to application of this
Section 6), each Indemnifying Party shall contribute to the Losses arising from
any breach of any of its representations, warranties or agreements contained in
this Agreement on the basis of the relative fault of each of the parties as set
forth in Section 6(b) below; provided, however, that an Indemnifying Party shall
in no event be required to contribute to all Indemnified Parties an aggregate
amount in excess of the Losses incurred by such Indemnified Parties resulting
from the breach of representations, warranties or agreements contained in this
Agreement.
The relative fault of each Indemnifying Party, on the one hand, and
of each Indemnified Party, on the other, shall be determined by reference to,
among other things, whether the breach of, or alleged breach of, any
representations, warranties or agreements contained in this Agreement relates to
information supplied by, or action within the control of, the Indemnifying Party
or the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such breach.
The parties agree that Financial Security shall be solely
responsible for the Financial Security Information, the Underwriter shall be
solely responsible for the Underwriter Information and that the balance of each
Offering Document shall be the responsibility of the Company.
Notwithstanding anything in this Section 6 to the contrary, the
Underwriter shall not be required to contribute an amount in excess of the
amount by which the total offering price of the Securities purchased by the
Underwriter exceeds the amount of any damages that such Underwriter has
otherwise been required to pay in respect of any breach by the Underwriter of
its representations or warranties contained in Section 3 hereof.
<PAGE>
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Upon the incurrence of any Losses entitled to contribution
hereunder, the contributor shall reimburse the party entitled to contribution
promptly upon establishment by the party entitled to contribution to the
contributor of the Losses incurred.
Section Miscellaneous.
Notices. All notices and other communications provided for under this
Agreement shall be delivered to the address set forth below or to such other
address as shall be designated by the recipient in a written notice to the other
party or parties hereto:
If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President --
Surveillance Department (with a copy to
the attention of the General Counsel)
Re: National Auto Finance 1997-1 Trust,
6.35% Automobile Receivables-Backed
Notes
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518,
(212) 339-3529 (in each case
in which notice or other communication to
Financial Security refers to an Event of Default,
a claim on the Policy or with respect to which
failure on the part of Financial Security to
respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other
communication should also be sent to the attention
of each of the General Counsel and the
Head-Financial Guaranty Group and each such notice
shall be marked to indicate "URGENT MATERIAL
ENCLOSED.")
<PAGE>
If to National Financial Auto Funding Trust
c/o Chase Manhattan Bank Delaware
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopy No.: (302) 575-5467
Confirmation: (302) 575-5099
with a copy to: Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust Administration
Telecopy No.: (718) 242-3529
Confirmation: (718) 242-7283
If to the Underwriter:
First Union Capital Market Corp.
One First Union Center
Charlotte, North Carolina 28288-0610
Attention: Reginald H. Imamura
Telecopy No.: (704) 374-3254
Confirm No.: (704) 374-6501
Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Assignments. This Agreement may not be assigned by any
party without the express written consent of each other party.
Any assignment made in violation of this Agreement shall be null
and void.
Amendments. Amendments of this Agreement shall be in
writing signed by each party hereto.
Survival, Etc. The indemnity and contribution agreements contained in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Indemnifying Party, (ii)
the issuance of the Securities or (iii) any termination of this Agreement or the
Policy. The indemnification provided in this Agreement will be in addition to
any liability which the parties may otherwise
<PAGE>
have and shall in no way limit any obligations of the Company under the
Underwriting Agreement or the Insurance Agreement.
Counterparts. This Agreement may be executed in
counterparts by the parties hereto, and all such counterparts
shall constitute one and the same instrument.
[Remainder of Page Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
FINANCIAL SECURITY ASSURANCE INC.
By:
Name:
Title:
FIRST UNION CAPITAL MARKETS CORP.
By:
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:
Name:
Title: __________________ of
Chase Manhattan Bank Delaware,
not in its individual capacity,
but solely in its capacity as
trustee for National Financial
Auto Funding Trust
<PAGE>
EXHIBIT A
OPINION OF ASSISTANT GENERAL COUNSEL
Based upon the foregoing, I am of the opinion that:
Financial Security is a stock insurance company duly organized,
validly existing and authorized to transact financial guaranty insurance
business under the laws of the State of New York.
The Policy and the Financial Security Agreements have been duly
authorized, executed and delivered by Financial Security.
The Policy and the Financial Security Agreements constitute valid
and binding obligations of Financial Security, enforceable against Financial
Security in accordance with their terms, subject, as to the enforcement of
remedies, to bankruptcy, insolvency, reorganization, rehabilitation, moratorium
and other similar laws affecting the enforceability of creditors' rights
generally applicable in the event of the bankruptcy or insolvency of Financial
Security and to the application of general principles of equity and subject, in
the case of the Indemnification Agreement, to principles of public policy
limiting the right to enforce the indemnification provisions contained therein
insofar as they relate to indemnification for liabilities arising under
applicable securities laws.
The Policy is exempt from registration under the Securities Act of
1933, as amended (the "Act").
Neither the execution or delivery by Financial Security of the
Policy or the Financial Security Agreements, nor the performance by Financial
Security of its obligations thereunder, will conflict with any provision of the
certificate of incorporation or the bylaws of Financial Security or, to the best
of my knowledge, result in a breach of, or constitute a default under, any
agreement or other instrument to which Financial Security is a party or by which
it or any of its property is bound or, to the best of my knowledge, violate any
judgment, order or decree applicable to Financial Security of any governmental
or regulatory body, administrative agency, court or arbitrator having
jurisdiction over Financial Security (except that in the published opinion of
the Securities and Exchange Commission the indemnification provisions of the
Indemnification Agreement, insofar as they relate to indemnification for
A-1
<PAGE>
liabilities arising under the Act, are against public policy as expressed in the
Act and are therefore unenforceable).
In addition, please be advised that I have reviewed the description of
Financial Security under the caption "The Insurer" in the Prospectus Supplement
dated July 17, 1997, which supplements the Base Prospectus dated July 17, 1997
(the "Offering Document") of the Company with respect to the Securities. The
information provided in the Offering Document with respect to Financial Security
is limited and does not purport to provide the scope of disclosure required to
be included in a prospectus with respect to a registrant under the Act in
connection with the public offer and sale of securities of such registrant.
Within such limited scope of disclosure, however, there has not come to my
attention any information which would cause me to believe that the description
of Financial Security referred to above, as of the date of the Offering
Document, contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except that no opinion
is rendered with respect to any financial statements or other financial
information contained or referred to therein).
A-2
EXECUTION COPY
AMENDMENT NO. 1
dated as of October 1, 1997,
by and among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
FINANCIAL SECURITY ASSURANCE INC.,
HARRIS TRUST AND SAVINGS BANK,
as Collateral Agent,
and
NATIONAL AUTO FINANCE COMPANY, INC.
to
MASTER SPREAD ACCOUNT AGREEMENT
dated as of November 21, 1995,
and
MASTER SPREAD ACCOUNT AGREEMENT
dated as of November 13, 1996,
in each case among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
FINANCIAL SECURITY ASSURANCE INC.
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee and as Collateral Agent
<PAGE>
AMENDMENT NO. 1 TO MASTER SPREAD ACCOUNT AGREEMENTS
THIS AMENDMENT, dated as of October 1, 1997 (this "Amendment"), by and
among NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware business trust (the
"Transferor"), FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance
company ("Financial Security"), HARRIS TRUST AND SAVINGS BANK, an Illinois
banking corporation, as Collateral Agent ( "Harris Trust and Savings Bank" and,
in such capacity, the "Collateral Agent"), and NATIONAL AUTO FINANCE COMPANY,
INC., a Delaware corporation ("NAFI"; formerly National Auto Finance Company
L.P., a Delaware limited partnership), to MASTER SPREAD ACCOUNT AGREEMENT, dated
as of November 21, 1995 (the "Series 1995-1 Spread Account Agreement"), among
the Transferor, Financial Security and Harris Trust and Savings Bank, as the
Trustee (in such additional capacity, the "Trustee") and as Collateral Agent,
and to MASTER SPREAD ACCOUNT AGREEMENT, dated as of November 13, 1996 (the
"Series 1996-1 Spread Account Agreement"; the Series 1995-1 Spread Account
Agreement and the Series 1996-1 Spread Account Agreement each a "Spread Account
Agreement", and, collectively, the "Spread Account Agreements"), among the
Transferor, Financial Security, the Trustee and the Collateral Agent.
RECITALS
WHEREAS, Financial Security, the Transferor, the Trustee and the
Collateral Agent have entered into each of the Spread Account Agreements, and
Financial Security, the Transferor, the Collateral Agent and NAFI (Financial
Security, the Transferor, the Collateral Agent and NAFI each a "Party" hereto
and, collectively, the "Parties" hereto) desire to hereby amend the Spread
Account Agreements in certain respects as provided below.
WHEREAS, pursuant to Section 8.03 of each of the Spread Account
Agreements, each of the Spread Account Agreements may be amended or otherwise
modified from time to time by the Transferor, Financial Security, the Collateral
Agent and, with respect to the Series 1995-1 Spread Account Agreement, NAFI.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals hereto, and for other
good and valuable consideration, the adequacy, receipt and sufficiency of which
are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. Unless defined in this Amendment, capitalized
terms used in this Amendment (including in the preamble and the recitals hereto)
shall have the meanings assigned to such terms in the Series 1995-1 Spread
Account Agreement or the 1996-1
<PAGE>
Spread Account Agreement, as applicable, and in each case the related Pooling
and Servicing Agreement.
ARTICLE II
AMENDMENT
SECTION 2.1. Amendments to Section 1.01 of the Spread Account Agreements.
(a) The following definitions set forth in Section 1.01 the Series 1995-1 Spread
Account Agreement are hereby amended by deleting the definitions set forth
therein in their entirety and substituting the following therefor:
"Deemed Cured" means, as of a Reporting Date, with respect to
a Trigger Event that has occurred with respect to a Series, that no
Trigger Event with respect to such Series shall have occurred as of
such Reporting Date or as of any of the two consecutively preceding
Reporting Dates."
"Requisite Amount" means, with respect to the Series 1995-1
Certificates, as of any Reporting Date after giving effect to any
distributions of the Certificate Distributable Amount to be made on
the related Distribution Date, (i) if no Trigger Event shall have
occurred as of such Reporting Date and all previous Trigger Events
have been Deemed Cured and no Insurance Agreement Event of Default
shall have occurred as of such Reporting Date, the lesser of (A) (I)
with respect to any Reporting Date occurring prior to the September
1997 Distribution Date, 2% of the Series 1995-1 Initial Balance,
(II) with respect to any Reporting Date occurring subsequent to the
September 1997 Distribution Date and prior to the June 1998
Distribution Date, 7% of the Series 1995-1 Balance, and (III) with
respect to any Reporting Date occurring subsequent to the June 1998
Distribution Date, 2% of the Series 1995-1 Initial Balance and (B)
the greater of (I) the Certificate Balance as of such Reporting
Date, and (II) $100,000, (ii) if a Trigger Event shall have occurred
as of such Reporting Date (and until such Trigger Event is Deemed
Cured) and no Insurance Agreement Event of Default shall have
occurred as of such Reporting Date, (A) with respect to any
Reporting Date occurring prior to the September 1997 Distribution
Date, 7% of the Series 1995-1 Balance, (B) with respect to any
Reporting Date occurring subsequent to the September 1997
Distribution Date and prior to the June 1998 Distribution Date, 11%
of the Series 1995-1 Balance, and (C) with respect to any Reporting
Date occurring subsequent to the June 1998 Distribution Date, 7% of
the Series 1995-1 Balance; or (iii) if an Insurance Agreement Event
of Default shall have occurred as of such Reporting Date, an
unlimited amount.
"Trigger Event" means, with respect to the Series 1995-1
Certificates, that as of any Reporting Date with respect to the
Series 1995-1 Certificates that any one of the following events
shall have occurred and shall not have been Deemed
-2-
<PAGE>
Cured: (a) the Average Delinquency Ratio as of such Reporting Date
(i) occurring prior to the September 1997 Distribution Date is equal
to or greater than 8.25%, (ii) relating to October 1997 Distribution
Date is equal to or greater than 11.0%, (iii) relating to November
1997 Distribution Date is equal to or greater than 10.5%, (iv)
occurring subsequent to the November 1997 Distribution Date but
prior to the March 1998 Distribution Date is equal to or greater
than 10.0%, (v) occurring subsequent to the March 1998 Distribution
Date but prior to the June 1998 Distribution Date is equal to or
greater than 9.5%, and (vi) occurring subsequent to the June 1998
Distribution Date is equal to or greater than 8.25%; or (b) the
Average Default Rate as of any Reporting Date (i) occurring prior to
the September 1997 Distribution Date is equal to or greater than
18.0%, (ii) occurring subsequent to the September 1997 Distribution
Date and prior to the June 1998 Distribution Date is equal to or
greater than 20.0% and (iii) occurring subsequent to the June 1998
Distribution Date is equal to or greater than 14.0%; and (c) the
Average Net Loss Rate as of any Reporting Date (i) occurring prior
to the September 1997 Distribution Date is equal to or greater than
8.0%, (ii) occurring subsequent to the September 1997 Distribution
Date and prior to the June 1998 Distribution Date is equal to or
greater than 10.5% and (iii) occurring subsequent to the June 1998
Distribution Date is equal to or greater than 8.0%.
(c) The following definitions set forth in Section 1.01 the Series 1996-1
Spread Account Agreement are hereby amended by deleting the definitions set
forth therein in their entirety and substituting the following therefor:
"Requisite Amount" means, with respect to the Series 1996-1
Certificates, as of any Reporting Date after giving effect to any
distributions of the Certificate Distributable Amount to be made on
the related Distribution Date, (i) if no Trigger Event shall have
occurred as of such Reporting Date and all previous Trigger Events
have been Deemed Cured and no Insurance Agreement Event of Default
shall have occurred as of such Reporting Date, the lesser of (A) (I)
with respect to any Reporting Date occurring prior to the September
1997 Distribution Date, $1,364,791.20, (II) with respect to any
Reporting Date occurring subsequent to the September 1997
Distribution Date and prior to the June 1998 Distribution Date, 7%
of the Series 1996-1 Balance, and (III) with respect to any
Reporting Date occurring subsequent to the June 1998 Distribution
Date, $1,364,791.20, and (B) the greater of (I) the Certificate
Balance as of such Reporting Date, and (II) $100,000, (ii) if a
Trigger Event shall have occurred as of such Reporting Date (and
until such Trigger Event is Deemed Cured) and no Insurance Agreement
Event of Default shall have occurred as of such Reporting Date, (A)
with respect to any Reporting Date occurring prior to the September
1997 Distribution Date, 7% of the Series 1996-1 Balance, (B) with
respect to any Reporting Date occurring subsequent to the September
1997 Distribution Date and prior to the June 1998 Distribution Date,
11% of the Series 1996-1 Balance, and (C) with respect to any
Reporting Date occurring subsequent to the June 1998
-3-
<PAGE>
Distribution Date, 7% of the Series 1996-1 Balance; or (c) if an
Insurance Agreement Event of Default shall have occurred as of such
Reporting Date, an unlimited amount.
"Trigger Event" means, with respect to the Series 1996-1
Certificates, as of any Reporting Date with respect to the Series
1996-1 Certificates that any one of the following events shall have
occurred and shall not have been Deemed Cured: (a) the Average
Delinquency Ratio as of such Reporting Date (i) occurring prior to
the September 1997 Distribution Date is equal to or greater than
8.25%, (ii) occurring subsequent to the September 1997 Distribution
Date and prior to the June 1998 Distribution Date is equal to or
greater than 9.75% and (iii) occurring subsequent to the June 1998
Distribution Date is equal to or greater than 8.25%; or (b) the
Average Default Rate as of such Reporting Date (i) occurring prior
to the September 1997 Distribution Date is equal to or greater than
18.0%, (ii) relating to the October 1997 Distribution Date is equal
to or greater than 21.0%, (iii) occurring subsequent to the October
1997 Distribution Date but prior to the June 1998 Distribution Date
is equal to or greater than 20.0%, (iv) occurring subsequent to the
June 1998 Distribution Date but prior to the October 1998
Distribution Date is equal to or greater than 18.0% and (v)
occurring subsequent to the October 1998 Distribution Date is equal
to or greater than 14.0%; or (c) the Average Net Loss Rate as of
such Reporting Date (i) occurring prior to the September 1997
Distribution Date is equal to or greater than 8.0%, (ii) occurring
subsequent to the September 1997 Distribution Date and prior to the
June 1998 Distribution Date is equal to or greater than 10.0%, (iii)
occurring subsequent to the June 1998 Distribution Date and prior to
the October 1998 Distribution Date is equal to or greater than 8.0%,
and (iv) occurring subsequent to the October 1998 Distribution Date
is equal to or greater than 6.0%."
ARTICLE III
CONDITION TO EFFECTIVENESS
SECTION 3.1 Execution and Delivery. The amendments to the Spread Account
Agreements as set forth in Article 2 hereof shall become effective upon receipt
by Financial Security of counterparts hereof executed and delivered on behalf of
each of the Parties hereto. The Parties hereto by their respective execution and
delivery of this Amendment hereby acknowledge that Financial Security is the
Controlling Party with respect to the Series 1995-1 Certificates and the Series
1996-1 Certificates.
-4-
<PAGE>
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 Ratification. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of any of the Parties
hereto under the Spread Account Agreements, nor alter, modify, amend or in any
way affect any of the terms, conditions, obligations, covenants or agreements
contained in the Spread Account Agreements, all of which are hereby ratified and
affirmed in all respects by each of the Parties hereto and shall continue in
full force and effect. This Amendment shall apply and be effective only with
respect to the provisions of the Spread Account Agreements specifically referred
to herein and any references in any of the Spread Account Agreements to the
provisions of such Spread Account Agreement specifically referred to herein
shall be to such provisions as amended by this Amendment.
Section 4.2. Counterparts. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
Section 4.3. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
PROVISIONS THEREOF REGARDING CONFLICTS OF LAWS), AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Section 4.4. Waiver of Notice. Each of the Parties hereto waives any prior
notice and any notice period that may be required by any other agreement or
document in connection with the execution of this Amendment.
Section 4.5. Headings. The headings of Sections contained in this
Amendment are provided for convenience only. They form no part of this Amendment
or the Spread Account Agreements and shall not affect the construction or
interpretation of this Amendment or the Spread Account Agreements or any
provisions hereof or thereof.
Section 4.6. Direction by NAFI to Trustee. NAFI, by its execution of this
Amendment, hereby directs Chase Manhattan Bank Delaware, as Owner Trustee of
National Financial Auto Funding Trust, to consent to this Amendment and to
execute and deliver this Amendment.
[Remainder of Page Intentionally Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
duly executed by their respective duly authorized officers as of the day and
year first above written.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity, but solely as Owner
Trustee
By: ______________________________________
Name:
Title:
FINANCIAL SECURITY ASSURANCE INC.
By: ______________________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity, but solely as Collateral
Agent
By: ______________________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.
By: ______________________________________
Name:
Title:
-6-
EXECUTION COPY
AMENDMENT NO. 1
dated as of October 1, 1997
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST and
NATIONAL AUTO FINANCE COMPANY, INC.
to
INSURANCE AND INDEMNITY AGREEMENT
dated as of November 21, 1995
and
INSURANCE AND INDEMNITY AGREEMENT
dated as of November 13, 1996
in each case among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST and
NATIONAL AUTO FINANCE COMPANY, INC.
<PAGE>
AMENDMENT NO. 1 TO INSURANCE AND INDEMNITY AGREEMENTS
THIS AMENDMENT NO. 1, dated as of October 1, 1997 (this "Amendment"),
among FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
("Financial Security"), NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware
business trust (the "Transferor"), and NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation ("NAFI"; formerly National Auto Finance Company L.P., a
Delaware limited partnership), to INSURANCE AND INDEMNITY AGREEMENT, dated as of
November 21, 1995 (the "Series 1995-1 Insurance Agreement"), among Financial
Security, the Transferor and NAFI; and to INSURANCE AND INDEMNITY AGREEMENT,
dated as of November 13, 1996 (the "Series 1996-1 Insurance Agreement"; the
Series 1995-1 Insurance Agreement and the Series 1996-1 Insurance Agreement each
an "Insurance Agreement", and, collectively, the "Insurance Agreements"), among
Financial Security, the Transferor and NAFI.
RECITALS
WHEREAS, Financial Security, the Transferor and NAFI have each entered
into the Series 1995-1 Insurance Agreement and the Series 1996-1 Insurance
Agreement (for purposes of this Amendment, Financial Security, the Transferor
and NAFI are each a "Party" and, collectively, the "Parties"), and each of the
Parties desire to hereby amend each of the Insurance Agreements in certain
respects as provided below.
WHEREAS, pursuant to Section 6.01 of each of the Insurance Agreements,
each Insurance Agreement may be amended or otherwise modified from time to time
in writing by each of the parties thereto.
AGREEMENTS
In consideration of the premises set forth above, and for other good and
valuable consideration, the adequacy, receipt and sufficiency of which each of
the Parties hereto hereby acknowledges, the Parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. Unless defined in this Amendment, capitalized
terms used in this Amendment (including in the preamble and the recitals hereto)
shall have the meaning assigned to such terms in the Series 1995-1 Insurance
Agreement or the Series 1996-1 Insurance Agreement, as applicable.
-2-
<PAGE>
ARTICLE II
AMENDMENT
SECTION 2.1. Amendment to Section 5.01 of the Insurance Agreements. (a)
Subsections 5.01(f), (g) and (h) of the Series 1995-1 Insurance Agreement are
hereby amended by deleting the text set forth in each of such clauses and
substituting therefor the following:
"(f) the Average Delinquency Ratio as of any Reporting Date (i)
occurring prior to the September 1997 Distribution Date is equal to or
greater than 11.0%, (ii) occurring subsequent to the September 1997
Distribution Date and prior to the June 1998 Distribution Date is equal to
or greater than 12.0% and (iii) occurring subsequent to the June 1998
Distribution Date is equal to or greater than 11.0%;
(g) the Average Default Rate as of any Reporting Date (i) occurring
prior to the June 1998 Distribution Date is equal to or greater than 25.0%
and (ii) occurring subsequent to the June 1998 Distribution Date is equal
to or greater than 17.0%;
(h) the Average Net Loss Rate as of any Reporting Date (i) occurring
prior to the September 1997 Distribution Date is equal to or greater than
11.0%, and (ii) occurring subsequent to the September 1997 Distribution
Date and prior to the June 1998 Distribution Date is equal to or greater
than 12.0% and (iii) occurring subsequent to the June 1998 Distribution
Date is equal to or greater than 10.0%;"
(b) Subsections 5.01(f), (g) and (h) of the Series 1996-1 Insurance
Agreement are hereby amended by deleting the text set forth in each of such
clauses and substituting therefor the following:
"(f) the Average Delinquency Ratio as of any Reporting Date (i)
occurring prior to the September 1997 Distribution Date is equal to or
greater than 11.0%, (ii) occurring subsequent to the September 1997
Distribution Date and prior to the June 1998 Distribution Date is equal to
or greater than 12.0% and (iii) occurring subsequent to the June 1998
Distribution Date is equal to or greater than 11.0%;
(g) the Average Default Rate as of any Reporting Date (i) occurring
prior to the October 1998 Distribution Date is equal to or greater than
25.0% and (ii) occurring subsequent to the October 1998 Distribution Date
is equal to or greater than 17.0%;
(h) the Average Net Loss Rate as of any Reporting Date (i) occurring
prior to the September 1997 Distribution Date, is equal to or greater than
11.0%, (ii) occurring subsequent to the September 1997 Distribution Date
and prior to the June 1998 Distribution Date is equal to or greater than
12.0%, (iii) occurring subsequent to the June 1998 Distribution Date and
prior to the October 1998 Distribution Date is equal to or
-3-
<PAGE>
greater than 11.0%, and (iv) occurring subsequent to the October 1998
Distribution Date is equal to or greater than 8.0%;"
ARTICLE III
CONDITION TO EFFECTIVENESS
SECTION 3.1 Execution and Delivery. This Amendment shall become effective
upon receipt by Financial Security of counterparts hereof executed and delivered
on behalf of each of the Parties hereto.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 Ratification. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of any of the Parties
hereto under the Insurance Agreements, nor alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Insurance Agreements, all of which are hereby ratified and
affirmed in all respects by each of the Parties hereto and shall continue in
full force and effect. This Amendment shall apply and be effective only with
respect to the provisions of the Insurance Agreements specifically referred to
herein and any references in any of the Insurance Agreements to the provisions
of such Insurance Agreement specifically referred to herein shall be to such
provisions as amended by this Amendment.
Section 4.2. Counterparts. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
Section 4.3. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
PROVISIONS THEREOF REGARDING CONFLICTS OF LAWS), AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
Section 4.4. Waiver of Notice. Each of the Parties hereto waives any prior
notice and any notice period that may be required by any other agreement or
document in connection with the execution of this Amendment.
Section 4.5. Headings. The headings of Sections contained in this
Amendment are provided for convenience only. They form no part of this Amendment
or the Insurance
-4-
<PAGE>
Agreements and shall not affect the construction or interpretation of this
Amendment or the Insurance Agreements or any provisions hereof or thereof.
Section 4.6. Direction by NAFI to Trustee. NAFI, by its execution of this
Amendment, hereby directs Chase Manhattan Bank Delaware, as owner trustee of
National Financial Auto Funding Trust, to consent to this Amendment and to
execute and deliver this Amendment.
[Remainder of Page Intentionally Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
duly executed by their respective duly authorized officers as of the day and
year first above written.
FINANCIAL SECURITY ASSURANCE INC.
By: ______________________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.
By: ______________________________________
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST
By CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as Owner Trustee
By: _________________________________
Name:
Title:
EXECUTION COPY
AMENDMENT TO TRUST AGREEMENTS
THIS AMENDMENT is made as of October 1, 1997 (this "Amendment"), among
NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation ("National Auto"),
CHASE MANHATTAN BANK DELAWARE, as Trustee (the "Trustee") of National Financial
Auto Funding Trust, a Delaware business trust ("Funding Trust I"), and National
Financial Auto Funding Trust II, a Delaware business trust ("Funding Trust II"),
and the undersigned Co-Trustees of Funding Trust I and Funding Trust II,
pursuant to Section 10.03 of the First Amended and Restated Trust Agreement,
dated as of December 8, 1994 (the "Trust I Agreement"), among National Auto, the
Trustee and the Co-Trustees identified therein, and Section 10.03 of the Trust
Agreement, dated as of December 8, 1995 (the "Trust II Agreement"), among
National Auto, the Trustee and the Co-Trustees identified therein. The Trust I
Agreement and the Trust II Agreement are referred to herein collectively as the
"Trust Agreements." Each of the undersigned hereby consents to the execution and
delivery of this Amendment pursuant to the Trust Agreement or Trust Agreements
to which each is a party, and Section 13.01(b) of the Pooling and Administration
Agreement, dated as of December 8, 1994 (the "Pooling Agreement"), in the case
of the undersigned parties that are party thereto.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties to the extent provided
herein:
Amendment to Section 2.03(e) of the Trust Agreements. Paragraph (e)
of Section 2.03 of each of the Trust Agreements is hereby amended and restated
its entirety and to read, as follows:
(e)(i) Neither the registered nor the beneficial interest in any
Certificate of Beneficial Interest or other beneficial interest in the Trust may
be transferred, assigned, hypothecated or pledged in any manner by any direct or
indirect owner thereof (including any transferee thereof subsequent to the date
hereof) without the prior written notice by such owner to each of Financial
Security Assurance Inc., a New York stock insurance company ("Financial
Security"), and the Trustee. Any purported transfer, assignment, hypothecation
or pledge in any manner of any such registered or beneficial interest in any
Certificate of Beneficial Interest or other beneficial interest in the Trust in
violation of this Section 2.03(e)(i) shall be null and void and shall not cause
any rights to inure to the benefit of the purported transferee.
(ii) All notices and other communications to be given to Financial
Security under this Amendment shall be in writing and shall be mailed by
registered mail or personally delivered or telecopied to Financial Security at
the following address unless and until Financial Security shall provide written
notice to the Trustee with respect to any change in such address, which change
shall be effective upon the Trustee's receipt of such notice:
<PAGE>
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: NAFCO Auto Finance 1995-1, 1996-1 and 1997-1 Trusts,
Automobile Loan Asset Backed Certificates
Confirmation: (212) 826-0100
Telecopy Nos.:(212) 339-3518, (212) 339-3529
Pooling Agreement. National Auto, in its capacity as Administrator
under the Pooling Agreement, and FUNB, as holder of 100% of the outstanding
Class B Certificates, hereby consent to amendment of the Trust Agreements
pursuant hereto and waive Section 7.02 of the Pooling Agreement in connection
therewith and FUNB, constituting the Required Certificateholder, hereby directs
Bankers Trust Company, as trustee under the Pooling Agreement, to waive Section
7.02 of the Pooling Agreement in connection therewith and to execute and deliver
this Amendment.
Directions by National Auto to Trustee. National Auto, by its
execution of this Amendment, hereby directs Chase Manhattan Bank Delaware, as
Owner Trustee of each of Funding Trust I and Funding Trust II, to consent to
this Amendment and to execute and deliver this Amendment.
Definitions. Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Pooling Agreement
except with respect to capitalized terms used but not defined herein that appear
in paragraph 1 above, with respect to which such terms shall have the respective
meanings assigned to such terms in the Trust Agreements, depending upon the
Trust Agreement with respect to which such term is used.
Conditions to Effectiveness. This Amendment shall become effective
upon (a) the receipt by each of National Auto, the Trustee and Financial
Security (which with respect to Financial Security shall be delivered to the
address for Financial Security set forth in paragraph 7 below) of counterparts
hereof executed and delivered on behalf of each of the parties hereto and (b)
the receipt by each of National Auto and the Trustees of an executed copy (which
copy need not be an original executed copy) of that certain Consent made as of
October 1, 1997, with respect to Financial Security's consent in writing to this
Amendment and certain other actions by National Auto set forth therein.
Ratification. Except as expressly set forth herein, this Amendment
shall not alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Trust
Agreements, all of which are hereby ratified and affirmed in all respects by
each of the parties hereto and shall continue in full force and effect. This
Amendment shall apply and be effective only with respect to the provisions of
the Trust Agreements specifically referred to herein and any references in the
Trust Agreements to the
-2-
<PAGE>
provisions of the Trust Agreements specifically referred to herein shall be to
such provisions as amended by this Amendment.
Address for Notices and Other Communications to Financial Security.
All notices and other communications to be given to Financial Security hereunder
shall be in writing (except as otherwise specifically provided herein) and shall
be mailed by registered mail or personally delivered or telecopied to Financial
Security as follows:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: NAFCO Auto Finance 1995-1, 1996-1 and 1997-1 Trusts,
Automobile Loan Asset Backed Certificates
Confirmation: (212) 826-0100
Telecopy Nos.:(212) 339-3518, (212) 339-3529
Counterparts. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument. By its execution hereof, each of the parties hereto have consented
to this Amendment.
GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF), AND ALL LAWS OR RULES OF CONSTRUCTION OF
SUCH STATE SHALL GOVERN THE RIGHTS OF THE PARTIES TO THIS AMENDMENT AND THE
INTERPRETATION OF THE PROVISIONS OF THIS AMENDMENT.
Headings. The headings of paragraphs contained in this Amendment are
provided for convenience only. They form no part of this Amendment or the Trust
Agreements and shall not affect the construction or interpretation of this
Amendment or the Trust Agreements or any provisions hereof or thereof.
[Remainder of Page Intentionally Blank]
-3-
<PAGE>
Agreed and Consented to by:
CHASE MANHATTAN BANK DELAWARE
not in its individual capacity but solely as Owner
Trustee under each of the Trust Agreements
By: ______________________________________
Name:
Title:
Agreed and Consented to by:
NATIONAL AUTO FINANCE COMPANY, INC.
By: ______________________________________
Name:
Title:
Agreed and Consented to by:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: ______________________________________
Name:
Title:
-4-
<PAGE>
Agreed and Consented to by:
BANKERS TRUST COMPANY
not in its individual capacity but solely as Trustee
of National Financial Auto Receivables Master Trust
By: ______________________________________
Name:
Title:
Agreed and Consented to by:
------------------------------------------
Gary Shapiro, Co-Trustee of each Funding Trust I and
Funding Trust II
Agreed and Consented to by:
------------------------------------------
Keith Stein, Co-Trustee of each of Funding Trust I
and Funding Trust II
-5-
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is by and between National
Auto Finance Company, Inc., a Delaware corporation, (the "Company"), and FSA
Portfolio Management Inc., a New York corporation (the "Investor").
RECITAL
WHEREAS, pursuant to that certain letter agreement, dated as of October
1, 1997, from Financial Security Assurance Inc. ("FSA") to the Company and
National Financial Auto Funding Trust ("Funding Trust"), FSA permanently waived
all Insurance Agreement Events of Default that occurred prior to October 1, 1997
under that certain Insurance and Indemnity Agreement among FSA, Funding Trust
and the Company, dated as of November 21, 1995, as amended (the "1995-1 Trust
Insurance Agreement"), with respect to the National Auto Finance 1995-1 Trust
(the "1995-1 Trust"), and the consequences thereof, including, without
limitation, (a) FSA's right to receive any Premium Supplement and (b) the
occurrence of an Event of Default under the Insurance and Indemnity Agreements
executed in respect of each of the National Auto Finance 1996-1 Trust (the
"1996-1 Trust") and the National Auto Finance 1997-1 Trust arising solely as a
result of any such Event of Default under the 1995-1 Trust Insurance Agreement,
and (ii) waived any right that it may have to receive any Premium Supplement in
respect of such Insurance Agreement Events of Default occurring on any date up
through and including March 31, 1998 (collectively, the "Waivers"); and
WHEREAS, pursuant to Amendment No. 1 to the Master Spread Account
Agreements, and Amendment No. 1 to the Insurance and Indemnity Agreements, each
such agreement among Funding Trust, FSA, Harris Trust and Savings Bank, as
Collateral Agent ("Harris Trust") and the Company and dated as of October 1,
1997, the Company and FSA have modified the Average Delinquency Ratio, the
Average Default Rate and the Average Net Loss Rate, as such percentages are
currently set forth in (i) the definition of "Trigger Event") in the Master
Spread Account Agreements, as amended, and (ii) the section relating to Events
of Default in the Insurance and Indemnity Agreements, as amended, relating to
each of the 1995-1 Trust and the 1996-1 Trust, for the period September 1, 1997
through and including May 31, 1998 (collectively, the "Modifications");
WHEREAS, pursuant to that certain Consent, dated as of October 1, 1997,
FSA consented to (i) the Company's execution and delivery of a Pledge Agreement,
dated as of October 1, 1997, between the Company and BankBoston, N.A. (the
"Pledge Agreement") and the Amendment to Trust Agreements, dated as of October
1, 1997, among the Company, The Chase Manhattan Bank of Delaware, as Trustee,
and certain co-trustees, pursuant to
<PAGE>
which the Company pledged to BankBoston certain assets as collateral for a
three-year revolving credit facility extended by BankBoston to the Company, and
(ii) the transfer or assignment of certain assets following any enforcement by
BankBoston of its rights and remedies under the Pledge Agreement;
WHEREAS, in connection with and in furtherance of the various actions
described in the preceding recitals, the Company agreed to engage FSA for the
issuance of a Financial Guaranty Insurance Policy in connection with the next
issuance of automobile loan asset- backed certificates or automobile
receivables-backed notes, as the case may be, by or on behalf of the Company;
and
WHEREAS, each of the (i) waivers, (ii) amendments, (iii) consents and
(iv) other agreements described in the preceding recitals, and described in that
certain Summary of Principal Terms for Waivers, Consents and Amendments, dated
as of October 1, 1997, between the Company and FSA, was required in order for
FSA to consider an engagement for the issuance of a Financial Guaranty Insurance
Policy in connection with such next securitization transaction.
NOW, THEREFORE, in connection with and in consideration of the actions
and agreements described in the foregoing recitals, and the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ISSUANCE OF SHARES
1.1 Issuance of Shares. In reliance upon the representations and
warranties of the Company and the Investor contained herein, the Company hereby
agrees to issue to the Investor 100,000 shares (the "Shares") of common stock of
the Company, par value $0.01 per share (the "Common Stock") contemporaneously
with the execution of this Agreement.
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
2.1 The Investor hereby represents and warrants to the Company as
follows:
(a) Authorization: No Conflict.
(i) The Investor has full corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement and the performance by the Investor
of its obligations hereunder have been duly
2
<PAGE>
authorized by the Board of Directors of the Investor and no further action or
approval, corporate or otherwise, by the Investor, its Board of Directors or its
stockholders is required in order to constitute this Agreement as a binding and
enforceable obligation of the Investor.
(ii) The execution, delivery and performance by
the Investor of this Agreement and the consummation by the Investor of the
transactions contemplated hereby do not and will not (x) contravene or conflict
with the charter or bylaws of the Investor, (y) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Investor, or (z)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Investor or to a loss of any
benefit to which the Investor is entitled under any provision of any agreement,
contract or any franchise, license, permit, order, approval, or other similar
authorization held by the Investor.
(b) Investigation. The Investor acknowledges that the Investor
has been afforded the opportunity to ask such questions as the Investor has
deemed necessary of, and to receive answers from, representatives of the Company
concerning the merits and risks of investing in the Shares. The Investor further
represents and warrants that the Investor has received all documents and
information relating to an investment in the Shares requested by or on behalf of
the Investor as the Investor has deemed appropriate in making a decision to
invest in the Shares.
(c) Purchase for Investment. Investor is acquiring the shares
for Investor's own account for investment, and not with a view to, or for resale
in connection with, any distribution thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
(d) Accredited Investor. The Investor represents and warrants
that it is an "accredited investor" as defined in Rule 501(a) of regulation D
under the Securities Act.
(e) Private Placement. The Investor acknowledges that the
Shares have not been registered under the Securities Act and understands that
the Shares must be held indefinitely unless (i) they are subsequently registered
under the Securities Act or (ii) such sale is permitted pursuant to an available
exemption from such registration requirement, as evidenced by a legal opinion
reasonably satisfactory to the Company. The certificate(s) representing the
Shares and each certificate issued to any subsequent transferee of the Shares
shall bear a legend in substantially the following form (unless transferred in
the manner described in the following legend):
3
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE
SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED, OR OTHERWISE
ASSIGNED, EXCEPT (I) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT
TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (II) PURSUANT TO
RULE 144 UNDER SUCH ACT, OR (III) UPON THE FURNISHING TO THE COMPANY BY
THE HOLDER OF THIS CERTIFICATE OF AN OPINION OF COUNSEL (OR OTHER
EVIDENCE) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION
IS NOT REQUIRED TO BE REGISTERED UNDER SUCH ACT OR ANY APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 The Company hereby represents and warrants to, and agrees
with, the Investor as follows:
(a) Corporate Organization. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to own or
lease its properties and to carry on its business and as in the places where
such properties are now owned or leased or such business is now being conducted.
(b) Authorization; No Conflict.
(i) The Company has full corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the performance by
the Company of its obligations hereunder have been duly authorized by the Board
of Directors of the Company and no further action or approval, corporate or
otherwise, by the Company, its Board of Directors or its stockholders is
required in order to constitute this Agreement as a binding and enforceable
obligation of the Company.
(ii) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not and will not (x) contravene or
conflict with the charter or bylaws of the Company, (y) contravene or conflict
with or constitute a violation of any provision of
4
<PAGE>
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company, or (z) constitute a default under or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
the Company or to a loss of any benefit to which the Company is entitled under
any provision of any agreement, contract or any franchise, license, permit,
order, approval, or other similar authorization held by the Company.
(c) Capitalization of the Company. As of the
date hereof, there are: (i) 20,000,000 shares of Common Stock authorized, of
which (A) 7,026,000 shares are issued and outstanding and (B) 500,000 shares are
reserved for issuance upon the exercise of options granted from time to time
under the Company's 1996 Share Incentive Plan, of which options for 371,000
shares have been granted, and (ii) 1,000,000 shares of preferred stock, par
value $0.01 per share, authorized, 2,400 of which are designated as Series A
Preferred Stock, of which 2,295 shares were issued and outstanding. The Shares
issued pursuant to this Agreement are duly authorized, validly issued, fully
paid and non-assessable and have not been issued in violation of any preemptive
rights.
MISCELLANEOUS
4.1 Notices. Any notice or other communication given pursuant
to this Agreement must be in writing and (a) delivered personally, (b) sent by
facsimile or other similar facsimile transmission, (c) delivered by overnight
express, or (d) sent by registered or certified mail, postage prepaid, to the
Company at 621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487, Attn:
Keith B. Stein, Vice Chairman, telecopier no.: (800) 436- 4178, and to the
Investor at 350 Park Avenue, New York, New York 10022, Attn: Roger K. Taylor,
Managing Director, telecopier no.: (212) 755-5165, and Bruce E. Stern, Managing
Director, General Counsel and Secretary, telecopier no.: (212) 339-3529.
4.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
4.3 No Assignment; Successors and Assigns. This Agreement
shall be binding upon the Company, the Investor and their respective successors
and assigns.
4.4 Duplicate Originals. The Company and the Investor may sign
any number of copies of this Agreement. Each signed copy shall be an original,
but all of them together shall represent the same agreement.
5
<PAGE>
4.5 Severability. In any case provision in this Agreement
shall be held invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and enforceability of any such provision in every other
respect and the remaining provisions shall not in any way be affected or
impaired thereby.
4.6 No Waivers; Amendments. No failure or delay on the part of
the Company or the Investor in exercising any right, power, or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power, or remedy preclude any other or further exercise thereof
or the exercise of any other right, power, or remedy at law or in equity or
otherwise. Any provision of this Agreement may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by the Company and the
Investor.
[The remainder of this page intentionally left blank.]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of October ___, 1997.
NATIONAL AUTO FINANCE
COMPANY, INC.
By:
Name: Keith B. Stein
Title: Vice Chairman and Treasurer
FSA PORTFOLIO MANAGEMENT INC.
By:
Name: Bruce E. Stern
Title: Managing Director
7
DAFS03...:\97\64897\0001\2058\AGR4168K.480
REVOLVING CREDIT AGREEMENT
Dated as of September 29, 1997
among
NATIONAL AUTO FINANCE COMPANY, INC.
and
BANKBOSTON, N.A.,
AND THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 HERETO
and
BANKBOSTON, N.A., as Agent
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND RULES OF INTERPRETATION. ................................1
1.1. Definitions. .................................................1
1.2. Rules of Interpretation. .....................................21
2. THE REVOLVING CREDIT FACILITY. ..........................................21
2.1. Commitment to Lend. ..........................................21
2.2. Commitment Fee. ..............................................22
2.3. Reduction of Total Commitment. ...............................22
2.4. The Notes. ...................................................22
2.5. Interest on Loans. ...........................................22
2.6. Requests for Loans. ..........................................23
2.7. Conversion Options. ..........................................23
2.7.1. Conversion to Different Type of Loan. .............23
2.7.2. Continuation of Type of Loan. .....................23
2.7.3. Eurodollar Rate Loans. ............................24
2.8. Funds for Loans. .............................................24
2.8.1. Funding Procedures. ...............................24
2.8.2. Advances by Agent. ................................24
2.9. Change in Borrowing Base. ....................................25
3. REPAYMENT OF THE LOANS. .................................................25
3.1. Maturity. ....................................................25
3.2. Mandatory Repayments of Loans. ...............................25
3.3. Optional Repayments of Loans. ................................26
3.4. Termination of Working Capital Portion of
Revolving Credit Facility......................................26
4. CERTAIN GENERAL PROVISIONS. .............................................27
4.1. Funds for Payments. ..........................................27
4.1.1. Payments to Agent. ................................27
4.1.2. No Offset, etc. ...................................27
4.2. Computations. ................................................28
4.3. Inability to Determine Eurodollar Rate. ......................28
4.4. Illegality. ..................................................28
4.5. Additional Costs, etc. .......................................28
4.6. Capital Adequacy. ............................................30
4.7. Certificate. .................................................30
4.8. Indemnity. ...................................................30
4.9. Interest After Default. ......................................31
5. SECURITY. ...............................................................31
6. REPRESENTATIONS AND WARRANTIES. .........................................31
6.1. Corporate Authority. .........................................31
6.1.1. Incorporation; Good Standing. .....................31
6.1.2. Authorization. ....................................31
6.1.3. Enforceability. ...................................31
6.2. Governmental Approvals. ......................................32
6.3. Title to Properties; Leases. .................................32
6.4. Financial Statements and Projections...........................32
<PAGE>
ii
6.4.1. Financial Statements................................32
6.4.2. Projections.........................................32
6.5. No Material Changes, etc. ....................................32
6.6. Franchises, Patents, Copyrights, etc. ........................33
6.7. Litigation. ..................................................33
6.8. No Materially Adverse Contracts, etc. ........................33
6.9. Compliance With Other Instruments, Laws, etc. ................33
6.10. Tax Status. .................................................33
6.11. No Event of Default. ........................................34
6.12. Holding Company and Investment Company Acts. ................34
6.13. Absence of Financing Statements, etc. .......................34
6.14. Perfection of Security Interest. ............................34
6.15. Certain Transactions. .......................................34
6.16. Employee Benefit Plans. .....................................34
6.16.1. In General. ......................................34
6.16.2. Terminability of Welfare Plans. ..................35
6.16.3. Guaranteed Pension Plans. ........................35
6.16.4. Multiemployer Plans. .............................35
6.17. Regulations U and X. ........................................36
6.18. Environmental Compliance. ...................................36
6.19. Subsidiaries, etc. ..........................................36
6.20. Bank Accounts. ..............................................36
6.21. Title Registration. .........................................36
6.22. Lending Activities and Licenses. ............................37
7. AFFIRMATIVE COVENANTS OF THE BORROWER. ..................................37
7.1. Punctual Payment. ............................................37
7.2. Maintenance of Office. .......................................37
7.3. Records and Accounts. ........................................38
7.4. Financial Statements, Certificates and Information. ..........38
7.5. Notices. .....................................................40
7.5.1. Defaults. .........................................40
7.5.2. Environmental Events. .............................41
7.5.3. Notification of Claims Against Collateral. ........41
7.5.4. Notice of Litigation and Judgments. ...............41
7.5.5. First Union Credit Facility and Permitted
Securitization Transactions.........................41
7.6. Corporate Existence; Maintenance of Properties. ..............42
7.7. Insurance; Life Insurance......................................42
7.7.1. Insurance...........................................42
7.7.2. Life Insurance. ...................................42
7.8. Taxes..........................................................42
7.9. Inspection of Properties and Books, etc. .....................43
7.9.1. General. ..........................................43
7.9.2. Collateral Reports..................................43
7.9.3. Commercial Finance Examinations.....................43
7.9.4. Communication with Accountants. ...................44
7.10. Compliance with Laws, Contracts, Licenses, and Permits. .....44
<PAGE>
iii
7.11. Employee Benefit Plans. .....................................44
7.12. Use of Proceeds. ............................................44
7.13. Bank Accounts. ..............................................44
7.14. Vehicle Lo5ans. .............................................45
7.15. Fiscal Year. ................................................45
7.16. Additional Bank Account. ....................................45
7.17. Further Assurances. .........................................45
8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. .............................45
8.1. Restrictions on Indebtedness. ................................45
8.2. Restrictions on Liens. .......................................46
8.3. Restrictions on Investments. .................................47
8.4. Distributions. ...............................................48
8.5. Merger, Consolidation. .......................................48
8.5.1. Mergers and Acquisitions............................48
8.5.2. Disposition of Assets. ............................49
8.6. Compliance with Environmental Laws. ..........................49
8.7. Subordinated Debt. ...........................................49
8.8. Prohibited Amendments. .......................................49
8.9. Employee Benefit Plans. ......................................50
8.10. Transactions with Affiliates. ...............................50
8.11. Fiscal Year. ................................................51
8.12. No Negative Pledges. ........................................51
8.13. Upstream Limitations. .......................................51
8.14. Inconsistent Agreements. ....................................51
8.15. Asset Securitizations. ......................................51
9. FINANCIAL COVENANTS OF THE BORROWER. ....................................52
9.1. Tangible Capital Funds. ......................................52
9.2. Profitable Operations. .......................................52
9.3. Debt Service. ................................................52
9.4. Capital Expenditures. ........................................52
9.5. Delinquencies. ...............................................52
9.6. Non-Performing Assets. .......................................52
9.7. Losses. ......................................................52
9.8. Reserves. ....................................................52
10. CLOSING CONDITIONS. ....................................................53
10.1. Loan Documents, Etc. ........................................53
10.1.1. Loan Documents. ..................................53
10.1.2. Subordination Documents. .........................53
10.2. Certified Copies of Charter Documents. ......................53
10.3. Corporate Action. ...........................................53
10.4. Incumbency Certificate. .....................................53
10.5. Validity of Liens. ..........................................53
10.6. Perfection Certificates and UCC Search Results. .............54
10.7. Certificates of Insurance. ..................................54
10.8. Agency Account Agreements. ..................................54
10.9. Borrowing Base Report. ......................................54
10.10. Accounts Receivable Aging Report. ..........................54
<PAGE>
iv
10.11. Vehicle Reports. ...........................................54
10.12. Solvency Certificate. ......................................54
10.13. Opinions of Counsel. .......................................55
10.14. Pledge Agreement. ..........................................55
11. CONDITIONS TO ALL BORROWINGS. ..........................................55
11.1. Representations True; No Event of Default. ..................55
11.2. No Legal Impediment. ........................................55
11.3. Governmental Regulation. ....................................55
11.4. Proceedings and Documents. ..................................55
11.5. Borrowing Base Report. ......................................56
12. EVENTS OF DEFAULT; ACCELERATION; ETC. ..................................56
12.1. Events of Default and Acceleration. .........................56
12.2. Termination of Commitments. .................................60
12.3. Remedies. ...................................................60
12.4. Distribution of Collateral Proceeds. ........................60
13. SETOFF. ................................................................61
14. THE AGENT. .............................................................62
14.1. Authorization. ..............................................62
14.2. Employees and Agents. .......................................62
14.3. No Liability. ...............................................62
14.4. No Representations. .........................................63
14.5. Payments. ...................................................63
14.5.1. Payments to Agent. ...............................63
14.5.2. Distribution by Agent. ...........................63
14.5.3. Delinquent Banks. ................................63
14.6. Holders of Notes. ...........................................64
14.7. Indemnity. ..................................................64
14.8. Agent as Bank. ..............................................64
14.9. Resignation. ................................................64
14.10. Notification of Defaults and Events of Default. ............65
15. EXPENSES. ..............................................................65
16. INDEMNIFICATION. .......................................................66
17. SURVIVAL OF COVENANTS, ETC. ............................................66
18. ASSIGNMENT AND PARTICIPATION. ..........................................67
18.1. Conditions to Assignment by Banks. ..........................67
18.2. Certain Representations and Warranties; Limitations;
Covenants. ..................................................67
18.3. Register. ...................................................68
18.4. New Notes. ..................................................68
18.5. Participations. .............................................69
18.6. Disclosure. .................................................69
18.7. Assignee or Participant Affiliated with the Borrower. .......69
18.8. Miscellaneous Assignment Provisions. ........................70
18.9. Assignment by Borrower. .....................................70
19. NOTICES, ETC. ..........................................................70
20. GOVERNING LAW. .........................................................71
21. HEADINGS. ..............................................................71
22. COUNTERPARTS. ..........................................................71
<PAGE>
v
23. ENTIRE AGREEMENT, ETC. .................................................71
24. WAIVER OF JURY TRIAL. ..................................................72
25. CONSENTS, AMENDMENTS, WAIVERS, ETC. ....................................72
26. SEVERABILITY. ..........................................................72
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1 Banks; Commitments
Schedule 1.1 Trusts
Schedule 6.3 Title to Properties; Leases
Schedule 6.15 Certain Transactions
Schedule 6.19 Subsidiaries
Schedule 6.20 Bank Accounts
Schedule 6.22 States; Licenses; Permits
Schedule 8.1 Indebtedness
Schedule 8.2 Existing Liens
Schedule 8.3 Existing Investments
Exhibit A Form of Borrowing Base Report
Exhibit B Form of Note
Exhibit C Form of Loan Request
Exhibit D Form of Compliance Certificate
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Agency Account Agreement
Exhibit G Current Policies Regarding Purchase of Retail
Installment Vehicle Loans
Exhibit H Criteria for Purchasing Vehicle Loans
Exhibit I Credit and Collection Policy
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AND TERM LOAN AGREEMENT is made as of September
29, 1997, by and among NATIONAL AUTO FINANCE COMPANY, INC. (the "Borrower"), a
Delaware corporation having its principal place of business at 621 N.W. 53rd
Street, Suite 200, Boca Raton, Florida 33487, and BANKBOSTON, N.A., a national
banking association and the other lending institutions listed on Schedule 1 and
BANKBOSTON, N.A. as agent for itself and such other lending institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
---------------------------------------
1.1. DEFINITIONS. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to
below:
ACCH. Auto Credit Clearinghouse, a division of the Borrower.
ACCH Lender. A bank or other lending institution with which the
Borrower has an ACCH Agreement for the purchase of Vehicle Loans.
ACCH Agreement. An agreement between an ACCH Lender and either ACCH or
the Borrower pursuant to which ACCH or the Borrower, as the case may be,
purchases Vehicle Loans from such ACCH Lender, and any agreement for the
purchase of Vehicle Loans between such a bank or other lending institution and a
Subsidiary of the Borrower that such Subsidiary has assigned to the Borrower and
the Borrower has assumed from such Subsidiary.
Accounts Receivable. All rights of the Borrower to payment under and in
respect of all Eligible Vehicle Loans and all repossessed Eligible Vehicles sold
by ADT on behalf of the Borrower at auction sales, and all rights of the
Borrower to payment for any other services rendered in the ordinary course of
business and all sums of money or other proceeds due thereon pursuant to
transactions with account debtors, except for that portion of the sum of money
or other proceeds due thereon that relate to sales, use or property taxes in
conjunction with such transactions, recorded on books of account in accordance
with generally accepted accounting principles.
Adjustment Date. The first day of the month immediately following
the month in which a Compliance Certificate is to be delivered by the Borrower
pursuant to ss.7.4(d).
ADT. Automated Data Transfers or such other licensed, bonded auction
company acceptable to the Agent.
Affiliate. Any Person that would be considered to be an affiliate of
the Borrower under Rule 144(a) of the Rules and Regulations of the Securities
and Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
<PAGE>
2
Agency Accounts. The depository accounts maintained by the Borrower
with the Agency Account Institutions, the funds from which are periodically
transferred to the Collection Account pursuant to the Agency Account Agreements.
Agency Account Agreements. The Supplement to Amended and Restated
Servicing Agreement, dated or to be dated on or prior to the Closing Date
between the Borrower and Omni, in form and substance satisfactory to the Agent
and the Banks, and the several Agency Account Agreements, each in substantially
the form of Exhibit F hereto, entered into by the Borrower, the Agent and the
Agency Account Institutions.
Agency Account Institutions. Omni for so long as Vehicle Loans are
being serviced by Omni, and First Union National Bank of North Carolina
thereafter.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent. BankBoston, N.A., acting as agent for the Banks.
Agent's Special Counsel. Bingham, Dana & Gould LLP or such other
counsel as may be approved by the Agent.
Applicable Commitment Rate. For each Rate Adjustment Period, the
Applicable Commitment Rate shall be the applicable margin per annum set forth
below with respect to the Borrowing Base Leverage, as determined for the fiscal
quarter of the Borrower ending immediately prior to the applicable Rate
Adjustment Period (which shall be based upon the Borrowing Base Report delivered
as of the end of such fiscal quarter):
-----------------------------------------------------------------------
BORROWING BASE LEVERAGE RATE
-----------------------------------------------------------------------
85% or more 0.3750%
-----------------------------------------------------------------------
less than 85% 0.2500%
-----------------------------------------------------------------------
Notwithstanding the foregoing, (a) for the period commencing on the Closing Date
through the date immediately preceding the first Adjustment Date to occur after
the fiscal quarter ending September 30, 1997, the Applicable Commitment Rate
shall be the highest Applicable Commitment Rate set forth above, and (b) if the
Borrower shall fail to deliver any Compliance Certificate pursuant to ss.7.4(d)
hereof, then for the period commencing on the next Adjustment Date to occur
subsequent to such failure through the date immediately following the date on
which such Compliance Certificate is delivered, the Applicable Commitment Rate
shall be the highest Applicable Commitment Rate set forth in the table above.
Applicable Obligor. See definition of Stayed Loan.
Assignment and Acceptance. See ss.18.1.
<PAGE>
3
Balance Sheet Date. December 31, 1996.
Banks. BKB and the other lending institutions listed on Schedule 1
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to ss.18.
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by BKB at its head office in Boston, Massachusetts, as its "base
rate" and (b) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean, for any day, the rate per annum 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 on such
transactions received by the Agent from three funds brokers of recognized
standing selected by the Agent.
Base Rate Loans. Loans bearing interest calculated by reference to the
Base Rate.
BKB. BankBoston, N.A. in its individual capacity.
Borrower. As defined in the preamble hereto.
Borrowing Base. At the relevant time of reference thereto, an amount
determined by the Agent by reference to the most recent Borrowing Base Report,
which is equal to the sum of:
(a) 90% of the Net Amount of Eligible Vehicle Loans pledged to
the Agent for the benefit of the Banks pursuant to the Security
Agreement; plus
(b) the lesser of (i) 40% of Determined Value of the
Eligible Repossessed Vehicles and (ii) $1,500,000; plus
(c) prior to the Termination Date, the lesser of (i) 25% of
the Residual Value and (ii) $8,000,000 and on and after the Termination
Date, 0% of the Residual Value.
Borrowing Base Leverage. For any period of determination, the
percentage equal to (a) the average of Total Outstanding for such period divided
by (b) the sum of (i) the average Net Amount of Eligible Vehicle Loans pledged
to the Bank pursuant to the Security Agreement for such period, plus (ii) the
average Determined Value of the Eligible Repossessed Vehicles, determined for
such period.
Borrowing Base Report. A Borrowing Base Report signed by the chief
financial officer of the Borrower and in substantially the form of Exhibit A
hereto.
<PAGE>
4
Business Day. Any day on which banking institutions in Boston,
Massachusetts, are open for the conduct of a substantial part of their
commercial banking business and, in the case of Eurodollar Rate Loans, also a
day which is a Eurodollar Business Day.
Capital Expenditures. Amounts paid or indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with the purchase or lease by
the Borrower or any of its Subsidiaries of Capital Assets that would be required
to be capitalized and shown on the balance sheet of such Person in accordance
with generally accepted accounting principles.
Capitalized Leases. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
Closing Date. The first date on which the conditions set forth in ss.10
have been satisfied and any Loans are to be made.
Code. The Internal Revenue Code of 1986, as amended.
Collateral. All of the property, rights and interests of the Borrower
and its Subsidiaries that are or are intended to be subject to the security
interests and mortgages created by the Security Documents.
Collection Account. See ss.3.2(b).
Collection Policy. With respect to the Borrower, those collection
policies of the Borrower relating to the administration and collection of, the
Vehicle Loans of the Borrower in the form of Exhibit I hereto, as such policies
may be amended, restated, supplemented, or otherwise modified from time to time
only with the prior written consent of the Agent.
Commitment. With respect to each Bank, the amount set forth on Schedule
1 hereto as the amount of such Bank's commitment to make Loans to the Borrower,
as the same may be reduced from time to time; or if such commitment is
terminated pursuant to the provisions hereof, zero.
Commitment Percentage. With respect to each Bank, the percentage set
forth on Schedule 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
Compliance Certificate. See ss.7.4(d).
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
<PAGE>
5
Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrower and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with generally
accepted accounting principles, after eliminating therefrom all extraordinary
nonrecurring items of income.
Consolidated Tangible Capital Funds. For any period, an amount equal to
the sum of (a) the value of the shareholder's equity in the Borrower, plus (b)
the aggregate amount of Subordinated Debt, minus (c) the total book value of all
assets of the Borrower and its Subsidiaries properly classified as intangible
assets under generally accepted accounting principles.
Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by the Borrower and its
Subsidiaries during such period on all Indebtedness of the Borrower and its
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of Capitalized
Leases and including commitment fees, agency fees, facility fees, balance
deficiency fees and similar fees or expenses in connection with the borrowing of
money.
Conversion Request. A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Loan in accordance with ss.2.7.
Credit Agreement. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto.
Current Policies Regarding Purchase of Retail Installment Vehicle
Loans. With respect to Eligible Vehicle Loans, the Borrower's policies regarding
the origination and purchase of such retail installment car loans in the form of
Exhibit G hereto, as such policies may be amended, restated, supplemented, or
otherwise modified from time to time only with the prior written consent of the
Agent.
Dealer. A retail vendor of motor vehicles with which the Borrower has a
Dealer Agreement for the purchase of Vehicle Loans.
Dealer Agreement. An agreement between a retail vendor of motor
vehicles and the Borrower pursuant to which the Borrower purchases Vehicle Loans
from such vendor, and any agreement for the purchase of Vehicle Loans between
such a retail vendor and a Subsidiary of the Borrower that such Subsidiary has
assigned to the Borrower and the Borrower has assumed from such Subsidiary.
Default. See ss.12.
Determined Value. At the relevant time of reference thereto, the
aggregate current value of the Repossession Loans outstanding with respect to
the Eligible Repossessed Vehicles, determined in accordance with generally
accepted accounting principles. To the extent that any Eligible Repossessed
Vehicle is encumbered by a lien or encumbrance which is a Permitted Lien not
securing the Obligations, the amount of the Indebtedness secured by such lien or
<PAGE>
6
encumbrance shall be deducted from the value determined in accordance with the
immediately preceding sentence of this definition of the term "Determined
Value".
Distribution. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
Dollars or $. Dollars in lawful currency of the United States of
America.
Domestic Lending Office. Initially, the office of each Bank designated
as such in Schedule 1 hereto; thereafter, such other office of such Bank, if
any, located within the United States that will be making or maintaining Base
Rate Loans.
Drawdown Date. The date on which any Loan is made or is to be made, and
the date on which any Loan is converted or continued in accordance with ss.2.7.
EBIT. With respect to any fiscal period, the Consolidated Net Income of
the Borrower and its Subsidiaries for such period, after all expenses and other
proper charges but before payment or provision for any income taxes or interest
expense for such period, determined in accordance with generally accepted
accounting principles.
Eligible Assignee. Any of (a) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (b) a
savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (c) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (d) the central
bank of any country which is a member of the OECD; and (e) if, but only if, an
Event of Default has occurred and is continuing, any other bank, insurance
company, commercial finance company or other financial institution or other
Person approved by the Agent, such approval not to be unreasonably withheld.
Eligible Insurance. With respect to any Vehicle Loan at any date of
determination shall mean skips, errors and omissions insurance issued by an
Eligible Insurer under the terms of its various policies, each providing for
coverage for Vehicle Loans originated during the applicable annual period
covered by such policy; provided that (a)(i) the remaining coverage at such time
under such insurance has not been exhausted for Vehicle Loans purchased by the
Borrower during the applicable policy year in which such Vehicle Loan was
originated, or (ii) such insurance coverage meets substantially equivalent
criteria to those set forth in clause (i) acceptable to the Agent, (b) all
<PAGE>
7
premiums in respect of such insurance shall have been paid prior to such date,
and (c) all proceeds received by the Borrower in excess of $100,000 shall be
applied to the Obligations at the Agent's discretion.
Eligible Insurer. Any insurance carrier reasonably acceptable to the
Agent which meets the following or substantially similar requirements approved
by the Agent, as determined from such insurer's quarterly and annual statutory
filings with the department of insurance in its state of incorporation:
(a) not more than 50% of such insurer's statutory surplus
shall at any time be invested in instruments or securities rated less
than NAIC (National Association of Insurance Commissioners) "1" or "2";
(b) such insurer's statutory surplus shall be not less than
$6,000,000 at all times;
(c) the ratio of such insurer's aggregate net premiums
written to statutory surplus shall not exceed 3.00 to 1.00;
(d) such insurer shall be rated at least B++ by A.M. Best;
and
(e) such insurer shall be in compliance in all material
respects with all material insurance laws applicable to it (including,
but not limited to, those relating to limitations on risks insured
relative to statutory surplus).
Eligible Jurisdiction. With respect to an Eligible Vehicle, shall mean
the jurisdiction in which the motor vehicle is titled and registered by or on
behalf of the Obligor at the time of purchase; provided, however, if such
jurisdiction is other than a One Party Jurisdiction and more than ten percent
(10%) of the Eligible Vehicles are titled and registered in such jurisdiction,
the Borrower shall have furnished, if requested by the Agent, an opinion (or
other legal memorandum), in all respects reasonably satisfactory to the Agent,
with respect to the perfection, validity and enforceability of security
interests in motor vehicles and the Vehicle Loans originated in such
jurisdiction and related matters.
Eligible Repossessed Vehicle. An Eligible Vehicle (a) that has been
repossessed by the Borrower and is in the possession of ADT or a Sanctioned
Repossession Company, (b) that has not been in the inventory of ADT or,
collectively, ADT and such Sanctioned Repossession Company for more than sixty
(60) days after the date of such repossession, and (c) as to which the Obligor
obligated with respect to such Eligible Vehicle, has not (i) filed a petition or
sought relief under or taken advantage of any insolvency law, (ii) made an
assignment for the benefit of its creditors, (iii) commenced a proceeding for
the appointment of a receiver, trustee, liquidator, custodian or conservator of
itself or for the whole or substantially all of its property, (iv) filed, or
consented to, a petition under any chapter of the Code, or (v) filed a petition
or sought relief under, or taken advantage of, any bankruptcy or similar law or
statute of any jurisdiction, now or hereafter in effect.
<PAGE>
8
Eligible Vehicle. A new or used motor vehicle that (a) to the best of
the Borrower's knowledge is not acquired for use in a commercial enterprise or
as part of a fleet, (b) in respect of which the Borrower has and retains legal
title (or properly has filed, or the Dealer who sold such vehicle has properly
filed on behalf of the Borrower, an initial application seeking to obtain legal
title which application, or any prior application relating to the same Obligor
or motor vehicle, has not been rejected or denied, explicitly or by implication,
and has not been pending for more than 180 days) or a first priority perfected
security interest, or a first priority lien under applicable provisions of the
motor vehicle or other similar law of an Eligible Jurisdiction, and (c) covered
by single interest insurance for skips, errors and omissions.
Eligible Vehicle Loan. A Vehicle Loan (other than a Stayed Loan):
(a) that is secured by an Eligible Vehicle,
(b) that represents a Vehicle Loan that is denominated and
payable only in Dollars by an Obligor (other than an Affiliate of the
Borrower),
(c) that was originated by (i) a Dealer other than a Dealer
that is an Affiliate of the Borrower unless previously disclosed to the
Agent or (ii) an ACCH Lender other than an ACCH Lender that is an
Affiliate of the Borrower unless previously disclosed to the Agent, in
each case unless otherwise consented to in writing by the Agent (which
consent shall not be unreasonably withheld) and purchased pursuant to a
Dealer Agreement or an ACCH Agreement, as applicable,
(d) that is not presently delinquent (without regard to any
stated grace period) for more than sixty (60) days past any payment
date set forth in the applicable retail installment contract and
security agreement between the Borrower and the Obligor prior to any
repossession of the related Eligible Vehicle,
(e) in respect of which the related motor vehicle, if
repossessed, is an Eligible Repossessed Vehicle,
(f) that the Obligor on which has not been granted more than
five (5) extensions or other forbearances in connection with any
delinquencies of more than 150 days in the aggregate during the initial
term of the Vehicle Loan,
(g) that is consistent with the Borrower's Current
Policies Regarding Purchase of Retail Installment Vehicle Loans,
(h) that has a bureau (Beacon) score rating of 550 points
or more ("C" rated paper) at the time of origination,
(i) that was originated in an Eligible Jurisdiction,
(j) that is covered by Eligible Insurance, provided that if
any insurer providing insurance against skips, errors and omissions for
Vehicle Loans hereunder shall cease to be an Eligible Insurer, the
<PAGE>
9
Vehicle Loans insured by such insurer shall cease to be Eligible
Vehicle Loans on the thirtieth day following the date on which such
insurer ceases to be an Eligible Insurer, unless, during such thirty
(30) day period (i) such insurer cures the event or condition causing
it to cease being an Eligible Insurer, (ii) the Borrower replaces the
insurance policies issued to it by that insurer with respect to the
affected Vehicle Loans with comparable insurance policies issued by an
Eligible Insurer, or (iii) the Borrower implements a self-insurance
program, acceptable to the Agent, in place of the insurance policies
issued by that insurer,
(k) in respect of which the representations and warranties
set forth in the Security Agreement are true,
(l) that has not previously been sold, discounted or
transferred to any Person, other than Vehicle Loans sold in connection
with previously completed asset securitizations which have been
repurchased by the Borrower, and
(m) that the Agent otherwise does not deem in its reasonable
judgment to be uncollectible.
Employee Benefit Plan. Any employee benefit plan within the meaning of
ss.3(2) of ERISA maintained or contributed to by the Borrower, other than a
Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See ss.6.18(a).
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA Affiliate. Any Person which is treated as a single employer with
the Borrower under ss.414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of ss.4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
<PAGE>
10
Eurodollar Lending Office. Initially, the office of each Bank
designated as such in Schedule 1 hereto; thereafter, such other office of such
Bank, if any, that shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar
Rate Loan, the rate of interest equal to (a) the arithmetic average of the rates
per annum for each Reference Bank (rounded upwards to the nearest 1/16 of one
percent) of the rate at which such Reference Bank's Eurodollar Lending Office is
offered Dollar deposits two Eurodollar Business Days prior to the beginning of
such Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations of such Eurodollar Lending Office are
customarily conducted at or about 10:00 a.m., Boston time, for delivery on the
first day of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of the Eurodollar Rate Loan of such
Reference Bank to which such Interest Period applies, divided by (b) a number
equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable.
Eurodollar Rate Loans. Loans bearing interest calculated by reference
to the Eurodollar Rate.
Eurodollar Rate Margin. For each Rate Adjustment Period, the Eurodollar
Rate Margin shall be the applicable margin per annum set forth below with
respect to the Borrowing Base Leverage, as determined for the fiscal quarter of
the Borrower ending immediately prior to the applicable Rate Adjustment Period
(which shall be based upon the Borrowing Base Report delivered as of the end of
such fiscal quarter):
------------------------------------------------------------------
BORROWING BASE LEVERAGE RATE
------------------------------------------------------------------
90% or more 2.00%
------------------------------------------------------------------
85% or more but less than 90% 1.75%
------------------------------------------------------------------
70% or more but less than 85% 1.50%
------------------------------------------------------------------
Less than 70% 1.25%
------------------------------------------------------------------
Notwithstanding the foregoing, (a) for the period commencing on the
Closing Date through the date immediately preceding the first Adjustment Date to
occur after the fiscal quarter ending September 30, 1997, the Eurodollar Rate
Margin shall be the highest Eurodollar Rate Margin set forth above, and (b) if
the Borrower shall fail to deliver any Compliance Certificate pursuant to
ss.7.4(d) hereof, then for the period commencing on the next Adjustment Date to
occur subsequent to such failure through the date immediately following the date
on which such Compliance Certificate is delivered, the Eurodollar Rate Margin
shall be the highest Eurodollar Rate Margin set forth in the table above.
Excess Spread Receivables. (a) For purposes of ss.3.4 of this Credit
Agreement, the Security Agreement and the financing statements filed in
<PAGE>
11
connection therewith, "Excess Spread Receivables" shall mean with respect to
each trust set forth on Schedule 1.1 and all other trusts established in
connection with a Permitted Securitization Transaction, the gross interest
income on motor vehicle retail installment sales contracts purchased and
securitized by such trust, less (i) the pass-through interest paid to the
securitization investors, (ii) provisions for credit losses and prepayments over
the life of the securitization applicable thereto, and (iii) usual servicing
fees and recovery of the Spread Account applicable thereto.
(b) For all other purposes, "Excess Spread Receivables" shall mean with
respect to each trust set forth on Schedule 1.1 and all other trusts established
in connection with a Permitted Securitization Transaction, the gain recognized
on the sale of motor vehicle retail installment sales contracts through such
Transaction, deferred servicing income, deferred gain attributable to the time
value of money, and deferred costs of such Transaction. The amount of such
Receivable shall be equal to the present value of the gross interest income on
motor vehicle retail installment sales contracts purchased and securitized by
such trust, less (i) the pass-through interest paid to the securitization
investors, (ii) provisions for credit losses and prepayments over the life of
the securitization applicable thereto, and (iii) usual servicing fees and
recovery of the Spread Account applicable thereto.
Existing Securitization Transaction. The securitization program in
existence as of the Closing Date comprised of the Borrower's sale, assignment,
pledge or contribution of some of its Vehicle Loans to an SPV as part of a
securitization of such Vehicle Loans.
Event of Default. See ss.12.
First Union Credit Facility. The $50,000,000 multiyear revolving
securitization facility between the NAFCO Auto Receivables Master Trust and
First Union National Bank of North Carolina with a maturity date of June 30,
1999, as evidenced by the Transaction Documents, as amended and in effect as of
the Closing Date, and as further amended, restated, supplemented, and modified
after the Closing Date; provided that any amendment or modification of Article
IX (Amortization Events) or any definition used therein shall require the
consent of the Agent.
generally accepted accounting principles. (a) When used in ss.9,
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles, the accounting practice of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date taking into account any adjustments as a result of compliance
with Statement of Financial Accounting Standards No. 125, and (b) when used in
general, other than as provided in subsection (a) above, means principles that
are (i) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (ii) consistently applied with past financial statements of the Borrower
adopting the same principles, provided that in each case referred to in this
definition of "generally accepted accounting principles" a certified public
<PAGE>
12
accountant would, insofar as the use of such accounting principles is pertinent,
be in a position to deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Gurba Junior Subordinated Note. The Amended and Restated Promissory
Note, dated as of January 3, 1997, issued by National Auto Finance Company L.P.
to Stephen L. Gurba in the aggregate principal amount, as of July 1, 1997, of
$34,387 and maturing on January 31, 2002, as assigned to, and assumed by, the
Borrower.
Hazardous Substances. See ss.6.18(b).
Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
Interest Payment Date. (a) As to any Base Rate Loan, the last day of
the calendar month which includes the Drawdown Date thereof; and (b) as to any
Eurodollar Rate Loan, the last day of such Interest Period.
Interest Period. With respect to each Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a Loan Request
(i) for any Base Rate Loan, the last day of the calendar month; and (ii) for any
Eurodollar Rate Loan, 1, 2, or 3 months; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on the last day of one of the periods set forth above, as
selected by the Borrower in a Conversion Request; provided that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(a) if any Interest Period with respect to a Eurodollar Rate
Loan would otherwise end on a day that is not a Eurodollar Business
<PAGE>
13
Day, that Interest Period shall be extended to the next succeeding
Eurodollar Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Eurodollar
Business Day;
(b) if any Interest Period with respect to a Base Rate Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in
ss.2.7, the Borrower shall be deemed to have requested a conversion of
the affected Eurodollar Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last day
of the then current Interest Period with respect thereto;
(d) any Interest Period relating to any Eurodollar Rate Loan
that begins on the last Eurodollar Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Eurodollar Business Day of a calendar month; and
(e) any Interest Period relating to any Eurodollar Rate Loan
that would otherwise extend beyond the Maturity Date shall end on the
Maturity Date.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
Junior Subordinated Debt. Indebtedness under the Junior Subordinated
Debt Documents.
Junior Subordinated Debt Documents. The Gurba Junior Subordinated Note,
the NFC Junior Subordinated Note, the Nova Junior Subordinated Note, the Otto
Junior Subordinated Note, and the Shapiro Junior Subordinated Note.
<PAGE>
14
Life Insurance Assignment. The assignment of the Life Insurance Policy
made by the Borrower to the Agent and in form and substance satisfactory to the
Banks and the Agent.
Life Insurance Policies. The policy or policies of life insurance
issued or to be issued to the Borrower by an insurance company pursuant to
ss.7.7.2 hereof.
Liquidated Receivable. As of any date of determination, a Vehicle Loan
(a) which is greater than 120 days past due, (b) as to which the Agent, based
upon a review of the Credit and Collection Policy, has determined that all
Recoveries in respect of such Vehicle Loan have been received, or (c) with
respect to which the related motor vehicle has been repossessed and sold.
Loan Documents. This Credit Agreement, the Notes, the Subordination
Agreements and the Security Documents.
Loan Request. See ss.2.6.
Loans. Revolving credit loans made or to be made by the Banks to the
Borrower pursuant to ss.2.
Loss Reserve. All refundable and non-refundable dealer and loan loss
reserves maintained by the Borrower, including, without limitation, all
allowances for credit losses and doubtful Vehicle Loans, dealer reserves, and
deferred income allocated to reserves for credit losses.
Maturity Date. September 25, 2000.
Majority Banks. As of any date, the Banks holding at least fifty-one
percent (51%) of the outstanding principal amount of the Notes on such date; and
if no such principal is outstanding, the Banks whose aggregate Commitments
constitutes at least fifty-one percent (51%) of the Total Commitment.
Multiemployer Plan. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Net Amount. With respect to Vehicle Loans, as of any date, the
outstanding principal amount thereof as of such date, minus (without
duplication):
(a) to the extent included in the principal amount thereof,
unearned interest or finance charges with respect to future periods (or
reserves with respect to unearned interest or finance charges); and
(b) unless otherwise deducted as shown on the balance sheet of
the Borrower, any categories of reserves, credits and discounts.
Net Losses. With respect to any Reference Period, the excess of (a) the
unpaid principal balance of Vehicle Loans that became Liquidated Receivables
<PAGE>
15
during such Reference Period, minus all Recoveries received during such
Reference Period in respect of Liquidated Receivables.
NFC Junior Subordinated Note. The Amended and Restated Promissory Note,
dated as of January 3, 1997, issued by National Auto Finance Company L.P. to
Nova Financial Corporation in the aggregate principal amount, as of July 1,
1997, of $27,789 and maturing on January 31, 2002, as assigned to, and assumed
by, the Borrower.
Non-Performing Assets. Without duplication, all (a) Vehicle Loans that
are delinquent (without regard to any stated grace period) more than ninety (90)
days on a contractual basis, (b) all Repossession Loans, (c) all Stayed Loans
and (d) all Rewritten Loans that are not Eligible Vehicle Loans.
Notes. See ss.2.4.
Nova Junior Subordinated Note. The Amended and Restated Promissory
Note, issued by National Auto Finance Company, L.P. to Nova Corporation in the
aggregate principal amount, as of July 1, 1997, of $497,383 and maturing on
January 31, 2002, as assigned to, and assumed by, the Borrower.
Obligations. All indebtedness, obligations and liabilities of any of
the Borrower and its Subsidiaries to any of the Banks and the Agent,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Loans or any of the Notes, or arising or incurred in
connection with any interest rate protection arrangements entered into by such
Person or any documents, agreements or instruments executed in connection
therewith, or other instruments at any time evidencing any thereof.
Obligor. Any one or more individuals (other than a Dealer) who is
liable in whole or in part on a Vehicle Loan (determined without regard to
limitations, if any, on recourse).
Omni. Omni Financial Services of America, Inc., as assignee of World
Omni Financial Corporation, a Florida corporation.
One Party Jurisdictions. All jurisdictions which are not a Two Party
Jurisdiction.
Otto Junior Subordinated Note. The Amended and Restated Promissory
Note, dated as of January 3, 1997, issued by National Auto Finance Company L.P.
to Edgar Otto in the aggregate principal amount, as of July 1, 1997, of $980,895
and maturing on January 31, 2002, as assigned to, and assumed by, the Borrower.
outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
<PAGE>
16
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificate as defined in the
Security Agreements.
Permitted Acquisition. See ss.8.5.1 hereof.
Permitted Liens. Liens, security interests and other encumbrances
permitted by ss.8.2.
Permitted Securitization Transaction. (a) The Existing Securitization
Transaction and (b) any similar transaction hereafter entered into by the
Borrower or any of its Subsidiaries provided that at the time such similar
transaction is consummated no Default or Event of Default shall have occurred
and be continuing or would occur after giving effect thereto.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Pledge Agreement. The Pledge Agreement, dated or to be dated on or
prior to the Closing Date, among the Borrower, National Chartered Auto
Corporation and the Agent, in form and substance satisfactory to the Banks and
the Agent.
Pooling and Administration Agreement. The NAFCO Auto Receivables Master
Trust Pooling and Administration Agreement, dated as of December 8, 1994, among
NAFCO Funding Trust, National Auto Finance Company, Inc., formerly National Auto
Finance Company, L.P., and Bankers Trust Company, as amended restated,
supplemented or otherwise modified from time to time.
Pro Forma Basis. In connection with any proposed Permitted Acquisition,
the calculation of compliance with the financial covenants described in ss.9
hereof by the Borrower and its Subsidiaries (including the Person to be
acquired) with reference to the audited historical financial results, if
available, or such other management reports as approved by the Agent, of such
Person and the Borrower and its Subsidiaries for the applicable Test Period
after giving effect on a pro forma basis to such Permitted Acquisition in the
manner described in (a), (b) and (c) below; and, following a Permitted
Acquisition, the calculation of compliance with the covenants set forth in ss.9
for the fiscal quarter in which such Permitted Acquisition occurred and each of
the three fiscal quarters immediately following such Permitted Acquisition with
reference to the audited historical financial results of the Person so acquired
and the Borrower and its Subsidiaries for the applicable Test Period after
giving effect on a pro forma basis to such Permitted Acquisition in the manner
described in (a), (b) and (c) below:
(a) all Indebtedness (whether under this Credit Agreement or
otherwise) and any other balance sheet adjustments incurred or made in
connection with the Permitted Acquisition shall be deemed to have been
incurred or made on the first day of the Test Period, and all
Indebtedness of the Person acquired or to be acquired in such Permitted
<PAGE>
17
Acquisition which was or will have been repaid in connection with the
consummation of the Permitted Acquisition shall be deemed to have been
repaid concurrently with the Permitted Acquisition;
(b) all Indebtedness assumed to have been incurred pursuant to
the preceding clause (a) shall be deemed to have borne interest at (i)
the arithmetic mean of (A) the Eurodollar Rate for Eurodollar Rate
Loans having an Interest Period of one month in effect on the first day
of the Test Period and (B) the Eurodollar Rate for Eurodollar Rate
Loans having an Interest Period of one month in effect on the last day
of the Test Period plus (ii) the Eurodollar Rate Margin then in effect
(after giving effect to the Permitted Acquisition on a Pro Forma
Basis); and
(c) other reasonable cost savings, expenses and other income
statement or operating statement adjustments which are attributable to
the change in ownership and/or management resulting from such Permitted
Acquisition as may be approved by the Agent in writing (which approval
shall not be unreasonably withheld) shall be deemed to have been
realized on the first day of the Test Period.
Rate Adjustment Period. Each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date
Real Estate. All real property at any time owned or leased (as lessee
or sublessee) by the Borrower or any of its Subsidiaries.
Record. The grid attached to a Note, or the continuation of such grid,
or any other similar record, including computer records, maintained by any Bank
with respect to any Loan referred to in such Note.
Recoveries. All payments received by the Borrower in respect of any
Liquidated Receivable minus the reasonable expenses incurred by Omni in
connection with the collection of such payments.
Reference Period. A period of four consecutive calendar months (or such
shorter period of one, two, three or four full consecutive calendar months as
has elapsed since the Closing Date).
Repossession Loans. All Vehicle Loans in respect of which the related
motor vehicle has been repossessed by or on behalf of the Borrower or
surrendered to the Borrower by or on behalf of the Obligor and is being held by
the Borrower or ADT for resale.
Residual Value. As of any date of determination, the amount set forth
as item III(D) on the most recent Borrowing Base Report delivered to the Agent
pursuant to ss.7.4(f) hereof, provided such amount is calculated in accordance
with the manner set forth in the Borrowing Base Report as determined by the
Agent.
<PAGE>
18
Rewritten Loan. Any Vehicle Loan in respect of which (a) the original
terms have been rewritten, other than Vehicle Loans that are or were Stayed
Loans, which have been rewritten by the applicable bankruptcy court, or (b) a
forbearance or an extension in excess of thirty (30) days has been granted.
Sanctioned Repossession Company. A repossession company sanctioned by
the American Recovery Association.
Security Agreements. The several Security Agreements, dated or to be
dated on or prior to the Closing Date, between the Borrower and its Subsidiaries
and the Agent and in form and substance satisfactory to the Banks and the Agent.
Security Documents. The Security Agreements, the Pledge Agreement, the
Trademark Assignment and the Agency Account Agreements.
Senior Subordinated Debt Documents. The Senior Subordinated Note
Purchase Agreement and the Senior Subordinated Notes.
Senior Subordinated Note Purchase Agreement. The Note Purchase
Agreement, dated as of August 9, 1996, among the Borrower as successor by
assumption to National Auto Finance Company, L.P. and the "Purchasers"
identified on the signature pages thereto.
Senior Subordinated Notes. The Notes in the aggregate principal amount
of $12,000,000 issued pursuant to the Senior Subordinated Note Purchase
Agreement.
Shapiro Junior Subordinated Note. The Amended and Restated Promissory
Note, dated as of January 3, 1997, issued by National Auto Finance Company L.P.
Gary L. Shapiro in the aggregate principal amount of $436,846 and maturing on
January 31, 2002, as assigned to, and assumed by, the Borrower.
Spread Accounts. With respect to each trust set forth on Schedule 1.1
and all other trusts established in connection with a Permitted Securitization
Transaction, the "spread account" into which funds in excess of the amount
required to collateralize motor vehicle retail installment sales contract
purchases made in connection with such Transaction are deposited. Such funds are
available to be remitted to the Borrower over the life of such Transaction.
SPV. Any special purpose entity including, without limitation, a
wholly-owned Subsidiary of the Borrower or trust, established in connection with
a Permitted Securitization Transaction.
Stayed Loan. A Vehicle Loan:
(a) as to which an Obligor obligated on such Vehicle Loan (any
such Obligor, together with its Subsidiaries, herein collectively, the
"Applicable Obligor"), shall file a petition or seek relief under or
take advantage of any insolvency law, make an assignment for the
benefit of its creditors, commence a proceeding for the appointment of
<PAGE>
19
a receiver, trustee, liquidator, custodian or conservator of itself or
for the whole or substantially all of its property; file, or consent
to, a petition under any chapter of the Code, or file a petition or
seek relief under, or take advantage of, any bankruptcy or similar law
or statute of any jurisdiction, now or hereafter in effect;
(b) as to which a court of competent jurisdiction shall enter
an order, judgment or decree appointing or authorizing a receiver,
trustee, liquidator, custodian or conservator shall assume custody or
control or take possession of the Applicable Obligor or of the whole or
substantially all of its property;
(c) as to which there is commenced against the Applicable
Obligor any proceeding for any of the relief described in subsection
(b) above or as to which a petition if filed against the Applicable
Obligor under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law or
statute of any jurisdiction, now or hereafter in effect, and such
proceeding or petition remains undismissed for a period of sixty (60)
days; or
(d) as to which the Applicable Obligor by any act indicates
its consent to, approval of or acquiescence in any such proceeding or
petition described in subsection (c) above;
provided, however, that a Vehicle Loan shall cease to be a Stayed Loan
at such time as and so long as (i) all principal, interest and other
amounts theretofore due and payable according to the terms of such
Vehicle Loan (as such terms have been approved, adjusted and/or
confirmed pursuant to a court order or otherwise in any proceeding
referred to in subsections (a), (b), (c) and (d) above) have been
irrevocably paid to or collected or received by the Borrower and all
such amounts thereafter due and payable shall be paid to or collected
or received by the Borrower when due (or within any stated grace
period) and (ii) such Vehicle Loan shall be secured to the same extent
as before such Vehicle Loan first became a Stayed Loan and no dispute
regarding the existence, validity or priority of such security shall be
pending in any court or asserted in any pending appeal.
Subordinated Debt. Unsecured Indebtedness of the Borrower or any of its
Subsidiaries that is expressly subordinated and made junior to the payment and
performance in full of the Obligations, and evidenced as such by a written
instrument containing subordination provisions in form and substance approved by
the Banks in writing.
Subordination Agreements. Collectively, (a) the Senior Subordination
Agreement, dated or to be dated as of the Closing Date, among the Agent, the
holders of the Senior Subordinated Notes and the Borrower and (b) the Junior
Subordination Agreement, dated or to be dated as of the Closing Date, among the
Agent, the holders of the Senior Subordinated Notes, the holders of the Junior
Subordinated Debt Documents and the Borrower, each in form and substance
satisfactory to the Banks and the Agent.
<PAGE>
20
Subordination Documents. The Senior Subordinated Debt Documents and the
Junior Subordinated Debt Documents.
Subsidiary. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock; provided that for the purposes of
this Credit Agreement, the term Subsidiary shall not include any SPV.
Termination Date. January 19, 1997.
Test Period. (a) In connection with the calculation of financial
covenant compliance on a Pro Forma Basis as required by ss.8.5.1 with respect to
any proposed Permitted Acquisition, the period of four fiscal quarters most
recently ended prior to such Permitted Acquisition for which financial
information is available, and (b) in connection with the calculation of the
covenants set forth in ss.9 hereof following any Permitted Acquisition, the
period of all fiscal quarters (and any portion of a fiscal quarter) prior to the
date of such Permitted Acquisition included in the calculation of such financial
covenant.
Total Commitment. The sum of the Commitments of the Banks, as in effect
from time to time.
Total Outstanding. At any time of reference thereto, the sum of the
Loans outstanding at such time.
Trademark Assignment. The Trademark Collateral Security and Pledge
Agreement, dated on or prior to the Closing Date, between the Borrower and the
Agent, in form and substance satisfactory the Banks and the Agent, and the
Assignments of Trademarks and Service Marks executed in connection therewith.
Transaction Documents. See Appendix A to the Pooling and Administration
Agreement.
Two Party Jurisdictions. Those jurisdictions in which the Obligor
physically possesses title to vehicles subsequent to the issuance of such title.
Type. As to any Loan, its nature as a Base Rate Loan or a Eurodollar
Rate Loan.
Vehicle Loan. A motor vehicle installment sales contract assigned to
the Borrower that is secured by title to, security interests in, or liens on a
motor vehicle under applicable provisions of the motor vehicle or other similar
law of the jurisdiction in which the motor vehicle is titled and registered by
the purchaser at the time the contract is originated, other than Vehicle Loans
sold to an SPV in connection with a Permitted Securitization Transaction.
Voting Stock. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
<PAGE>
21
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.
1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from
time to time in accordance with its terms and the terms of this Credit
Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "ss." refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not to
any particular section or subdivision of this Credit Agreement.
2. THE REVOLVING CREDIT FACILITY.
-----------------------------
2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth
in this Credit Agreement, each of the Banks severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Maturity Date upon notice by the Borrower to
the Agent given in accordance with ss.2.6, such sums as are requested by the
Borrower up to a maximum aggregate principal amount outstanding (after giving
effect to all amounts requested) at any one time equal to such Bank's
Commitment, provided that the sum of the outstanding amount of the Loans (after
giving effect to all amounts requested) shall not at any time exceed the lesser
of (a) the Total Commitment and (b) the Borrowing Base. The Loans shall be made
pro rata in accordance with each Bank's Commitment Percentage. Each request for
a Loan hereunder shall constitute a representation and warranty by the Borrower
<PAGE>
22
that the conditions set forth in ss.10 and ss.11, in the case of the initial
Loans to be made on the Closing Date, and ss.11, in the case of all other Loans,
have been satisfied on the date of such request.
2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee in an amount equal to the Applicable Commitment Rate on the
average daily amount during each calendar quarter or portion thereof from the
Closing Date to the Maturity Date by which the Total Commitment exceeds the
outstanding amount of Loans during such calendar quarter. The commitment fee
shall be payable quarterly in arrears on the first day of each calendar quarter
for the immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Commitments shall terminate.
2.3. REDUCTION OF TOTAL COMMITMENT. The Borrower shall have the right
at any time and from time to time upon five (5) Business Days prior written
notice to the Agent to reduce by $500,000 or an integral multiple of $100,000 or
terminate entirely the unborrowed portion of the Total Commitment, whereupon the
Commitments of the Banks shall be reduced pro rata in accordance with their
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated. Promptly after receiving any notice of the Borrower
delivered pursuant to this ss.2.3, the Agent will notify the Banks of the
substance thereof. Upon the effective date of any such reduction or termination,
the Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction of the Commitments may be reinstated.
2.4. THE NOTES. The Loans shall be evidenced by separate promissory
notes of the Borrower in substantially the form of Exhibit B hereto (each a
"Note"), dated as of the Closing Date and completed with appropriate insertions.
One Note shall be payable to the order of each Bank in a principal amount equal
to such Bank's Commitment or, if less, the outstanding amount of all Loans made
by such Bank, plus interest accrued thereon, as set forth below. The Borrower
irrevocably authorizes each Bank to make or cause to be made, at or about the
time of the Drawdown Date of any Loan or at the time of receipt of any payment
of principal on such Bank's Note, an appropriate notation on such Bank's Record
reflecting the making of such Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Loans set forth on such Bank's Record
shall be prima facie evidence of the principal amount thereof owing and unpaid
to such Bank, but the failure to record, or any error in so recording, any such
amount on such Bank's Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Note to make payments of principal of or
interest on any Note when due.
2.5. INTEREST ON LOANS. Except as otherwise provided in ss.4.8,
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the Base Rate.
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23
(b) Each Eurodollar Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last
day of the Interest Period with respect thereto at a rate per annum
equal to the sum of the Eurodollar Rate plus the Eurodollar Rate Margin
determined for such Interest Period.
(c) The Borrower promises to pay interest on each Loan in
arrears on each Interest Payment Date with respect thereto.
2.6. REQUESTS FOR LOANS. The Borrower shall give to the Agent written
notice in the form of Exhibit C hereto (or telephonic notice confirmed in a
writing in the form of Exhibit C hereto) of each Loan requested hereunder (a
"Loan Request") no less than (a) two (2) Business Days prior to the proposed
Drawdown Date of any Base Rate Loan and (b) four (4) Eurodollar Business Days
prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such
notice shall specify (i) the principal amount of the Loan requested, (ii) the
proposed Drawdown Date of such Loan, (iii) the Interest Period for such Loan and
(iv) the Type of such Loan. Promptly upon receipt of any such notice, the Agent
shall notify each of the Banks thereof. Each such notice shall be irrevocable
and binding on the Borrower and shall obligate the Borrower to accept the Loan
requested from the Banks on the proposed Drawdown Date. Each Loan Request shall
be in a minimum aggregate amount of $500,000 or an integral multiple of
$100,000.
2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF LOAN. The Borrower may
elect from time to time to convert any outstanding Loan to a Loan of
another Type, provided that (a) with respect to any such conversion of
a Loan to a Base Rate Loan, the Borrower shall give the Agent at least
three (3) Business Days prior written notice of such election; (b) with
respect to any such conversion of a Eurodollar Rate Loan into a Loan of
another Type, such conversion shall only be made on the last day of the
Interest Period with respect thereto; (c) with respect to any such
conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower
shall give the Agent at least four (4) Eurodollar Business Days prior
written notice of such election and (d) no Loan may be converted into a
Eurodollar Rate Loan when any Default or Event of Default has occurred
and is continuing. On the date on which such conversion is being made
each Bank shall take such action as is necessary to transfer its
Commitment Percentage of such Loans to its Domestic Lending Office or
its Eurodollar Lending Office, as the case may be. All or any part of
outstanding Loans of any Type may be converted as provided herein,
provided that partial conversions shall be in an aggregate principal
amount of $500,000 or a multiple of $100,000. Each Conversion Request
relating to the conversion of a Loan to a Eurodollar Rate Loan shall be
irrevocable by the Borrower.
2.7.2. CONTINUATION OF TYPE OF LOAN. Any Loans of any Type may
be continued as such upon the expiration of an Interest Period with
respect thereto by compliance by the Borrower with the notice
provisions contained in ss.2.7.1; provided that no Eurodollar Rate Loan
<PAGE>
24
may be continued as such when any Default or Event of Default has
occurred and is continuing, but shall be automatically converted to a
Base Rate Loan on the last day of the first Interest Period relating
thereto ending during the continuance of any Default or Event of
Default of which the officers of the Agent active upon the Borrower's
account have actual knowledge. In the event that the Borrower fails to
provide any such notice with respect to the continuation of any
Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be
automatically converted to a Base Rate Loan on the last day of the
first Interest Period relating thereto. The Agent shall notify the
Banks promptly when any such automatic conversion contemplated by this
ss.2.7 is scheduled to occur.
2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from
Eurodollar Rate Loans shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate
principal amount of all Eurodollar Rate Loans having the same Interest
Period shall not be less than $500,000 or a whole multiple of $100,000
in excess thereof. At no time shall there be outstanding more than six
(6) Eurodollar Rate Loans having different maturities.
2.8. FUNDS FOR LOANS.
2.8.1. FUNDING PROCEDURES. Not later than 11:00 a.m. (Boston
time) on the proposed Drawdown Date of any Loans, each of the Banks
will make available to the Agent, at its Head Office, in immediately
available funds, the amount of such Bank's Commitment Percentage of the
amount of the requested Loans. Upon receipt from each Bank of such
amount, and upon receipt of the documents required by ss.ss.10 and 11
and the satisfaction of the other conditions set forth therein, to the
extent applicable, the Agent will make available to the Borrower the
aggregate amount of such Loans made available to the Agent by the
Banks. The failure or refusal of any Bank to make available to the
Agent at the aforesaid time and place on any Drawdown Date the amount
of its Commitment Percentage of the requested Loans shall not relieve
any other Bank from its several obligation hereunder to make available
to the Agent the amount of such other Bank's Commitment Percentage of
any requested Loans.
2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to
the contrary by any Bank prior to a Drawdown Date, assume that such
Bank has made available to the Agent on such Drawdown Date the amount
of such Bank's Commitment Percentage of the Loans to be made on such
Drawdown Date, and the Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the Borrower a
corresponding amount. If any Bank makes available to the Agent such
amount on a date after such Drawdown Date, such Bank shall pay to the
Agent on demand an amount equal to the product of (a) the average
computed for the period referred to in clause (c) below, of the
weighted average interest rate paid by the Agent for federal funds
acquired by the Agent during each day included in such period, times
(b) the amount of such Bank's Commitment Percentage of such Loans,
<PAGE>
25
times (c) a fraction, the numerator of which is the number of days that
elapse from and including such Drawdown Date to the date on which the
amount of such Bank's Commitment Percentage of such Loans shall become
immediately available to the Agent, and the denominator of which is
365. A statement of the Agent submitted to such Bank with respect to
any amounts owing under this paragraph shall be prima facie evidence of
the amount due and owing to the Agent by such Bank. If the amount of
such Bank's Commitment Percentage of such Loans is not made available
to the Agent by such Bank within three (3) Business Days following such
Drawdown Date, the Agent shall be entitled to recover such amount from
the Borrower on demand, with interest thereon at the rate per annum
applicable to the Loans made on such Drawdown Date.
2.9. CHANGE IN BORROWING BASE. The Borrowing Base shall be determined
in accordance with the provisions of ss.7.4(f) by the Agent by reference to the
Borrowing Base Report.
3. REPAYMENT OF THE LOANS.
----------------------
3.1. MATURITY. The Borrower promises to pay on the Maturity Date, and
there shall become absolutely due and payable on the Maturity Date, all of the
Loans outstanding on such date, together with any and all accrued and unpaid
interest thereon.
3.2. MANDATORY REPAYMENTS OF LOANS.
(a) If at any time the sum of the outstanding amount of the
Loans exceeds the lesser of (i) the Total Commitment and (ii) the
Borrowing Base, then the Borrower shall immediately pay the amount of
such excess to the Agent for application to the Loans.
(b) The Borrower will (i) on or prior to the Closing Date,
maintain a depository collection account (the "Collection Account")
with the Agent and under the control of the Agent, (ii) direct each
Agency Account Institution pursuant to the Agency Account Agreements
(whereby such Agency Account Institution shall, among other things,
waive any right of set off, other than for service charges and returns
incurred in connection therewith), to cause all funds or proceeds of
Accounts Receivable held by such Agency Account Institution in the
Agency Accounts to be transferred daily (or such other period as the
Agent requests) to, and only to, the Agent for application to the Loans
in accordance with the terms of this Credit Agreement and (iii) direct
its account debtors and obligors on instruments or other obligors of
the Borrower to make all payments on or with respect to any of the
Vehicle Loans due or to become due to the Borrower to the account at
the Agency Account Institution. If, notwithstanding the requirements of
the foregoing sentence, the Borrower receives any cash proceeds of any
of the Vehicle Loans, whether in the form of money, checks or
otherwise, the Borrower will hold such cash proceeds in trust for the
benefit of the Agent and the Banks and deposit such cash proceeds
promptly into the Agency Account in the identical form received by the
Borrower. The Agent shall, (1) immediately following the receipt by the
Agent of any and all cash proceeds from any Agency Account (or such
later date as the Agent determines that good collected funds will be
received by the Agent), and (2) on a provisional basis until final
receipt of good collected funds, apply to all Obligations then due and
payable and thereafter to the Loans all such cash proceeds which were
deposited to the Collection Account in the form of money, checks or
<PAGE>
26
like items and, so long as no Default or Event of Default has occurred
and is continuing, the Agent shall cause any excess to be credited to
the Borrower's operating account maintained with the Agent. From and
after the occurrence and during the continuance of a Default or an
Event of Default, the Agent may, from time to time in the Agent's
discretion, retain any or all of such excess to provide cash collateral
for any Obligations not then due and payable, with the Agent causing
any surplus, subject to the rights of any other persons entitled
thereto, to be credited to the Borrower's operating account maintained
with the Agent. For purposes of the foregoing provisions of this
ss.3.2(b), the Agent shall not be deemed to have received any such cash
proceeds on any day unless received by the Agent before 3:00 p.m.
(Boston time) on such day. The Borrower further acknowledges and agrees
that any such provisional credit by the Agent shall be subject to
reversal if final collection in good collected funds of the related
item is not received by the Agent in accordance with the Agent's
customary procedures and practices for collecting provisional items.
(c) The Borrower agrees to pay to the Agent any and all fees,
costs and expenses which the Agent incurs in connection with the
opening and maintaining of the Collection Account and the depositing
for collection by the Agent of any check or other item of payment.
Absent gross negligence or willful misconduct by the Agent, the
Borrower agrees to indemnify the Agent and to hold the Agent harmless
from and against any loss, cost or expense sustained or incurred by the
Agent on account of any claims arising in connection with the Agent's
operation of the Collection Account.
3.3. OPTIONAL REPAYMENTS OF LOANS. The Borrower shall have the right,
at its election, to repay the outstanding amount of the Loans, as a whole or in
part, at any time without penalty or premium, provided that the full or partial
prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to
this ss.3.3 may be made only on the last day of the Interest Period relating
thereto. The Borrower shall give the Agent, no later than 10:00 a.m., Boston
time, on the date of any proposed repayment prior written notice, of such
proposed repayment pursuant to this ss.3.3 of Base Rate Loans, and three (3)
Eurodollar Business Days notice of any proposed repayment pursuant to this
ss.3.3 of Eurodollar Rate Loans, in each case, specifying the proposed date of
payment of Loans and the principal amount to be paid. Each such partial
prepayment of the Loans shall be in an integral multiple of $100,000, shall be
accompanied by the payment of accrued interest on the principal repaid to the
date of payment and shall be applied first to the principal of Base Rate Loans
and then to the principal of Eurodollar Rate Loans. Each partial prepayment
shall be allocated among the Banks, in proportion, as nearly as practicable, to
the respective unpaid principal amount of each Bank's Note, with adjustments to
the extent practicable to equalize any prior repayments not exactly in
proportion.
3.4. TERMINATION OF WORKING CAPITAL PORTION OF REVOLVING CREDIT
FACILITY. On and after the Termination Date, the Borrower shall not use the
<PAGE>
27
proceeds of the Loans for working capital purposes. On the Termination Date, the
Borrower shall deliver to the Agent, a Borrowing Base Report calculating the
Borrowing Base as of such date, after eliminating therefrom any amount
attributable to the Residual Value. If the sum of the outstanding amount of the
Loans as of the Termination Date exceeds the lesser of (i) the Total Commitment
and (ii) the Borrowing Base as of such date, then the Borrower shall immediately
pay the amount of such excess to the Agent for application to the Loans. Upon
the Banks' receipt of the payment referenced in the preceding sentence, if any,
(or, if no such payment is due or if the Agent or Banks shall have waived,
deferred or otherwise forbeared from collecting such payment, upon the
Termination Date), the Agent, on behalf of itself and the Banks, shall release
its security interest in the Residual Value and the assets relating thereto,
including without limitation, the Spread Accounts, the Excess Spread
Receivables, any other right of the Borrower to the payment of money from each
trust set forth on Schedule 1.1 and all other trusts established in connection
with a Permitted Securitization Transaction and the assets pledged pursuant to
the Pledge Agreement, and the Agent shall execute and deliver to the Borrower,
at the Borrower's expense, such documents and instruments as the Borrower may
reasonably request to evidence such release.
4. CERTAIN GENERAL PROVISIONS.
--------------------------
4.1. FUNDS FOR PAYMENTS.
4.1.1. PAYMENTS TO AGENT. All payments of principal, interest,
commitment fees and any other amounts due hereunder or under any of the
other Loan Documents shall be made to the Agent, for the respective
accounts of the Banks and the Agent, at the Agent's Head Office or at
such other location in the Boston, Massachusetts, area that the Agent
may from time to time designate, in each case in immediately available
funds.
4.1.2. NO OFFSET, ETC. All payments by the Borrower hereunder
and under any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction for any
taxes, levies, imposts, duties, charges, fees, deductions,
withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein
unless the Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon the Borrower with
respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower will pay to the Agent, for the account of
the Banks or (as the case may be) the Agent, on the date on which such
amount is due and payable hereunder or under such other Loan Document,
such additional amount in Dollars as shall be necessary to enable the
Banks or the Agent to receive the same net amount which the Banks or
the Agent would have received on such due date had no such obligation
been imposed upon the Borrower. The Borrower will deliver promptly to
the Agent certificates or other valid vouchers for all taxes or other
charges deducted from or paid with respect to payments made by the
Borrower hereunder or under such other Loan Document.
<PAGE>
28
4.2. COMPUTATIONS. All computations of interest on the Loans and of
commitment or other fees shall, unless otherwise expressly provided herein, be
based on a 360-day year and paid for the actual number of days elapsed. Except
as otherwise provided in the definition of the term "Interest Period" with
respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of
the other Loan Documents becomes due on a day that is not a Business Day, the
due date for such payment shall be extended to the next succeeding Business Day,
and interest shall accrue during such extension. The outstanding amount of the
Loans as reflected on the Records and the Term Records from time to time shall
be considered correct and binding on the Borrower unless within five (5)
Business Days after receipt of any notice by the Agent or any of the Banks of
such outstanding amount, the Borrower shall notify the Agent or such Bank to the
contrary.
4.3. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the
commencement of any Interest Period relating to any Eurodollar Rate Loan, the
Agent shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the Eurodollar Rate that would
otherwise determine the rate of interest to be applicable to any Eurodollar Rate
Loan during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the Borrower and the
Banks) to the Borrower and the Banks. In such event (a) any Loan Request or
Conversion Request with respect to Eurodollar Rate Loans shall be automatically
withdrawn and shall be deemed a request for Base Rate Loans, (b) each Eurodollar
Rate Loan will automatically, on the last day of the then current Interest
Period thereof, become a Base Rate Loan, and (c) the obligations of the Banks to
make Eurodollar Rate Loans shall be suspended until the Agent or the Majority
Banks determines that the circumstances giving rise to such suspension no longer
exist, whereupon the Agent or, as the case may be, the Agent upon the
instruction of the Majority Banks, shall so notify the Borrower and the Banks.
4.4. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make Eurodollar Rate Loans or convert Loans of
another Type to Eurodollar Rate Loans shall forthwith be suspended and (b) such
Bank's Loans then outstanding as Eurodollar Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period as
may be required by law. The Borrower hereby agrees promptly to pay the Agent for
the account of such Bank, upon demand by such Bank, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this ss.4.4, including any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans hereunder.
4.5. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
<PAGE>
29
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature with respect
to this Credit Agreement, the other Loan Documents, such Bank's
Commitment or the Loans (other than taxes based upon or measured by the
income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to any Bank of the
principal of or the interest on any Loans or any other amounts payable
to any Bank or the Agent under this Credit Agreement or the other Loan
Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or commitments of an office of any Bank, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, the Loans, such Bank's Commitment, or any class of loans or
commitments of which any of the Loans or such Bank's Commitment forms a
part, and the result of any of the foregoing is
(i) to increase the cost to any Bank of making,
funding, issuing, renewing, extending or maintaining any of
the Loans or such Bank's Commitment, or
(ii) to reduce the amount of principal, interest or
other amount payable to such Bank or the Agent hereunder on
account of such Bank's Commitment or any of the Loans, or
(iii) to require such Bank or the Agent to make any
payment or to forego any interest or other sum payable
hereunder, the amount of which payment or foregone interest or
other sum is calculated by reference to the gross amount of
any sum receivable or deemed received by such Bank or the
Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank or
(as the case may be) the Agent at any time and from time to time and as often as
the occasion therefor may arise, pay to such Bank or the Agent such additional
<PAGE>
30
amounts as will be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or other sum.
4.6. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent
determines that (a) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Loans to a level below that which such Bank or the Agent could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or the Agent's then existing policies with respect to
capital adequacy and assuming full utilization of such entity's capital) by any
amount deemed by such Bank or (as the case may be) the Agent to be material,
then such Bank or the Agent may notify the Borrower of such fact. To the extent
that the amount of such reduction in the return on capital is not reflected in
the Base Rate, the Borrower and such Bank shall thereafter attempt to negotiate
in good faith, within thirty (30) days of the day on which the Borrower receives
such notice, an adjustment payable hereunder that will adequately compensate
such Bank in light of these circumstances. If the Borrower and such Bank are
unable to agree to such adjustment within thirty (30) days of the date on which
the Borrower receives such notice, then commencing on the date of such notice
(but not earlier than the effective date of any such increased capital
requirement), the fees payable hereunder shall increase by an amount that will,
in such Bank's reasonable determination, provide adequate compensation. Each
Bank shall allocate such cost increases among its customers in good faith and on
an equitable basis.
4.7. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to ss.4.5 or 4.6 and a brief explanation of such amounts which
are due, submitted by any Bank or the Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing.
4.8. INDEMNITY. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest on
any Eurodollar Rate Loans as and when due and payable, including any such loss
or expense arising from interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain its Eurodollar Rate Loans, (b) default
by the Borrower in making a borrowing after the Borrower has given (or is deemed
to have given) a Loan Request or a Conversion Request relating thereto in
accordance with ss.2.6 or ss.2.7 or (c) the making of any payment of a
Eurodollar Rate Loan or the making of any conversion of any such Loan to a Base
Rate Loan on a day that is not the last day of the applicable Interest Period
with respect thereto, including interest or fees payable by such Bank to lenders
of funds obtained by it in order to maintain any such Loans.
<PAGE>
31
4.9. INTEREST AFTER DEFAULT. Overdue principal and (to the extent
permitted by applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear interest
compounded monthly and payable on demand at a rate per annum equal to two
percent (2%) above the Base Rate until such amount shall be paid in full (after
as well as before judgment).
5. SECURITY.
--------
The Obligations shall be secured by a perfected first priority security
interest (subject only to Permitted Liens entitled to priority under applicable
law) in all of the assets of the Borrower, whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which the Borrower
is a party.
6. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants to the Banks and the Agent as
follows:
6.1. CORPORATE AUTHORITY.
6.1.1. INCORPORATION; GOOD STANDING. Each of the Borrower and
its Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation, (b)
has all requisite corporate power to own its property and conduct its
business as now conducted and as presently contemplated, and (c) is in
good standing as a foreign corporation and is duly authorized to do
business in each jurisdiction where such qualification is necessary
except where a failure to be so qualified would not have a materially
adverse effect on the business, assets or financial condition of the
Borrower or its Subsidiaries.
6.1.2. AUTHORIZATION. The execution, delivery and performance
of this Credit Agreement and the other Loan Documents to which the
Borrower or any of its Subsidiaries is or is to become a party and the
transactions contemplated hereby and thereby (a) are within the
corporate authority of such Person, (b) have been duly authorized by
all necessary corporate proceedings, (c) do not conflict with or result
in any breach or contravention of any provision of law, statute, rule
or regulation to which the Borrower or any of its Subsidiaries is
subject or any judgment, order, writ, injunction, license or permit
applicable to the Borrower or any of its Subsidiaries and (d) do not
conflict with any provision of the corporate charter or bylaws of, or
any agreement or other instrument binding upon, the Borrower or any of
its Subsidiaries.
6.1.3. ENFORCEABILITY. The execution and delivery of this
Credit Agreement and the other Loan Documents to which the Borrower or
any of its Subsidiaries is or is to become a party will result in valid
and legally binding obligations of such Person enforceable against it
in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
<PAGE>
32
reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent
that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
6.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
the Borrower and any of its Subsidiaries of this Credit Agreement and the other
Loan Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
6.3. TITLE TO PROPERTIES; LEASES. Except as indicated on Schedule 6.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.
6.4. FINANCIAL STATEMENTS AND PROJECTIONS.
6.4.1. FINANCIAL STATEMENTS. There has been furnished to the
Agent a consolidated balance sheet and cash flow statements of the
Borrower and its Subsidiaries as at the Balance Sheet Date, and a
consolidated statement of income for the fiscal year then ended,
certified by the KPMG Peat Marwick LLP. Such balance sheet and
statement of income have been prepared in accordance with generally
accepted accounting principles and fairly present the financial
condition of the Borrower as at the close of business on the date
thereof and the results of operations for the fiscal year then ended.
There are no contingent liabilities of the Borrower or any of its
Subsidiaries as of such date involving material amounts, known to the
officers of the Borrower not disclosed in said balance sheet and the
related notes thereto.
6.4.2. PROJECTIONS. The projections of the annual operating
budgets of the Borrower and its Subsidiaries on a consolidated basis,
balance sheets and cash flow statements for the 1997 to 1999 fiscal
years updated as of the Closing Date, copies of which have been
delivered to the Agent, disclose all assumptions made with respect to
general economic, financial and market conditions used in formulating
such projections. To the knowledge of the Borrower or any of its
Subsidiaries, no facts exist that (individually or in the aggregate)
would result in any material change in any of such projections. The
projections are based upon reasonable estimates and assumptions, have
been prepared on the basis of the assumptions stated therein and
reflect the reasonable estimates of the Borrower and its Subsidiaries
of the results of operations and other information projected therein.
6.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial condition or business of
the Borrower and its Subsidiaries as shown on or reflected in the consolidated
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33
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the consolidated statement of income for the fiscal year then ended, other
than changes in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business or
financial condition of the Borrower or its Subsidiaries. Since the Balance Sheet
Date, the Borrower has not made any Distribution.
6.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
6.7. LITIGATION. There are no actions, suits, proceedings or
investigations of any kind pending or threatened against the Borrower or any of
its Subsidiaries before any court, tribunal or administrative agency or board
that, if adversely determined, might, either in any case or in the aggregate,
materially adversely affect the properties, assets, financial condition or
business of the Borrower and its Subsidiaries or materially impair the right of
the Borrower and its Subsidiaries, considered as a whole, to carry on business
substantially as now conducted by them, or result in any substantial liability
not adequately covered by insurance, or for which adequate reserves are not
maintained on the consolidated balance sheet of the Borrower, or which question
the validity of this Credit Agreement or any of the other Loan Documents, or any
action taken or to be taken pursuant hereto or thereto.
6.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or any of its Subsidiaries.
Neither the Borrower nor any of its Subsidiaries is a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any materially adverse effect on the business of the Borrower or any of
its Subsidiaries.
6.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could result in the imposition of substantial penalties or
materially and adversely affect the financial condition, properties or business
of the Borrower or any of its Subsidiaries.
6.10. TAX STATUS. The Borrower and its Subsidiaries (a) have made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which any of them is subject, (b)
have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.
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34
6.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
6.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
6.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or rights
thereunder.
6.14. PERFECTION OF SECURITY INTEREST. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken that are necessary or advisable, under applicable law,
to establish and perfect the Agent's security interest in the Collateral. The
Collateral and the Agent's rights with respect to the Collateral are not subject
to any setoff, claims, withholdings or other defenses. The Borrower is the owner
of the Collateral free from any lien, security interest, encumbrance and any
other claim or demand, except for Permitted Liens.
6.15. CERTAIN TRANSACTIONS. Except (a) as set forth on Schedule 6.15
attached hereto, (b) for arm's length transactions pursuant to which the
Borrower or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Borrower or such Subsidiary could
obtain from third parties, and (c) for cost-sharing, servicing arrangements and
Permitted Securitization Transactions between the Borrower and any SPV, none of
the officers, directors, or employees of the Borrower or any of its Subsidiaries
is presently a party to any transaction with the Borrower or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
6.16. EMPLOYEE BENEFIT PLANS.
6.16.1. IN GENERAL. Each Employee Benefit Plan and each
Guaranteed Pension Plan has been maintained and operated in compliance
<PAGE>
35
in all material respects with the provisions of ERISA and, to the
extent applicable, the Code, including but not limited to the
provisions thereunder respecting prohibited transactions and the
bonding of fiduciaries and other persons handling plan funds as
required by ss.412 of ERISA. The Borrower has heretofore delivered to
the Agent the most recently completed annual report, Form 5500, with
all required attachments, and actuarial statement required to be
submitted under ss.103(d) of ERISA, with respect to each Guaranteed
Pension Plan.
6.16.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit
Plan which is an employee welfare benefit plan within the meaning of
ss.3(1) or ss.3(2)(B) of ERISA provides benefit coverage subsequent to
termination of employment except as required by Title I, Part 6 of
ERISA or applicable state insurance laws. The Borrower may terminate
each such Plan at any time (or at any time subsequent to the expiration
of any applicable bargaining agreement) in the discretion of the
Borrower or such ERISA Affiliate without liability to any Person other
than for claims arising prior to termination.
6.16.3. GUARANTEED PENSION PLANS. Each contribution required
to be made to a Guaranteed Pension Plan, whether required to be made to
avoid the incurrence of an accumulated funding deficiency, the notice
or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely
made. No waiver of an accumulated funding deficiency or extension of
amortization periods has been received with respect to any Guaranteed
Pension Plan and neither the Borrower nor any ERISA Affiliate is
obligated to or has posted security in connection with an amendment of
a Guaranteed Pension Plan pursuant to ss.307 of ERISA or ss.401(a)(29)
of the Code. No liability to the PBGC (other than required insurance
premiums, all of which have been paid) has been incurred by the
Borrower or any ERISA Affiliate with respect to any Guaranteed Pension
Plan and there has not been any ERISA Reportable Event, or any other
event or condition which presents a material risk of termination of any
Guaranteed Pension Plan by the PBGC. Based on the latest valuation of
each Guaranteed Pension Plan (which in each case occurred within twelve
months of the date of this representation), and on the actuarial
methods and assumptions employed for that valuation, the aggregate
benefit liabilities of all such Guaranteed Pension Plans within the
meaning of ss.4001 of ERISA did not exceed the aggregate value of the
assets of all such Guaranteed Pension Plans, disregarding for this
purpose the benefit liabilities and assets of any Guaranteed Pension
Plan with assets in excess of benefit liabilities.
6.16.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any
ERISA Affiliate has incurred any material liability (including
secondary liability) to any Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan under
ss.4201 of ERISA or as a result of a sale of assets described in
ss.4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has been
notified that any Multiemployer Plan is in reorganization or insolvent
under and within the meaning of ss.4241 or ss.4245 of ERISA or is at
risk or entering reorganization or becoming insolvent, or that any
Multiemployer Plan intends to terminate or has been terminated under
ss.4041A of ERISA.
<PAGE>
36
6.17. REGULATIONS U AND X. The proceeds of the Loans shall be used to
finance the origination and/or purchase of motor vehicle installment contracts
and, prior to the Termination Date, for working capital purposes. No portion of
any Loan is to be used for the purpose of purchasing or carrying any "margin
security" or "margin stock" as such terms are used in Regulations U and X of the
Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
6.18. ENVIRONMENTAL COMPLIANCE. To the best of the Borrower's
knowledge:
(a) none of the Borrower, its Subsidiaries or any operator of
the Real Estate or any operations thereon is in violation, or alleged
violation, of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without
limitation, those arising under any federal, state or local statute,
regulation, ordinance, order or decree relating to health, safety or
the environment (hereinafter "Environmental Laws");
(b) (i) no portion of the Real Estate has been used for the
handling, processing, storage or disposal of any substance, material,
or chemical regulated by any Environmental Laws ("Hazardous
Substances"); and no underground tank or other underground storage
receptacle for Hazardous Substances is located on any portion of the
Real Estate; (ii) in the course of any activities conducted by the
Borrower, its Subsidiaries or operators of its properties, no Hazardous
Substances have been generated or are being used on the Real Estate;
(iii) there have been no releases (i.e. any past or present releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened releases of
Hazardous Substances on, upon, into or from the properties of the
Borrower or its Subsidiaries; and (iv) there have been no releases on,
upon, from or into any real property in the vicinity of any of the Real
Estate which, through soil or groundwater contamination, may have come
to be located on; and
(c) none of the Borrower and its Subsidiaries or any of the
Real Estate is subject to any applicable environmental law requiring
the performance of Hazardous Substances site assessments, or the
removal or remediation of Hazardous Substances, or the giving of notice
to any governmental agency or the recording or delivery to other
Persons of an environmental disclosure document or statement.
6.19. SUBSIDIARIES, ETC. Schedule 6.19 hereto sets forth the
Subsidiaries of the Borrower and each SPV. Except as set forth on Schedule 6.19
hereto, neither the Borrower nor any Subsidiary of the Borrower is engaged in
any joint venture or partnership with any other person.
6.20. BANK ACCOUNTS. Schedule 6.20 sets forth the account numbers and
location of all bank accounts of the Borrower or any of its Subsidiaries.
6.21. TITLE REGISTRATION. With respect to each motor vehicle which
serves as collateral for a Vehicle Loan which is located in (a) a One Party
Jurisdiction, such Obligor has completed and submitted to such jurisdiction an
appropriate application to obtain a certificate of title which certificate shall
<PAGE>
37
in any event be received within one hundred twenty (120) days of such
submission, in such Obligor's name with a notation on such certificate of title
reflecting the Borrower's security interest and (b) a Two Party Jurisdiction,
the certificate of title for such motor vehicle has been completed and
submitted, which process shall in any event be completed within one hundred
twenty (120) days of such submission, in such Obligor's name with a notation on
such certificate of title reflecting the Borrower's security interest.
6.22. LENDING ACTIVITIES AND LICENSES.
(a) All Vehicle Loans and all advertising, origination and
servicing activities, procedures and materials with regard to all
Vehicle Loans or accounts made, created, acquired, assumed, collected
or serviced by Omni, the Borrower or any Subsidiary thereof, comply in
all material respects with all applicable federal, state and local
laws, ordinances, rules and regulations, including but not limited to
those related to usury, truth-in-lending, consumer protection, equal
credit opportunity, fair debt collection, rescission rights and
disclosures, except where failure to comply would not have a materially
adverse effect on the assets, business or financial condition of the
Borrower and its Subsidiaries, taken as a whole.
(b) Schedule 6.22 attached hereto completely and accurately
lists (i) all states in which the Borrower or any Subsidiary thereof
transacts business and (ii) all licenses and permits obtained by the
Borrower and its Subsidiaries in each such state in connection with its
lending activities. Except as set forth in Schedule 6.22, all such
licenses and permits are in full force and effect, and no additional
licenses or permits are required in connection with the conduct of the
business of the Borrower or any of its Subsidiaries.
(c) Exhibit G hereto completely and accurately describes the
Borrower's Current Policies Regarding Purchase of Retail Installment
Vehicle Loans as in effect on the date hereof.
7. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans:
7.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loans and the commitment fees
and Agent's fee provided for in this Credit Agreement, all in accordance with
the terms of this Credit Agreement and the Notes.
7.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office in Boca Raton, Florida, or at such other place in the United
States of America as the Borrower shall designate upon written notice to the
Agent, where notices, presentations and demands to or upon the Borrower in
respect of the Loan Documents may be given or made.
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38
7.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause each
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles and (b) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation, depletion, obsolescence
and amortization of its properties and the properties of its Subsidiaries,
contingencies, and other reserves.
7.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries and the
consolidating balance sheet of the Borrower and its Subsidiaries, each
as at the end of such year, and the related consolidated statement of
income and consolidated statement of cash flow and consolidating
statement of income and consolidating statement of cash flow for such
year, each setting forth in comparative form the figures for the
previous fiscal year and all such consolidated and consolidating
statements to be in reasonable detail, prepared in accordance with
generally accepted accounting principles, and certified without
qualification by KPMG Peat Marwick LLP or by other independent
certified public accountants satisfactory to the Agent, together with a
written statement from such accountants to the effect that they have
read a copy of this Credit Agreement, and that, in making the
examination necessary to said certification, they have obtained no
knowledge of any Default or Event of Default, or, if such accountants
shall have obtained knowledge of any then existing Default or Event of
Default they shall disclose in such statement any such Default or Event
of Default; provided that such accountants shall not be liable to the
Banks for failure to obtain knowledge of any Default or Event of
Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the fiscal quarters of
the Borrower, copies of the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries and the unaudited consolidating balance
sheet of the Borrower and its Subsidiaries, each as at the end of such
quarter, and the related consolidated statement of income and
consolidated statement of cash flow and consolidating statement of
income and consolidating statement of cash flow for the portion of the
Borrower's fiscal year then elapsed, all in reasonable detail and
prepared in accordance with generally accepted accounting principles,
together with a certification by the principal financial or accounting
officer of the Borrower that the information contained in such
financial statements fairly presents the financial position of the
Borrower and its Subsidiaries on the date thereof (subject to year-end
adjustments);
(c) as soon as practicable, but in any event within thirty
(30) days after the end of each month in each fiscal year of the
Borrower, unaudited monthly consolidated financial statements of the
Borrower and its Subsidiaries for such month and unaudited monthly
consolidating financial statements of the Borrower and its Subsidiaries
<PAGE>
39
for such month, each prepared in accordance with generally accepted
accounting principles, together with a certification by the principal
financial or accounting officer of the Borrower that the information
contained in such financial statements fairly presents the financial
condition of the Borrower and its Subsidiaries on the date thereof
(subject to year-end adjustments);
(d) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a statement
certified by the principal financial or accounting officer of the
Borrower in substantially the form of Exhibit D (a "Compliance
Certificate") hereto and setting forth in reasonable detail
computations evidencing compliance with the covenants contained in ss.9
and (if applicable) reconciliations to reflect changes in generally
accepted accounting principles since the Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities
and Exchange Commission or sent to the stockholders of the Borrower,
including without limitation, all form 10-K's, form 10-Q's and proxy
statements;
(f) within twenty-two (22) days after the end of each calendar
month, upon any sale of Vehicle Loans for the purpose of Permitted
Securitization Transactions, or at such earlier time as the Agent may
reasonably request, a Borrowing Base Report setting forth the Borrowing
Base as at the end of such calendar month, the date of such sale of
Vehicle Loans or such earlier requested time;
(g) on a daily basis, a list updating the list previously
delivered of all Eligible Vehicles along with the vehicle
identification numbers and the automobile years and makes thereof, the
name of the Obligor with respect to each Eligible Vehicle, and the Net
Amount of the Vehicle Loan with respect to each Eligible Vehicle, in
form and substance satisfactory to the Agent;
(h) within twenty-two (22) days after the end of each calendar
month, a list prepared by Omni or the Borrower of all Eligible
Vehicles, the Vehicle Loans for which have been pledged to the Agent
for the benefit of the Banks and the Agent, along with the vehicle
identification numbers and the automobile years and makes thereof, the
name of the Obligor with respect to each Eligible Vehicle, and the Net
Amount of the Vehicle Loan with respect to each Eligible Vehicle, in
form and substance satisfactory to the Agent;
(i) within twenty-two (22) days after the end of each calendar
month, a list of all Eligible Repossessed Vehicles along with the
vehicle identification numbers and the automobile years and makes
thereof, the name of the Obligor with respect to each Eligible
Repossessed Vehicle, the Net Amount of the Vehicle Loan with respect to
each Eligible Repossessed Vehicle, and the number days that such
Eligible Repossessed Vehicle has been in the possession of a Sanctioned
Repossession Company and/or ADT, in form and substance satisfactory to
the Agent;
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40
(j) within twenty-two (22) days after the end of each calendar
month, a cumulative list as of the Closing Date of all Eligible
Repossessed Vehicles along with the vehicle identification numbers and
the automobile years and makes thereof, the name of the Obligor with
respect to each Eligible Vehicle, the Net Amount of the Vehicle Loan
with respect to each Eligible Repossessed Vehicle, and the number days
that such Eligible Repossessed Vehicle has been (or was) in the
possession of a Sanctioned Repossession Company and/or ADT, and the
amount for which such Eligible Repossessed Vehicle was sold at auction
(if applicable), in form and substance satisfactory to the Agent;
(k) not more frequently than one time every calendar year, or
more frequently as determined by the Agent if the Agent in its
reasonable business judgment determines that a material deterioration
has occurred in the Borrower's business or financial condition, the
Borrower shall deliver to the Agent projections of the Borrower and its
Subsidiaries updating those projections delivered to the Agent and
referred to in ss.6.4.2 or, if applicable, updating any later such
projections delivered in response to a request pursuant to this
ss.7.4(k);
(l) within twenty-two (22) days after the end of each
calendar month, an Accounts Receivable aging report;
(m) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the fiscal quarters of
the Borrower, reports on (i) repossession trends by age of Vehicle Loan
and month of purchase, and (ii) claims status and trends under Eligible
Insurance issued by the Eligible Insurer(s), including (reported
separately by policy year) number of contracts written, premiums paid,
claims made, claims paid, aggregate policy limit, and net amount
remaining available for claim;
(n) (i) promptly upon the request of the Agent a copy of the
most recent actuarial statement required to be submitted under
ss.103(d) of ERISA and Annual Report Form 5500, with all required
attachments, in respect of each Guaranteed Pension Plan, and (ii)
promptly upon receipt or dispatch, furnish the Agent any notice, report
or demand sent or received in respect of a Guaranteed Pension Plan
under ss.ss. 302, 4041, 4041, 4043, 4063, 4066 and 4068 of ERISA, or in
respect of a Multiemployer Plan under ss.ss. 4041A, 4202, 4219, 4242 or
4245 of ERISA;
(o) contemporaneously with the receipt thereof, copies of
all accountants' management letters; and
(p) from time to time such other financial data and
information as the Agent or any Bank may reasonably request.
7.5. NOTICES.
7.5.1. DEFAULTS. The Borrower will promptly notify the Agent
and each of the Banks in writing of the occurrence of any Default or
Event of Default. If any Person shall give any notice or take any other
action in respect of a claimed default (whether or not constituting an
<PAGE>
41
Event of Default) under this Credit Agreement or any other note,
evidence of indebtedness, indenture or other obligation to which or
with respect to which the Borrower or any of its Subsidiaries is a
party or obligor, whether as principal or surety, the Borrower shall
forthwith give written notice thereof to each of the Banks, describing
the notice or action and the nature of the claimed default.
7.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give
notice to the Agent (a) of any violation of any Environmental Law that
the Borrower or any of its Subsidiaries reports in writing or is
reportable by such Person in writing (or for which any written report
supplemental to any oral report is made) to any federal, state or local
environmental agency and (b) upon becoming aware thereof, of any
inquiry, proceeding, investigation, or other action, including a notice
from any agency of potential environmental liability, of any federal,
state or local environmental agency or board, that has the potential to
materially affect the assets, liabilities, financial conditions or
operations of the Borrower or any of its Subsidiaries, or the Agent's
security interests pursuant to the Security Documents.
7.5.3. NOTIFICATION OF CLAIMS AGAINST COLLATERAL. The Borrower
will, immediately upon becoming aware thereof, notify the Agent in
writing of any setoff, claims (including, with respect to the Real
Estate, environmental claims), withholdings or other defenses to which
any of the Collateral, or the Agent's rights with respect to the
Collateral, are subject.
7.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will,
and will cause each of its Subsidiaries to, give notice to the Agent in
writing within fifteen (15) days of becoming aware of any litigation or
proceedings threatened in writing or any pending litigation and
proceedings affecting the Borrower or any of its Subsidiaries or to
which the Borrower or any of its Subsidiaries is or becomes a party
involving an uninsured claim against the Borrower or any of its
Subsidiaries that could reasonably be expected to have a materially
adverse effect on the Borrower or any of its Subsidiaries and stating
the nature and status of such litigation or proceedings. The Borrower
will, and will cause each of its Subsidiaries to, give notice to the
Agent, in writing, in form and detail satisfactory to the Agent, within
ten (10) days of any judgment not covered by insurance, final or
otherwise, against the Borrower or any of its Subsidiaries in an amount
in excess of $25,000.
7.5.5. FIRST UNION CREDIT FACILITY AND PERMITTED
SECURITIZATION TRANSACTIONS. The Borrower will (a) provide the Agent
with copies of all notices that the Borrower receives in connection
with Article IX of the Pooling and Administration Agreement or any like
provisions in connection with other Permitted Securitization
Transactions immediately upon receipt thereof and (b) notify the Agent
in writing of any Amortization Event and any Liquidation Event (as such
terms are defined in the Pooling and Administration Agreement) or
similar events under any other Permitted Securitization Transactions
immediately upon becoming aware thereof.
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42
7.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, rights and franchises and those of its
Subsidiaries and will not, and will not cause or permit any of its Subsidiaries
to, convert to a limited liability company. It (a) will cause all of its
properties and those of its Subsidiaries used or useful in the conduct of its
business or the business of its Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment,
(b) will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (c) will, and will cause
each of its Subsidiaries to, continue to engage primarily in the businesses now
conducted by them and in related businesses; provided that nothing in this
ss.7.6 shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties or those of its Subsidiaries if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its or their business and that do not in the aggregate materially adversely
affect the business of the Borrower and its Subsidiaries on a consolidated
basis.
7.7. INSURANCE; LIFE INSURANCE.
7.7.1. INSURANCE. The Borrower will, and will cause each of
its Subsidiaries to, maintain with financially sound and reputable
insurers insurance with respect to its properties and business against
such casualties and contingencies as shall be in accordance with the
general practices of businesses engaged in similar activities in
similar geographic areas and in amounts, containing such terms, in such
forms and for such periods as may be reasonable and prudent and in
accordance with the terms of the Security Agreements.
7.7.2. LIFE INSURANCE. The Borrower, if it purchases any Life
Insurance Policies on the lives of the Borrower's key officers or any
other employee of the Borrower, shall forthwith assign pursuant to the
Life Insurance Assignment, the Life Insurance Policies as additional
collateral for the Obligations. The Borrower shall within ninety (90)
days thereafter deliver the acknowledgment of such Life Insurance
Assignment by the insurance carrier. The Borrower will pay all premiums
when due on the Life Insurance Policy and properly notify the Agent in
writing of the death of the individual covered by the Life Insurance
Policy. In the event of the death of such individual, regardless of
whether an Event of Default shall have occurred and be continuing, the
Borrower agrees that the Agent may, upon three (3) Business Day's prior
written notice to the Borrower, apply the proceeds of the Life
Insurance Policy as a mandatory prepayment of the amounts payable
hereunder and the other Loan Documents in such order of priority as is
contemplated in ss.12.4, with the Commitment (if not then terminated)
being reduced by the amount applied to the principal of the Notes.
7.8. TAXES. The Borrower will, and will cause each of its Subsidiaries
to, duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
(other than taxes, assessments and other governmental charges imposed by foreign
jurisdictions that in the aggregate are not material to the business or assets
<PAGE>
43
of the Borrower on an individual basis or of the Borrower and its Subsidiaries
on a consolidated basis) imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and provided further that the Borrower
and each Subsidiary of the Borrower will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.
7.9. INSPECTION OF PROPERTIES AND BOOKS, ETC.
7.9.1. GENERAL. The Borrower shall permit the Banks, through
the Agent or any of the Banks' other designated representatives, to
visit and inspect any of the properties of the Borrower or any of its
Subsidiaries to examine the books of account of the Borrower and its
Subsidiaries (and to make copies thereof and extracts therefrom), and
to discuss the affairs, finances and accounts of the Borrower and its
Subsidiaries with, and to be advised as to the same by, its and their
officers, all at such reasonable times and intervals as the Agent or
any Bank may reasonably request.
7.9.2. COLLATERAL REPORTS. Upon the request of the Agent, the
Borrower will obtain and deliver to the Agent a report of an
independent auditor satisfactory to the Agent (which may be affiliated
with one of the Banks) with respect to the Accounts Receivable and the
components included in the Borrowing Base, which report shall indicate
whether or not the information set forth in the Borrowing Base Report
most recently delivered is accurate and complete in all material
respects based upon a review by such auditors of the Accounts
Receivable (including verification with respect to the amount, aging,
identity and credit of the respective account debtors and the billing
practices of the Borrower or its applicable Subsidiary) and Eligible
Repossessed Vehicles (including verification as to the value, location
and respective types). All such collateral value reports shall be
conducted and made at the expense of the Borrower.
7.9.3. COMMERCIAL FINANCE EXAMINATIONS. Not more frequently
than two (2) times every calendar year, or if the Agent reasonably
determines that a material deterioration has occurred in the Borrower's
business or financial condition, not more frequently than three (3)
times every calendar year, or more frequently as determined by the
Agent if an Event of Default shall have occurred and shall be
continuing, the Borrower shall permit the Agent's examiners to conduct
commercial finance examinations, all at such reasonable times and
<PAGE>
44
intervals as the Agent may reasonably request. All such commercial
finance examinations shall be conducted and made at the expense of the
Borrower.
7.9.4. COMMUNICATION WITH ACCOUNTANTS. The Borrower authorizes
the Agent and, if accompanied by the Agent, the Banks to communicate
directly with the Borrower's independent certified public accountants
and authorizes such accountants to disclose to the Agent and the Banks
any and all financial statements and other supporting financial
documents and schedules including copies of any management letter with
respect to the business, financial condition and other affairs of the
Borrower or any of its Subsidiaries. At the request of the Agent, the
Borrower shall deliver a letter addressed to such accountants
instructing them to comply with the provisions of this ss.7.9.5.
7.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, and will cause each of its Subsidiaries to, comply with (a) the
applicable laws and regulations wherever its business is conducted, including
all Environmental Laws, (b) the provisions of its charter documents and by-laws,
(c) all agreements and instruments by which it or any of its properties may be
bound and (d) all applicable decrees, orders, and judgments. If at any time
while any Loan or Note is outstanding or either Bank has any obligation to make
Loans hereunder, any authorization, consent, approval, permit or license from
any officer, agency or instrumentality of any government shall become necessary
or required in order that the Borrower may fulfill any of its obligations
hereunder, the Borrower will immediately take or cause to be taken all
reasonable steps within the power of the Borrower to obtain such authorization,
consent, approval, permit or license and furnish the Banks with evidence
thereof.
7.11. EMPLOYEE BENEFIT PLANS. The Borrower will (a) promptly upon
filing the same with the Department of Labor or Internal Revenue Service and
upon request of the Agent, furnish to the Agent a copy of the most recent
actuarial statement required to be submitted under ss.103(d) of ERISA and Annual
Report, Form 5500, with all required attachments, in respect of each Guaranteed
Pension Plan and (b) promptly upon receipt or dispatch, furnish to the Agent any
notice, report or demand sent or received in respect of a Guaranteed Pension
Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or
in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245
of ERISA.
7.12. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans
to finance the origination and/or purchase of motor vehicle installment
contracts and, prior to the Termination Date, for working capital purposes.
7.13. BANK ACCOUNTS. The Borrower will, and will cause each of its
Subsidiaries to, together with the employees, agents and other Persons acting on
behalf of the Borrower or such Subsidiary, receive and hold in trust for the
Agent and the Banks all payments constituting proceeds of Accounts Receivable or
other Collateral and, immediately upon receipt thereof, deposit such payments in
the form received, with any appropriate endorsements, in one of the Agency
Accounts.
<PAGE>
45
7.14. VEHICLE LOANS. As of the Closing Date through December 31, 1997,
the Borrower and/or Omni shall service all Vehicle Loans directly and in
conformity with prudent servicing practices and procedures. As of December 31,
1997 and thereafter, the Borrower or any of its Subsidiaries shall service all
Vehicle Loans directly and in conformity with prudent servicing practices and
procedures.
7.15. FISCAL YEAR. The Borrower has a fiscal year which is the twelve
(12) months ending on December 31 of each year.
7.16. ADDITIONAL BANK ACCOUNT.
(a) Until the later to occur of October 1, 1997 and the first
date on which the servicing of Accounts Receivable shall be conducted
by the Borrower or one of its Subsidiaries, the Borrower shall maintain
a separate bank account with the Agent, other than the Collection
Account and other cash management accounts maintained with BKB, in
which the Borrower has deposited not less than $50,000. Such amount may
be invested at the direction of the Borrower in Investments of the type
described in ss.8.3(a) through (c).
(b) As of October 2, 1997 and thereafter, the Borrower will,
or will cause its Subsidiaries to, code all Accounts Receivable with
respect to Eligible Vehicle Loans for deposit with the Agent within
twenty-four hours after receipt thereof.
7.17. FURTHER ASSURANCES. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans:
8.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Banks and the Agent arising under any
of the Loan Documents;
(b) current liabilities of the Borrower incurred in the
ordinary course of business not incurred through (i) the borrowing of
money, or (ii) the obtaining of credit except for credit on an open
account basis customarily extended and in fact extended in connection
with normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
<PAGE>
46
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of ss.7.8;
(d) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
the Borrower shall at the time in good faith be prosecuting an appeal
or proceedings for review and in respect of which a stay of execution
shall have been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation
and warranties of products or services, in each case incurred in
the ordinary course of business;
(f) Subordinated Debt;
(g) Indebtedness existing on the date of this Credit
Agreement and listed and described on Schedule 8.1 hereto;
(h) Indebtedness of a Subsidiary of the Borrower existing on
the Closing Date to the Borrower;
(i) obligations under Capitalized Leases in the amount
permitted under ss.9.4; and
(j) purchase money Indebtedness of the type and in the amount
permitted by ss.9.4.
8.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not permit
any of its Subsidiaries to, (a) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:
(a) liens in favor of the Borrower on all or part of
the assets of Subsidiaries of the Borrower securing Indebtedness
owing by Subsidiaries of the Borrower to the Borrower;
<PAGE>
47
(b) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or liens on properties to
secure claims for labor, material or supplies in respect of obligations
not overdue;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(d) liens on properties in respect of judgments or awards,
the Indebtedness with respect to which is permitted by ss.8.1(d);
(e) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties, in existence less than
120 days from the date of creation thereof in respect of obligations
not overdue;
(f) encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
liens under leases to which the Borrower or a Subsidiary of the
Borrower is a party, and other minor liens or encumbrances none of
which in the opinion of the Borrower interferes materially with the use
of the property affected in the ordinary conduct of the business of the
Borrower and its Subsidiaries, which defects do not individually or in
the aggregate have a materially adverse effect on the business of the
Borrower individually or of the Borrower and its Subsidiaries on a
consolidated basis;
(g) presently outstanding liens listed on Schedule 8.2 hereto;
(h) purchase money security interests in or purchase money
mortgages on personal property acquired after the date hereof to secure
purchase money Indebtedness of the type and amount permitted by ss.9.4,
incurred in connection with the acquisition of such property, which
security interests or mortgages cover only the real or personal
property so acquired; and
(i) liens in favor of the Agent for the benefit of the
Banks and the Agent under the Loan Documents.
8.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments:
(a) in marketable direct or guaranteed obligations of the
United States of America that mature within one (1) year from the date
of purchase by the Borrower;
(b) in demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total
assets in excess of $1,000,000,000;
<PAGE>
48
(c) in securities commonly known as "commercial paper" issued
by a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase
have been rated and the ratings for which are not less than "P 1" if
rated by Moody's Investors Services, Inc., and not less than "A 1" if
rated by Standard and Poor's;
(d) existing on the date hereof and listed on Schedule 8.3
hereto;
(e) by the Borrower in Subsidiaries of the Borrower existing
on the Closing Date;
(f) consisting of promissory notes received as proceeds
of asset dispositions permitted by ss.8.5.2;
(g) consisting of loans and advances to employees for moving,
entertainment and travel (other than ordinary course business expenses)
not to exceed (a) $250,000 in the aggregate at any time outstanding as
of the Closing Date through the first anniversary thereof, and (b)
$100,000 in the aggregate at any time outstanding thereafter;
(h) in SPV's formed for the purpose of effectuating Permitted
Securitization Transactions; and
(i) in purchases of Eligible Vehicle Loans at purchase prices
not greater than fair market value that are made pursuant to good faith
bona fide transactions consistent with the criteria enumerated on
Exhibit H attached hereto with third parties that are not Affiliates of
the Borrower.
8.4. DISTRIBUTIONS. The Borrower will not make any Distributions.
8.5. MERGER, CONSOLIDATION.
8.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and
will not permit any of its Subsidiaries to, become a party to any
merger or consolidation, or agree to or effect any asset acquisition or
stock acquisition other than (a) the acquisition of assets in the
ordinary course of business consistent with past practices; (b) the
merger or consolidation of one or more of the Subsidiaries of the
Borrower with and into the Borrower, or the merger or consolidation of
two or more Subsidiaries of the Borrower; (c) the acquisition (whether
of stock or of substantially all of the assets of a business or
business division as a going concern or by means of a merger or
consolidation) of a 100% interest in any other Person (a "Permitted
Acquisition"), provided that (i) such other Person is in a similar or
complementary business to the Borrower, (ii) no Default or Event of
Default with respect to ss.12.1(c)(ii) has occurred and is continuing
or would exist after giving effect thereto, (iii) if the Borrower or
the acquiring Subsidiary merges with such other Person, the Borrower or
<PAGE>
49
such Subsidiary, as the case may be, is the surviving party, and (iv)
the Borrower has delivered to the Agent Compliance Certificates
demonstrating, both immediately prior to and immediately after such
acquisition, compliance on a Pro Forma Basis with the covenants set
forth in ss.9 of this Credit Agreement; and (d) the acquisition of a
portfolio of Vehicle Loans by the Borrower or its Subsidiaries,
provided that (i) the Borrower or such Subsidiary shall have delivered
to the Agent a closing spreadsheet with respect to such acquisition at
least three (3) days following the effective date of such acquisition,
(ii) no Default or Event of Default has occurred and is continuing or
would exist after giving effect thereto, and (iii) the Borrower has
delivered to the Agent Compliance Certificates demonstrating, both
immediately prior to and immediately after such acquisition, compliance
on a Pro Forma Basis with the covenants set forth in ss.9 of this
Credit Agreement.
8.5.2. DISPOSITION OF ASSETS. The Borrower will not, and will
not permit any of its Subsidiaries to, become a party to or agree to or
effect any disposition of assets unless (a) no Default or Event of
Default with respect to ss.ss. 12.1(a) or 12.1(b) has occurred and is
continuing or would occur after giving effect thereto, and (b) the
Borrower has delivered to the Agent Compliance Certificates
demonstrating, both immediately prior to and immediately after such
asset securitization program, compliance on a pro forma basis with the
covenants set forth in ss.9 of this Credit Agreement.
8.6. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) use any of the Real Estate or
any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances, (b) cause or permit to be located on any of the Real
Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (c) generate any Hazardous Substances on any of the Real
Estate, (d) conduct any activity at any Real Estate or use any Real Estate in
any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (e) otherwise conduct any activity at any Real Estate or
use any Real Estate in any manner that would violate any Environmental Law or
bring such Real Estate in violation of any Environmental Law.
8.7. SUBORDINATED DEBT. The Borrower will not, and will not permit any
of its Subsidiaries to, (a) amend, supplement or otherwise modify the terms of
any of the Subordinated Debt or Subordination Documents if such amendment,
supplement or modification would impose more restrictive terms on the Borrower
or would be detrimental to the position of the Agent or the Banks, (b) or prepay
or repurchase any of the Subordinated Debt, in each case without the prior
written consent of the Agent and the Banks; provided, however, so long as no
Default or Event of Default has occurred and is continuing or would exist as a
result thereof, the Borrower shall be permitted to (i) make regularly scheduled
interest payments on the Senior Subordinated Notes and the Junior Subordinated
Debt Documents and (ii) convert the Junior Subordinated Debt to equity interests
in the Borrower.
8.8. PROHIBITED AMENDMENTS. The Borrower will not, and will not permit
any of its Subsidiaries to, amend, supplement or otherwise modify (a) the
charter or by-laws of the Borrower or any Subsidiary that would adversely affect
the enforceability of any Loan Document or the collectibility of any Obligation
<PAGE>
50
hereunder, (b) any resolution of the Board of Directors of the Borrower that
would adversely affect the enforceability of any Loan Document or the
collectibility of any Obligation hereunder, (c) in any material respect, the
Current Policies Regarding Purchase of Installment Vehicle Loans, (d) Article IX
of the Pooling and Administration Agreement, any definitions contained therein
or any other provision of any Transaction Document that would affect such
Article IX, (e) any provision in any document executed in connection with
Permitted Securitization Transactions (other than the Existing Securitization
Transaction) substantially similar to the provisions set forth in Article IX of
the Pooling and Administration Agreement, any definitions contained therein or
any other provision that would affect such provisions or (f) the definitions of
Residual Interest or Transferor Distribution Amount (or any definitions used
therein), ss.4.03 or ss.4.04 of the Pooling and Administration Agreement or any
other provision that would affect such definitions or provisions, in each case
without the prior written consent of the Banks. The Borrower will not, and will
not permit any of its Subsidiaries to, amend, supplement or otherwise modify (i)
the discount rate used in calculating, for each trust established in connection
with a Permitted Securitization Transaction, items III(A)(iii) and III(B)(vi) of
the Residual Value portion of the Borrowing Base Report so as to reduce such
rate from eleven percent (11%) or (ii) the loss reserve used in calculating, for
each trust established in connection with a Permitted Securitization
Transaction, item III(B)(iv) of the Residual Value portion of the Borrowing Base
Report so as to reduce such rate from nine percent (9%), in each case without
the prior written consent of the Banks.
8.9. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will:
(a) engage in any "prohibited transaction" within the meaning
of ss.406 of ERISA or ss.4975 of the Code which could result in a
material liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in ss.302 of
ERISA, whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a lien or encumbrance on the
assets of the Borrower or any of its Subsidiaries pursuant to ss.302(f)
or ss.4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances
requiring the posting of security pursuant to ss.307 of ERISA or
ss.401(a)(29) of the Code; or
(e) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of
all Guaranteed Pension Plans exceeding the value of the aggregate
assets of such Plans, disregarding for this purpose the benefit
liabilities and assets of any such Plan with assets in excess of
benefit liabilities, by more than $100,000.
8.10. TRANSACTIONS WITH AFFILIATES. Except (a) as set forth on Schedule
6.15 attached hereto, (b) for arm's length transactions pursuant to which the
<PAGE>
51
Borrower or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Borrower or such Subsidiary could
obtain from third parties and (c) for cost-sharing, servicing arrangements and
Permitted Securitization Transactions between the Borrower and any SPV, the
Borrower will not, and will not permit any of its Subsidiaries, any SPV or any
of the officers, directors, or employees of the Borrower, any of its
Subsidiaries or SPV to, enter into, cause suffer, or permit to exist, any
transaction with the Borrower or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
8.11. FISCAL YEAR. The Borrower will not change the date of the end of
its fiscal year from that referred to in ss.7.15 hereof.
8.12. NO NEGATIVE PLEDGES. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any agreement (excluding the Credit
Agreement, the other Loan Documents and the limitations contained in ss.5.9 of
the Senior Subordinated Note Purchase Agreement) prohibiting the creation or
assumption of any lien upon its properties, revenues or assets or those of any
of its Subsidiaries, whether now owned or hereafter acquired; provided that,
after the Termination Date, the Borrower may enter into any such agreement in
connection with an asset securitization program by an SPV with respect to
residual interests in future excess cash flow from such SPV to which the
Borrower is or would be entitled and evidenced by stock or certificates issued
by such SPV, so long as no Default or Event of Default has occurred and is
continuing or would occur after giving effect thereto.
8.13. UPSTREAM LIMITATIONS. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any agreement, contract or arrangement
(excluding the Credit Agreement and the other Loan Documents) restricting the
ability of any Subsidiary of the Borrower to pay or make dividends or
distributions in cash or kind to the Borrower or to any of the Borrower's
Subsidiaries, to make loans, advances or other payments of whatsoever nature to
the Borrower or to any of the Borrower's Subsidiaries or to make transfer or
distributions of all or any part of its assets to the Borrower or to any
Subsidiary of such Borrower's Subsidiary.
8.14. INCONSISTENT AGREEMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any agreement containing any
provision which would be violated or breached by the performance by the Borrower
or such Subsidiary of the Borrower of its obligations hereunder or under any of
the Loan Documents.
8.15. ASSET SECURITIZATIONS. The Borrower will not, and will not permit
any of its Subsidiaries or any SPV to, enter into any asset securitization
program unless (a) no Default or Event of Default with respect to ss.ss.12.1(a),
12.1(b) or 12.1(c)(ii) has occurred and is continuing or would occur after
giving effect thereto, and (b) the Borrower has delivered to the Agent
Compliance Certificates demonstrating, both immediately prior to and immediately
after such asset securitization program, compliance on a pro forma basis with
the covenants set forth in ss.9 of this Credit Agreement.
<PAGE>
52
9. FINANCIAL COVENANTS OF THE BORROWER.
-----------------------------------
9.1. TANGIBLE CAPITAL FUNDS. The Borrower will not permit Consolidated
Tangible Capital Funds for any fiscal quarter to be less than the sum of (a)
$37,500,000, plus (b) 100% of Consolidated Net Income determined on a cumulative
basis from and after January 1, 1997 plus (c) the $4,500,000 one-time tax charge
incurred by the Borrower in the first fiscal quarter of 1997.
9.2. PROFITABLE OPERATIONS. The Borrower will not permit Consolidated
Net Income for any fiscal quarter to be less than $1.00.
9.3. DEBT SERVICE. The Borrower will not permit the ratio of EBIT for
any Reference Period to Consolidated Total Interest Expense for such Reference
Period to be less than 2.00:1.00.
9.4. CAPITAL EXPENDITURES. The Borrower will not make, or permit any
Subsidiary of the Borrower to make, Capital Expenditures (including without
limitation all obligations under Capitalized Leases and purchase money
indebtedness incurred in connection with the acquisition after the date hereof
of any personal property by the Borrower or any of its Subsidiaries) that
exceed, in the aggregate, (a) $3,500,000 in fiscal year 1997, so long as no more
than $1,000,000 of such amount in the aggregate shall be expended in connection
with Capitalized Leases, and (b) $500,000 in fiscal year 1998 and in each fiscal
year thereafter; provided, however, that, if during fiscal year 1997 the amount
of Capital Expenditures permitted for such fiscal year is not so utilized, such
unutilized amount may be utilized in fiscal year 1998 but not in any subsequent
fiscal year.
9.5. DELINQUENCIES. The Borrower will not permit the Net Amount of
Vehicle Loans that are delinquent (without regard to any stated grace period)
more than thirty (30) days on a contractual basis during any Reference Period to
exceed eleven percent (11%) of the aggregate Net Amount of all Vehicle Loans
during such Reference Period.
9.6. NON-PERFORMING ASSETS. The Borrower will not permit the Net Amount
of Vehicle Loans that are Non-Performing Assets during any Reference Period to
exceed twenty-three percent (23%) of the aggregate Net Amount of all Vehicle
Loans during such Reference Period.
9.7. LOSSES. The Borrower will not permit the average of Net Losses
sustained by the Borrower with respect to the Vehicle Loans outstanding during
any Reference Period to exceed nine percent (9%) of the Net Amount of all
Vehicle Loans outstanding during such Reference Period.
9.8. RESERVES. The Borrower will not permit the Loss Reserves during
any Reference Period to be less than five percent (5%) of the Net Amount of all
Vehicle Loans outstanding during such Reference Period.
<PAGE>
53
10. CLOSING CONDITIONS.
------------------
The obligations of the Banks to make the initial Loans shall be subject
to the satisfaction of the following conditions precedent on or prior to the
Closing Date:
10.1. LOAN DOCUMENTS, ETC.
10.1.1. LOAN DOCUMENTS. Each of the Loan Documents shall have
been duly executed and delivered by the respective parties thereto,
shall be in full force and effect and shall be in form and substance
satisfactory to each of the Banks. Each Bank shall have received a
fully executed copy of each such document.
10.1.2. SUBORDINATION DOCUMENTS. Each of the Subordination
Documents shall have been duly executed and delivered by the respective
parties thereto, shall be in full force and effect and shall be in form
and substance satisfactory to each of the Banks. Each Bank shall have
received a fully executed copy of each such document.
10.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall
have received from the Borrower, each Subsidiary of the Borrower and the
Guarantor, a copy, certified by a duly authorized officer of such Person to be
true and complete on the Closing Date, of each of (a) its charter or other
incorporation documents as in effect on such date of certification, and (b) its
by-laws as in effect on such date.
10.3. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
10.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received
from the Borrower and each of its Subsidiaries an incumbency certificate, dated
as of the Closing Date, signed by a duly authorized officer of the Borrower or
such Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
each of the Borrower of such Subsidiary, each of the Loan Documents and
Subordination Documents to which the Borrower or such Subsidiary is or is to
become a party; (b) in the case of the Borrower, to make Loan Requests and
Conversion Requests; and (c) to give notices and to take other action on its
behalf under the Loan Documents.
10.5. VALIDITY OF LIENS. The Security Documents shall be effective to
create in favor of the Agent a legal, valid and enforceable first (except for
Permitted Liens entitled to priority under applicable law) security interest in
the Collateral. All filings, recordings, deliveries of instruments and other
actions necessary or desirable in the opinion of the Agent to protect and
preserve such security interests shall have been duly effected. The Agent shall
have received evidence thereof in form and substance satisfactory to the Agent.
<PAGE>
54
10.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent shall
have received from each of the Borrower and its Subsidiaries a completed and
fully executed Perfection Certificate and the results of UCC searches with
respect to its Collateral, indicating no liens other than Permitted Liens and
otherwise in form and substance satisfactory to the Agent.
10.7. CERTIFICATES OF INSURANCE. The Agent shall have received (a) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of the Security Agreements and (b) certified copies of all
policies evidencing such insurance (or certificates therefore signed by the
insurer or an agent authorized to bind the insurer).
10.8. AGENCY ACCOUNT AGREEMENTS. The Agent shall have received a duly
executed Agency Account Agreement from each Agency Account Institution,
concerning the Agent's interest for the benefit of the Banks and the Agent in
the Agency Accounts.
10.9. BORROWING BASE REPORT. The Agent shall have received from the
Borrower the initial Borrowing Base Report dated as of July 31, 1997.
10.10. ACCOUNTS RECEIVABLE AGING REPORT. The Agent shall have received
from the Borrower the most recent Accounts Receivable aging report of the
Borrower and its Subsidiaries dated as of a date which shall be no more than
fifteen (15) days prior to the Closing Date and the Borrower shall notify the
Agent in writing on the Closing Date of any material deviation from the Accounts
Receivable values reflected in such Accounts Receivable aging report and shall
provide the Agent with such supplementary documentation as the Agent may
reasonably request.
10.11. VEHICLE REPORTS. The Agent shall have received from the
Borrower, in each case current as of the Business Day prior to the Closing Date:
(a) a list prepared by Omni of all Eligible Vehicles, the
Vehicle Loans for which have been pledged to the Agent for the benefit
of the Banks and the Agent, along with the vehicle identification
numbers and the automobile years and makes thereof, the name of the
Obligor with respect to each Eligible Vehicle, and the Net Amount of
the Vehicle Loan with respect to each Eligible Vehicle, in form and
substance satisfactory to the Agent; and
(b) a list of all Eligible Repossessed Vehicles along with the
vehicle identification numbers and the automobile years and makes
thereof, the name of the Obligor with respect to each Eligible
Repossessed Vehicle, the Net Amount of the Vehicle Loan with respect to
each Eligible Repossessed Vehicle, and the number of days that such
Eligible Repossessed Vehicle has been in the possession of a Sanctioned
Repossession Company and/or ADT, in form and substance satisfactory to
the Agent.
10.12. SOLVENCY CERTIFICATE. Each of the Banks shall have received an
officer's certificate of the Borrower dated as of the Closing Date as to the
<PAGE>
55
solvency of the Borrower and its Subsidiaries following the consummation of the
transactions contemplated herein and in form and substance satisfactory to the
Banks.
10.13. OPINIONS OF COUNSEL. Each of the Banks and the Agent shall have
received a favorable opinion addressed to the Banks and the Agent, dated as of
the Closing Date, in form and substance satisfactory to the Banks and the Agent,
from (a) counsel to the Borrower and its Subsidiaries, and (b) local counsel to
the Borrower and its Subsidiaries as applicable. Each of the Banks and the Agent
shall have received an opinion (or other legal memorandum), in all respects
reasonably satisfactory to the Agent, with respect to the perfection, validity
and enforceability of security interests in motor vehicles and the Vehicle
Loans, more than ten percent (10%) of which originated in such jurisdictions
other than Alabama, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky,
Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, Ohio, South
Carolina, Tennessee, Texas or Virginia as the Agent shall have requested,
addressed to the Banks and the Agent and dated as of the Closing Date.
10.14. PLEDGE AGREEMENT. The Agent shall have received a duly executed
Pledge Agreement, the certificates pledged pursuant thereto together with
appropriate instruments of assignment duly executed in blank and all consents
necessary to effect such pledges.
11. CONDITIONS TO ALL BORROWINGS.
----------------------------
The obligations of the Banks to make any Loan, whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
11.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
at and as of the time of the making of such Loan, with the same effect as if
made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
11.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Loan.
11.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
11.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
<PAGE>
56
form to the Banks and to the Agent and the Agent's Special Counsel, and the
Banks, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
11.5. BORROWING BASE REPORT. The Agent shall have received the most
recent Borrowing Base Report required to be delivered to the Agent in accordance
with ss.7.4(f) and, if requested by the Agent, a Borrowing Base Report dated
within five (5) days of the Drawdown Date of the requested Loan.
12. EVENTS OF DEFAULT; ACCELERATION; ETC.
------------------------------------
12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrower shall fail to pay any principal of the Loans
when the same shall become due and payable, whether at the stated date
of maturity or any accelerated date of maturity or at any other date
fixed for payment;
(b) the Borrower shall fail to pay any interest on the Loans,
the commitment fee, the Agent's fee, or other sums due hereunder or
under any of the other Loan Documents, when the same shall become due
and payable, whether at the stated date of maturity or any accelerated
date of maturity or at any other date fixed for payment;
(c) the Borrower shall fail to comply with (i) any of its
covenants contained in ss.ss.7 or 8 or (ii) any of its covenants
contained in ss.9;
(d) the Borrower or any of its Subsidiaries shall fail to
perform any term, covenant or agreement contained herein or in any of
the other Loan Documents (other than those specified elsewhere in this
ss.12) for fifteen (15) days after written notice of such failure has
been given to the Borrower by the Agent;
(e) any representation or warranty of the Borrower or any of
its Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to
or in connection with this Credit Agreement (excluding the Transaction
Documents) shall prove to have been false in any material respect upon
the date when made or deemed to have been made or repeated;
(f) the Borrower or any of its Subsidiaries shall fail to pay
at maturity, or within any applicable period of grace, any other
obligation for borrowed money or credit received or in respect of any
Capitalized Leases in an aggregate amount greater than $100,000, or
fail to observe or perform any material term, covenant or agreement
contained in any other agreement by which it is bound, evidencing or
securing borrowed money or credit received or in respect of any
Capitalized Leases in an aggregate amount greater than $100,000 for
<PAGE>
57
such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations
issued thereunder to accelerate the maturity thereof;
(g) the Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or
become due, or shall petition or apply for the appointment of a trustee
or other custodian, liquidator or receiver of the Borrower or any of
its Subsidiaries or of any substantial part of the assets of the
Borrower or any of its Subsidiaries or shall commence any case or other
proceeding relating to the Borrower or any of its Subsidiaries under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar law of any jurisdiction,
now or hereafter in effect, or shall take any action to authorize or in
furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall
be commenced against the Borrower or any of its Subsidiaries and the
Borrower or any of its Subsidiaries shall indicate its approval
thereof, consent thereto or acquiescence therein or such petition or
application shall not have been dismissed within forty-five (45) days
following the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any
of its Subsidiaries bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is
entered in respect of the Borrower or any Subsidiary of the Borrower in
an involuntary case under federal bankruptcy laws as now or hereafter
constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
final judgment against the Borrower or any of its Subsidiaries that,
with other outstanding final judgments, undischarged, against the
Borrower or any of its Subsidiaries exceeds in the aggregate $100,000;
(j) the holders of all or any part of the Subordinated Debt
shall accelerate the maturity of all or any part of the Subordinated
Debt or the Subordinated Debt shall be prepaid or repurchased in whole
or in part;
(k) if any of the Loan Documents shall be canceled,
terminated, revoked or rescinded or the Agent's security interests,
mortgages or liens in a substantial portion of the Collateral shall
cease to be perfected, or shall cease to have the priority contemplated
by the Security Documents, in each case otherwise than in accordance
with the terms thereof or with the express prior written agreement,
consent or approval of the Banks, or any action at law, suit or in
equity or other legal proceeding to cancel, revoke or rescind any of
<PAGE>
58
the loan documents shall be commenced by or on behalf of the Borrower
or any of its Subsidiaries party thereto or any of their respective
stockholders, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid
or unenforceable in accordance with the terms thereof;
(l) the Borrower or any ERISA Affiliate incurs any liability
to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA
in an aggregate amount exceeding $100,000, is assessed withdrawal
liability pursuant to Title IV or ERISA by a Multiemployer Plan
requiring aggregate annual payments exceeding $100,000, or any of the
following occurs with respect to a Guaranteed Pension Plan:
(i) an ERISA Reportable Event, or a failure to make a
required installment or other payment (within the meaning of
ss.302(f)(1) of ERISA), provided the Agent determines in its
reasonable discretion that such event (A) could be expected to
result in liability of the Borrower to the PBGC or the Plan in
an aggregate amount exceeding $100,000, and (B) could
constitute grounds for the termination of such Plan by the
PBGC, for the appointment by the appropriate United States
District Court of a trustee to administer such Plan or for the
imposition of a lien in favor of the Guaranteed Pension Plan;
(ii) the appointment by a United States District
Court of a trustee to administer such Plan; or
(iii) the institution by the PBGC of proceedings to
terminate such Plan.
(m) the Borrower or any of its Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material part
of its business and such order shall continue in effect for more than
thirty (30) days;
(n) there shall occur any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty, which in any such case causes, for
more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of the
Borrower or any of its Subsidiaries if such event or circumstance is
not covered by business interruption insurance and would have a
material adverse effect on the business or financial condition of the
Borrower or such Subsidiary;
(o) there shall occur the loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter
acquired by the Borrower or any of its Subsidiaries if such loss,
suspension, revocation or failure to renew would have a material
adverse effect on the business or financial condition of the Borrower
or such Subsidiary;
(p) the Borrower or any of its Subsidiaries shall be indicted
for a state or federal crime, or any civil or criminal action shall
otherwise have been brought or threatened against the Borrower or any
<PAGE>
59
of its Subsidiaries, a punishment for which in any such case could
include the forfeiture of any assets of the Borrower or such Subsidiary
included in the Borrowing Base or any assets of the Borrower or such
Subsidiary not included in the Borrowing Base but having a fair market
value in excess of $100,000;
(q) during any period of twelve consecutive calendar months,
individuals who were directors of the Borrower on the first day of such
period (or new directors whose election by the Borrower's directors (or
whose nomination for election by the Borrower's shareholders) was
approved by a majority of the Borrower's directors then still in office
who were either directors at the beginning of the period or were
previously appointed under this procedure) shall cease to constitute a
majority of the board of directors of the Borrower then in office;
(r) Gary L. Shapiro shall (i) cease to be the Chairman of the
Borrower and be actively involved in the management and operations of
the Borrower, or (ii) die or be incapacitated for a period of more than
sixty (60) days unless either (A) within one hundred eighty days (180)
after the death of Mr. Shapiro or the end of such sixty (60) day period
the Obligations hereunder shall have been indefeasibly repaid in full
and the Commitments terminated or (B) within ninety (90) days after the
death of Mr. Shapiro or the end of such sixty (60) day period an
executive officer or officers of the Borrower shall have been appointed
who shall be satisfactory to the Agent and the Banks (in their sole and
absolute discretion);
(s) the Servicing Agreement (as defined in the Pooling and
Administration Agreement) shall be terminated and a successor Servicer
(as defined in the Pooling and Administration Agreement) other than
Omni, the Borrower or any of its Subsidiaries shall be appointed
without the prior written consent of the Agent;
(t) a Liquidation Event (as defined in the Pooling and
Administration Agreement) shall occur;
(u) an Early Amortization Event (as defined in the Pooling
and Administration Agreement) shall occur; or
(v) the First Union Credit Facility shall at any time prior to
the Maturity Date mature or terminate and shall not have been renewed,
refinanced or replaced with a facility, the principal amount of which
shall not be less than $50,000,000;
then, and in any such event (other than with respect to ss.12.1(v)), so long as
the same may be continuing, the Agent may, and upon the request of the Majority
Banks shall, by notice in writing to the Borrower declare all amounts owing with
respect to this Credit Agreement, the Notes and the other Loan Documents to be,
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60
and they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the event of any Event
of Default specified in ss.ss.12.1(g), 12.1(h) or 12.1(j) all such amounts shall
become immediately due and payable automatically and without any requirement of
notice from the Agent or any Bank.
12.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in ss.12.1(g), ss.12.1(h), ss.12.1(j), ss.12.1(t), ss.12.1(u)
or ss.12.1(v) shall occur, any unused portion of the credit hereunder shall
forthwith terminate and each of the Banks shall be relieved of all obligations
to make Loans to the Borrower. If any other Event of Default shall have occurred
and be continuing, or if on any Drawdown Date the conditions precedent to the
making of the Loans to be made on such Drawdown Date are not satisfied, the
Agent may and, upon the request of the Majority Banks, shall, by notice to the
Borrower, terminate the unused portion of the credit hereunder, and upon such
notice being given such unused portion of the credit hereunder shall terminate
immediately and each of the Banks shall be relieved of all further obligations
to make Loans. If any such notice is given to the Borrower the Agent will
forthwith furnish a copy thereof to each of the Banks. No termination of the
credit hereunder shall relieve the Borrower of any of the Obligations or any of
its existing obligations to any of the Banks arising under other agreements or
instruments.
12.3. REMEDIES. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to ss.12.1, each Bank, if owed
any amount with respect to the Loans, may proceed to protect and enforce its
rights by suit in equity, action at law or other appropriate proceeding, whether
for the specific performance of any covenant or agreement contained in this
Credit Agreement and the other Loan Documents or any instrument pursuant to
which the Obligations to such Bank are evidenced, including as permitted by
applicable law the obtaining of the ex parte appointment of a receiver, and, if
such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of such Bank.
No remedy herein conferred upon any Bank or the Agent or the holder of any Note
is intended to be exclusive of any other remedy and each and every remedy shall
be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or any other
provision of law.
12.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that following
the occurrence or during the continuance of any Default or Event of Default, the
Agent or any Bank, as the case may be, receives any monies in connection with
the enforcement of any the security documents, or otherwise with respect to the
realization upon any of the Collateral, such monies shall be distributed for
application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies
by the Agent, for the exercise, protection or enforcement by the Agent
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61
of all or any of the rights, remedies, powers and privileges of the
Agent under this Credit Agreement or any of the other loan documents or
in respect of the collateral and supports the provision of adequate
indemnity to the Agent against all taxes or liens which by law shall
have, or may have, priority over the rights of the Agent to such
monies;
(b) Second, to all other Obligations in such order or
preference as the Majority Banks may determine; provided, however, that
distributions in respect of Obligations owing to the Banks with respect
to each type of Obligations such as interest, principal, fees and
expenses, shall be made among the Banks on a pro rata basis; provided,
further, that the Agent may in its discretion make proper allowance to
take into account any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks and the Agent
of all of the Obligations, to the payment of any obligations required
to be paid pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of
the Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
13. SETOFF.
------
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Banks to the Borrower and any securities or other property of the Borrower
in the possession of such Bank may be applied to or set off by such Bank against
the payment of Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrower to such Bank. Each of the Banks agrees with
each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank, such amount shall be applied ratably to such other
Indebtedness and to the Indebtedness evidenced by all such Notes held by such
Bank, and (b) if such Bank shall receive from the Borrower, whether by voluntary
payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Notes held by such Bank by proceedings
against the Borrower at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar proceedings, or otherwise,
and shall retain and apply to the payment of the Note or Notes held by such Bank
any amount in excess of its ratable portion of the payments received by all of
the Banks with respect to the Notes held by all of the Banks, such Bank will
make such disposition and arrangements with the other Banks with respect to such
excess, either by way of distribution, pro tanto assignment of claims,
subrogation or otherwise as shall result in each Bank receiving in respect of
the Notes held by its proportionate payment as contemplated by this Credit
Agreement; provided that if all or any part of such excess payment is thereafter
recovered from such Bank, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.
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62
14. THE AGENT.
---------
14.1. AUTHORIZATION.
(a) The Agent is authorized to take such action on behalf of
each of the Banks and to exercise all such powers as are hereunder and
under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably
incident thereto, provided that no duties or responsibilities not
expressly assumed herein or therein shall be implied to have been
assumed by the Agent.
(b) The relationship between the Agent and each of the Banks
is that of an independent contractor. The use of the term "Agent" is
for convenience only and is used to describe, as a form of convention,
the independent contractual relationship between the Agent and each of
the Banks. Nothing contained in this Credit Agreement nor the other
Loan Documents shall be construed to create an agency, trust or other
fiduciary relationship between the Agent and any of the Banks.
(c) As an independent contractor empowered by the Banks to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Agent is nevertheless
a "representative" of the Banks, as that term is defined in Article 1
of the Uniform Commercial Code, for purposes of actions for the benefit
of the Banks and the Agent with respect to all collateral security and
guaranties contemplated by the Loan Documents. Such actions include the
designation of the Agent as "secured party", "mortgagee" or the like on
all financing statements and other documents and instruments, whether
recorded or otherwise, relating to the attachment, perfection, priority
or enforcement of any security interests, mortgages or deeds of trust
in collateral security intended to secure the payment or performance of
any of the Obligations, all for the benefit of the Banks and the Agent.
14.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.
14.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
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63
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
14.4. NO REPRESENTATIONS. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the Notes, any
of the other Loan Documents or any instrument at anytime constituting, or
intended to constitute, collateral security for the Notes, or for the value of
any such collateral security or for the validity, enforceability or
collectability of any such amounts owing with respect to the Notes, or for any
recitals or statements, warranties or representations made herein or in any of
the other Loan Documents or in any certificate or instrument hereafter furnished
to it by or on behalf of the Borrower, or be bound to ascertain or inquire as to
the performance or observance of any of the terms, conditions, covenants or
agreements herein or in any instrument at any time constituting, or intended to
constitute, collateral security for the Notes or to inspect any of the
properties, books or records of the Borrower or any of its Subsidiaries. The
Agent shall not be bound to ascertain whether any notice, consent, waiver or
request delivered to it by the Borrower or any holder of any of the Notes shall
have been duly authorized or is true, accurate and complete. The Agent has not
made nor does it now make any representations or warranties, express or implied,
nor does it assume any liability to the Banks, with respect to the credit
worthiness or financial conditions of the Borrower or any of its Subsidiaries.
Each Bank acknowledges that it has, independently and without reliance upon the
Agent or any other Bank, and based upon such information and documents as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Credit Agreement.
14.5. PAYMENTS.
--------
14.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the
Agent hereunder or any of the other Loan Documents for the account of
any Bank shall constitute a payment to such Bank. The Agent agrees
promptly to distribute to each Bank such Bank's pro rata share of
payments received by the Agent for the account of the Banks except as
otherwise expressly provided herein or in any of the other Loan
Documents.
14.5.2. DISTRIBUTION BY AGENT. If in the opinion of the Agent
the distribution of any amount received by it in such capacity
hereunder, under the Notes or under any of the other Loan Documents
might involve it in liability, it may refrain from making distribution
until its right to make distribution shall have been adjudicated by a
court of competent jurisdiction. If a court of competent jurisdiction
shall adjudge that any amount received and distributed by the Agent is
to be repaid, each Person to whom any such distribution shall have been
made shall either repay to the Agent its proportionate share of the
amount so adjudged to be repaid or shall pay over the same in such
manner and to such Persons as shall be determined by such court.
14.5.3. DELINQUENT BANKS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan
Documents, any Bank that fails (a) to make available to the Agent its
pro rata share of any Loan or (b) to comply with the provisions of
ss.13 with respect to making dispositions and arrangements with the
other Banks, where such Bank's share of any payment received, whether
by setoff or otherwise, is in excess of its pro rata share of such
payments due and to payable to all of the Banks, in each case as, when
and to the full extent required by the provisions of this Credit
Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall
<PAGE>
64
be deemed a Delinquent Bank until such time as such delinquency is
satisfied. A Delinquent Bank shall be deemed to have assigned any and
all payments due to it from the Borrower, whether on account of
outstanding Loans, interest, fees or otherwise, to the remaining
nondelinquent Banks for application to, and reduction of, their
respective pro rata shares of all outstanding Loans. The Delinquent
Bank hereby authorizes the Agent to distribute such payments to the
nondelinquent Banks in proportion to their respective pro rata shares
of all outstanding Loans. A Delinquent Bank shall be deemed to have
satisfied in full a delinquency when and if, as a result of application
of the assigned payments to all outstanding Loans of the nondelinquent
Banks, the Banks' respective pro rata shares of all outstanding Loans
have returned to those in effect immediately prior to such delinquency
and without giving effect to the nonpayment causing such delinquency.
14.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any
Note as the absolute owner thereof for all purposes hereof until it shall have
been furnished in writing with a different name by such payee or by a subsequent
holder.
14.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold
harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by the Borrower as
required by ss.15), and liabilities of every nature and character arising out of
or related to this Credit Agreement, the Notes, or any of the other Loan
Documents or the transactions contemplated or evidenced hereby or thereby, or
the Agent's actions taken hereunder or thereunder, except to the extent that any
of the same shall be directly caused by the Agent's willful misconduct or gross
negligence.
14.8. AGENT AS BANK. In its individual capacity, BKB shall have the
same obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Notes, as
it would have were it not also the Agent.
14.9. RESIGNATION. The Agent may resign at any time by giving sixty
(60) days prior written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
<PAGE>
65
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
14.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this ss.14.10 it shall promptly notify the other
Banks of the existence of such Default or Event of Default.
15. EXPENSES.
--------
The Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Credit Agreement, the other Loan Documents and the other
agreements and instruments mentioned herein, (b) any taxes (including any
interest and penalties in respect thereto) payable by the Agent or any of the
Banks (other than taxes based upon the Agent's or any Bank's net income) on or
with respect to the transactions contemplated by this Credit Agreement (the
Borrower hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (c) the reasonable fees, expenses and disbursements of the Agent's
Special Counsel or any local counsel to the Agent incurred in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the fees,
expenses and disbursements of the Agent incurred by the Agent in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, including all title insurance premiums and
surveyor, engineering and appraisal charges and commercial finance examination
fees, (e) the fees, expenses and disbursements incurred by the Agent in
connection with the syndication of the Total Commitment, (f) any fees, costs,
expenses and bank charges, including bank charges for returned checks, incurred
by the Agent in establishing, maintaining or handling agency accounts,
Collection Accounts and other accounts for the collection of any of the
Collateral, (g) all reasonable out-of-pocket expenses (including without
limitation reasonable attorneys' fees and costs, which attorneys may be
employees of any Bank or the Agent, and reasonable consulting, accounting,
appraisal, investment banking and similar professional fees and charges)
incurred by any Bank or the Agent in connection with (i) the enforcement of or
preservation of rights under any of the Loan Documents against the Borrower or
any of its Subsidiaries or the administration thereof after the occurrence of a
Default or Event of Default and (ii) any litigation, proceeding or dispute
whether arising hereunder or otherwise, in any way related to any Bank's or the
Agent's relationship with the Borrower or any of its Subsidiaries and (h) all
reasonable fees, expenses and disbursements of the Agent incurred in connection
with UCC searches, UCC filings or mortgage recordings. The covenants of this
ss.15 shall survive payment or satisfaction of payment of amounts owing with
respect to the Notes.
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66
16. INDEMNIFICATION.
---------------
The Borrower agrees to indemnify and hold harmless the Agent and the
Banks from and against any and all claims, actions and suits whether groundless
or otherwise, and from and against any and all liabilities, losses, damages and
expenses of every nature and character arising out of this Credit Agreement or
any of the other Loan Documents or the transactions contemplated hereby
including, without limitation, (a) any actual or proposed use by the Borrower or
any of its Subsidiaries of the proceeds of any of the Loans or Letters of
Credit, (b) the reversal or withdrawal of any provisional credits granted by the
Agent upon the transfer of funds from bank agency or Collection Accounts or in
connection with the provisional honoring of checks or other items, (c) any
actual or alleged infringement of any patent, copyright, trademark, service mark
or similar right of the Borrower or any of its Subsidiaries comprised in the
Collateral, (d) the Borrower or any of its Subsidiaries entering into or
performing this Credit Agreement or any of the other Loan Documents or (e) with
respect to the Borrower and its Subsidiaries and their respective properties and
assets, the violation of any Environmental Law, the presence, disposal, escape,
seepage, leakage, spillage, discharge, emission, release or threatened release
of any Hazardous Substances or any action, suit, proceeding or investigation
brought or threatened with respect to any Hazardous Substances (including, but
not limited to claims with respect to wrongful death, personal injury or damage
to property), in each case including, without limitation, the reasonable fees
and disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Banks and the Agent shall be
entitled to select their own counsel and, in addition to the foregoing
indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses
of such counsel. If, and to the extent that the obligations of the Borrower
under this ss.16 are unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment in satisfaction of such obligations
which is permissible under applicable law. The covenants contained in this ss.16
shall survive payment of satisfaction in full of all other obligations.
17. SURVIVAL OF COVENANTS, ETC.
--------------------------
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or any of its Subsidiaries
pursuant hereto shall be deemed to have been relied upon by the Banks and the
Agent, notwithstanding any investigation heretofore or hereafter made by any of
them, and shall survive the making by the Banks of the Loans, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Credit Agreement or the Notes or any of the other Loan Documents
remains outstanding or any Bank has any obligation to make any Loans, and for
such further time as may be otherwise expressly specified in this Credit
Agreement. All statements contained in any certificate or other paper delivered
to any Bank or the Agent at any time by or on behalf of the Borrower or any of
its Subsidiaries pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrower or such Subsidiary hereunder.
<PAGE>
67
18. ASSIGNMENT AND PARTICIPATION.
----------------------------
18.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein,
each Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Loans at the time owing to it) and the Notes held by it; provided that (a)
each of the Agent and, unless a Default or Event of Default shall have occurred
and be continuing, the Borrower shall have given its prior written consent to
such assignment, which consent, in the case of the Borrower, will not be
unreasonably withheld, (b) each such assignment shall be of a constant, and not
a varying, percentage of all the assigning Bank's rights and obligations under
this Credit Agreement, (c) each assignment shall be in an amount that is a whole
multiple of $2,000,000, and (d) the parties to such assignment shall execute and
deliver to the Agent, for recording in the Register (as hereinafter defined), an
Assignment and Acceptance, substantially in the form of Exhibit E hereto (an
"Assignment and Acceptance"), together with any Notes subject to such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, (x) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Bank hereunder, and (y) the assigning Bank shall, to the extent provided in such
assignment and upon payment to the Agent of the registration fee referred to in
ss.18.3, be released from its obligations under this Credit Agreement.
18.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS.
By executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage;
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Borrower and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the
performance or observance by the Borrower and its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Credit Agreement or
any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto;
<PAGE>
68
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in ss.7.4 and ss.8.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance
upon the assigning Bank, the Agent or any other Bank 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 Credit Agreement;
(e) such assignee represents and warrants that it is an
Eligible Assignee;
(f) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Credit Agreement and the other Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with such powers as
are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Credit Agreement are required to be performed by it as a Bank; and
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance.
18.3. REGISTER. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Loans owing to and Letter of Credit
Participations purchased by, the Banks from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Credit Agreement.
The Register shall be available for inspection by the Borrower and the Banks at
any reasonable time and from time to time upon reasonable prior notice. Upon
each such recordation, the assigning Bank shall pay to the Agent a registration
fee in the sum of $3,500.
18.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein in
the Register, and (b) give prompt notice thereof to the Borrower and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
<PAGE>
69
has retained some portion of its obligations hereunder, a new Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes. Within five (5) days of issuance of any new Notes
pursuant to this ss.18.4, the Borrower shall deliver an opinion of counsel,
addressed to the Banks and the Agent, relating to the due authorization,
execution and delivery of such new Notes and the legality, validity and binding
effect thereof, in form and substance satisfactory to the Banks. The surrendered
Notes shall be canceled and returned to the Borrower.
18.5. PARTICIPATIONS. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (a) each such participation shall be in an amount of not less than
$5,000,000 (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees or Letter of Credit Fees to which such
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
18.6. DISCLOSURE. The Borrower agrees that in addition to disclosures
made in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
provided that such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such information unless such
information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
18.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to ss.12.1 or ss.12.2, and
the determination of the Majority Banks shall for all purposes of this Agreement
and the other Loan Documents be made without regard to such assignee Bank's
interest in any of the Loans. If any Bank sells a participating interest in any
of the Loans to a participant, and such participant is the Borrower or an
Affiliate of the Borrower, then such transferor Bank shall promptly notify the
Agent of the sale of such participation. A transferor Bank shall have no right
to vote as a Bank hereunder or under any of the other Loan Documents for
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70
purposes of granting consents or waivers or for purposes of agreeing to
amendments or modifications to any of the Loan Documents or for purposes of
making requests to the Agent pursuant to ss.12.1 or ss.12.2 to the extent that
such participation is beneficially owned by the Borrower or any Affiliate of the
Borrower, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to the
interest of such transferor Bank in the Loans to the extent of such
participation.
18.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall
retain its rights to be indemnified pursuant to ss.15 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. If any Reference Bank
transfers all of its interest, rights and obligations under this Credit
Agreement, the Agent shall, in consultation with the Borrower and with the
consent of the Borrower and the Majority Banks, appoint another Bank to act as a
Reference Bank hereunder. Anything contained in this ss.18 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Banks organized under ss.4 of
the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement
thereof shall release the pledgor Bank from its obligations hereunder or under
any of the other Loan Documents.
18.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or transfer
any of its rights or obligations under any of the Loan Documents without the
prior written consent of each of the Banks.
19. NOTICES, ETC.
------------
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes shall be in writing and shall be delivered in
hand, mailed by United States registered or certified first class mail, postage
prepaid, sent by overnight courier, or sent by telegraph, telecopy, telefax or
telex and confirmed by delivery via courier or postal service, addressed as
follows:
(a) if to the Borrower, at 621 N.W. 53rd Street, Suite 200,
Boca Raton, Florida 33487, Attention: Kevin G. Adams, or at such other
address for notice as the Borrower shall last have furnished in writing
to the Person giving the notice, with a copy to Keith B. Stein,
National Finance Companies LLC, 1325 Avenue of the Americas, Suite
1200, New York, New York 10019 or such other address for notice as such
Person shall last have furnished in writing to the Person giving the
notice;
(b) if to the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Timothy G. Clifford, Vice
President, or such other address for notice as the Agent shall last
have furnished in writing to the Person giving the notice; and
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71
(c) if to any Bank, at such Bank's address set forth on
Schedule 1 hereto, or such other address for notice as such Bank shall
have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (x) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(y) if sent by registered or certified first-class mail, postage prepaid, on the
third Business Day following the mailing thereof.
20. GOVERNING LAW.
-------------
THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS
OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SS.19. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
21. HEADINGS.
--------
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
22. COUNTERPARTS.
------------
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when so executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
23. ENTIRE AGREEMENT, ETC.
---------------------
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
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72
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in ss.25.
24. WAIVER OF JURY TRIAL.
------------------------
The Borrower hereby waives its right to a jury trial with respect to
any action or claim arising out of any dispute in connection with this Credit
Agreement, the Notes or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of such rights and
obligations. Except as prohibited by law, the Borrower hereby waives any right
it may have to claim or recover in any litigation referred to in the preceding
sentence any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. The Borrower (a)
certifies that no representative, agent or attorney of any Bank or the Agent has
represented, expressly or otherwise, that such Bank or the Agent would not, in
the event of litigation, seek to enforce the foregoing waivers and (b)
acknowledges that the Agent and the Banks have been induced to enter into this
Credit Agreement, the other Loan Documents to which it is a party and the
Subordination Documents to which it is a party by, among other things, the
waivers and certifications contained herein.
25. CONSENTS, AMENDMENTS, WAIVERS, ETC.
----------------------------------
Except as otherwise expressly provided in this Credit Agreement, any
consent or approval required or permitted by this Credit Agreement to be given
by one or more or all of the Banks may be given, and any term of this Credit
Agreement or of any other instrument related hereto or mentioned herein may be
amended, and the performance or observance by the Borrower of any terms of this
Credit Agreement or such other instrument or the continuance of any Default or
Event of Default may be waived (either generally or in a particular instance and
either retroactively or prospectively) with, but only with, the written consent
of the Borrower and the written consent of the Majority Banks. Notwithstanding
the foregoing, the rate of interest on the Notes (other than interest accruing
pursuant to ss.5.11.2 following the effective date of any waiver by the Majority
Banks of thE Default or Event of Default relating thereto), the term of the
Notes, the amount of the Commitments of the Banks, and the amount of commitment
fee hereunder may not be changed without the written consent of the Borrower and
the written consent of each Bank affected thereby; the definition of Majority
Banks may not be amended without the written consent of all of the Banks; and
ss.14 may not be amended without the written consent of the Agent. NO waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon. No course of dealing or delay or omission on the part
of either Bank in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall
entitle the Borrower to other or further notice or demand in similar or other
circumstances.
26. SEVERABILITY.
------------
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
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73
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
[Remainder of page intentionally left blank]
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74
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
NATIONAL AUTO FINANCE COMPANY, INC.
By: _______________________________________________
Name:
Title:
BANKBOSTON, N.A., individually and as Agent
By: _______________________________________________
Timothy G. Clifford
Vice President
AMENDMENT AGREEMENT NO. 1
to that certain
REVOLVING CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 1 (the "Amendment"), dated as of
October 1, 1997, is among National Auto Finance Company, Inc. (the "Borrower"),
BankBoston, N.A. and the other lending institutions party thereto (collectively
the "Banks"), and BankBoston, N.A. as agent (the "Agent") for itself and the
other Banks.
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit Agreement, dated as of September 29, 1997 (as amended
and in effect from time to time, the "Credit Agreement"), pursuant to which the
Banks, upon certain terms and conditions, have made loans to the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SS.1. DEFINED TERMS. Capitalized terms which are used herein
--------------
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
SS.2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is
-----------------------------
hereby amended as follows:
(a) The definition of "Termination Date" set forth in ss.1.1
of the Credit Agreement is amended and restated in its entirety to read
as follows:
Termination Date. January 19, 1998.
(b) Section 8.4 of the Credit Agreement is amended and
restated in its entirety to read as follows:
8.4. DISTRIBUTIONS. The Borrower will not make any
Distributions other than Distributions to holders of preferred
stock of the Borrower, provided that (i) no Default or Event
of Default shall have occurred and be continuing or would
occur as a result of such Distribution and (ii) the aggregate
amount of such Distributions from and after the Closing Date
does not exceed $41,000 during any fiscal quarter.
<PAGE>
2
(c) Section 8.10 of the Credit Agreement is amended by
deleting the words "Schedule 6.15" and substituting in place thereof
the words "Schedule 8.10".
(d) All references to Schedule 8.10 in the Credit Agreement
(as amended hereby) shall be deemed to refer to the Schedule 8.10
attached hereto.
SS.3. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWER. The Borrower
----------------------------------------------
hereby ratifies and confirms all of its Obligations to the Banks, including,
without limitation the Loans, and the Borrower hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Credit Agreement as amended hereby. The Borrower hereby confirms that
the Obligations are and remain secured pursuant to the Security Documents and
pursuant to all other instruments and documents executed and delivered by the
Borrower as security for the Obligations.
SS.4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
--------------------------------
represents and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this
Amendment and all other instruments and agreements required to be
executed and delivered by the Borrower in connection with the
transactions contemplated hereby or referred to herein (collectively,
the "Amendment Documents"), and the performance by the Borrower of its
obligations and agreements under the Amendment Documents and the Credit
Agreement as amended hereby, are within the corporate authority of the
Borrower, have been authorized by all necessary corporate proceedings
on behalf of the Borrower, and do not and will not contravene any
provision of law, statute, rule or regulation to which the Borrower or
any of its Subsidiaries is subject or any of the Borrower's charter,
other incorporation papers, by-laws or any stock provision or any
amendment thereof or of any indenture, agreement, instrument or
undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as
amended hereby constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting generally the enforcement of
creditors' rights.
(c) No approval or consent of, or filing with, any
governmental agency or authority is required to make valid and legally
binding the execution, delivery or performance by the Borrower of the
Amendment Documents or the Credit Agreement as amended hereby, or the
consummation by the Borrower of the transactions among the parties
contemplated hereby and thereby or referred to herein.
(d) The representations and warranties contained in ss.6 of
the Credit Agreement were correct at and as of the date made. Except to
the extent of changes resulting from transactions contemplated or
<PAGE>
3
permitted by the Credit Agreement and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially
adverse and to the extent such representations and warranties relate
expressly to an earlier date, such representations and warranties also
are correct at and as of the date hereof.
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
SS.5. EFFECTIVENESS. The effectiveness of this Amendment shall
-------------
be subject to the satisfaction of the following conditions:
(a) Delivery. Each of the Borrower and the Banks shall have
executed and delivered this Amendment.
(b) Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Amendment and all documents
incident thereto shall be reasonably satisfactory in substance and form
to the Banks, the Agent and the Agents' Special Counsel, and the Banks,
the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as
the Agent may reasonably request.
SS.6. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
------------------------
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(d) Pursuant to ss.15 of the Credit Agreement, the Borrower hereby
agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket
costs and expenses incurred or sustained by the Agent in connection with the
preparation of this Amendment (including reasonable legal fees).
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
NATIONAL AUTO FINANCE COMPANY,
INC.
By:____________________________________
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:____________________________________
Title:
AMENDMENT AGREEMENT NO. 2
to that certain
REVOLVING CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 2 (the "Amendment"), dated as of
December 19, 1997, is among National Auto Finance Company, Inc. (the
"Borrower"), BankBoston, N.A. and the other lending institutions party thereto
(collectively the "Banks"), and BankBoston, N.A. as agent (the "Agent") for
itself and the other Banks.
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit Agreement, dated as of September 29, 1997 (as amended
by Amendment No. 1, dated as of October 1, 1997, the "Credit Agreement"),
pursuant to which the Banks, upon certain terms and conditions, have made loans
to the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SS.1. DEFINED TERMS. Capitalized terms which are used herein
--------------
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
SS.2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is
-----------------------------
hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
(i) clause (c) of the definition of Borrowing Base
set forth in such ss.1.1 is amended by deleting the text "prior
to the Termination Date" and "and on and after the Termination
Date, 0% of the Residual Value" contained in such definition.
(ii) the definitions of Consolidated Total Interest
Expense and EBIT set forth in such ss.1.1 are amended and
restated in their entirety to read as follows:
Consolidated Total Interest Expense. For any period,
the aggregate amount of (a) interest required to be
paid or accrued by the Borrower and its Subsidiaries
during such period on all Indebtedness of the
Borrower and its Subsidiaries outstanding during all
or any part of such period, whether such interest was
<PAGE>
2
or is required to be reflected as an item of expense
or capitalized, including payments consisting of
interest in respect of Capital Leases, and including
commitment fees, agency fees, facility fees, balance
deficiency fees and similar fees or expenses in
connection with the borrowing of money, plus (b) the
net amount payable (or minus the net amount
receivable) under Rate Hedging Agreements during such
period (whether or not actually paid or received
during such period) plus (c) dividends to be paid or
declared of the Borrower by the Borrower and its
Subsidiaries during such period on all shares of
preferred stock of the Borrower and its Subsidiaries
outstanding during all or any part of such period.
EBIT. With respect to any fiscal period, the sum of
(a) the Consolidated Net Income of the Borrower and
its Subsidiaries for such period (excluding
therefrom, to the extent included in determining
Consolidated Net Income, any items of extraordinary
gain (or loss), including net gains (or losses) on
sale of assets other than asset sales in the ordinary
course of business), (b) Consolidated Total Interest
Expense deducted from revenue in determining such
Consolidated Net Income and (c) Federal, state and
local income and franchise taxes deducted from
revenue in determining such Consolidated Net Income.
(iii) the definition of Reference Period set forth in
such ss.1.1 is amended by deleting each reference to the text
"calendar months" contained in such definition and
substituting, in each case, the text "fiscal quarters"
therefor.
(iv) the definition of Senior Subordinated Debt
Documents set forth in such ss.1.1 is amended by deleting the
reference to "Senior Subordinated Note Purchase Agreement"
contained in such definition and substituting "Securities
Purchase Agreement" therefor.
(v) the definition of Senior Subordinated Notes set
forth in such ss.1.1 is amended by deleting the amount of
"$12,000,000" contained in such definition and substituting
the amount "$40,000,000" therefor and by deleting the
reference to "Senior Subordinated Note Purchase Agreement"
contained in such definition and substituting "Securities
Purchase Agreement" therefor.
(vi) the definition of Subordination Agreements set
forth in such ss.1.1 is amended and restated in its entirety
to read as follows:
Subordination Agreements. Collectively, (a) Article
12 of the Securities Purchase Agreement and the
definitions and provisions applicable to such Article
12 contained therein and (b) the Junior Subordination
Agreement, dated as of December 22, 1997, among the
<PAGE>
3
Agent, the holders of the Senior Subordinated Notes,
the holders of the Junior Subordinated Debt Documents
and the Borrower, each in form and substance
satisfactory to the Banks and the Agent.
(vii) Section 1.1 is further amended by adding the
following new definitions:
A. Consolidated Net Worth. As of the date of
determination, the stockholder's equity in the
Borrower (excluding any reductions resulting from
mergers accounted for as a pooling-of-interests in
accordance with generally accepted accounting
principles), determined in accordance with generally
accepted accounting principles.
B. Consolidated Tangible Net Worth. As of the date of
determination, the Consolidated Net Worth of the
Borrower plus the aggregate amount of Junior
Subordinated Debt plus such other Indebtedness that
(i) is expressly subordinated and made junior to the
Senior Subordinated Notes, (ii) is evidenced by a
written instrument, and (iii) is subject to a
subordination agreement among the holders of such
Indebtedness, the holders of the Senior Subordinated
Notes, the Borrower and the Agent, in each case, in
form and substance satisfactory to the Agent, minus
the total book value of all assets of the Borrower
and its Subsidiaries properly classified as
intangible assets under generally accepted accounting
principles.
C. Exchange Act. The Securities Exchange Act of 1934,
as amended, or any federal statute or code which is a
successor thereto.
D. Funded Debt. With respect to any Person and as at
any date of determination thereof, without
duplication, (a) all Indebtedness of such Person as
at such date for money borrowed, (b) the principal
component of all Capital Lease obligations, (c) all
Indebtedness for the deferred purchase price of
property or services represented by a note or other
security (other than in respect of any trade payable)
or other Indebtedness arising under any conditional
sale or other title retention agreement with respect
to property acquired by such Person (even though the
rights and remedies of the seller or lender under
such agreement in the event of default are limited to
repossession or sale of such property), and (d) all
Indebtedness of such Person secured by a purchase
money mortgage or other lien to secure all or part of
the purchase price of property subject to such
mortgage or lien.
<PAGE>
4
E. Rate Hedging Agreements. Any written
agreements evidencing Rate Hedging Obligations.
F. Rate Hedging Obligations. Any and all obligations
of the Borrower or any of its Subsidiaries, whether
direct or indirect and whether absolute or
contingent, at any time created, arising, evidenced
or acquired (including all renewals, extensions,
modifications and amendments thereof and all
substitutions therefor), in respect of: (a) any and
all agreements, arrangements, devices and instruments
designed or intended to protect at least one of the
parties thereto from the fluctuations of interest
rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange
transactions, including without limitation
dollar-denominated or cross currency interest rate
exchange agreements, forward rate currency or
interest rate options, puts and warrants and
so-called "rate swap" agreements; and (b) any and all
cancellations, buy-backs, reversals, terminations or
assignments of any of the foregoing.
G. Securities Purchase Agreement. The Securities
Purchase Agreement, dated as of December 22, 1997,
by and among the Borrower, The 1818 Mezzanine
Fund, L.P., PC Investment Company, Progressive
Investment Company, Inc. and Manufacturers Life
Insurance Company (U.S.A.).
H. Total Indebtedness. Funded Debt of the Borrower
and its Subsidiaries on a consolidated basis minus
Junior Subordinated Debt.
(viii) Section 1.1 is also amended by deleting the
definition of Termination Date set forth in such ss.1.1 in its
entirety.
(b) Section 3.4 of the Credit Agreement is hereby deleted in
its entirety.
(c) The first sentence of ss.6.17 of the Credit Agreement is
amended by (i) deleting the text "prior to the Termination Date,"
contained in such sentence and (ii) adding, immediately following the
text "working capital" contained in such sentence, the text "and
general corporate".
(d) Section 7.12 of the Credit Agreement is amended by (i)
deleting the text "prior to the Termination Date," contained in such
ss.7.12 and (ii) adding, immediately following the text "working
capital" contained in such ss.7.12, the text "and general corporate".
<PAGE>
5
(e) Section 8.5.2 of the Credit Agreement is amended by
deleting all of the text immediately following the words "no Default or
Event of Default" contained in such ss.8.5.2 and substituting the
following therefor:
shall have occurred and be continuing or would occur after
giving effect thereto, (ii) the Borrower (or any of its
Subsidiaries, as the case may be) receives consideration at
the time of such disposition at least equal to the fair market
value of the assets sold or otherwise disposed of and, in the
case of a lease of assets, a lease providing for rent and
other conditions which are no less favorable than the then
prevailing market conditions, and (iii) the Borrower shall
apply, or cause a Subsidiary to apply, the net sale proceeds
from such disposition within 180 days of receipt thereof (A)
to make Investments in assets or properties that will be used
in the business of the Borrower and its Subsidiaries
consistent with ss.8.3 or (B) to repay any Indebtedness of the
Borrower subject to the provisions of Article 12 of the
Securities Purchase Agreement. Notwithstanding the foregoing
sentence, the Borrower may sell or transfer its assets or
properties in the ordinary course of business consistent with
past practice, including transfers made in a Permitted
Securitization Transaction and such transactions shall not be
subject to the conditions set forth in the previous sentence.
(f) Section 8.7 of the Credit Agreement is amended by adding
at the end of clause (b) contained in such ss.8.7 and immediately
before the semicolon the text 'other than the repayment in full of all
Indebtedness under the Senior Subordinated Note Purchase Agreement and
the "Senior Subordinated Notes" as defined therein on or prior to
December 22, 1997 solely with the proceeds of the subordinated debt
financing evidenced by the Securities Purchase Agreement'.
(g) Section 8.12 of the Credit Agreement is amended by
deleting (i) from within the parenthetical contained in such ss.8.12
the text "and the limitations contained in ss.5.9 of the Senior
Subordinated Note Purchase Agreement" and (ii) immediately following
the words "provided that", contained in such ss.8.12 the text "after
the Termination Date,".
(h) Section 9 of the Credit Agreement is amended by adding the
following new ss.9.9:
9.9 Leverage Ratio. In the event that the Borrower incurs
"Senior Indebtedness" (as defined in the Securities Purchase
Agreement) in excess of the Indebtedness permitted by clause
(iv) of Section 10.6(a) of the Securities Purchase Agreement
(the "Additional Senior Indebtedness") in addition to any
Indebtedness that is pari passu with the Indebtedness incurred
<PAGE>
6
under the Senior Subordinated Notes, the Borrower will not
permit, immediately after giving effect to the Additional
Senior Indebtedness, the ratio of Total Indebtedness to
Consolidated Tangible Net Worth to exceed 4.5:1.0.
(i) Clause (i) of ss.12.1 of the Credit Agreement is amended
by adding at the end of such clause (i) and immediately prior to the
semicolon the text "or any action which is not quashed or remains
unstayed for a period in excess of fifteen days shall be legally taken
by a judgment creditor to levy upon assets or properties of the
Borrower or any of its Subsidiaries to enforce any such judgment".
(j) Section 12.1 of the Credit Agreement is further amended
by (i ) deleting the word "or" at the end of clause (u) in such ss.12.1
and (ii ) adding the following new clauses (w) and (x) to such ss.12.1:
(w) a "Blockage Notice" as defined in Section 12.3(b)
of the Securities Purchase Agreement shall be given
by a holder of Senior Indebtedness (as defined
therein) other than the Agent; or
(x) a Change of Control shall occur.
For the purposes of this clause (x),
"Change of Control" shall mean:
(i) Any Person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act)
other than National Auto Finance Company, L.P., Gary
L. Shapiro, Keith B. Stein, First Union National Bank
of North Carolina (or any of its Affiliates) or the
Purchasers (as defined in the Securities Purchase
Agreement) (collectively the "Principal
Stockholders") is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of
capital stock of the Borrower, entitling such Person
or Persons to exercise 50% or more of the total votes
entitled to be cast for the election of directors
under ordinary circumstances at a regular or special
meeting, or by action by written consent, of (i)
common stockholders of the Borrower if at least a
majority of the Borrower's Board of Directors are
elected by common stockholders, and (ii) voting
stockholders of the Borrower in all other
circumstances (the term "beneficial owner" shall be
determined in accordance with Rule 13d-3, promulgated
by the Commission under the Exchange Act);
(ii) A majority of the Board of Directors of
the Borrower shall consist of Persons other than
Continuing Directors. The term "Continuing Director"
shall mean any member of the Board of Directors of
<PAGE>
7
the Borrower on the Closing Date and any other member
of the Board of Directors who shall be recommended or
elected to succeed or become a Continuing Director by
a majority of Continuing Directors who are then
members of the Board of Directors of the Borrower.
(iii) The stockholders of the Borrower shall
have approved a recapitalization, reorganization,
merger, consolidation, sale or other disposition of
all or substantially all the assets of the Borrower
(in one transaction or in a series of related
transactions) or similar transaction, in each case,
with respect to which all or substantially all the
Persons who were the respective beneficial owners of
the outstanding shares of capital stock of the
Borrower immediately prior to such recapitalization,
reorganization, merger or consolidation, beneficially
own, directly or indirectly, less than 10% of the
combined voting power of the then outstanding shares
of capital stock of the Borrower resulting from such
recapitalization, reorganization, merger,
consolidation or similar transaction or obtaining the
assets of the Borrower; or
(iv) Upon the consummation of any
transaction the result of which is that the common
stock of the Borrower is not required to be
registered under Section 12 of the Exchange Act and
that the holders of common stock of the Borrower do
not receive common stock of the Person surviving such
transaction which is required to be registered under
Section 12 of the Exchange Act.
SS.3. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWER. The Borrower
----------------------------------------------
hereby ratifies and confirms all of its Obligations to the Banks, including,
without limitation the Loans, and the Borrower hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Credit Agreement as amended hereby. The Borrower hereby confirms that
the Obligations are and remain secured pursuant to the Security Documents and
pursuant to all other instruments and documents executed and delivered by the
Borrower as security for the Obligations.
SS.4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
--------------------------------
represents and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this
Amendment and all other instruments and agreements required to be
executed and delivered by the Borrower in connection with the
transactions contemplated hereby or referred to herein (collectively,
the "Amendment Documents"), and the performance by the Borrower of its
obligations and agreements under the Amendment Documents and the Credit
Agreement as amended hereby, are within the corporate authority of the
Borrower, have been authorized by all necessary corporate proceedings
on behalf of the Borrower, and do not and will not contravene any
provision of law, statute, rule or regulation to which the Borrower or
<PAGE>
8
any of its Subsidiaries is subject or any of the Borrower's charter,
other incorporation papers, by-laws or any stock provision or any
amendment thereof or of any indenture, agreement, instrument or
undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as
amended hereby constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting generally the enforcement of
creditors' rights.
(c) No approval or consent of, or filing with, any
governmental agency or authority is required to make valid and legally
binding the execution, delivery or performance by the Borrower of the
Amendment Documents or the Credit Agreement as amended hereby, or the
consummation by the Borrower of the transactions among the parties
contemplated hereby and thereby or referred to herein.
(d) The representations and warranties contained in ss.6 of
the Credit Agreement were correct at and as of the date made. Except to
the extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially
adverse and to the extent such representations and warranties relate
expressly to an earlier date, such representations and warranties also
are correct at and as of the date hereof.
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
SS.5. EFFECTIVENESS. The effectiveness of this Amendment shall be
-------------
subject to the satisfaction of the following conditions:
(a) Delivery. Each of the Borrower and the Banks shall have
executed and delivered this Amendment.
(b) Senior Subordinated Debt Arrangements.
(i) The transactions contemplated by the Securities
Purchase Agreement shall have been consummated (which
Agreement shall be in form and substance satisfactory
to the Agent and the Banks);
(ii) All Indebtedness under the Senior Subordinated
Note Purchase Agreement shall simultaneously be paid
in full and the Senior Subordinated Note Purchase
Agreement and the "Senior Subordinated Notes" as
defined therein shall simultaneously be terminated
and cancelled.
<PAGE>
9
(c) Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Amendment, the transactions
contemplated by the Securities Purchase Agreement and all documents
incident thereto shall be reasonably satisfactory in substance and form
to the Banks, the Agent and the Agents' Special Counsel, and the Banks,
the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as
the Agent may reasonably request.
SS.6 ACKNOWLEDGMENT OF SUBORDINATED DEBT. The Banks hereby acknowledge
-----------------------------------
that the Indebtedness evidenced by the Securities Purchase Agreement and the
Senior Subordinated Notes as in effect on the date hereof shall be "Subordinated
Debt".
SS.7. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
------------------------
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(d) Pursuant to ss.15 of the Credit Agreement, the Borrower hereby
agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket
costs and expenses incurred or sustained by the Agent in connection with the
preparation of this Amendment (including reasonable legal fees).
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
NATIONAL AUTO FINANCE COMPANY,
INC.
By:____________________________________
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:____________________________________
Title:
AMENDMENT AGREEMENT NO. 3
to that certain
REVOLVING CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 3 (the "Amendment"), dated as of
March 19, 1998, is among National Auto Finance Company, Inc. (the "Borrower"),
BankBoston, N.A. and the other lending institutions party thereto (collectively
the "Banks"), and BankBoston, N.A. as agent (the "Agent") for itself and the
other Banks.
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit Agreement, dated as of September 29, 1997 (as amended
by Amendment No. 1, dated as of October 1, 1997 and an Amendment Agreement No.
2, dated as of December 19, 1997, the "Credit Agreement"), pursuant to which the
Banks, upon certain terms and conditions, have made loans to the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SS.1. DEFINED TERMS. Capitalized terms which are used herein
--------------
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
SS.2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is
-----------------------------
hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is amended as follows:
(i) Clause (b) of the definition of Borrowing Base set
forth in such ss.1.1 is amended by deleting the text "; plus"
at the end of such clause and substituting in place thereof a
period.
(ii) Clause (c) of the definition of Borrowing Base
set forth in such ss.1.1 is deleted in its entirety.
(iii) Clause (g) of the definition of Eligible Vehicle
Loan set forth in such ss.1.1 is amended and restated in its
entirety to read as follows:
"(g) that is consistent with the Borrower's
Current Policies Regarding Purchase of Retail
Installment Vehicle Loans or, if a Portfolio Loan,
the Borrower's Criteria for Purchasing Vehicle Loans,"
<PAGE>
2
(iv) Clause (h) of the definition of Eligible Vehicle
Loan set forth in such ss.1.1 is amended and restated in its
entirety to read as follows:
"(h) except with respect to Portfolio Loans, that has
a bureau (Beacon) score rating of 550 points or more
("C" rated paper) at the time of origination,"
(v) Clause (l) of the definition of Eligible Vehicle
Loan set forth in such ss.1.1 is amended and restated in its
entirety to read as follows:
"(l) that has not previously been sold, discounted or
transferred to any Person, other than (i) Portfolio
Loans or (ii) Vehicle Loans sold in connection with
previously completed asset securitizations which have
been repurchased by the Borrower, and"
(vi) Section 1.1 is further amended by adding the
following new definitions:
A. Criteria for Purchasing Vehicle Loans. With
respect to Eligible Vehicle Loans, the Borrower's
policies regarding the origination and purchase of
such retail installment car loans from third parties
in the form of Exhibit H hereto, as such policies may
be amended, restated, supplemented, or otherwise
modified from time to time only with the prior
written consent of the Agent.
B. Portfolio Loans. A Vehicle Loan (a) which is
originated by a third party that is not an Affiliate
of the Borrower, (b) which is purchased by the
Borrower as part of a portfolio of Vehicle Loans from
such third party at purchase prices not greater than
fair market value pursuant to good faith bona fide
transactions consistent with the Criteria for
Purchasing Vehicle Loans and (c) in respect of which
the Borrower shall have delivered to the Agent, in
form and substance satisfactory to the Agent, the
following: (i) a true, correct and complete copy of
the purchase and sale agreement relating to the
Borrower's purchase of such portfolio of Vehicle
Loans; (ii) a Compliance Certificate demonstrating
compliance with the covenants set forth in ss.9 of
the Credit Agreement after giving pro forma effect to
the Borrower's purchase of such portfolio of Vehicle
Loans and any borrowings made in connection
therewith; (iii) a Borrowing Base Report dated as of
the date of the purchase of such portfolio of Vehicle
Loans; and (iv) such other information regarding such
portfolio of Vehicle Loans as the Agent may
reasonably request.
<PAGE>
3
(vii) Section 1.1 is also amended by deleting the
definitions of Excess Spread Receivables, Residual Value and
Spread Accounts set forth in such ss.1.1 in their entirety.
(b) Section 6.22(c) of the Credit Agreement is amended by
adding at the end of such clause (c) the following sentence: "Exhibit H
hereto completely and accurately described the Borrower's Criteria for
Purchasing Vehicle Loans as in effect on the date hereof."
(c) Section 7.9.2 of the Credit Agreement is amended by
deleting the text "the Borrower will obtain and deliver to the Agent"
in the first sentence thereof and substituting in place thereof the
following text: "the Borrower will cooperate with the Agent in the
Agent's obtaining".
(d) Section 8.3(i) of the Credit Agreement is amended and
restated in its entirety to read as follows:
(i) in purchases of Portfolio Loans.
(e) Section 8.8 of the Credit Agreement is amended by deleting
the last sentence thereof in its entirety.
(f) Exhibit A to the Credit Agreement is amended and replaced
in its entirety by the Exhibit A attached hereto. All references to
Exhibit A to the Credit Agreement contained in any of the Loan
Documents shall hereinafter be deemed to refer to the Exhibit A
attached hereto.
SS.3. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWER. The Borrower
----------------------------------------------
hereby ratifies and confirms all of its Obligations to the Banks, including,
without limitation the Loans, and the Borrower hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Credit Agreement as amended hereby. The Borrower hereby confirms that
the Obligations are and remain secured pursuant to the Security Documents and
pursuant to all other instruments and documents executed and delivered by the
Borrower as security for the Obligations.
SS.4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
--------------------------------
and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this
Amendment and all other instruments and agreements required to be
executed and delivered by the Borrower in connection with the
transactions contemplated hereby or referred to herein (collectively,
the "Amendment Documents"), and the performance by the Borrower of its
obligations and agreements under the Amendment Documents and the Credit
Agreement as amended hereby, are within the corporate authority of the
<PAGE>
4
Borrower, have been authorized by all necessary corporate proceedings
on behalf of the Borrower, and do not and will not contravene any
provision of law, statute, rule or regulation to which the Borrower or
any of its Subsidiaries is subject or any of the Borrower's charter,
other incorporation papers, by-laws or any stock provision or any
amendment thereof or of any indenture, agreement, instrument or
undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as
amended hereby constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting generally the enforcement of
creditors' rights.
(c) No approval or consent of, or filing with, any
governmental agency or authority is required to make valid and legally
binding the execution, delivery or performance by the Borrower of the
Amendment Documents or the Credit Agreement as amended hereby, or the
consummation by the Borrower of the transactions among the parties
contemplated hereby and thereby or referred to herein.
(d) The representations and warranties contained in ss.6 of
the Credit Agreement were correct at and as of the date made. Except to
the extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially
adverse and to the extent such representations and warranties relate
expressly to an earlier date, such representations and warranties also
are correct at and as of the date hereof; provided, however, the Agent
and the Banks acknowledge that the application of FAS 125 and its
effects on securitization assets, including the Borrower's assets, and
the use of "gain-on-sale" accounting, in general, are presently under
review by the Borrower's accountants and the accounting profession as a
whole. The Agent and the Banks further acknowledge that any change in
the interpretation or application of FAS 125 to the gain-on-sale
accounting policies utilized by the Borrower and the assumptions
underlying those policies may affect the financial condition and
operating results of the Borrower for 1997 and in the future..
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
SS.5. EFFECTIVENESS. The effectiveness of this Amendment shall be
-------------
subject to the satisfaction of the following conditions:
(a) Delivery. Each of the Borrower, the Agent and the Banks
shall have executed and delivered this Amendment.
(b) Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Amendment, the transactions
contemplated by the Securities Purchase Agreement and all documents
<PAGE>
5
incident thereto shall be reasonably satisfactory in substance and form
to the Banks, the Agent and the Agents' Special Counsel, and the Banks,
the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as
the Agent may reasonably request.
SS.6 MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(d) Pursuant to ss.15 of the Credit Agreement, the Borrower hereby
agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket
costs and expenses incurred or sustained by the Agent in connection with the
preparation of this Amendment (including reasonable legal fees).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
NATIONAL AUTO FINANCE COMPANY,
INC.
By:____________________________________
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:____________________________________
Title:
<PAGE>
EXHIBIT A
---------
FORM OF BORROWING BASE REPORT
-----------------------------
FOR THE MONTH ENDED ______________
BankBoston, N.A., as Agent
100 Federal Street, 01-07-05
Boston, Massachusetts 02110
Attention: Timothy G. Clifford, Director
Ladies and Gentlemen:
Reference is hereby made to that certain Revolving Credit Agreement,
dated as of September 29, 1997 (as the same may be amended and in effect from
time to time, the "Credit Agreement"), by and among National Auto Finance
Company, Inc. (the "Borrower"), BankBoston, N.A. ("BKB"), the other lending
institutions party thereto (collectively with BKB, the "Banks"), BKB as agent
for itself and the other Banks (the "Agent"). Capitalized terms which are used
herein without definition and which are defined in the Credit Agreement shall
have the same meanings herein as in the Credit Agreement.
The undersigned hereby certifies as follows: (a) the information
furnished in the materials attached hereto was true, correct and complete in all
material respects as of the last day of the calendar month immediately preceding
the date of this certificate; (b) as of the date hereof, there exists no Default
or Event of Default; and (c) the representations and warranties contained in
ss.6 of the Credit Agreement were correct in all material respects when made and
are correct at and as of the date hereof except to the extent (i) any such
representation or warranty expressly relates to an earlier date, or (ii) of
changes resulting from transactions contemplated or permitted by the Credit
Agreement and changes occurring in the ordinary course of business that singly
or in the aggregate are not materially adverse.
<PAGE>
BankBoston, N.A., as Agent
Page 2
IN WITNESS WHEREOF, the undersigned has executed this Borrowing Base
Certificate on behalf of the Borrower, as of the date written below.
Very truly yours,
NATIONAL AUTO FINANCE COMPANY,
INC.
By:
Name:
Title:
Date:_________________
<PAGE>
BORROWING BASE WORKSHEET
NATIONAL AUTO FINANCE COMPANY, INC.
As of _______________, 19__
I. NET AMOUNT OF ELIGIBLE VEHICLE LOANS
------------------------------------
A. Outstanding principal amount of Vehicle Loans pledged to the Agent for
the benefit of the Banks pursuant to the Security Agreement $_________
<TABLE>
<CAPTION>
Minus: Ineligible Vehicle Loans
<S> <C> <C>
i. Outstanding principal amount of Stayed Loans $_________
ii. Outstanding principal amount of Vehicle Loans not secured
by an Eligible Vehicle $_________
iii. Outstanding principal amount of Vehicle Loans not denominated
and payable in Dollars to an Obligor
(other than an Affiliate of the Borrower) $_________
iv. Outstanding principal amount of Vehicle Loans (A) (1) not
originated by a Dealer other than a Dealer that is an Affiliate
of the Borrower, (2) not originated by an ACCH Lender other than
an ACCH Lender that is an Affiliate of the Borrower, or (3) not
otherwise consented to in writing by the Agent, and (B) not
purchased pursuant to a Dealer
Agreement or an ACCH Agreement $_________
v. Outstanding principal amount of Vehicle Loans that are presently
delinquent (without regard to any stated grace
period) for more than sixty (60) days past any payment date $_________
vi. Outstanding principal amount of Vehicle Loans in respect of
which the related motor vehicle, if repossessed, is not an
Eligible Repossessed Vehicle $_________
vii. Outstanding principal amount of Vehicle Loans that the Obligor
on which has been granted more than five (5) extensions or other
forbearances in connection with any delinquencies of more than
150 days in the aggregate during the initial term of such
Vehicle Loans $_________
viii. Outstanding principal amount of Vehicle Loans that are not
consistent with the Borrower's Current Policies Regarding
Purchase of Retail Installment Vehicle Loans or, if a Portfolio
Loan, the Borrower's Criteria for Purchasing Vehicle Loans $_________
<PAGE>
2
ix. Outstanding principal amount of Vehicle Loans with a Beacon
(bureau) score rating of less than 550 points (not "C"
rated paper) (excluding Portfolio Loans) $_________
x. Outstanding principal amount of Vehicle Loans for which opinions
regarding such Vehicle Loans constituting chattel paper that are
reasonably satisfactory to the Agent have not been delivered
$_________
xi. Outstanding principal amount of Vehicle Loans that are not
covered by Eligible Insurance $_________
xii. Outstanding principal amount of Vehicle Loans in respect of
which the representations and warranties set forth in the
Security Agreement are not true $_________
xiii. Outstanding principal amount of Vehicle Loans that have
previously been sold, discounted or transferred to any Person
(excluding Portfolio Loans or Vehicle Loans sold in connection
with previously completed asset securitizations which have been
repurchased by the Borrower) $_________
xiv. Outstanding principal amount of Vehicle Loans that the Agent
otherwise deems in its reasonable judgment to be not collectible $_________
B. Total Ineligible Vehicle Loans (sum of items (i) through (xiv)) $_________
C. To the extent included in the principal amounts of such Vehicle Loans, (i)
unearned interest and finance charges with respect to future periods (or
reserves with respect to unearned interest and finance charges) and (ii)
unless otherwise deducted as shown on the balance sheet of the Borrower,
any categories of reserves, credits and discounts with respect to such
Vehicle Loans $_________
D. Net Amount of Eligible Vehicle Loans pledged to the Agent for the
benefit of the Banks pursuant to the Security Agreement $_________
(difference of item I(A) minus item I(B) minus item I(C))
E. Formula (Advance Rate) 90%
F. Net Amount of Eligible Vehicle Loans Availability $_________
II. ELIGIBLE REPOSSESSED VEHICLES
-----------------------------
A. Determined Value of Eligible Vehicle Inventory $_________
Minus: Ineligible Repossessed Vehicles
i. Determined Value of Eligible Vehicles that have been
repossessed by the Borrower and are not in the possession
of ADT $_________
<PAGE>
3
ii. Determined Value of Eligible Vehicles that have been in the
inventory of ADT for more than sixty (60) days after the date
of such repossession $_________
iii. Determined Value of Eligible Vehicles as to which the Obligor
has (A) filed a petition or sought relief under or taken
advantage of any insolvency law, (B) made an assignment for the
benefit of its creditors, (C) commenced a proceeding for the
appointment of a receiver, trustee, liquidator, custodian or
conservator of itself or for the whole or substantially all of
its property, (D) filed, or consented to, a petition under any
chapter of the Code, or (E) filed a petition or sought relief
under, or taken advantage of, any bankruptcy or similar law or
statute of any jurisdiction, now or hereafter in effect
$_________
B. Determined Value of Eligible Repossessed Vehicles $_________
(sum of item II(A)(i) plus item II(A)(ii) plus item II(A)(iii))
C. Formula (Advance Rate) 40%
D. Determined Value of Eligible Repossessed Vehicles Availability
(the lesser of $1,500,000 and the product of item II(B) times item II(C)) $_________
III. AVAILABILITY
------------
A. Borrowing Base Availability (Item I(F) plus item II(D)) $_________
B. Loans Outstanding $_________
C. Net Borrowing Base Availability (Item III(A) minus item III(B)) $_________
(but in no event to exceed the lesser of item III(A) and the Total
Commitment)
</TABLE>
AMENDMENT AGREEMENT NO. 4
to that certain
REVOLVING CREDIT AGREEMENT
This AMENDMENT AGREEMENT NO. 4 (the "Amendment"), dated as of
March 27, 1998, is among National Auto Finance Company, Inc. (the "Borrower"),
BankBoston, N.A. and the other lending institutions party thereto (collectively
the "Banks"), and BankBoston, N.A. as agent (the "Agent") for itself and the
other Banks.
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit Agreement, dated as of September 29, 1997 (as amended
by Amendment No. 1, dated as of October 1, 1997, an Amendment No. 2, dated as of
December 19, 1997, and an Amendment No. 3, dated as of March 19, 1998, the
"Credit Agreement"), pursuant to which the Banks, upon certain terms and
conditions, have made loans to the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SS.1. DEFINED TERMS. Capitalized terms which are used herein
--------------
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
SS.2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is
-----------------------------
hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
(i) the definition of Senior Subordinated Debt
Documents set forth in such ss.1.1 is amended and restated in
its entirety to read as follows:
Senior Subordinated Debt Documents. The Securities
Purchase Agreement, the SFHY Securities Purchase
Agreement and the Senior Subordinated Notes.
(ii) the definition of Senior Subordinated Notes set
forth in such ss.1.1 is amended and restated in its entirety
to read as follows:
<PAGE>
2
Senior Subordinated Notes. Collectively, (a) the
notes in the aggregate principal amount of
$40,000,000 issued pursuant to the Securities
Purchase Agreement and (b) the notes in the aggregate
principal amount of $20,000,000 issued pursuant to
the SFHY Securities Purchase Agreement.
(iii) the definition of Subordination Agreements set
forth in such ss.1.1 is amended and restated in its entirety
to read as follows:
Subordination Agreements. Collectively, (a) Article
12 of the Securities Purchase Agreement and the
definitions and provisions applicable to such Article
12 contained therein, (b) Article 12 of the SFHY
Securities Purchase Agreement and the definitions and
provisions applicable to such Article 12 contained
therein, and (c) the Junior Subordination Agreement,
dated as of March 27, 1998, among the Agent, the
holders of the Senior Subordinated Notes, the holders
of the Junior Subordinated Debt Documents and the
Borrower, each in form and substance satisfactory to
the Banks and the Agent.
(iv) Section 1.1 is further amended by adding the
following new definition:
SFHY Securities Purchase Agreement. The Securities
Purchase Agreement, dated as of March 27, 1998, by
and between the Borrower and The Structured Finance
High Yield Fund, LLC.
(b) Section 8.5.2 of the Credit Agreement is amended by
inserting before the period at the end of clause (iii)(B) thereof the
following text "and Article 12 of the SFHY Securities Purchase
Agreement":
(c) Section 9 of the Credit Agreement is amended and restated
in its entirety to read as follows:
9.9 LEVERAGE RATIO. In the event that the Borrower incurs
"Senior Indebtedness" (as defined in the Securities Purchase
Agreement) in excess of the Indebtedness permitted by clause
(iv) of Section 10.6(a) of the Securities Purchase Agreement
or "Senior Indebtedness" (as defined in the SFHY Securities
Purchase Agreement) in excess of the Indebtedness or permitted
by clause (iv) of ss.10.6(a) of the SFHY Securities Purchase
Agreement (collectively, the "Additional Senior Indebtedness")
in addition to any Indebtedness that is pari passu with the
Indebtedness incurred under the Senior Subordinated Notes, the
Borrower will not permit, immediately after giving effect to
the Additional Senior Indebtedness, the ratio of Total
Indebtedness to Consolidated Tangible Net Worth to exceed
4.5:1.0.
<PAGE>
3
(d) Section 12.1 of the Credit Agreement is further amended by
(i) deleting the word "or" at the end of clause (w) in such ss.12.1,
(ii) inserting the word "or" at the end of clause (x) in such ss.12.1
and (iii) adding the following new clause (y) to such ss.12.1:
(y) a "Blockage Notice" as defined in Section 12.3(b)
of the SFHY Securities Purchase Agreement shall be
given by a holder of Senior Indebtedness (as defined
therein) other than the Agent;
SS.3. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWER. The Borrower
----------------------------------------------
hereby ratifies and confirms all of its Obligations to the Banks, including,
without limitation the Loans, and the Borrower hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Credit Agreement as amended hereby. The Borrower hereby confirms that
the Obligations are and remain secured pursuant to the Security Documents and
pursuant to all other instruments and documents executed and delivered by the
Borrower as security for the Obligations.
SS.4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
--------------------------------
and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this
Amendment and all other instruments and agreements required to be
executed and delivered by the Borrower in connection with the
transactions contemplated hereby or referred to herein (collectively,
the "Amendment Documents"), and the performance by the Borrower of its
obligations and agreements under the Amendment Documents and the Credit
Agreement as amended hereby, are within the corporate authority of the
Borrower, have been authorized by all necessary corporate proceedings
on behalf of the Borrower, and do not and will not contravene any
provision of law, statute, rule or regulation to which the Borrower or
any of its Subsidiaries is subject or any of the Borrower's charter,
other incorporation papers, by-laws or any stock provision or any
amendment thereof or of any indenture, agreement, instrument or
undertaking binding upon the Borrower.
(b) The Amendment Documents and the Credit Agreement as
amended hereby constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except
as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting generally the enforcement of
creditors' rights.
(c) No approval or consent of, or filing with, any
governmental agency or authority is required to make valid and legally
binding the execution, delivery or performance by the Borrower of the
Amendment Documents or the Credit Agreement as amended hereby, or the
consummation by the Borrower of the transactions among the parties
contemplated hereby and thereby or referred to herein.
<PAGE>
4
(d) The representations and warranties contained in ss.6 of
the Credit Agreement were correct at and as of the date made. Except to
the extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially
adverse and to the extent such representations and warranties relate
expressly to an earlier date, such representations and warranties also
are correct at and as of the date hereof; provided, however, the Agent
and the Banks acknowledge that the application of FAS 125 and its
effects on securitization assets, including the Borrower's assets, and
the use of "gain-on-sale" accounting, in general, are presently under
review by the Borrower's accountants and the accounting profession as a
whole. The Agent and the Banks further acknowledge that any change in
the interpretation or application of FAS 125 to the gain-on-sale
accounting policies utilized by the Borrower and the assumptions
underlying those policies may affect the financial condition and
operating results of the Borrower for 1997 and in the future.
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
SS.5. EFFECTIVENESS. The effectiveness of this Amendment shall
-------------
be subject to the satisfaction of the following conditions:
(a) Delivery. Each of the Borrower and the Banks shall have
executed and delivered this Amendment.
(b) Senior Subordinated Debt Arrangements. The transactions
contemplated by the SFHY Securities Purchase Agreement shall have been
consummated (which Agreement shall be in form and substance
satisfactory to the Agent and the Banks).
(c) Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Amendment, the transactions
contemplated by the Securities Purchase Agreement and all documents
incident thereto shall be reasonably satisfactory in substance and form
to the Banks, the Agent and the Agents' Special Counsel, and the Banks,
the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as
the Agent may reasonably request.
SS.6 ACKNOWLEDGMENT OF SUBORDINATED DEBT. The Banks hereby acknowledge
-----------------------------------
that the Indebtedness evidenced by the SFHY Securities Purchase Agreement and
the Senior Subordinated Notes issued thereunder as in effect on the date hereof
shall be "Subordinated Debt".
SS.7. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
------------------------
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
<PAGE>
5
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(d) Pursuant to ss.15 of the Credit Agreement, the Borrower hereby
agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket
costs and expenses incurred or sustained by the Agent in connection with the
preparation of this Amendment (including reasonable legal fees).
[Remainder of page intentionally left blank]
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
NATIONAL AUTO FINANCE COMPANY,
INC.
By:____________________________________
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:____________________________________
Title:
TRADEMARK COLLATERAL
--------------------
SECURITY AND PLEDGE AGREEMENT
-----------------------------
TRADEMARK COLLATERAL SECURITY AND PLEDGE AGREEMENT dated as of
September 29, 1997, between NATIONAL AUTO FINANCE COMPANY, INC., a Delaware
corporation having its principal place of business at 621 N.W. 53rd Street,
Suite 200, Boca Raton, Florida 33487 (the "Assignor"), and BANKBOSTON, N.A. a
national banking association having an office at 100 Federal Street, Boston,
Massachusetts 02110, as agent (hereinafter, in such capacity, the "Agent") for
itself and other banking institutions (hereinafter, collectively, the "Banks")
which are, or may in the future become, parties to a Revolving Credit Agreement
dated as of September 29, 1997 (as amended and in effect from time to time, the
"Credit Agreement"), among the Assignor, the Banks and the Agent.
WHEREAS, pursuant to the terms of the Credit Agreement, the Banks have,
upon the terms and subject to the conditions contained therein, agreed to make
loans and otherwise to extend credit to the Borrower;
WHEREAS, it is a condition precedent to the Banks' making any loans or
otherwise extending credit to the Assignor under the Credit Agreement that the
Assignor execute and deliver to the Agent, for the benefit of the Banks and the
Agent, a trademark agreement in substantially the form hereof;
WHEREAS, the Assignor has executed and delivered to the Agent, for the
benefit of the Banks and the Agent, the Security Agreement (as defined in the
Credit Agreement), pursuant to which the Assignor has granted to the Agent, for
the benefit of the Banks and the Agent, a security interest in certain of the
Assignor's personal property and fixture assets, including without limitation
the trademarks, service marks, trademark and service mark registrations, and
trademark and service mark registration applications listed on Schedule A
attached hereto, all to secure the payment and performance of the Obligations
(as defined in the Credit Agreement); and
WHEREAS, this Trademark Agreement is supplemental to the provisions
contained in the Security Agreement;
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE>
2
1. DEFINITIONS.
-----------
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided therefor in the Credit Agreement and the
Security Agreement. In addition, the following terms shall have the meanings set
forth in this ss.1 or elsewhere in this Trademark Agreement referred to below:
Assignment of Marks. See ss.2.1.
Associated Goodwill. All goodwill of the Assignor and its business,
products and services appurtenant to, associated with or symbolized by the
Trademarks and the use thereof.
Pledged Trademarks. All of the Assignor's right, title and interest in
and to all of the Trademarks, the Trademark Registrations, the Trademark License
Rights, the Trademark Rights, the Associated Goodwill, the Related Assets, and
all accessions to, substitutions for, replacements of, and all products and
proceeds of any and all of the foregoing.
PTO. The United States Patent and Trademark Office.
Related Assets. All assets, rights and interests of the Assignor that
uniquely reflect or embody the Associated Goodwill, including the following:
(a) all patents, inventions, copyrights, trade secrets,
confidential information, formulae, methods or processes, compounds,
recipes, know-how, methods and operating systems, drawings,
descriptions, formulations, manufacturing and production and delivery
procedures, quality control procedures, product and service
specifications, catalogs, price lists, and advertising materials,
relating to the manufacture, production, delivery, provision and sale
of goods or services under or in association with any of the
Trademarks; and
(b) the following documents and things in the possession or
under the control of the Assignor, or subject to its demand for
possession or control, related to the production, delivery, provision
and sale by the Assignor, or any affiliate, franchisee, licensee or
contractor, of products or services sold by or under the authority of
the Assignor in connection with the Trademarks or Trademark Rights,
whether prior to, on or subsequent to the date hereof:
(i) all lists, contracts, ancillary documents and
other information that identify, describe or provide
information with respect to any customers, dealers or
distributors of the Assignor, its affiliates or franchisees or
licensees or contractors, for products or services sold under
<PAGE>
3
or in connection with the Trademarks or Trademark Rights,
including all lists and documents containing information
regarding each customer's, dealer's or distributor's name and
address, credit, payment, discount, delivery and other sale
terms, and history, pattern and total of purchases by brand,
product, style, size and quantity;
(ii) all agreements (including franchise agreements),
product and service specification documents and operating,
production and quality control manuals relating to or used in
the design, manufacture, production, delivery, provision and
sale of products or services under or in connection with the
Trademarks or Trademark Rights;
(iii) all documents and agreements relating to the
identity and locations of all sources of supply, all terms of
purchase and delivery, for all materials, components, raw
materials and other supplies and services used in the
manufacture, production, provision, delivery and sale of
products or services under or in connection with the
Trademarks or Trademark Rights; and
(iv) all agreements and documents constituting or
concerning the present or future, current or proposed
advertising and promotion by the Assignor (or any of its
affiliates, franchisees, licensees or contractors) of products
or services sold under or in connection with the Trademarks or
Trademark Rights.
Trademark Agreement. This Trademark Collateral Security and Pledge
Agreement, as amended and in effect from time to time.
Trademark License Rights. Any and all past, present or future rights
and interests of the Assignor pursuant to any and all past, present and future
franchising or licensing agreements in favor of the Assignor, or to which the
Assignor is a party, pertaining to any Trademarks, Trademark Registrations, or
Trademark Rights owned or used by third parties in the past, present or future,
including the right (but not the obligation) in the name of the Assignor or the
Agent to enforce, and sue and recover for, any breach or violation of any such
agreement to which the Assignor is a party.
Trademark Registrations. All past, present or future federal, state,
local and foreign registrations of the Trademarks, all past, present and future
applications for any such registrations (and any such registrations thereof upon
approval of such applications), together with the right (but not the obligation)
to apply for such registrations (and prosecute such applications) in the name of
the Assignor or the Agent, and to take any and all actions necessary or
appropriate to maintain such registrations in effect and renew and extend such
registrations.
Trademark Rights. Any and all past, present or future rights in, to and
associated with the Trademarks throughout the world, whether arising under
federal law, state law, common law, foreign law or otherwise, including the
following: all such rights arising out of or associated with the Trademark
<PAGE>
4
Registrations; the right (but not the obligation) to register claims under any
state, federal or foreign trademark law or regulation; the right (but not the
obligation) to sue or bring opposition or cancellation proceedings in the name
of the Assignor or the Agent for any and all past, present and future
infringements or dilution of or any other damages or injury to the Trademarks,
the Trademark Rights, or the Associated Goodwill, and the rights to damages or
profits due or accrued arising out of or in connection with any such past,
present or future infringement, dilution, damage or injury; and the Trademark
License Rights.
Trademarks. All of the trademarks, service marks, designs, logos,
indicia, trade names, corporate names, company names, business names, fictitious
business names, trade styles, elements of package or trade dress, and other
source and product or service identifiers, used or associated with or
appurtenant to the products, services and businesses of the Assignor, that (a)
are set forth on Schedule A hereto, or (b) have been adopted, acquired, owned,
held or used by the Assignor or are now owned, held or used by the Assignor, in
the Assignor's business, or with the Assignor's products and services, or in
which the Assignor has any right, title or interest, or (c) are in the future
adopted, acquired, owned, held and used by the Assignor in the Assignor's
business or with the Assignor's products and services, or in which the Assignor
in the future acquires any right, title or interest.
Use. With respect to any Trademark, all uses of such Trademark by, for
or in connection with the Assignor or its business or for the direct or indirect
benefit of the Assignor or its business, including all such uses by the Assignor
itself, by any of the affiliates of the Assignor, or by any franchisee, licensee
or contractor of the Assignor.
Unless otherwise provided herein, the rules of interpretation set forth
in ss.1.2 of the Credit Agreement shall be applicable to this Trademark
Agreement.
2. GRANT OF SECURITY INTEREST.
--------------------------
2.1. SECURITY INTEREST; ASSIGNMENT OF MARKS. As collateral security for
the payment and performance in full of all of the Obligations, the Assignor
hereby unconditionally grants to the Agent, for the benefit of the Banks and the
Agent, a continuing security interest in and first priority lien on the Pledged
Trademarks, and pledges and mortgages (but does not transfer title to) the
Pledged Trademarks to the Agent for the benefit of the Banks and the Agent. In
addition, the Assignor has executed in blank and delivered to the Agent an
assignment of federally registered trademarks in substantially the form of
Exhibit 1 attached hereto (the "Assignment of Marks"). The Assignor hereby
authorizes the Agent to complete as assignee and record with the PTO the
Assignment of Marks upon the occurrence and during the continuance of an Event
of Default and the proper exercise of the Agent's remedies under this Trademark
Agreement and the Security Agreement.
<PAGE>
5
2.2. CONDITIONAL ASSIGNMENT. In addition to, and not by way of
limitation of, the grant, pledge and mortgage of the Pledged Trademarks provided
in ss.2.1, the Assignor grants, assigns, transfers, conveys and sets over to the
Agent, for the benefit of the Banks and the Agent, the Assignor's entire right,
title and interest in and to the Pledged Trademarks; provided that such grant,
assignment, transfer and conveyance shall be and become of force and effect only
(a) upon or after the occurrence and during the continuance of an Event of
Default and (b) either (i) upon the written demand of the Agent at any time
during such continuance or (ii) immediately and automatically (without notice or
action of any kind by the Agent) upon an Event of Default for which acceleration
of the Loans is automatic under the Credit Agreement or upon the sale or other
disposition of or foreclosure upon the Collateral pursuant to the Security
Agreement and applicable law (including the transfer or other disposition of the
Collateral by the Assignor to the Agent or its nominee in lieu of foreclosure).
2.3. SUPPLEMENTAL TO SECURITY AGREEMENT. Pursuant to the Security
Agreement the Assignor has granted to the Agent, for the benefit of the Banks
and the Agent, a continuing security interest in and lien on the Collateral
(including the Pledged Trademarks). The Security Agreement, and all rights and
interests of the Agent in and to the Collateral (including the Pledged
Trademarks) thereunder, are hereby ratified and confirmed in all respects. In no
event shall this Trademark Agreement, the grant, assignment, transfer and
conveyance of the Pledged Trademarks hereunder, or the recordation of this
Trademark Agreement (or any document hereunder) with the PTO, adversely affect
or impair, in any way or to any extent, the Security Agreement, the security
interest of the Agent in the Collateral (including the Pledged Trademarks)
pursuant to the Security Agreement and this Trademark Agreement, the attachment
and perfection of such security interest under the Uniform Commercial Code
(including the security interest in the Pledged Marks), or any present or future
rights and interests of the Agent in and to the Collateral under or in
connection with the Security Agreement, this Trademark Agreement or the Uniform
Commercial Code. Any and all rights and interests of the Agent in and to the
Pledged Trademarks (and any and all obligations of the Assignor with respect to
the Pledged Trademarks) provided herein, or arising hereunder or in connection
herewith, shall only supplement and be cumulative and in addition to the rights
and interests of the Agent (and the obligations of the Assignor) in, to or with
respect to the Collateral (including the Pledged Trademarks) provided in or
arising under or in connection with the Security Agreement and shall not be in
derogation thereof.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------
The Assignor represents, warrants and covenants that: (a) Schedule A
sets forth a true and complete list of all Trademarks and Trademark
Registrations now owned, licensed, controlled or used by the Assignor; (b) the
Trademarks and Trademark Registrations are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part, and there is no litigation or
proceeding pending concerning the validity or enforceability of the Trademarks
<PAGE>
6
or Trademark Registrations; (c) to the best of the Assignor's knowledge, each of
the Trademarks and Trademark Registrations is valid and enforceable; (d) to the
best of the Assignor's knowledge, there is no infringement by others of the
Trademarks, Trademark Registrations or Trademark Rights; (e) no claim has been
made that the use of any of the Trademarks does or may violate the rights of any
third person, and to the best of the Assignor's knowledge, there is no
infringement by the Assignor of the trademark rights of others; (f) the Assignor
is the sole and exclusive owner of the entire and unencumbered right, title and
interest in and to each of the Trademarks (other than ownership and other rights
reserved by third party owners with respect to Trademarks that the Assignor is
licensed to use), free and clear of any liens, charges, encumbrances and adverse
claims, including pledges, assignments, licenses, registered user agreements and
covenants by the Assignor not to sue third persons, other than the security
interest and assignment created by the Security Agreement and this Trademark
Agreement; (g) the Assignor has the unqualified right to enter into this
Trademark Agreement and to perform its terms and will require each of its
present and future employees, agents, consultants, licensors and licensees to
comply with the covenants herein contained; (h) the Assignor has used, and will
continue to use, proper statutory and other appropriate proprietary notices in
connection with its use of the Trademarks; (i) the Assignor has used, and will
continue to use for the duration of this Trademark Agreement, consistent
standards of quality in its manufacture and provision of products and services
sold or provided under the Trademarks; (j) this Trademark Agreement, together
with the Security Agreement, will create in favor of the Agent a valid and
perfected first priority security interest in the Pledged Trademarks upon making
the filings referred to in clause (k) of this ss.3; and (k) except for the
filing of financing statements under the Uniform Commercial Code and the
recording of this Trademark Agreement with the PTO, no authorization, approval
or other action by, and no notice to or filing with, any governmental or
regulatory authority, agency or office is required either (i) for the grant by
the Assignor or the effectiveness of the security interest and assignment
granted hereby or for the execution, delivery and performance of this Trademark
Agreement by the Assignor, or (ii) for the perfection of or the exercise by the
Agent of any of its rights and remedies hereunder.
4. INSPECTION RIGHTS.
-----------------
The Assignor hereby grants to each of the Agent and the Banks and its
employees and agents the right to visit the Assignor's plants and facilities
that manufacture, inspect or store products sold under any of the Trademarks,
and to inspect the products and quality control records relating thereto at
reasonable times during regular business hours.
<PAGE>
7
5. NO TRANSFER OR INCONSISTENT AGREEMENTS.
--------------------------------------
Without the Agent's prior written consent, the Assignor will not (a)
mortgage, pledge, assign, encumber, grant a security interest in, transfer,
license or alienate any of the Pledged Trademarks, or (b) enter into any
agreement (for example, a license agreement) that is inconsistent with the
Assignor's obligations under this Trademark Agreement or the Security Agreement.
6. AFTER-ACQUIRED TRADEMARKS, ETC.
------------------------------
6.1. AFTER-ACQUIRED TRADEMARKS. If, before the Obligations shall have
been finally paid and satisfied in full, the Assignor shall obtain any right,
title or interest in or to any other or new Trademarks, Trademark Registrations
or Trademark Rights, the provisions of this Trademark Agreement shall
automatically apply thereto and the Assignor shall promptly provide to the Agent
notice thereof in writing and execute and deliver to the Agent such documents or
instruments as the Agent may reasonably request further to implement, preserve
or evidence the Agent's interest therein.
6.2. AMENDMENT TO SCHEDULE. The Assignor authorizes the Agent to modify
this Trademark Agreement and the Assignment of Marks, without the necessity of
the Assignor's further approval or signature, by amending Exhibit A hereto and
the Annex to the Assignment of Marks to include any future or other Trademarks,
Trademark Registrations or Trademark Rights under ss.2 or ss.6.
7. TRADEMARK PROSECUTION.
---------------------
7.1. ASSIGNOR RESPONSIBLE. The Assignor shall assume full and complete
responsibility for the prosecution, defense, enforcement or any other necessary
or desirable actions in connection with the Pledged Trademarks, and shall hold
each of the Agent and the Banks harmless from any and all costs, damages,
liabilities and expenses that may be incurred by the Agent or any Bank in
connection with the Agent's interest in the Pledged Trademarks or any other
action or failure to act in connection with this Trademark Agreement or the
transactions contemplated hereby. In respect of such responsibility, the
Assignor shall retain trademark counsel reasonably acceptable to the Agent.
7.2. ASSIGNOR'S DUTIES, ETC. The Assignor shall have the right and the
duty, through trademark counsel reasonably acceptable to the Agent, to prosecute
diligently any trademark registration applications of the Trademarks pending as
of the date of this Trademark Agreement or thereafter, to preserve and maintain
all rights in the Trademarks and Trademark Registrations, including the filing
of appropriate renewal applications and other instruments to maintain in effect
the Trademark Registrations and the payment when due of all registration renewal
fees and other fees, taxes and other expenses that shall be incurred or that
shall accrue with respect to any of the Trademarks or Trademark Registrations.
<PAGE>
8
Any expenses incurred in connection with such applications and actions shall be
borne by the Assignor. The Assignor shall not abandon any filed trademark
registration application, or any Trademark Registration or Trademark, without
the consent of the Agent, which consent shall not be unreasonably withheld.
7.3. ASSIGNOR'S ENFORCEMENT RIGHTS. The Assignor shall have the right
and the duty to bring suit or other action in the Assignor's own name to
maintain and enforce the Trademarks, the Trademark Registrations and the
Trademark Rights. The Assignor may require the Agent to join in such suit or
action as necessary to assure the Assignor's ability to bring and maintain any
such suit or action in any proper forum if (but only if) the Agent is completely
satisfied that such joinder will not subject the Agent or any Bank to any risk
of liability. The Assignor shall promptly, upon demand, reimburse and indemnify
the Agent for all damages, costs and expenses, including legal fees, incurred by
the Agent pursuant to this ss.7.3.
7.4. PROTECTION OF TRADEMARKS, ETC. In general, the Assignor shall take
any and all such actions (including institution and maintenance of suits,
proceedings or actions) as may be necessary or appropriate to properly maintain,
protect, preserve, care for and enforce the Pledged Trademarks. The Assignor
shall not take or fail to take any action, nor permit any action to be taken or
not taken by others under its control, that would adversely affect the validity,
grant or enforcement of the Pledged Trademarks.
7.5. NOTIFICATION BY ASSIGNOR. Promptly upon obtaining knowledge
thereof, the Assignor will notify the Agent in writing of the institution of, or
any final adverse determination in, any proceeding in the PTO or any similar
office or agency of the United States or any foreign country, or any court,
regarding the validity of any of the Trademarks or Trademark Registrations or
the Assignor's rights, title or interests in and to the Pledged Trademarks, and
of any event that does or reasonably could materially adversely affect the value
of any of the Pledged Trademarks, the ability of the Assignor or the Agent to
dispose of any of the Pledged Trademarks or the rights and remedies of the Agent
in relation thereto (including but not limited to the levy of any legal process
against any of the Pledged Trademarks).
8. REMEDIES.
--------
Upon the occurrence and during the continuance of an Event of Default,
the Agent shall have, in addition to all other rights and remedies given it by
this Trademark Agreement (including, without limitation, those set forth in
ss.2.2, the Credit Agreement, the Security Agreement and the other Loan
Documents, those allowed by law and the rights and remedies of a secured party
under the Uniform Commercial Code as enacted in the Commonwealth of
Massachusetts, and, without limiting the generality of the foregoing, the Agent
may immediately, without demand of performance and without other notice (except
as set forth next below) or demand whatsoever to the Assignor, all of which are
hereby expressly waived, sell or license at public or private sale or otherwise
realize upon the whole or from time to time any part of the Pledged Trademarks,
<PAGE>
9
or any interest that the Assignor may have therein, and after deducting from the
proceeds of sale or other disposition of the Pledged Trademarks all expenses
incurred by the Agent in attempting to enforce this Trademark Agreement
(including all reasonable expenses for broker's fees and legal services), shall
apply the residue of such proceeds toward the payment of the Obligations as set
forth in or by reference in the Security Agreement. Notice of any sale, license
or other disposition of the Pledged Trademarks shall be given to the Assignor at
least fifteen (15) days before the time that any intended public sale or other
public disposition of the Pledged Trademarks is to be made or after which any
private sale or other private disposition of the Pledged Trademarks may be made,
which the Assignor hereby agrees shall be reasonable notice of such public or
private sale or other disposition. At any such sale or other disposition, the
Agent may, to the extent permitted under applicable law, purchase or license the
whole or any part of the Pledged Trademarks or interests therein sold, licensed
or otherwise disposed of.
9. COLLATERAL PROTECTION.
---------------------
If the Assignor shall fail to do any act that it has covenanted to do
hereunder in the time prescribed herein, or if any representation or warranty of
the Assignor shall be breached, the Agent, in its own name or that of the
Assignor (in the sole discretion of the Agent), may (but shall not be obligated
to) do such act or remedy such breach (or cause such act to be done or such
breach to be remedied), and the Assignor agrees promptly to reimburse the Agent
for any cost or expense incurred by the Agent in so doing.
10. POWER OF ATTORNEY.
-----------------
If any Event of Default shall have occurred and be continuing, the
Assignor does hereby make, constitute and appoint the Agent (and any officer or
agent of the Agent as the Agent may select in its exclusive discretion) as the
Assignor's true and lawful attorney-in-fact, with full power of substitution and
with the power to endorse the Assignor's name on all applications, documents,
papers and instruments necessary for the Agent to use the Pledged Trademarks, or
to grant or issue any exclusive or nonexclusive license of any of the Pledged
Trademarks to any third person, or to take any and all actions necessary for the
Agent to assign, pledge, convey or otherwise transfer title in or dispose of any
of the Pledged Trademarks or any interest of the Assignor therein to any third
person, and, in general, to execute and deliver any instruments or documents and
do all other acts that the Assignor is obligated to execute and do hereunder.
The Assignor hereby ratifies all that such attorney shall lawfully do or cause
to be done by virtue hereof and releases each of the Agent and the Banks from
any claims, liabilities, causes of action or demands arising out of or in
connection with any action taken or omitted to be taken by the Agent under this
power of attorney (except for the Agent's gross negligence or willful
misconduct). This power of attorney is coupled with an interest and shall be
irrevocable for the duration of this Trademark Agreement.
<PAGE>
10
11. FURTHER ASSURANCES.
------------------
The Assignor shall, at any time and from time to time, and at its
expense, make, execute, acknowledge and deliver, and file and record as
necessary or appropriate with governmental or regulatory authorities, agencies
or offices, such agreements, assignments, documents and instruments, and do such
other and further acts and things (including, without limitation, obtaining
consents of third parties), as the Agent may request or as may be necessary or
appropriate in order to implement and effect fully the intentions, purposes and
provisions of this Trademark Agreement, or to assure and confirm to the Agent
the grant, perfection and priority of the Agent's security interest in the
Pledged Trademarks.
12. TERMINATION.
-----------
At such time as all of the Obligations have been finally paid and
satisfied in full, this Trademark Agreement shall terminate and the Agent shall,
upon the written request and at the expense of the Assignor, execute and deliver
to the Assignor all deeds, assignments and other instruments as may be necessary
or proper to reassign and reconvey to and re-vest in the Assignor the entire
right, title and interest to the Pledged Trademarks previously granted,
assigned, transferred and conveyed to the Agent by the Assignor pursuant to this
Trademark Agreement, as fully as if this Trademark Agreement had not been made,
subject to any disposition of all or any part thereof that may have been made by
the Agent pursuant hereto or the Security Agreement.
13. COURSE OF DEALING.
-----------------
No course of dealing between the Assignor and the Agent, nor any
failure to exercise, nor any delay in exercising, on the part of the Agent, any
right, power or privilege hereunder or under the Security Agreement or any other
agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
14. EXPENSES.
--------
Any and all fees, costs and expenses, of whatever kind or nature,
including the reasonable attorneys' fees and expenses incurred by the Agent in
connection with the preparation of this Trademark Agreement and all other
documents relating hereto, the consummation of the transactions contemplated
hereby or the enforcement hereof, the filing or recording of any documents
(including all taxes in connection therewith) in public offices, the payment or
discharge of any taxes, counsel fees, maintenance or renewal fees, encumbrances,
<PAGE>
11
or otherwise protecting, maintaining or preserving the Pledged Trademarks, or in
defending or prosecuting any actions or proceedings arising out of or related to
the Pledged Trademarks, shall be borne and paid by the Assignor.
15. OVERDUE AMOUNTS.
---------------
Until paid, all amounts due and payable by the Assignor hereunder shall
be a debt secured by the Pledged Trademarks and other Collateral and shall bear,
whether before or after judgment, interest at the rate of interest for overdue
principal set forth in the Credit Agreement.
16. NO ASSUMPTION OF LIABILITY; INDEMNIFICATION.
-------------------------------------------
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NEITHER THE
AGENT NOR ANY BANK ASSUMES ANY LIABILITIES OF THE ASSIGNOR WITH RESPECT TO ANY
CLAIM OR CLAIMS REGARDING THE ASSIGNOR'S OWNERSHIP OR PURPORTED OWNERSHIP OF, OR
RIGHTS OR PURPORTED RIGHTS ARISING FROM, ANY OF THE PLEDGED TRADEMARKS OR ANY
USE, LICENSE OR SUBLICENSE THEREOF, WHETHER ARISING OUT OF ANY PAST, CURRENT OR
FUTURE EVENT, CIRCUMSTANCE, ACT OR OMISSION OR OTHERWISE. ALL OF SUCH
LIABILITIES SHALL BE EXCLUSIVELY THE RESPONSIBILITY OF THE ASSIGNOR, AND THE
ASSIGNOR SHALL INDEMNIFY THE AGENT AND THE BANKS FOR ANY AND ALL COSTS,
EXPENSES, DAMAGES AND CLAIMS, INCLUDING LEGAL FEES, INCURRED BY THE AGENT OR ANY
BANK WITH RESPECT TO SUCH LIABILITIES.
17. NOTICES.
-------
All notices and other communications made or required to be given
pursuant to this Trademark Agreement shall be in writing and shall be delivered
in hand, mailed by United States registered or certified first-class mail,
postage prepaid, sent by overnight courier, or sent by telegraph, telecopy,
facsimile or telex and confirmed by delivery via courier or postal service,
addressed as set forth in ss.19 of the Credit Agreement. Any such notice or
demand shall be deemed to have been duly given or made and to have become
effective (a) if delivered by hand to a responsible officer of the party to
which it is directed, at the time of the receipt thereof by such officer, (b) if
sent by registered or certified first-class mail, postage prepaid, two (2)
Business Days after the posting thereof, and (c) if sent by telegraph, telecopy,
or telex, at the time of the dispatch thereof, if in normal business hours in
the country of receipt, or otherwise at the opening of business on the following
Business Day.
<PAGE>
12
18. AMENDMENT AND WAIVER.
--------------------
This Trademark Agreement is subject to modification only by a writing
signed by the Agent (with the consent of the Majority Banks) and the Assignor,
except as provided in ss.6.2. The Agent shall not be deemed to have waived any
right hereunder unless such waiver shall be in writing and signed by the Agent
and the Majority Banks. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right on any future occasion.
19. GOVERNING LAW; CONSENT TO JURISDICTION.
--------------------------------------
THIS TRADEMARK AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED
INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE COMMONWEALTH OF MASSACHUSETTS. The Assignor agrees that any suit for the
enforcement of this Trademark Agreement may be brought in the courts of the
Commonwealth of Massachusetts or any federal court sitting therein and consents
to the non-exclusive jurisdiction of such court and to service of process in any
such suit being made upon the Assignor by mail at the address specified by
reference in ss.17 hereof. The Assignor hereby waives any objection that it may
now or hereafter have to the venue of any such suit or any such court or that
such suit is brought in an inconvenient court.
20. WAIVER OF JURY TRIAL.
--------------------
THE ASSIGNOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS TRADEMARK
AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH
RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Assignor waives any
right which it may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential damages or
any damages other than, or in addition to, actual damages. The Assignor (a)
certifies that neither the Agent or any Bank nor any representative, agent or
attorney of the Agent or any Bank has represented, expressly or otherwise, that
the Agent or any Bank would not, in the event of litigation, seek to enforce the
foregoing waivers, and (b) acknowledges that, in entering into the Credit
Agreement and the other Loan Documents to which the Agent or any Bank is a
party, the Agent and the Banks are relying upon, among other things, the waivers
and certifications contained in this ss.20.
21. MISCELLANEOUS.
-------------
The headings of each section of this Trademark Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Trademark Agreement and all rights and obligations hereunder shall be binding
upon the Assignor and its respective successors and assigns, and shall inure to
the benefit of the Agent, the Banks and their respective successors and assigns.
In the event of any irreconcilable conflict between the provisions of this
<PAGE>
13
Trademark Agreement and the Credit Agreement, or between this Trademark
Agreement and the Security Agreement, the provisions of the Credit Agreement or
the Security Agreement, as the case may be, shall control. If any term of this
Trademark Agreement shall be held to be invalid, illegal or unenforceable, the
validity of all other terms hereof shall in no way be affected thereby, and this
Trademark Agreement shall be construed and be enforceable as if such invalid,
illegal or unenforceable term had not been included herein. The Assignor
acknowledges receipt of a copy of this Trademark Agreement.
<PAGE>
14
IN WITNESS WHEREOF, this Trademark Agreement has been executed as of
the day and year first above written.
NATIONAL AUTO FINANCE
COMPANY, INC.
By:________________________________________________
Name:
Title:
BANKBOSTON, N.A., individually and as Agent
By:________________________________________________
Name:
Title:
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF NEW YORK______________________________________________________)
__________________ ) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ____ day of ___________ 1997, personally appeared
________________ to me known personally, and who, being by me duly sworn,
deposes and says that he is the ______________ of National Auto Finance Company,
Inc., and that said instrument was signed and sealed on behalf of said
corporation by authority of its Board of Directors, and said ________________
acknowledged said instrument to be the free act and deed of said corporation.
_________________________
Notary Public
My commission expires:
<PAGE>
15
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ___ day of __________, 1997, personally appeared _________ to
me known personally, and who, being by me duly sworn, deposes and says that he
is a ___________________ of BankBoston, N.A. (the "Agent"), and that said
instrument was signed and sealed on behalf of said Agent by authority of its
Board of Directors, and said ______________________ acknowledged said instrument
to be the free act and deed of said Agent.
________________________
Notary Public
My commission expires:
<PAGE>
SCHEDULE A
----------
TRADEMARKS AND TRADEMARK REGISTRATIONS
--------------------------------------
Trademark REGISTRATIONS --
or United States Patent and Trademark Office
Service Mark Registration No. Registration Date
------------ --------------- ---------------------
Credit Clinic 1,970,959 April 30, 1996
Your Primary Secondary Source 2,058,984 May 6, 1997
Trademark PENDING APPLICATIONS --
or United States Patent and Trademark Office
Service Mark Serial No. Filing Date
------------ --------- -----------
ACCH 75-286,843
<PAGE>
EXHIBIT 1
---------
ASSIGNMENT OF TRADEMARKS AND SERVICE MARKS
------------------------------------------
WHEREAS, National Auto Finance Company., Inc., a corporation organized
and existing under the laws of the State of Delaware, having a place of business
at 621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487 (the "Assignor"),
has adopted and used and is using the trademarks and service marks (the "Marks")
identified on the Annex hereto, and is the owner of the registrations of and
pending registration applications for such Marks in the United States Patent and
Trademark Office identified on such Annex; and
WHEREAS, _________________, a ______________ organized and existing
under the laws of the State of _______________, having a place of business at
_______________________ (the "Assignee"), is desirous of acquiring the Marks and
the registrations thereof and registration applications therefor;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign, sell and transfer unto
the Assignee all right, title and interest in and to the Marks, together with
(a) the registrations of and registration applications for the Marks, (b) the
goodwill of the business symbolized by and associated with the Marks and the
registrations thereof, and (c) the right to sue and recover for, and the right
to profits or damages due or accrued arising out of or in connection with, any
and all past, present or future infringements or dilution of or damage or injury
to the Marks or the registrations thereof or such associated goodwill.
This Assignment of Trademarks and Service Marks is intended to and
shall take effect as a sealed instrument at such time as the Assignee shall
complete this instrument by inserting its name in the second paragraph above and
signing its acceptance of this Assignment of Trademarks and Service Marks below.
IN WITNESS WHEREOF, the Assignor, by its duly authorized officer, has
executed this assignment, as an instrument under seal, on this ____ day of
___________, ____________.
NATIONAL AUTO FINANCE COMPANY , INC.
By:________________________________________________
Title:
<PAGE>
2
The foregoing assignment of the Marks and the registrations thereof and
registration applications therefor by the Assignor to the Assignee is hereby
accepted as of the ____ day of ____________, 199___.
By:___________________________________
Title:
COMMONWEALTH OR STATE OF ______________________________________________)
) ss.
COUNTY OF _____________________________________________________________)
On this the ___ day of ______, 199__, before me appeared
____________________, the person who signed this instrument, who acknowledged
that (s)he is the _________________________ of ______________________________
and that being duly authorized (s)he signed such instrument as a free act on
behalf of
- -----------------------------.
------------------------------
Notary Public
[Seal]
My commission expires:
<PAGE>
ANNEX
------
TRADEMARKS AND TRADEMARK REGISTRATION
-------------------------------------
Trademark REGISTRATIONS --
or United States Patent and Trademark Office
Service Mark Registration No. Registration Date
------------ ---------------- -----------------
Credit Clinic 1,970,959 April 30, 1996
Your Primary Secondary Source 2,058,984 May 6, 1997
Trademark PENDING APPLICATIONS --
or United States Patent and Trademark Office
Service Mark Serial No. Filing Date
------------ --------- -----------
ACCH 75-286,843
PLEDGE AGREEMENT
This PLEDGE AGREEMENT is made as of September 29, 1997, by and among
(i) NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation (the
"Borrower"), (ii) NATIONAL CHARTERED AUTO CORPORATION, a Delaware corporation
("NCAC") (each a "Pledgor" and together, the "Pledgors"), and (iii) BANKBOSTON,
N.A., a national banking association, as agent (hereinafter, in such capacity,
the "Agent") for itself and the other banking institutions (hereinafter,
collectively, the "Banks") which are or may become parties to a Revolving Credit
Agreement, dated as of September 29, 1997 (as amended and in effect from time to
time, the "Credit Agreement") among the Borrower, the Banks and the Agent.
WHEREAS, the Borrower and NCAC together hold one hundred percent (100%)
of the beneficial interests in each of the National Financial Auto Funding Trust
("Trust I") and the National Financial Auto Funding Trust II ("Trust II" and
together with Trust I, the "Trusts"), which interests are represented by
Certificates of Beneficial Interest (the "Certificates");
WHEREAS, it is a condition precedent to the Banks' making any loans or
otherwise extending credit to the Borrower under the Credit Agreement that each
Pledgor execute and deliver to the Agent, for the benefit of the Banks and the
Agent, a pledge agreement in substantially the form hereof; and
WHEREAS, each Pledgor wishes to grant pledges and security interests in
favor of the Agent, for the benefit of the Banks and the Agent, as herein
provided;
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SS.1. PLEDGE OF INTERESTS. (a) To secure the due and prompt payment and
-------------------
performance of the Obligations (as defined in the Credit Agreement), each
Pledgor hereby pledges, assigns, grants a continuing security interest in and
lien on, and delivers to the Agent for the benefit of the Banks and the Agent
all right, title and interest of the Pledgor, whether now existing or hereafter
arising in, to and under each Trust, (the "Pledged Interests"), and all rights
to receive any distributions or payments due or to become due to such Pledgor in
respect of its Pledged Interests under the terms of each Trust's governing
documents and all other economic benefits of such Pledgor's interest in each
Trust, whether cash, property or otherwise, at any time owing or payable to such
Pledgor on account of its interest in each Trust. The Certificates for such
interests accompanied by appropriate instruments of assignment thereof duly
executed in blank by the applicable Pledgor, have been delivered to the Agent.
This pledge and security interest is for collateral purposes only, and the Agent
shall not, by virtue of this Agreement, or its receipt of any distributions or
other amounts from any Trust, be deemed to have assumed or become liable for any
obligation of any Trust or Pledgor.
<PAGE>
2
(b) In case any Pledgor shall acquire any additional interests
of any Trust or in other trusts which facilitate securitizations of receivables
by the Borrower, whether by purchase, dividend, distribution of capital or
otherwise, such Pledgor shall forthwith deliver to and pledge such interests or
other securities to the Agent under this Agreement and shall deliver to the
Agent forthwith any certificates therefor, accompanied by appropriate
instruments of assignment duly executed by such Pledgor in blank.
SS.2. DEFINITIONS. Capitalized terms which are used herein without
-----------
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement. The term "Collateral" as used herein
means the interests and other property at any time, whether now or hereafter,
pledged to the Agent hereunder and all income therefrom, increases therein and
proceeds thereof, other than income, increases or proceeds received by the
Pledgor pursuant to ss.7 hereof.
SS.3. PRO-RATA SECURITY FOR OBLIGATIONS. This Agreement and the pledge
---------------------------------
of the Collateral hereunder is made with the Agent for the benefit of the Banks
and the Agent as security for the Obligations. All amounts owing with respect to
the Obligations shall be secured pro rata by the Collateral without distinction
as to whether some Obligations are then due and payable and other Obligations
are not then due and payable. Upon any realization upon the Collateral by the
Agent, whether by receipt of distributions pursuant to ss.7 hereof or upon sale
of all or part of the Collateral pursuant to ss.8 hereof or otherwise, each
Pledgor agrees that the proceeds thereof shall be applied in accordance with the
provisions of ss.12.4 of the Credit Agreement.
SS.4. LIQUIDATION, RECAPITALIZATION. Any sums paid upon or with respect
-----------------------------
to any of the Pledged Interests upon the liquidation or dissolution of any Trust
relating thereto shall be paid over to the Agent for the benefit of the Banks
and the Agent to be held by it as security for the Obligations; and in case any
distribution of capital shall be made on or in respect of any of the Pledged
Interests or any property shall be distributed upon or with respect to any of
the Pledged Interests pursuant to the recapitalization or reclassification of
the capital of the Trust thereof or pursuant to the reorganization of such
trust, the property so distributed shall be delivered to the Agent for the
benefit of the Banks and the Agent to be held by it as security for the
Obligations. All sums of money and property paid or distributed in respect of
the Pledged Interests upon such a liquidation, dissolution, recapitalization or
reclassification which are received by any Pledgor shall, until paid or
delivered to the Agent, be held in trust for the Agent for the benefit of the
Banks and the Agent as security for the Obligations.
SS.5. WARRANTY OF OWNERSHIP; NEGATIVE PLEDGE. Each Pledgor warrants
--------------------------------------
that it is the sole record and beneficial owner of the Pledged Interests
described in ss.1 hereof, subject to no pledges, liens, security interests,
charges, options, restrictions or other encumbrances except the security
interest created by this Agreement, and that it has the power, authority and
legal right to pledge all of such Pledged Interests pursuant to this Agreement.
Each Pledgor covenants that it will defend the Agent's rights and security
interest in such Pledged Interests against the claims and demands of all persons
whomsoever; and each Pledgor covenants that it will have the like title to and
<PAGE>
3
right to pledge any other Collateral and will likewise defend the Agent's rights
and security interest therein. Each Pledgor represents and warrants that the
activities of each Trust are limited solely to those set forth in ss.2.07 of the
Trust Agreement governing each such Trust and each Pledgor agrees that it will
cause each Trust's activities to be so limited. Neither Pledgor will, nor will
it permit any Trust to, except for the pledge by Trust I to Bankers Trust
Company, as Trustee of National Financial Auto Receivables Master Trust, of the
right to receive certain distributions pursuant to and as further described in
the Consent and Amendment dated as of September 29, 1997 between Trust I, the
Borrower, First Union National Bank and Bankers Trust Company as Trustee of
National Financial Auto Receivables Master Trust, (a copy of which is attached
as Exhibit A) (i) create or incur or suffer to be created or incurred any lien,
encumbrance, mortgage, pledge, charge, restriction or other security interest of
any kind upon any of its property, revenues or assets, (ii) sell, assign, pledge
or otherwise transfer any of its property, revenues or assets or (iii) enter
into any agreement prohibiting the creation or assumption of any lien upon its
properties, revenues or assets, whether now owned or hereafter acquired.
SS.6. POWER, AUTHORITY. The execution and delivery of this Agreement
----------------
and pledging of the Pledged Interests described in ss.ss.1 and 2 hereof are
within each Pledgor's power, have been duly authorized by all necessary action
and such execution and delivery and the pledging of such Pledged Interests do
not contravene any law or any rule or regulation thereunder or any provision of
the articles of organization, or other organizational or governing documents of
any Pledgor or of any judgment, decree or order of any tribunal or of any
agreement or instrument to which any Pledgor is a party or by which it or any of
its property is bound or constitute a default thereunder.
SS.7. DISTRIBUTIONS, PRINCIPAL, INTEREST AND VOTING PRIOR TO MATURITY.
---------------------------------------------------------------
Unless and until an Event of Default (as defined herein) shall have occurred and
be continuing, each Pledgor shall be entitled (i) to receive all cash
distributions paid in respect of the Pledged Interests and (ii) if applicable,
to vote the Pledged Interests and to give consents, waivers and ratifications in
respect of the Pledged Interests; provided, however, that no vote shall be cast,
or consent, waiver or ratification given or action taken which would be
inconsistent with or violate any provision of the Credit Agreement, any other
Security Document or this Agreement.
SS.8. REMEDIES. (a) An "Event of Default" hereunder shall mean (i) that
--------
a representation, warranty or certification made in this Agreement or in any
document executed or delivered from time to time relating to this Agreement is
materially untrue, misleading or incomplete in its recital of any facts at the
time as of which such representation, warranty or certification, as the case may
be, is made, (ii) any Event of Default as that term is defined in the Credit
Agreement, whether or not any acceleration of the maturity of the amounts due in
respect of any of the Obligations shall have occurred, or (iii) any Event of
Default as that term is defined in any other Loan Document.
(b) Upon the occurrence and during the continuance of an Event of
Default, the Agent shall thereafter have the following rights and remedies (to
the extent permitted by applicable law) in addition to the rights and remedies
of a secured party under the Uniform Commercial Code of Massachusetts, all such
rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently:
<PAGE>
4
(i) If the Agent so elects and gives notice of such election
to the applicable Pledgor, the Agent may, to the extent such Pledgor
would have such rights, vote any or all of the Pledged Interests
possessing voting rights (whether or not the same shall have been
transferred into its name or the name of its nominee or nominees) and
give all consents, waivers and ratifications in respect of the Pledged
Interests and otherwise act with respect thereto as though it were the
outright owner thereof, each Pledgor hereby irrevocably constituting
and appointing the Agent the proxy and attorney-in-fact of such
Pledgor, with full power of substitution, to do so;
(ii) The Agent may demand, sue for, collect or make any
compromise or settlement in respect of any Collateral held by it
hereunder that it deems suitable;
(iii) After ten (10) days' notice to the applicable Pledgor,
the Agent may sell, resell, assign and deliver, or otherwise dispose of
any or all of the Collateral, for cash and/or credit and upon such
terms at such place or places and at such time or times and to such
persons, firms, companies or corporations as the Agent shall approve,
all without demand for performance by such Pledgor or advertisement or
any further notice whatsoever except such as may be required by law;
and
(iv) The Agent may at any time, at its option, cause all or
any part of the Pledged Interests held by it to be transferred into its
name or the name of its nominee or nominees, receive any income thereon
and hold such income as additional collateral or apply it to the
Obligations.
(c) Except as otherwise provided herein, the Agent may enforce its
rights hereunder without any other notice and without compliance with any other
condition precedent now or hereafter imposed by statute, rule of law or
otherwise (all of which are hereby expressly waived by each Pledgor, to the
fullest extent permitted by law). If any of the Collateral is sold by the Agent
upon credit or for future delivery, the Agent shall not be liable for the
failure of the purchaser to pay the same and, in such event, the Agent may
resell such Collateral. The Agent may buy any part or all of the Collateral at
any public sale and, if any part or all of the Collateral is of a type
customarily sold in a recognized market or is of a type which is the subject of
widely-distributed standard price quotations, the Agent may buy at private sale
and may make payments therefor by any means. The Agent shall apply the cash
proceeds actually received from any sale or other disposition to the reasonable
expenses of retaking, holding, preparing for sale, selling and the like, to
reasonable attorneys' fees, and all legal expenses, travel and other expenses
which may be incurred by the Agent in attempting to collect the Obligations or
to enforce this Agreement or in the prosecution or defense of any action or
proceeding related to the subject matter of this Agreement; and then to the
Obligations and any surplus shall be paid to the applicable Pledgor.
(d) Each Pledgor recognizes that the Agent may be unable to effect a
public sale of the Pledged Interests by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, but may be compelled to resort to one
or more private sales thereof to a restricted group of purchasers consistent
with applicable laws. Each Pledgor agrees that any such private sales may be at
prices and other terms less favorable to the seller than if sold at public sales
<PAGE>
5
and that such private sales shall not by reason thereof be deemed not to have
been made in a commercially reasonable manner. The Agent shall be under no
obligation to delay a sale of any of the Pledged Interests for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933, as amended, even if
the issuer would agree to do so.
SS.9. MARSHALLING. Neither the Agent nor any Bank shall be required to
-----------
marshal any present or future security for (including but not limited to this
Agreement and the Collateral pledged hereunder), or guaranties of, the
Obligations or any of them, or to resort to such security or guaranties in any
particular order; and all of its rights hereunder and in respect of such
securities and guaranties shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully may, each
Pledgor hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Agent's or any Bank's rights under this Agreement or under any other
instrument evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the Obligations is secured or
guaranteed, and, to the extent that it lawfully may, each Pledgor hereby
irrevocably waives the benefits of all such laws.
SS.10. PLEDGOR'S OBLIGATIONS NOT AFFECTED. The obligations of each
----------------------------------
Pledgor hereunder shall remain in full force and effect without regard to, and
shall not be impaired by (a) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like of such Pledgor;
(b) any exercise or nonexercise, or any waiver, by the Agent or any Bank of any
right, remedy, power or privilege under or in respect of any of the Obligations
or any security thereof (including this Agreement); (c) any amendment to or
modification of the Credit Agreement, the other Loan Documents or any of the
Obligations; (d) any amendment to or modification of any instrument (other than
this Agreement) securing any of the Obligations; or (e) the taking of additional
security for, or any guaranty of, any of the Obligations or the release or
discharge or termination of any security or guaranty for any of the Obligations;
and whether or not such Pledgor shall have notice or knowledge of any of the
foregoing.
SS.11. TRANSFER BY PLEDGOR. Without the prior written consent of the
-------------------
Agent, none of the Pledgors will sell, assign, transfer or otherwise dispose of,
grant any option with respect to, or pledge or grant any security interest in or
otherwise encumber any of the Collateral or any interest therein, except for the
pledge thereof provided for in this Agreement.
SS.12. FURTHER ASSURANCES. Each Pledgor will do all such acts, and will
------------------
furnish to the Agent all such financing statements, certificates, legal opinions
and other documents and will obtain all such governmental consents and corporate
approvals and will do or cause to be done all such other things as the Agent may
reasonably request from time to time in order to give full effect to this
Agreement and to secure the rights of the Agent and the Banks hereunder.
SS.13. AGENT'S EXONERATION. Under no circumstances shall the Agent be
-------------------
deemed to assume any responsibility for, or obligation or duty with respect to,
any part or all of the Collateral of any nature or kind, other than the physical
<PAGE>
6
custody thereof, or any matters or proceedings arising out of or relating
thereto. The Agent shall not be required to take any action of any kind to
collect, preserve or protect its or any Pledgor's rights in the Collateral or
against other persons asserting rights in the Collateral. The Agent's prior
recourse to any part or all of the Collateral shall not constitute a condition
of any demand, suit or proceeding for payment or collection of the Obligations.
SS.14. POWER OF ATTORNEY. (a) Each Pledgor acknowledges the Agent's
-----------------
right, to the extent permitted by applicable law, singly to execute and file
financing or continuation statements and similar notices required by applicable
law, and amendments thereto, concerning the Collateral without execution by such
Pledgor. A carbon, photographic or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(b) Each Pledgor hereby irrevocably appoints the Agent as its
attorney-in-fact, effective at all times subsequent to the occurrence and during
the continuance of an Event of Default with full authority in the place and
stead of such Pledgor and in the name of such Pledgor or otherwise, to take any
action and to execute any instrument which the Agent or any Bank may reasonably
deem necessary or advisable to accomplish the purpose of this Agreement,
including, without limitation, the power and right (i) to endorse such Pledgor's
name on any checks, notes, acceptances, money orders, drafts, filings or other
forms of payment or security that may come into the Agent's possession; and (ii)
to do all other things which the Agent then determines to be necessary to carry
out the terms of this Agreement. The power conferred on the Agent hereunder is
solely to protect the Agent's and each Bank's interests in the Collateral and
shall not impose any duty upon the Agent to exercise such power.
SS.15. NO WAIVER. No act, failure or delay by the Agent or any Bank
---------
shall constitute a waiver of its rights and remedies hereunder or otherwise, nor
shall any single or partial exercise by the Agent of any right, remedy or power
hereunder preclude any other exercise or future exercise of any other right,
remedy or power. No single or partial waiver by the Agent or any Bank of any
default or right or remedy which it may have shall operate as a waiver of any
other default, right or remedy or of the same default, right or remedy on a
future occasion. Each Pledgor hereby waives presentment, notice of dishonor and
protest of all instruments included in or evidencing any of the Obligations or
the Collateral, and any and all other notices and demands whatsoever (except as
expressly provided herein).
SS.16. NOTICES. Except as otherwise expressly provided herein, all
-------
notices and other communications made or required to be given pursuant to this
Agreement shall be in writing and shall be delivered by hand, mailed by United
States registered or certified first-class mail, postage prepaid, or sent by
telecopy, facsimile, telegraph or telex and confirmed by letter, addressed as
follows:
<PAGE>
7
(a) if to any Pledgor, at:
621 N.W. 53rd Street,
Suite 200,
Boca Raton, Florida 33487
Attention: Kevin G. Adams
or at such other address for notice as such Pledgor shall last have
furnished in writing to the Agent;
(b) if to the Agent, at:
100 Federal Street
Boston, Massachusetts 02110
Attention: Timothy G. Clifford,
Vice President
or at such other address for notice as the Agent shall last have
furnished in writing to the person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made and to
have become effective (i) if delivered by hand, overnight courier or facsimile
to a responsible officer of the party to which it is directed, at time of the
receipt thereof by such officer or the sending of such facsimile, and, (ii) if
sent by registered or certified first-class mail, postage prepaid, on the third
Business Day following the mailing thereof.
SS.17. TERMINATION. Upon irrevocable and final payment in full in cash
-----------
and performance in full of the Obligations in accordance with their terms and
the performance by each Pledgor of all of its covenants and agreements
hereunder, this Agreement shall terminate and each Pledgor shall be entitled to
the return of such Collateral in the possession or control of the Agent as has
not theretofore been disposed of pursuant to the provisions hereof, together
with any moneys and other property at the time held by the Agent hereunder.
SS.18. CONSENTS, AMENDMENTS, WAIVERS. Any term of this Agreement may be
-----------------------------
amended, and the performance or observance by any Pledgor of any of the terms of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only in accordance with ss.25 of the
Credit Agreement.
SS.19. PARTIES IN INTEREST. This Agreement and all obligations of each
-------------------
Pledgor shall be binding upon the successors and assigns of the parties hereto,
provided, that none of the Pledgors may assign or transfer its rights hereunder
without the prior written consent of the Agent.
SS.20. GOVERNING LAW. This Agreement and the obligations of the
-------------
Pledgors hereunder shall be deemed to be a contract under seal and shall for all
<PAGE>
8
purposes be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
SS.21. MISCELLANEOUS PROVISIONS. If any term of this Agreement shall be
------------------------
held to be invalid, illegal or unenforceable, the validity of all other terms
hereof shall be in no way affected thereby, and this Agreement shall be
construed and be enforceable as if such invalid, illegal or unenforceable term
had not been included herein. Each Pledgor acknowledges receipt of a copy of
this Agreement. The descriptive section headings have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
Terms used herein without definition which are defined in the Uniform Commercial
Code of Massachusetts have such defined meanings herein, unless the context
otherwise indicates or requires.
SS.22. COUNTERPARTS. This Agreement and any amendment hereof may be
------------
executed in several counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, but all of
which together shall constitute one instrument. In proving this Agreement it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
<PAGE>
9
IN WITNESS WHEREOF, each Pledgor and the Agent have caused this
Agreement to be duly executed as an instrument under seal as of the date first
above written.
NATIONAL AUTO FINANCE COMPANY,
INC.
By: _________________________________
Title:
NATIONAL CHARTERED AUTO
CORPORATION
By: _________________________________
Title:
The undersigned Trusts hereby join in the above Agreement for the sole
purpose of consenting to and being bound by the provisions of ss.5 thereof, the
undersigned hereby agreeing to cooperate fully and in good faith with the Agent
and the Pledgors in carrying out such provisions.
NATIONAL FINANCIAL AUTO FUNDING
TRUST I
By: _________________________________
Keith B. Stein, Co-Trustee
NATIONAL FINANCIAL AUTO FUNDING
TRUST II
By: ________________________________
Keith B. Stein, Co-Trustee
BANKBOSTON, N.A., individually and as
Agent
By: ________________________________
Timothy G. Clifford
Vice President
NOTE
----
$10,000,000 as of September 29, 1997
FOR VALUE RECEIVED, the undersigned NATIONAL AUTO FINANCE COMPANY,
INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the
order of BANKBOSTON, N.A. (the "Bank") at the Agent's Head Office (as defined in
the Credit Agreement referred to below):
(a) prior to or on the Maturity Date the principal amount of
TEN MILLION DOLLARS ($10,000,000) or, if less, the aggregate unpaid
principal amount of Loans advanced by the Bank to the Borrower pursuant
to the Revolving Credit Agreement, dated as of September 29, 1997 (as
amended and in effect from time to time, the "Credit Agreement"), among
the Borrower, the Bank, the Agent and the other parties thereto;
(b) the principal outstanding hereunder from time to time
at the times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through
and including the maturity date hereof at the times and at the rates
provided in the Credit Agreement.
This Note evidences borrowings under and has been issued by the
Borrower in accordance with the terms of the Credit Agreement. The Bank and any
holder hereof is entitled to the benefits of the Credit Agreement, the Security
Documents and the other Loan Documents, and may enforce the agreements of the
Borrower contained therein, and any holder hereof may exercise the respective
remedies provided for thereby or otherwise available in respect thereof, all in
accordance with the respective terms thereof. All capitalized terms used in this
Note and not otherwise defined herein shall have the same meanings herein as in
the Credit Agreement.
The Borrower irrevocably authorizes the Bank to make or cause to be
made, at or about the time of the Drawdown Date of any Loan or at the time of
receipt of any payment of principal of this Note, an appropriate notation on the
grid attached to this Note, or the continuation of such grid, or any other
similar record, including computer records, reflecting the making of such Loan
or (as the case may be) the receipt of such payment. The outstanding amount of
the Loans set forth on the grid attached to this Note, or the continuation of
<PAGE>
2
such grid, or any other similar record, including computer records, maintained
by the Bank with respect to any Loans shall be prima facie evidence of the
principal amount thereof owing and unpaid to the Bank, but the failure to
record, or any error in so recording, any such amount on any such grid,
continuation or other record shall not limit or otherwise affect the obligation
of the Borrower hereunder or under the Credit Agreement to make payments of
principal of and interest on this Note when due.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
If any one or more of the Events of Default shall occur, the entire
unpaid principal amount of this Note and all of the unpaid interest accrued
thereon may become or be declared due and payable in the manner and with the
effect provided in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SS.19 OF THE CREDIT AGREEMENT. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
The obligations under this Note shall constitute "Senior Indebtedness"
under the terms of the Subordination Documents.
This Note shall be deemed to take effect as a sealed instrument under
the laws of the Commonwealth of Massachusetts.
<PAGE>
3
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed
in its corporate name by its duly authorized officer as of the day and year
first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By: _______________________________________________
Name:
Title:
<PAGE>
Amount of Balance of
Amount Principal Paid Principal Notation
Date of Loan or Prepaid Unpaid Made By:
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REFERENCED DATA
---------------
Any reference in this lease to the following subjects shall
incorporate therein the data stated for the subject(s) in this Section:
DATE OF LEASE: ______________________________________
LANDLORD: CANPRO INVESTMENTS LTD., a corporation
organized under the laws of Canada and
authorized to transact business in the
State of Florida LANDLORD'S ADDRESS: 621
N.W. 53rd Street, Ste. 100, Boca Raton,
Florida 33487 TENANT: National Auto
Finance Company, L.P. 621 NW 53rd Street,
TENANT'S ADDRESS: Suite 210, Boca Raton,
Florida 33487
DEMISED PREMISES: Three Thousand Seven Hundred (3,700)
rentable square feet on the Second (2nd)
floor of the Building. For all purposes
hereof the Building shall be deemed to
contain Two Hundred Thirty Seven Thousand,
Three Hundred Thirty One (237,331)
rentable square feet, regardless of the
actual number of square feet found to be
in the Leased Premises.
LEASE TERM:
ESTIMATED DATE OF SUBSTANTIAL Two (2)years four (4) months.
COMPLETION: November 1, 1996
RENTAL COMMENCEMENT DATE:
EXPIRATION DATE OF LEASE November 1, 1996
TERM: February 28, 1999
MINIMUM ANNUAL RENT: Thirty Four Thousand Two Hundred Twenty
Five Dollars ($34,225.00)
ANNUAL BASE INCREASE: 5%
TENANT'S INITIAL SHARE OF
TAXES AND OPERATING EXPENSES
FOR THE BUILDING AND FOR Twenty Seven Thousand Seven Hundred Fifty
OCCUPIED PREMISES: Dollars ($27,750.00)
TENANT'S PROPORTIONATE SHARE
OF THE BUILDING: 1.559%
PERMITTED USES: General Office
SECURITY DEPOSIT: $5,474.46
GUARANTOR: Corporate
<PAGE>
WITNESS: LANDLORD:
CANPRO INVESTMENTS LTD.,
By:
Authorized Signatory
TENANT:
National Auto Finance Company, L.P.
By:
Authorized Signatory
2
<PAGE>
OFFICE LEASE
THIS LEASE made and entered into as of the ________ day of
________________________________, 19_______ by and between CANPRO INVESTMENTS
LTD., a corporation organized under the laws of Canada and authorized to do
business in the State of Florida (hereinafter referred to as "Landlord") and
National Auto Finance Company L.P. (hereinafter referred to as "Tenant").
W I T N E S S E T H:
1. Demised Premises.
A. Landlord is the Owner of a tract of land situated at 621 N.W. 53rd
Street, Boca Raton, Florida, more particularly described in Exhibit "A" attached
hereto. Upon said tract is located a multistory building known as ONE PARK PLACE
OF BOCA (hereinafter referred to as the "Building"), a parking garage,
surrounding parking areas and driveways (collectively called the "Parking
Facilities") and curbs, sidewalks, fountains, parks and plazas. The tract, along
with the Building, Parking Facilities and all other Improvements presently or
hereafter located upon the tract, are hereinafter collectively referred to as
the "Property".
B. Landlord, for the term and subject to the provisions and conditions
hereof, shall lease to Tenant, and Tenant shall accept from Landlord, certain
space more particularly described by the cross-hatched area on the floor plans
annexed hereto as Exhibit "B", which for all purposes hereof shall be deemed to
contain Three Thousand Seven Hundred (3,700) rentable square feet on the second
(2nd) floor of the Building, (the "Demised Premises"), together with a license
for the duration of the term of the Lease to use the parking spaces (the
"Parking Spaces") described in the Parking Space Schedule attached hereto as
Exhibit "C", at the rates set forth therein, for parking of automobiles of
Tenant and Tenant's invitees and employees and for no other purpose.
C. The Demised Premises shall be used for general office purposes and
for no other purposes.
D. The use and occupation by Tenant of the Demised Premises shall
include the non-exclusive use, in common with others entitled thereto, of the
common areas, employees' parking areas, service roads, loading facilities,
sidewalks and customer car parking areas as such common areas now exist or as
such common areas may hereafter be constructed, and other facilities as may be
designated from time to time by Landlord, subject however to the terms and
conditions of this agreement and to the rules and regulation for -the use
thereof as prescribed from time to time by Landlord.
2. Term.
A. The term of this Lease shall commence on the date hereof and end at
12:00 Midnight on the last day of the month of February 1999, unless sooner
terminated as herein provided.
OPTIONS
RENEWAL OPTION. Provided the Tenant is not in default of the Terms and
Obligations of this lease, Tenant shall have one (1) two (2) year option to
renew the lease on the same terms and conditions as the existing lease save for
the minimum rent which shall increase in accordance with paragraph 4. D. Leased
premises shall be renewed on an "As Is" basis in that Landlord shall not do or
perform any of Landlord's Work in, on or for the Leased Premises. There shall be
not further option to renew.
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<PAGE>
3. Continuation of Leasehold Improvements.
A. Tenant shall take possession of the Demised Premises in its present
condition, "as-is," it being agreed that Landlord shall have no obligation to
improve the Demised Premises and that Tenant, upon taking possession of the
Demised Premises, shall have accepted the condition thereof.
B. Landlord shall provide Tenant with an improvement allowance (the
"Improvement Allowance"), which shall be applied to the cost of completing the
Leasehold Improvements, in an amount equal to the lesser of (a) the actual cost
to Landlord of completing the construction of the Leasehold Improvements in
accordance with the Plans and Specifications or (b) $2.17 dollars per square
foot of actual occupiable space (as opposed to rentable space which includes the
common area factor referred to herein) constructed by Landlord as measured by
Landlord's Architect to the inside of all outside glass walls enclosing the
Demised Premises and to the midpoint or all demising walls separating the
Demised Premises from areas occupied by other tenants in the Building or areas
designated as common areas for use by all tenants. For the purpose of this
calculation, the portion of the common areas attributed to Tenant and included
in the number of rentable square feet set forth in the Reference Data shall not
be included. The Improvement Allowance shall only be applied to the cost of
Architectural drawings, permits, materials, labor and other items included in
the Leasehold Improvements to be constructed by Landlord hereunder. The above
mentioned rate of $2.17 per usable square foot. Tenant shall be solely
responsible for all improvement costs in excess of $7,000.00.
C. Tenant shall be responsible for performing, at Tenant's sole
expense, any work in addition to the Leasehold Improvements to be constructed by
Landlord as set forth above. If Tenant desires to perform any additional
Improvements beyond the Leasehold Improvements to be constructed by Landlord,
Tenant shall cause Plans and Specifications for such additional work to be
prepared and submit the same to Landlord for Landlord's approval. Any such
approved additional work, shall be performed by responsible contractors and
subcontractors approved by Landlord. All such contractors and subcontractors
shall furnish in advance and maintain in effect workmen's compensation insurance
in accordance with statutory requirements and comprehensive public liability
insurance (naming Landlord and Landlord's manager and mortgagee as additional
insureds) with limits satisfactory to Landlord and each shall, prior to
commencement of any work, comply with the Mechanic's Lien Law or the State of
Florida. All work shall be performed in such manner and at such time so an to
avoid interference with any work being done by Landlord or its contractors and
subcontractors at the Property generally. Landlord shall, however, endeavor to
allow Tenant access for such work prior to the Rental Commencement Date. Tenant
and its contractors and subcontractors shall be solely responsible for the
transportation, safekeeping and storage of materials and equipment used in the
performance of its work, for the removal of waste and debris resulting therefrom
and for any damage caused by them to any installations or work initials
performed by Landlord or its contractors and subcontractors. Tenant's
contractors and subcontractors shall be subject to the general administrative
supervision of Landlord for scheduling purposes, but Landlord shall not be
responsible for any aspect of the work performed by Tenant's contractors or
subcontractors. All work shall be performed in a good and workmanlike manner, in
accordance with applicable building codes and other governmental requirements,
and shall be diligently prosecuted to completion. No work shall adversely affect
the structural integrity of the building or the Demised. Premises, now shall
such work diminish the value of the Building or the Demised Premises. Upon the
completion of Tenant's work, Tenant shall deliver to Landlord and/or comply with
the following: (1) Tenant's affidavit stating that Tenant's work ham been
completed; (2) an Affidavit of all contractors and all laborers and material
suppliers stating that they have all been paid in full and that all liens
therefor have been filed have been discharged of record air (3) a complete
release and waiver of lien with respect to the Demised Premises, executed by
said contractor or contractors supplying labor and/or materials for Tenant's
work; and (4) all certificates and approvals with respect to Tenant's work that
may be required by any governmental authorities as a condition fair, the
issuance of a Certificate of Occupancy for the Demised Premises. Landlord or
Landlord's
4
<PAGE>
representative shall, during the course of construction and after completion of
construction of the Demised Premises, have the right to inspect the Demised
Premises to verify construction and completion in accordance with the approved
Plans and Specifications. It is agreed that Tenant assumes the entire
responsibility and liability for any and all injuries or death of any and all
persons, including Tenant's contractor or subcontractors, and their respective
employees, and for any and all damages to property caused by, or resulting from
or arising out of, any act or omission on the part of the Tenant, Tenant's
contractor or subcontractors, or, their respective employees, in the prosecution
of the Tenant's work, and with respect to such work, Tenant agrees to indemnify
and save harmless Landlord from and against any losses and/or expenses including
reasonable legal fees and expenses, which it may suffer or pay as a result of
claims or lawsuits due to, because of, or arising out of any and all such
injuries or death and/or damage, whether real or alleged and Tenant and Tenant's
contractor and/or subcontractors shall assume and defend at their own expense
all such claims or lawsuits. Tenant agrees to insure this assumed liability in
Its comprehensive general liability policy and the Certificate of insurance or
copy of the policy that the Tenant will present to Landlord prior to
commencement of Tenant's work shall so indicate such contractual coverage. If
Tenant requests Landlord to perform any work In addition to the Leasehold
Improvements, Tenant shall deposit an amount equal to Landlord's reasonable
estimate of the cost of such work with Landlord prior to commencement of such
work, which amount shall include an overhead and supervision charge equal to 20%
of the estimated cost or the additional work. If the cost of the additional work
plus the twenty percent (20*) overhead and supervision charge exceeds or is less
than the estimate of Landlord, Tenant shall pay such excess or Landlord shall
refund such overage as the case may be.
D. NotwithstandIng anything to the contrary contained herein, Landlord
reserves the absolute right to relocate the Demised Premises and the Common
Areas from the locations shown on Exhibit "B", it being agreed by Landlord and
Tenant that the purpose of Exhibit "B" is to show the approximate location of
the Demised Premises, provided that the new locations of the Demised Premises
and Common Areas shall be similar in dimension. If Landlord gives Tenant notice
that Landlord is relocating the Demised Premises after Tenant has commenced or
completed any partitioning or other improvements to the Demised Premises, than
in such event, Landlord shall provide Tenant with partitions and other
improvements of equal quality and quantity in the relocated Demised Premises.
The relocation of the Demised Premises hereunder shall not affect any other
provision of this Lease.
4. Minimum Annual Rental.
A. Until adjusted pursuant to Paragraph 4D hereof, Tenant shall pay as
minimum rent for the Demised Premises the sum of Thirty-Four Thousand Two
Hundred Twenty-Five and No/100 Dollars ($34,225.00) annually which is Nine
Dollars and 25/100 ($9.25) per square foot of rentable area (the "Minimum Annual
Rental"). Such Minimum Annual Rental (as may be adjusted annually pursuant to
Paragraph 4D hereof) shall be payable during the term hereof, in advance, in
equal monthly installments, together with all sales, use or other taxes based
thereon (including, but not limited to the tax imposed by Florida Statutes
212.03), and any other state, federal or other governmental or
quasi-governmental tax, service tax, license fee or other imposition levied on
the Rents received by Landlord, all of which shall collectively be referred to
hereafter as "Sales Tax". The first installment of Minimum Annual Rental shall
be payable on the Rental Commencement Date and payment of Minimum Annual Rental
shall continue to be payable on the first (1st) day of each successive month
thereafter. Until otherwise adjusted pursuant to Paragraph 4D hereof, the
monthly installments shall be Two Thousand Eight Hundred Fifty-Two and 08/100
Dollars ($2,852.08) provided Tenant is not in default hereunder.
B. Concurrently with each monthly installment of Minimum Annual Rent,
Tenant shall pay Tenant's Proportionate Share of Taxes and Operating Expenses of
the Building and Tenant's Proportionate Share of the occupied premises in the
Building (the numerator of which is the rentable square foot area of the
Tenant's
5
<PAGE>
premises and the denominator shall be the weighted average of occupied premises
in the Building during the year in question), the amount due from Tenant for its
use of the Parking Spaces as provided in Schedule "C" hereof together with Sales
Tax on all of the above and all other sums which are due to Landlord under the
terms of this Tease (all such sums being hereinafter collectively referred to as
"Additional Rent"). The Minimum Annual Rental and Additional Rent are
hereinafter sometimes collectively referred to as "Rent."
C. If the Rental Commencement Date occurs on a day other than the first
(1st) day of the month, Rent from the Rental Commencement Date until the first
(1st) day of the following month shall be prorated (calculated on the basis of a
thirty (30) day month) and shall be payable in advance of the Rental
Commencement Date (and, in such event, the installment of Rent paid at execution
hereof shall be applied to the Rent due for the first (1st) full calendar month
of the term hereof).
D. The Minimum Annual Rental shall be adjusted annually on the first
anniversary of the Rental Commencement Date if the Rental Commencement Date is
the first day of a month (otherwise, it shall be adjusted annually on the first
day of the month next following the Rental Commencement Date) and on each
subsequent anniversary of such first day of the month (an "Adjustment Date") by
multiplying the Minimum Annual Rental for the immediately preceding twelve (12)
month period by 1.05. The product of such multiplication shall be the Minimum
Annual Rental for the next twelve (12) month period of the term of the Lease.
(1) The Minimum Annual Rental established on each Adjustment
Date shall continue in effect until again revised in accordance with the terms
and conditions of this Paragraph 4D. In no event shall the Minimum Annual Rental
established pursuant to this Paragraph 4D be less than the Minimum Annual Rental
for the Lease Year immediately preceding any applicable Adjustment Date.
(2) Lease Year, is defined as follows;
(a) "Lease Year" shall mean the period of twelve
full calendar months commencing on the Rental Commencement Date if the Rental
Commencement Date is the first day of the month (otherwise, the period of twelve
full calendar months commencing on the first day of the month next following the
Rental Commencement Date) and each consecutive twelve month period thereafter.
E. Adjustments to the Minimum Annual Rental under Paragraph 4D hereof
shall be effective as of each applicable Adjustment Date. Tenant shall pay the
Minimum Annual Rental so adjusted for each Lease Year in twelve (12) equal
monthly installments upon receipt of a written statement from Landlord
("Landlord's Statement of Minimum Annual Rental") setting forth (i) the new
Minimum Annual Rental for the Lease Year following the applicable Adjustment
Data and (ii) the difference, if any, between the Minimum Annual Rental paid by
Tenant on and after the applicable Adjustment Date and the amount of Minimum
Annual Rental actually due from Tenant on and after any applicable Adjustment
Date because of adjustments made in accordance with Paragraph 3D hereof. Tenant
shall, immediately with the next installment of rent due after receipt of
Landlord's Statement of Minimum Annual Rental, begin to pay the new Minimum
Annual Rental. Within ten (10) days after the receipt of such Landlord's
Statement of Minimum Annual Rental, Tenant shall pay the full amount of any
deficiency in the amounts of the monthly installments or Minimum Annual Rental
theretofore made between the Adjustment Date and the date of receipt of
Landlord's Statement of Minimum Annual Rental as set forth in subparagraph (ii)
of this paragraph. Tenant, shall not be in default under the terms of this Lease
for failure to pay the full amount of Minimum Annual Rental, as newly adjusted
under Paragraph 4D hereof, until Tenant has received Landlord's Statement of
Minimum Annual Rental and has theretofore failed to pay the installments of
Minimum Annual Rental or any deficiency due as set forth under this Paragraph
4E. Nothing contained herein
6
<PAGE>
shall relieve Tenant of the responsibility to pay Minimum Annual Rental at the
prior Lease Year's rate until such time as it has received Landlord's statement
of the new Minimum Annual Rental.
F. Landlord shall arrange for the Demised Premises to be separately
metered so that Florida Power and Light shall provide electricity directly to
the Demised Premises. Tenant agrees to pay to Florida Power and Light (or other
utility company serving the Demised Premises) all charges for electricity
consumed with respect to the Demised Premises as measured by the aforesaid
electric meter for the Demised Premises. Notwithstanding the foregoing, Landlord
may, at Landlord's sole option, and upon notice to Tenant, elect to measure
usage of electricity by Tenant in the Demised Premises by connection to a single
meter commonly shared with some or all of the other tenants in the Building, so
that Florida Power and Light shall provide electricity directly to all spaces
commonly metered. In the event Landlord should elect to so commonly meter the
Building or any portion thereof, Landlord shall pay directly to Florida Power
and Light all charges for electricity so metered and Tenant shall pay, in
addition to Tenant's Proportionate Share of Taxes and Operating Expenses, such
share of the electricity bill so metered which shall be in proportion to a
fraction, the numerator of which shall be the total rentable square footage of
the Demised Premises and the denominator of which shall be the total rentable
square footage of all tenants connected to the common meter, or such share as
may be determined in any other manner Landlord deems appropriate. Tenant
acknowledges that the cost of electricity for the Common Areas is included as an
Operating Expense of the Building separate from the charges for electricity to
the Demised Premises.
G. All sums payable by Tenant under this Lease, whether or not stated
to be Minimum Annual Rental or Additional Rent, shall be collectible by Landlord
as Rent, and in the event of a default in payment thereof, Landlord shall have
the same rights and remedies as for a failure to pay Minimum Annual Rental
(without prejudice to any other right or remedy available thereof) .
H. If Landlord, at any time or times, shall accept said Rent or any
other sum due to it hereunder after same shall become due and payable, such
acceptance shall not excuse delay upon subsequent occasions, or constitute, or
be construed as, a waiver or any of Landlord's rights hereunder.
I. All Rent and other sums due to Landlord hereunder shall be payable
without demand, deduction, set-off, or counterclaim at the office address of
Landlord first above given or at such other address as Landlord may designate,
from time to time, by written notice to Tenant.
5. Taxes and Operating Expenses.
A. As used in this Paragraph 5, the following terms shall be
defined as hereinafter set forth:
(1) "Taxes" shall mean all real estate taxes and assessments,
transit taxes, and any other federal, state, city, county or other local
governmental charges or charges by any school, drainage or other special
improvement district (but not including income taxes or any other taxes imposed
upon or measured by Landlord's income or profits, unless the same shall be
imposed in lieu of real estate taxes or limited solely to income from real
property), general or special, ordinary or extraordinary, foreseen or
unforeseen, which may now or hereafter be levied, assessed or imposed upon the
Property or with respect to the ownership thereof. Taxes shall also include any
personal property taxes imposed upon the furniture, fixture, machinery,
equipment, apparatus, systems and appurtenances used in connection with the
Property for the operation thereof. If, due to a future change in the method of
taxation, any franchise, income, profit ow other tax, however designated, shall
be levied, assessed or imposed in substitution, in whole or in part, for (or in
lieu of) any tax which would otherwise be included within the definition of
Taxes, such other tax shall be deemed to be included within the definition of
Taxes as defined herein. Taxes shall also include all of Landlord's expenses,
including, but not limited to, attorney's fees
7
<PAGE>
incurred by Landlord in any effort to minimize taxes; provided, however, that
Landlord shall have no obligation to undertake any contest, appeal or other
procedure to minimize taxes.
(2) Subject to adjustment as herein before provided, "Tenant's
Proportionate Share" for all purposes of this Lease shall be deemed to be 1.559
percent (1.559%).
(3) "Tenant's Initial Share" shall mean Tenant's initial share
of Taxes and Operating Expenses which is estimated by Landlord to be
Twenty-Seven Thousand Seven Hundred Fifty and No/100 Dollars ($7,750.00) for the
first calendar year.
(4) (a) "Operating Expenses" shall mean all expenses incurred
by Landlord in the operation, repair, maintenance, protection, inspection and
management of all or any portion of the Property and shall include, without
limitation:
(i) operation, replacement,
maintenance, inspection, protection and management of the systems and
components of the Building or any portion thereof;
(ii) wages, salaries, fees and other
compensation (and taxes imposed upon employers in connection therewith)
and fringe benefits paid to persons employed by Landlord or Landlord's
managing agent, including but not limited to social security taxes,
unemployment insurance taxes, cost for providing coverage for
disability benefits, cost of any pensions, hospitalization, welfare or
retirement plans, or any other similar or like expenses incurred under
the provisions of any collective bargaining agreement, or any other
cost or expense which Landlord pays or incurs to provide benefits for
employees so engaged in the operation, maintenance, protection and
repair of the Property, excluding any overtime wages or salaries paid
for providing extra services to specific tenants which is directly
chargeable to and paid by such tenants;
(iii) contract costs of independent
contractors hired for the operation, maintenance, inspection,
protection or repair of the Property or any portion thereof, including
but not limited to, service, materials and supplies included in such
contract costs;
(iv) costs of electricity, steam,
water, sewer, and all other utilities consumed in the operation,
repair, maintenance, inspection management of the Property (excluding
utilities consumed within space occupied by tenants, which are metered
to and paid directly by tenants);
(v) cost of all insurance carried by
Landlord for the Property, including, but not limited to, all risk or
fire and extended coverage (including windstorm and flood coverage),
elevator, boiler, sprinkler leakage, water damage, public liability and
property damage, plate glass, rent protection, and workmen's
compensation, but excluding any charge for increased premiums due to
acts or omissions of any tenants of the Property because of extra risks
which are reimbursed to Landlord by such other tenants;
(vi) alterations, additions or
improvements to the non-rentable portions of the Property (hereinafter,
the "Common Areas") which benefit all tenants thereof, or which are
made to decrease the Operating Expenses of the Property;
(vii) all materials, supplies, tools
and equipment purchased or rented to maintain and keep the Property in
good condition and repair;
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<PAGE>
(viii) legal, accounting and other
professional expenses incurred in connection with the Operation,
maintenance, repair, protection and management of the Property;
(ix) reasonable reserves for the
operation, maintenance, repair, protection and management of the
Property;
(x) janitorial service for the
Building and Parking Facilities, including, but not limited to, cost of
window cleaning, uniforms, supplies and sundries;
(xi) cleaning costs for the Property
including the facade, windows, and sidewalks and trash removal and the
cost of all labor, supplies, equipment and materials incidental to such
cleaning;
(xii) management fees of the managing
agent for the Property, if any, and if there is no managing agent, or
if the managing agent is affiliated with Landlord, management fees
shall be an amount customarily charged for the management of a
first-class office building by an independent managing agent in the
County of Palm Beach, Florida;
(xiii) the cost of repainting,
redecorating, or refurbishing any part of the Property, including the
cost of displays, plantings or decorations for the lobby, balconies and
other public portions of the Property; and
(xiv) the amortized portion of the cost
of any capital improvements or alterations made to the Property which
is either required by law (or governmental regulation), required by any
insurance company issuing insurance carried by Landlord or intended by
Landlord to reduce Operating Expenses (including but not limited to
energy costs), it being understood that such amortization shall be in
accordance with generally accepted accounting principles and shall
include interest at the rate incurred by Landlord in connection with
the installation of the capital improvement or alteration;
(xv) any and all sums for landscaping,
ground maintenance, sanitation control, cleaning, lighting, Parking
Facilities and driveway maintenance, line striping and resurfacing,
equipment and fixture replacement, fire protection, and security;
(xvi) depreciation of hand tools and
other moveable equipment used in the repair, maintenance or operation
of the Property; and
(xvii) all other expenses whether or not
hereinabove mentioned, which in accordance with generally accepted
accounting and management principles, would be considered as an expense
for the repair, maintenance, protection and operation of the Property
by virtue of the ownership thereof.
(b) The term "Operating Expenses" shall not
include: (1) the cost of painting, decorating, or installing fixtures of
equipment in space for the purposes of preparing the space for occupancy by a
tenant; (2) wages, salaries or fees paid to executive personnel of Landlord; (3)
the cost of any repair or replacement item which, by standard accounting
practice, should be capitalized, except as described above; (4) any charge for
depreciation, interest or rents paid or incurred by Landlord, except an
described above; (5) any
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charge for Landlord's income tax, excess profit taxes, franchise taxes or
similar taxes on Landlord's business; or (6) leasing commissions.
B. For and with respect to each calendar year during the term of this
Lease after the Rental Commencement Date (and any renewals or extensions
thereof), Tenant shall pay to Landlord, as Additional Rant, an amount equal to
Tenant's Proportionate Share of the Taxes and Operating Expenses for such
calendar year, appropriately prorated on a per diem basis for any partial
calendar year included within the beginning and end of the term. Tenant's
Proportionate Share of Taxes and Operating Expense shall be computed by
multiplying the total amount of Taxes and Operating Expenses by Tenant's
Proportionate Share. Tenant's Initial Share of Taxes and Operating Expenses
shall be as set forth in Paragraph 5A(3). Tenant's Proportionate Share of such
Taxes and Operating Expenses shall include a building management fee calculated
at 15% of the operating expense to be paid in accordance with the following
procedures:
(1) Landlord shall furnish to Tenant on or before April
30 of each calendar year of the term hereof:
(a) A written statement (the "Estimate
Statement") of Landlord's good faith estimate of Taxes and Operating Expenses
and Tenant's Proportionate Share of same (the "Estimated Share"), for the
current calendar year, Landlord may, at any time, change Tenant's Estimated
Share by sending Tenant a revised Estimate Statement if, in Landlord's
reasonable opinion, Landlord determines that Tenant's Proportionate Share of
Taxes and Operating Expenses for any calendar year will exceed those set forth
in the most recent Estimate Statement.
(b) A written statement (the "Expense
Statement") setting forth: (i) Taxes and Operating Expenses for the calendar
year immediately prior to (the "Prior Year") the calendar Year in which any
Expense Statement is issued; (ii) Tenant's Proportionate Share of the Taxes and
Operating Expenses for the Prior Year; (iii) the amount, if any, due from Tenant
for any deficiency between Tenant's Proportionate Share of Taxes and Operating
Expenses for the Prior Year and the actual amounts paid by Tenant as its
Estimated Share during such Prior Year, and (iv) the amount due from Tenant for
any deficiency in the payments of Tenant's Estimated Share for the current
calendar year resulting from any adjustment of Tenant's Estimated Share for the
current calendar year.
(2) Tenant's Proportionate Share of Taxes and Operating
Expenses shall be paid monthly as Additional Rent together with payments of
Minimum Annual Rental as follows:
(a) The amount of any deficiency due from
Tenant as shown on the Expense Statement shall be paid by Tenant within twenty
(20) days from the date of issuance of such Expense Statement described above.
If any Expense Statement reflects an excess paid by Tenant during such period
(the "Tax and Operating Expense Credit"), said Tax Operating Expense Credit
shall be credited against Tenant's Estimated Share falling due after the date of
the applicable Expense Statement until such credit is depleted.
(b) On the first day of the first full month
after the Rental Commencement Date, Tenant shall pay Landlord one-twelfth of the
amount of Tenant's Initial Share of Taxes and Operating Expenses set forth in
the Reference Data at the beginning of this Lease, together with the pro rata
portion of Tenant's Initial Share determined on a per diem basis with respect to
a thirty day month for any period of time elapsed between the Rental
Commencement Date and the first day of the first full month after the Rental
Commencement Date.
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(c) On the first day of each subsequent month during
the first calendar year of the term of this Lease, and continuing thereafter
until issuance of any Estimate Statement in which Tenant's Estimated Share
exceeds Tenant's Initial Share of Taxes and Operating Expenses, Tenant shall pay
Landlord one-twelfth of Tenant's Initial Share of Taxes and Operating Expenses
set forth in the Reference Data at the beginning of this Lease.
(d) On the first (1st) day of the month after receipt
of an Estimate Statement increasing Tenant's Estimated Share above Tenant's
Initial Share and on the first day of each succeeding month thereafter until
Tenant shall receive a revised Estimate Statement, Tenant shall pay to Landlord,
on account of its share of Taxes and Operating Expense, one-twelfth (1/12) of
the then current Estimated Share.
6. Security. As additional security for the full and prompt performance by
Tenant of the terms and covenants of this Lease, Tenant shall deliver to
Landlord concurrently upon execution of this Lease the amount of Five Thousand
Four Hundred Seventy-Four and 46/100 Dollars ($5,474.46) (the "Security
Deposit"), none of which Security Deposit shall constitute rent for any month
unless so applied by Landlord to compensate Landlord for all loss, cost, expense
or damage suffered by Landlord due to default or failure of Tenant hereunder.
Tenant shall, upon demand, restore any portion of said Security Deposit so
applied by Landlord on account or any default or failure by Tenant hereunder and
Tenant's failure to do so shall constitute a default hereunder. To the extent
that Landlord has not applied said sum on account of a default, the Security
Deposit shall be returned (without interest) to Tenant promptly after
termination of this Lease. Landlord may, in its absolute discretion, commingle
the Security Deposit with other funds of Landlord. In the event Landlord
delivers the Security Deposit to a purchaser or other successor to Landlord's
interest in the Property, Landlord shall be discharged of any further liability
with respect to the Security Deposit.
7. Tenant's Covenants. Tenant agrees, on behalf of itself, its employees and
agents, that it shall:
A. Comply at all times with any and all federal, state, and local
statutes, regulations, ordinances and other requirements or any applicable
public authorities relating to its use and occupancy of the Demised Premises.
B. Give Landlord access to the Demised Premises at all reasonable
times, without charge or diminution of rent, to enable Landlord: (1) to examine
the same and to make such repairs, additions and alterations as Landlord may be
permitted ta make hereunder or as Landlord may deem advisable to the Demised
Premises or any other portion of the Property or any part thereof; and (2) upon
reasonable notice, to show the Demised Premises to any prospective mortgagees
and purchasers, and, during the six (6) months prior to expiration of the term,
to prospective tenants.
C. Maintain and repair, at its cost and expense, the Demised Premises,
including the plumbing, electrical, HVAC and other systems within the Demised
Premises, with the exception of such items which are Landlord's responsibility,
as required to keep the Demised Premises in good working order and condition,
Tenant shall commit no waste in or upon the Demised Premises.
D. Upon the termination of this Lease for any reason whatsoever, remove
Tenant's goods and effect and those of any other person claiming under Tenant,
and quit and deliver up the Demised Premises to Landlord peaceably and quietly
in as good order and condition as at the inception of the term or this Lease or
as the same hereafter may be improved by Landlord or Tenant, reasonable use and
wear thereof, damage from fire and other insured casualty and repairs which are
Landlord's obligation excepted. Goods and effects not removed by Tenant at the
termination of this Lease, however terminated, shall be considered abandoned and
Landlord may dispose of and/or store the same as it deems expedient, the cost
thereof to be charged to Tenant.
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E. Not place signs on the Demised Premises except in accordance with
sign criteria approved by Landlord. All signs shall be purchased and erected at
Tenant's expense. Identification of Tenant and Tenant's location shall be
provided by Landlord at Tenant's expense in a directory in the Building Lobby.
F. Not overload, damage or deface the Demised Premises or do any act
which might make void or voidable any insurance on the Demised Premises of the
Building and/or the Property or which may render an increased or extra premium
payable for insurance (and without prejudice to any right or remedy of Landlord
regarding this subparagraph, Landlord shall have the right to collect from
Tenant, upon demand, any such increased or extra premium).
G. Not make any alteration of or addition to the Demised Premises
without the prior written approval of Landlord and in accordance with the
provisions or Paragraph 3E of this Lease. All such alterations and additions, as
well as all fixtures, equipment, improvements and appurtenances installed in the
Demised Premises (but excluding Tenant's trade fixtures) shall, upon
installation, become and remain the property of Landlord and shall be maintained
by Tenant during the term hereof and any renewals and extensions thereof, in the
same good order and repair in which the Demised Premises are required to be
maintained. Tenant shall, at the expiration or the term hereof, remove Tenant's
trade fixtures and other personal property which can be removed without damage
to the Demised Premises and shall likewise remove such other items as Landlord
shall designate for removal by Tenant upon expiration of the term hereof (and in
such case Tenant shall be obligated to restore any damage caused thereby). The
construction of any such alterations and additions shall be performed at
Tenant's expense by Landlord or Tenant, as Landlord shall elect, subject to the
requirements specified in Paragraph 3 of this Lease. All alterations and
additions to the Demised Premises shall be performed in accordance with plans
and specifications therefore submitted to and approved by Landlord, in a good
and workmanlike manner and in conformity with all building codes, laws,
regulations, rules, ordinances and other requirements of all governmental or
quasi-governmental authorities having jurisdiction.
H. Not install or authorize the installation of any coin operated
vending machines.
I. Not bring any flammable, explosive or dangerous material or article
onto the Property.
J. Not violate Landlord's regulation that only persons approved from
time to time by Landlord may prepare, solicit orders for, sell, serve or
distribute foods or beverages in the Building, or use the elevators, corridors
or common areas for any such purpose. Except with Landlord's prior written
consent and in accordance with arrangements approved by Landlord, Tenant shall
not permit on the Demised Premises the use of equipment for dispensing food or
beverages or for the preparation, solicitation of orders for sale, serving or
distribution of food or beverages.
K. Not bring safes, heavy files, or other heavy equipment into the
Property unless the weight, location and handling of same is approved by
Landlord. Regardless of said approval, Tenant shall indemnify, defend and save
Landlord harmless from any and all expenses and other damages, including
attorney's fees, and costs, resulting from the use or installation by Tenant of
such heavy equipment.
L. Not use, create, store, or permit any toxic or hazardous material
anywhere on the Property, Tenant shall not dispose of any toxic or other
hazardous waste through the plumbing system or drainage system of the Building
or the Property, and Tenant shall not violate any requirement of the Florida
Department of Environmental Regulation or the Florida Department of Health, or
any other governmental agency, with respect to waste disposal, Tenant shall
indemnify, defend and hold Landlord harmless from any and all expenses and other
damages, including attorney's fees and costs incurred by Landlord, as a result
of improper storage or handling of
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any hazardous materials or waste or any improper waste disposal by Tenant, which
indemnification shall survive the expiration or earlier termination of this
Lease.
M. Immediately and at its expense, Tenant shall repair and restore any
and all damages caused to the Demised Premises or the Property due to Tenant's
improvements, installations, alterations, additions or other work conducted by
Tenant within the Demised Premises, and Tenant shall restore the Property to the
condition existing prior to improvement, installations, alterations, additions
or other work conducted by Tenant within the Demised Premises.
N. Comply with the rules and regulations as initially set forth on
Exhibit "E," which is attached hereto and incorporated herein, and comply with
such other rules and regulations as Landlord may establish, and from time to
time amend, for the general safety, comfort and convenience of Landlord,
occupants and tenants of the Building.
O. Unless Landlord elects to commonly meter the Demised Premises in
accordance with Paragraph 4F of this Lease, Tenant shall pay directly to the
entity providing same, the costs of all utilities consumed within the Demised
Premises, and all other sums assessed against Tenant or the Demised Premises by
any governmental or quasi-governmental entity in connection with Tenant's use or
occupancy of the Demised Premises.
P. Not install or operate in the Demised Premises any electrically
operated equipment or other machinery, including computers, unless requiring not
more than three-phase, four-wire 227/480 volt electrical service and normally
used in modern offices, or any plumbing fixtures, without first obtaining the
prior written consent of Landlord. In the event that Landlord determines, in its
sole and absolute discretion, that Tenant's electrical consumption within the
Premises is greater than the normal usage of other tenants within the Building,
Landlord reserves the right to charge Tenant for much additional consumption, or
cause Tenant to separately meter electrical service to the Premises at Tenant's
sole cost and expense. Tenant shall not install any equipment of any kind or
nature whatsoever which would or might necessitate any changes, replacements or
additions to the structural system, water system, plumbing system, heating
system, air conditioning system or the electrical system servicing the Demised
Premises or any other portion or the Building without the prior written consent
of Landlord, and in the event such consent is granted, such replacements,
changes or additions shall be paid for by Tenant.
8. Services. Landlord agrees that it shall:
A. Provide self-service passenger elevator service to the Demised
Premises from the ground floor. Access to the Demised Premises shall at all
times be subject to compliance with such security measures as shall be in effect
for the Building.
B. Provide janitorial service to the Demised Premises and the Common
Areas in the Building as are customarily provided in first class office
buildings in Palm Beach County, Florida. Any and all additional or specialized
janitorial service desired by Tenant shall be contracted for by Tenant directly
and the cost and payment thereof shall be and remain the sole responsibility of
Tenant. The firm providing such janitorial service shall first be approved by
Landlord, and Tenant shall not be entitled to any reduction, abatement, or other
credit against its Proportionate Share of Operating Expenses on account of any
contract for additional or specialized janitorial services, whether or not
Landlord's janitorial services are continued by Tenant. Janitorial services are
to be provided as detailed in Cleaning Specifications Schedule attached as
Exhibit "D."
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C. Subject to the provisions of Paragraphs 12 and 15 hereof, make all
necessary repairs of damage to the Common Areas of the Building, equipment used
to provide services specified herein and to the roof, outside walls and
structural members of the Building and Parking Facilities. In the event that any
repair is required by reason of the negligence or abuse of Tenant or its agents,
employees or invitees, or of any other person entering the Building with
Tenant's Consent, express or implied, Landlord may make such repair and add the
cost thereof to the first installment of rent which will thereafter become due.
D. Furnish the Common Areas of the Property with electric service for
lighting and normal office use. Furnish the Demised Premises with heating or
air-conditioning between the hours of 8:00 a.m. and 6:00 p.m. Monday through
Friday, excluding federal and state holidays. Tenant may be permitted the use of
after hours air-conditioning at Landlord's discretion, said after hours
air-conditioning to be separately metered by floor only, and Tenant shall pay to
Landlord, in addition to Tenant's Proportionate Share of Operating Expenses, the
after hours air-conditioning fee determined by Landlord, in its sole and
absolute discretion to be a reasonable charge for said services, and such sums
shall be paid by Tenant as Additional Rent under this Lease.
E. The costs of all services provided in this Paragraph 8 not
separately charged to Tenant shall constitute Operating Expenses as defined in
Paragraph 5 above. Tenant acknowledges that Landlord does not warrant that any
of the services referred to in this Paragraph 8 will be free from interruption
from causes beyond the reasonable control of Landlord. No interruption of
service shall ever be deemed an eviction or disturbance of Tenant or render
Landlord liable to Tenant for damages by abatement of Rent or otherwise, or
relieve Tenant from performance of Tenant's obligations under this Lease, unless
Landlord, after reasonable notice, shall willfully and without cause fall or
refuse to take reasonable action within its control to restore such service.
9. Subletting and Assigning. Tenant shall not assign, mortgage or otherwise
transfer or encumber this Lease or any portion or Tenant's interest herein, or
sublet all or any portion of the Demised Premises without first obtaining
Landlord's prior written consent thereto, which the parties agree may be
withheld for any reason whatsoever in Landlord's sole and absolute discretion.
If Landlord consents to any given assignment or subletting, such consent will
not be deemed a consent to any further subletting or assignment. Duly attempted
assignment, mortgage, sublease or other encumbrance of the Demised Premises in
violation of this paragraph shall be null and void. If Landlord consents to any
subletting or assignment, it shall nevertheless be a condition to the
effectiveness thereof that a fully executed copy of the sublease or assignment
be furnished to Landlord and that any assignee assume in writing all obligations
of Tenant hereunder. Notwithstanding any consent by Landlord to any subletting
or assignment, in the event of any subletting or assignment of the Demised
Premises, Tenant shall remain liable for all of the obligations of Tenant set
forth herein. The sale by Tenant of a controlling interest in the Tenant entity
shall be deemed an assignment of this Lease requiring the convent of Landlord as
specified above.
10. Indemnification; Waiver of Liability.
A. Tenant agrees to indemnify, defend and save harmless Landlord and
its building manager and their officers, employees, agents and independent
contractors, from any and all suits, actions, damages, liability and expenses
(including reasonable attorney's fees and costs) in connection with loss of
income, loss of life, bodily or personal injury or property damage in or about
the Demised Promises arising from any cause whatsoever unless such loss of life,
injury, or property damage is the result of the willful and gross negligence of
Landlord, its building manager, or their officers, employees, agents and
independent contractors, and Landlord and said managers and their officers,
employees, agents and independent contractors shall not be liable ta Tenant for
any such damage or loss whether or not the result of their willful and gross
negligence.
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B. Tenant agrees to indemnify, defend and hold Landlord and its
building manager, and their employees, officers, agents and independent
contractors harmless of and from any and all loss, liability or expense
including, without limitation, reasonable attorney's fees and costs Incurred by
Landlord in connection with any failure of Tenant to fully perform its
obligations under this Lease, and in connection with any personal injury or
damage to or loss of property of any type or nature resulting out of Tenant's
use of the Property, or caused by the negligence, misconduct or breach of this
Lease by Tenant, its employees, subtenants, invitees, contractors,
subcontractors, or any other person entering the Property under express or
implied invitation of Tenant.
11. Public Liability and Business Interruption Insurance.
A. Tenant, at its own cost and expense, shall obtain and maintain in
full force and effect during the original term hereof, and any extensions or
renewals, single limit public liability and property damage insurance in an
amount at least equal to Two Million Dollars ($2,000,000) or such other amounts
as Landlord may reasonably require from time to time, upon thirty (30) days
prior written notice.
B. Tenant, at its own cost and expense, shall obtain and maintain in
full force and effect during the original term hereof, and any extensions or
renewals, business interruption insurance payable in case of loss resulting from
damage to the Demised Premises or the Building by fire or other casualty. Such
insurance shall be maintained in an amount not less than the sum of all Minimum
Annual Rental and additional rent coming due for the then current calendar year
as estimated by Landlord.
C. Tenant agrees to carry full replacement cost all risk fire and
extended coverage insurance in form satisfactory to Landlord on all improvements
to the Demised Premises. Tenant also agrees to carry such all risk insurance
covering Tenant's fixtures, furnishings, wall covering, carpeting, drapes,
equipment and all other items of personal property of Tenant located on or
within the Demised Premises.
D. All policies of insurance described above shall name Landlord and
any mortgages of Landlord as named insureds, and shall include an endorsement
providing that the policies will not be cancelled or amended until after thirty
(30) days' prior written notice to Landlord. All such policies of insurance
shall be issued by a financially responsible company or companies satisfactory
to Landlord and authorized to issue such policy or policies, and licensed to do
business in the State of Florida. Tenant shall deposit with Landlord duplicate
originals of such insurance on or prior to the Rental Commencement Date,
together with evidence of paid-up premiums, and shall deposit with Landlord
renewals thereof at least fifteen (15) days prior to expiration of any such
policies.
12. Fire or Other Casualty. In case of damage to the Demised Premises by fire or
other casualty, Tenant shall promptly give notice thereof to Landlord. In case
of damage to the Building, the Demised Premises or the Parking Facilities by
fire or other casualty, Landlord shall, unless Landlord elects to terminate this
Lease as described below, and subject to the rights of Landlord's Mortgagees,
thereupon undertake the repair and restoration of: (a) the Building, to
substantially the same condition as existed prior to the casualty; provided that
Landlord is not obligated to restore any portion of the Building or Parking
Facilities not necessary for Tenant's use of the Demised Premises (hereinafter
the "Excluded Area"); and (b) the Demised Premises, to substantially the
condition in which Landlord was obligated to deliver the Demised Premises to
Tenant on the Rental Commencement Date, at the expense of Landlord, subject to
delays which may arise by reason of adjustment of loss under insurance policies
and for delays beyond the reasonable control of Landlord; provided, however,
that Landlord shall not be obligated to restore the Demised Premises if adequate
insurance proceeds are not available to Landlord to complete such work. The
Minimum Annual Rent payable by Tenant hereunder shall be equitably apportioned
during the period of Landlord's repair and/or restoration of the Demised
Premises in accordance with the portion of the Demised Premises, which has been
rendered untenantable. If Landlord elects to make such
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repairs, Tenant shall, within thirty (30) days after completion by Landlord of
such repair and/or restoration, at Tenant's sole cost and expense, commence to
repair or restore the remainder of the Demised Premises to the condition it was
in prior to such fire or casualty (which work shall be completed by Tenant
within one hundred twenty (120) days of commencement). In the event that
Landlord, in Landlord's discretion, shall decide not to repair or rebuild the
Demised Premises, the Building or the Parking Facilities, Landlord shall deliver
written notice to Tenant of its election to terminate this Lease within ninety
(90) days after Landlord is notified of the casualty, and this Lease shall
terminate as of the date specified in such notice, which date shall not be more
than ninety (90) days thereafter, and the Rent (taking into account any
apportionment as aforesaid) shall be adjusted to the termination date, and
Tenant shall thereupon promptly vacate the Demised Premises.
13. Increase in Premiums. Tenant shall not do, permit or suffer to be done any
act, matter, thing or failure to act in respect to the Property or the Demised
Premises or use or occupy the Property or the Demised Premises or conduct or
operate Tenant's business in any manner objectionable to insurance companies
whereby the fire insurance or any other insurance now in force or hereafter to
be placed on the Demised Premises or any part thereof shall become void or
suspended or whereby any premiums in respect of insurance maintained by Landlord
shall be higher than those which would normally have been in effect for the
occupancy contemplated under the permitted uses. In case of a breach of this
covenant, in addition to all other rights and remedies of Landlord hereunder,
Tenant shall (a) indemnify Landlord and hold Landlord harmless from and against
any loss which would have been covered by insurance which shall became void or
suspended because of such breach by Tenant, and (b) pay to Landlord any and all
increase of premiums on any insurance, including, without limitation, rent
insurance, resulting from any such breach.
14. Waiver of Subrogation. Landlord and Tenant waive, unless said waiver should
invalidate any insurance required or permitted hereunder, their right to recover
damages against each other for any reason whatsoever to the extent the damaged
party recovers indemnity from its insurance carrier. Any insurance policy
procured by either Tenant or Landlord, which does not name the other as a named
insured shall, if obtainable, contain an express waiver of any right of
subrogation by the insurance company, including but not limited to Tenant's
workmen's compensation carrier, against Landlord or Tenant, whichever the case
may be. All public liability and property damage policies shall contain an
endorsement that Landlord, although named as an insured, shall nevertheless
entitled to recover for damages caused by the negligence of Tenant.
15. Eminent Domain.
A. If the whole of the Property, or the Demised Premises shall be taken
or condemned for a public or quasi-public use under any law, ordinance or
regulation, or by right of eminent domain or private purchase in lieu thereof by
any competent authority, this Lease shall terminate and Rent shall abate for the
unexpired portion of the term of this Lease as of the date the right to
possession shall vast In the condemning authority.
B. If part of the Demised Premises shall be acquired or condemned as
aforesaid, and such acquisition or condemnation shall render the remaining
portion unsuitable for the business of Tenant (in the reasonable opinion of
Landlord), the term of this Lease shall cease and terminate as provided in
Paragraph 15(A) hereof, provided however, that diminution of rentable area shall
not in and of itself be conclusive as to whether the portion or the Demised
Premises remaining after such acquisition is unsuitable for Tenant's business.
If such partial taking is not extensive enough to render the Demised Premises
unsuitable for the business of Tenant, this Lease shall continue in full force
and effect except that the Minimum Annual Rental shall be reduced in the same
proportion that the rentable area of the Demised Premises taken bears to the
rentable area demised. Subject to the rights of any mortgagee of Landlord's
estate, Landlord shall, upon receipt of the net condemnation award, make all
necessary repairs or alterations to the Building so as to render the portion or
the Building not taken a complete
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architectural unit, but Landlord shall in no event be required to spend for such
work an amount in excess of the net amount received by Landlord as damages for
the part of the Building so taken "Net amount received by Landlord" shall mean
that portion of the condemnation award in excess of any sums required to be paid
by Landlord to the holder of any mortgage on the property so condemned, and all
expenses and legal fees incurred by Landlord in connection with the condemnation
proceeding.
C. If part of the Building, but no part of the Demised Premises, is
taken or condemned as aforesaid, and, in the reasonable opinion of Landlord,
such partial acquisition or condemnation shall render Landlord unable to comply
with its obligations under this Lease, or shall render the Demised Premises
unsuitable for the business of Tenant, the term of the Lease shall cease and
terminate as provided in Paragraph 15(A) hereof, by Landlord sending written
notice to such effect to Tenant, whereupon Tenant shall immediately vacate the
Demised Premises.
D. In the event of any condemnation or taking as hereinbefore provided,
whether whole or partial, Tenant shall not be entitled to any part of the award,
as damages or otherwise, for such condemnation and Landlord is to receive the
full amount of such award, and Tenant hereby expressly waives any right or claim
to any part thereof. Although all damages in the event of any condemnation are
to belong to the Landlord whether such damages are awarded as compensation for
diminution in value of the leasehold or the fee of the Demised Premises, Tenant
shall have the right to claim and recover from the condemning authority, but not
from Landlord, such compensation as may be separately awarded or recoverable by
Tenant in Tenant's own right on account of any damage to Tenant's business by
reason of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture, fixtures, and
equipment, or the loss of Tenant's business or decrease in value thereof.
16. Events of Default. Each of the following events shall constitute an Event of
Default under this Lease:
A. If Tenant shall fail to pay Minimum Annual Rental, Additional Rent,
or any other sum payable to Landlord hereunder when due; or
B. If Tenant shall fail to perform or observe any of the other
covenants, terms or conditions contained in this Lease within ten (10) days
after written notice thereof by Landlord; or
C. If a receiver or trustee is appointed to take possession of all or a
substantial portion or the assets of Tenant, or any Guarantor and such receiver
or trustee is not dismissed within thirty (30) days; or
D. If Tenant or any Guarantor makes an assignment for the benefit of
creditors; or
E. If any bankruptcy, reorganization, insolvency, creditor adjustment
or debt rehabilitation proceedings are instituted by or against Tenant or any
Guarantor under any state or federal law and the same are not dismissed within
thirty (30) days; or
F. If levy, execution, or attachment proceedings or other process of
law are commenced upon, on or against Tenant or any Guarantor or a substantial
portion of Tenant's or any Guarantor;s assets and the same are not dismissed
within thirty (30) days; or
G. If a liquidator, receiver, custodian, sequester, conservator,
trustee, or other similar judicial officer is applied for by Tenant or any
Guarantor; or
H. If Tenant or any Guarantor becomes insolvent in the bankruptcy or
equity sense; or
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I. If the Demised Premises are vacated, abandoned or deserted during
the term hereof or Tenant removes or manifests an intention to remove its goods
and property from the Demised Premises other than in the ordinary course of its
business.
17. Remedies.
A. If Tenant fails to pay Minimum Annual Rental, Additional Rent, or
any other sum payable to Landlord hereunder when due, Tenant shall pay a late
charge in the amount of Fifty Dollars ($50.00) plus interest accruing on the
unpaid sums from the date such sums are due at a rate equal to the greater of
(a) eighteen percent (18%) per annum or (b) three percent (3%) per annum in
excess of the prime rate of interest paid by Landlord on sums borrowed by
Landlord (the "Late Charge"). The Late Charge shall be Additional Rent under the
terms of this Lease. In no event however shall any interest or other charge on
any delinquent payments exceed the amount allowed to be charged under the usury
laws of the State of Florida, it being acknowledged and agreed that any amount
in excess of such limitation shall be refunded to Tenant by Landlord by means of
a credit against the next installment(s) of Rent coming due hereunder, or if no
such Rent payments remain to be paid, then the excess shall be refunded in cash.
The Late Charge shall be in addition to, and shall not in any way limit any
other rights or remedies available to Landlord under the terms of this Lease or
at law and in equity.
B. Upon the occurrence of an Event of Default, Landlord may, at any
time thereafter, and in addition to any other available rights or remedies at
law and/or in equity, elect any one or more of the following remedies:
(1) Without obligation to relet the Demised Premises, to
accelerate the whole or any part. of the Minimum Annual Rental, the Additional
Rent, or any other sum payable to Landlord hereunder for the entire unexpired
balance of the Term of this Lease, as well as all other charges, payments, costs
and expenses herein agreed to be paid by Tenant and for purposes of this
paragraph, the Minimum Annual Rental shall be deemed to be increased and
adjusted as described In Paragraphs 3C and 3D hereof, with the annual Cost of
Living Increase calculated as if the Adjustment Date was the month in which such
default occurred, and any Rent or other charges, payments, costs and expenses if
so accelerated shall, in addition to any and all installments of Rent already
due and payable and in arrears, and/or any other charge or payment herein
reserved, included or agreed to be treated or collected as Rent and/or any other
charge, expense or cost, herein agreed to be paid by Tenant which may be due and
payable and in arrears, be deemed due and payable as if, by the terms and
provisions of this Lease; such accelerated Rent and other charges, payments,
costs and expenses were on that date payable in advance, and Landlord shall be
entitled to all costs of collection, including attorney's fees and costs through
all appellate levels and post-judgment proceedings, and to interest on all such
amounts at the maximum rate allowed by law until such amounts are actually paid
to Landlord.
(2) To immediately re-enter the Demised Premises without
accepting surrender of the leasehold estate and remove all persons and all or
any property therefrom, with or without summary dispossess proceedings or by any
suitable action or proceeding at law, without being liable to indictment,
prosecution or damages therefore, and repossess and enjoy the Demised Premises;
together with all additions, alterations and improvements. Upon recovering
possession of the Demised Premises by reason of or based upon or arising out of
a default on the part of Tenant, Landlord may, at Landlord's option, either
terminate this Lease or make such alterations and repairs as may be necessary in
order to relet the Demised Premises or any part or parts thereof, either in
Landlord's name or otherwise, for a term or terms which may at Landlord's option
be less than or exceed the period which would otherwise have constituted the
balance of the Term of this Lease and at such rent or rents and upon such other
terms and conditions as in Landlord's sole discretion may seen advisable and to
such person or persons as may in Landlord's discretion seem best. Upon each such
reletting all rents received by
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Landlord from such reletting shall be applied first to the payment or any
indebtedness other than Rent due hereunder from Tenant to Landlord; second, to
the payment of any costs and expenses of such reletting, including brokerage
fees and attorney's fees and all costs of such alterations and repairs; third,
to the payment of Rent due and unpaid hereunder; and the residue if any, shall
be held by Landlord and applied in payment of future Rent as it may become due
and payable hereunder. If such rentals received from such reletting during any
month shall be less than that to be paid during that month by Tenant hereunder,
Tenant shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. No such re-entry or taking possession of the
Demised Premises or the making of alterations and/or improvements thereto or the
reletting thereof shall be construed as an election on the part of Landlord to
terminate this Lease unless written notice of such intention be given to Tenant.
Landlord shall in no event be liable in any way whatsoever for failure to relet
the Demised Premises or, in the event that the Demised Premises or any part or
parts thereof are relet, for failure to collect the rent thereof under such
reletting. Tenant, for Tenant and Tenant's successors and assigns, hereby
irrevocably constitutes and appoints Landlord as Tenant's agent to collect the
rents due and to become due under all subleases of the Demised Premises or any
part thereof without in any way affecting Tenant's obligation to pay any unpaid
balance of Rent due or to become due hereunder. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach.
(3) To terminate this Lease and the term hereby created
without accepting any surrender of the leasehold estate and without any right on
the part of Tenant to waive the forfeiture by payment of any sum due or by other
performance of any condition, term or covenant broken, whereupon Landlord shall
be entitled to recover, in addition to any and all sums and damages for
violation of Tenant's obligations hereunder in existence at the time of such
termination, damages for Tenant's default in an amount equal to the amount of
the Rent reserved for the balance of the term of this Lease, as well as all
other charges, payments, costs and expenses herein agreed to be paid by Tenant,
all discounted at the rate of six percent (6%) per annum to their then present
worth, less the fair rental value of the Demised Premises for the remainder of
said term, also discounted at the rate of six percent (6%) per annum to its then
present worth, all of which amount shall be immediately due and payable from
Tenant to Landlord.
(4) Tenant covenants and agrees that if the rent and/or any
charges reserved in this Lease as rent (including all accelerations of rent
permissible under the provisions of this Lease) shall remain unpaid ten (10)
days after the same is required to be paid, then and in that event, Landlord may
cause Judgment to be entered against Tenant, and for that purpose Tenant hereby
authorizes and empowers Landlord or any Prothonotary, Clerk of Court or Attorney
of any Court of Record to appear for and confess judgment against Tenant and
agrees that Landlord may commence an action pursuant to the laws of Florida for
the recovery from Tenant of all rent hereunder (including all accelerations of
rent permissible under the provisions of this Lease) and/or for all charges
reserved hereunder as rent, as well as fair interest and costs and reasonable
attorney's fees, for which authorization to confess judgment, this Lease, or a
true and correct copy thereof, shall be sufficient warrant. Such Judgment may be
confessed against Tenant for the amount of rent in arrears (including all
accelerations of rent permissible under the provisions of this Lease) and/or
fair all charges reserved hereunder or rent, as well as far interest and costs;
together with an attorney's fee of five percent (5%) of the full amount of
Landlord's claim against Tenant. Neither the right to institute an action
pursuant to the laws of Florida nor the authority to confess judgment granted
herein shall be exhausted by one or more exercises thereof, but successive
complaints may be filed and successive judgments may be entered for the
aforedescribed sums ten (10) days or more after they become due as well as after
the expiration of the original term and/or during or after expiration or any
extension or renewal of this Lease.
Tenant covenants and agrees that if this Lease shall be terminated
(either because of condition broken during the term of this Lease or any renewal
or extension thereof and/or when the term hereby created or any
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extension thereof shall have expired) then, and in that event, Landlord may
cause a judgment in eviction to be entered against Tenant for possession of the
Demised Premises, and for that purpose Tenant hereby authorizes and empowers any
Prothonotary, Clerk of Court or Attorney of any Court of Record to appear for
Tenant and to confess judgment against Tenant in Eviction for possession of the
herein Demised Premises, and agrees that Landlord may commence an action
pursuant to the laws of Florida for the entry of an order in Eviction for the
possession of real property, and Tenant further agrees that a Writ of Possession
pursuant thereto may issue forthwith, for which authorization to confess
judgment and for the issuance of a writ or writs of possession pursuant thereto,
this Lease, or a true and correct copy thereof, shall be sufficient warrant.
Tenant further covenants and agrees, that if for any reason whatsoever, after
said action shall have commenced the action shall be terminated and the
possession of the premises demised hereunder shall remain in or be restored to
Tenant, Landlord shall have the right upon any subsequent default or defaults,
or upon the termination of this Lease as above set forth to commence successive
actions for possession of real property and to cause the entry of successive
judgments by confession in Eviction for possession of the premises demised
hereunder.
In any procedure or action to enter Judgment by Confession for Money
pursuant to Section 3.7 hereof, or to enter Judgment by Confession in Eviction
for possession of real property pursuant to Section 17 hereof, if Landlord shall
first cause to be filed in such action an affidavit or averment or the facts
constituting the default or occurrence of the condition precedent, or event, the
happening of which default, occurrence, or event authorizes and empowers
Landlord to cause the entry of judgment by confession, such affidavit or
averment shall be conclusive evidence of such facts' defaults, occurrences,
conditions precedent, or events; and if a true copy of this Lease (and or the
truth of which such affidavit or averment shall be sufficient evidence) be filed
in such procedure or action, it shall not be necessary to file the original as
evidence, any rule of court, custom, or practice to the contrary
notwithstanding.
Tenant hereby releases to Landlord and to any and all attorneys who may
appear for Tenant all errors in any procedure or action to enter Judgment by
Confession by virtue of the sections contained in this Lease, and all liability
thereof. Tenant further authorizes the Prothonotary or any Clerk of any Court of
Record to issue a Writ of Execution or other process, and further agrees that
real estate may be sold on a Writ of Execution or other process. If proceedings
shall be commenced to recover possession of the Demised Premises either at the
end of the term or sooner termination of this Lease, or for non-payment of rent
or for any other reason, Tenant specifically waives the right to the statutory
notice periods, and agrees that ten (10) days' notice shall be sufficient in
either or any such case.
The right to enter judgment against Tenant by confession and to enforce
all of the other provisions of this Lease herein provided for may at the option
of any assignee of this Lease, be exercised by any assignee of Landlord's right,
title and interest in this Lease in his, her, or their own name, any statute,
rule of court, custom, or practice to the contrary notwithstanding.
All of the remedies hereinbefore given to Landlord and all rights and
remedies given to it by law and equity shall be cumulative and concurrent. No
determination of this Lease or the taking or recovering possession of the
premises shall deprive Landlord of any of its remedies or actions against the
Tenant for rent due at the time or which, under the terms hereof would in the
future become due as if there had been no determination, nor shall the bringing
of any action for rent or breach of covenant, or the resort to any other remedy
herein provided for the recovery of rent be construed as a waiver of the right
to obtain possession of the premises.
C. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy herein or by law provided,
but each shall be cumulative and in addition to every other right or remedy
given herein or now or hereafter existing at law or in equity or by statute.
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D. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Landlord, in its sole and absolute
discretion, shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for in law or in equity.
E. No waiver by Landlord of any breach by Tenant of any Tenant's
obligations, agreements or covenants herein shall be a waiver of any subsequent
breach or of any obligation, agreement or covenant, nor shall any forbearance by
Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of
any rights and remedies with respect to such or any subsequent breach.
18. Quiet Enjoyment. Upon paying the Minimum Annual Rental, Additional Rent, and
other charges and sums herein provided for, and upon Tenant's observance and
keeping of all the covenants, agreements and conditions of this Lease, Tenant
shall quietly have and enjoy the Demised Premises during the term of this Lease
without hindrance or molestation by anyone claiming by or through Landlord;
subject, however, to the terms, exceptions, reservations and conditions of this
Lease.
19. No Waiver. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more agreements, terms,
covenants, conditions, or obligations of this Lease, or to exercise any right,
remedy or election therein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease or of the right to exercise such right, remedy or election, with
respect to any subsequent breach, act, or omission. The manner of enforcement or
the failure of Landlord to enforce any of the covenants, conditions, rules and
regulations set forth herein or hereafter adopted, against any tenant in the
Building shall not be deemed a waiver of any such covenants, conditions, rules
and regulations.
20. Attornment and Subordination.
A. Subject to the provisions in subsection B hereof, this Lease, and
the rights of Tenant hereunder, shall be subject or subordinate to any mortgages
which now are or may hereafter be placed upon the Property or any portion
thereof (a "mortgage") or any interest therein or to any leases (hereinafter
called "underlying leases") of the Property as a whole which now exist or may
hereafter be made (any holder of any such mortgage, or landlord with respect to
any underlying lease being hereinafter called an "Interested Party"). The terms
of this Subordination shall be self-operative; provided, however, that Tenant
shall execute such documents as may be requested by Landlord in order to confirm
this Subordination from time to time. Any failure by Tenant to execute any such
documents shall be a default hereunder.
B. Upon the request of Tenant, any Interested Party shall provide to
Tenant its written agreement providing substantially as follows: so long as
Tenant has not defaulted under this Lease (I) Tenant's rights shall not be
terminated or disturbed by reason of any foreclosure of such mortgage or
termination of such underlying lease; (II) in the event that the property
containing the Demised Premises is sold or otherwise disposed of pursuant to any
right or power contained in or existing by reason of any such mortgage or the
bond, note or debt secured thereby, the purchaser thereof or other person
acquiring title thereto through or by virtue of such sale or other disposition
shall take title thereto subject to this Lease and all rights of Tenant
hereunder; (III) upon termination of any such underlying lease, that lessor
shall accept Tenant's attornment upon all the terms and conditions of this Lease
for the balance of the term hereof. Any such written agreement shall also
reserve to the Interested Party the rights specified in section D hereof.
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C. Upon any foreclosure sale on any such mortgage or termination of any
underlying lease, if the holder of the mortgage or other purchaser at
foreclosure sale or any lessor with respect to any underlying lease shall so
request, Tenant shall attorn to such holder, purchaser or lessor as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such holder, purchaser or lessor may reasonably request to evidence such
attornment. Upon such attornment, this Lease shall continue in full force and
effect as a direct lease between such holder, purchaser or lessor and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease.
D. In the event that the holder of such mortgage or the lessor under
such underlying lease shall succeed to the interest of Landlord hereunder, such
Interested Party shall not be: (1) liable for any act or omission of any prior
landlord (including Landlord); (ii) liable for the return of any Security
Deposit not actually received by it; (iii) subject to any offsets or defenses
which Tenant might have against any prior landlord (including Landlord); (iv)
bound by any Rent or Additional Rent which Tenant might have paid for more than
the current month to any prior landlord (including Landlord); or (v) bound by an
amendment or modification of this Lease made without its written consent.
E. Within ten (10) days after written request from Landlord from time
to time, Tenant shall execute and deliver to Landlord, or Landlord's designee, a
written statement certifying, (i) that, this Lease is unmodified and in full
force and effect, or is in full force and effect as modified and stating the
modifications; (ii) the amount of Minimum Annual Rent and the date to which
Minimum Annual Rent and Additional Rent have been paid in advance; and (iii)
that Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default; (iv) the amount of Security
Deposit Landlord is holding and (v) any options to renew or purchase that Tenant
may have. Within ten (10) days after written request from Tenant from time to
time, Landlord shall execute and deliver to Tenant, or Tenant's designee, a
written statement certifying, (i) that this Lease is unmodified and in full
force and effect, or is in full force and affect as modified and stating the
modification; (ii) the amount of Minimum Annual Rent and the date to which
Minimum Annual Rent and Additional Rent have been paid in advance; and (iii)
that Tenant is not in default hereunder, or if Tenant is claimed to be in
default, stating the nature of any claimed default.
21. Notices. All bills, statements, notices or communications which either party
hereto may desire or be required to give to the other shall be deemed
sufficiently given or rendered if in writing and either hand delivered to
Landlord or Tenant or sent by registered or certified mail or overnight courier,
postage prepaid, addressed to Landlord or Tenant at the address set forth on the
first page hereof or any other address pursuant to notice given as herein set
forth. Any notices given in accordance with the Lease shall be deemed to be
given when the same is hand delivered to the other party, deposited with the
overnight courier or three (3) days after depositing in the mail, as the case
may be.
22. Holding Over. Should Tenant continue to occupy the Demised Premises after
expiration of the term of this Lease or any renewals thereof, or after a
forfeiture incurred such tenancy shall (without limitation on any of Landlord's
rights or remedies therefore) be one at sufferance from month to month at a
minimum monthly rent equal to twice the rent payable for the previous month of
the term of this Lease.
23. Brokers. Tenant represents and warrants that it has not employed any broker
or agent as its representative in the negotiation for or the obtaining of this
Lease other than Landlord's leasing agent, and agrees to indemnify and hold
Landlord harmless from and against any and all cost or liability for
compensation claimed by any broker or agent other than Landlord's leasing agent
with whom it has dealt or claimed to have been engaged by Tenant.
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24. Definitions of Landlord and Tenant.
A. The word "Tenant" as used in this Lease shall be construed to mean
tenants in all cases where there is more than one tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships, or individuals, men or women, shall in all cases be
assumed as through in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, bind and inure to the benefit of
Tenant and its heirs, legal representatives, successors and assigns, provided
that this Lease shall not inure to the benefit of any assignee, heir, legal
representative, transferee or successor of Tenant except upon the express
written consent or election of Landlord, except as herein otherwise provided.
B. The term "Landlord" as used in this Lease shall mean the fee owner
of the entire Property or, if different, the party holding and exercising the
right, as against all others (except space tenants of Building) to possession of
the entire Property. In the event of voluntary or involuntary transfer of such
ownership or right to a successor in interest of Landlord, Landlord shall be
freed and relieved of all liability and obligation hereunder which shall
thereafter accrue (and, as to any unapplied portion of Tenant's Security
Deposit, Landlord shall be relieved of all liability therefore upon transfer of
such portion to its successor in interest) and Tenant shall look solely to such
successor in interest for the performance of the covenants and obligations of
Landlord hereunder which shall thereafter accrue. Notwithstanding the foregoing,
no mortgagee or ground lessor which shall succeed to the interest of Landlord
hereunder (either in terms of ownership or possessory rights) shall: (1) be
liable for any previous act or omission of a prior landlord; (2) be subject to
any rental offsets or defenses against a prior landlord; (3) be bound by any
amendment of this Lease made without its written consent, or by payment by
Tenant of rent in advance in excess of one (1) month's rent; or (4) be liable
for any Security Deposit not actually received by it. Subject to the foregoing,
the provisions hereof shall be binding upon and inure to the benefit of the
heirs, personal representatives, successors and assigns of Landlord. In no event
shall the liability of Landlord to Tenant hereunder exceed Landlord's interest
in the Property. Tenant agrees that no judgment arising from any default of
Tenant's agreements under the terms of this Lease or by reason of any willful or
negligent act of Landlord and its Building manager, and their employees,
officers, agents and independent contractors, shall attach against any property
of Landlord other than the Property, and in no event shall any such judgment
constitute a lien upon any other lands or properties owned by Landlord
wheresoever located. Neither shall any such judgment attach or constitute a lien
against any property of any principal or partner of the Landlord, or of their
heirs, executors, administrators, successors or assigns.
25. Prior Agreements; Amendments. Neither party hereto has made any
representations or promises except as contained herein. No agreement hereinafter
made shall be effective to change, modify, discharge or effect an abandonment of
this Lease, in whole or in part, unless such agreement is in writing and signed
by the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
26. Captions. The caption of the paragraphs in this Lease are inserted and
included solely for convenience and shall not be considered or given any affect
in construing the provisions hereof.
27. Construction of Lease. If any term of this Lease, or the application thereof
to any person or circumstances, shall to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
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28. Mechanic's Liens, etc.
A. Tenant, shall comply with the Mechanic's Lien Law of the State of
Florida as set forth in Florida Statutes, Chapter 713. Tenant will not create or
permit to be created or remain as a result of any action or work done or
contracted for by Tenant, and will discharge, any lien, encumbrance or charge
(levied on account of any imposition or any mechanic's, laborer's or
materialman's lien) which might be or become a lien, encumbrance or charge upon
the Property, the Demised Premises or any part thereof or the income therefrom,
whether or not the same shall have any priority or preference over or ranking on
a parity with the estate, rights and interest of Landlord in the Property, the
Demised Premises or any part thereof, or the income therefrom, and Tenant will
not suffer any other matter or thing whereby the estate, rights and interest of
Landlord in the Property, the Demised Premises or any part thereof might be
impaired; provided that any mechanic's, laborer's or materialmen's lien may be
discharged in accordance with Subparagraph B of this Paragraph 28.
B. If any mechanic's, laborer's or materialman's lien shall at any time
be filed against the Building, the Demised Premises or any part thereof as a
result of any action or work done on behalf of or contracted for by Tenant,
Tenant, within fifteen (15) days after notice of the filing thereof, will cause
it to be discharged or record by payment, deposit, bond, order of the court of
competent jurisdiction or otherwise. If Tenant shall fail to cause such lien to
be discharged within the period aforesaid, then in addition to any other right
or remedy, Landlord may, but shall not be obligated to, discharge it either by
paying the amount claimed to be due or by transferring same to security, and in
any such event, Landlord shall be entitled, if Landlord so elects, to compel
prosecution of any action for the foreclosure of such lien by the lienor and to
pay the amount of the judgment in favor of the lienor with interest costs and
allowances. Any amount so paid by Landlord and all costs, expanses, and fees
including without limitation attorneys' fees, incurred by Landlord in connection
with any mechanic's, laborer's or materialman's lien, whether or to the same has
been discharged of record by payment, deposit, bond, order of the court of
competent jurisdiction or otherwise, together with interest thereon, at the
maximum rate permitted by law, from the respective dates of Landlord's making of
the payments and incurring of the costs and expenses, shall constitute
Additional Rent payable by Tenant to Landlord upon demand.
C. Nothing contained in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied by
inference or otherwise, to any contractor, subcontractor, laborer or materialman
for the performance of any labor or the furnishing of any materials for any
alteration, addition, improvement or repair to the Property, the Demised
Premises or any part thereof, nor as giving Tenant any right, power or authority
to contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any lien against, the Property,
the Demised Premises or any part thereof, nor to subject Landlord's estate in
the Property to liability under the Mechanic's Lien Law of the State of Florida
in any way, it being expressly understood that Landlord's estate shall not be
subject to any such liability.
D. Notwithstanding any provision to the contrary set forth in this
Lease, it is expressly understood and agreed that the interest of the Landlord
shall not be subject to liens for improvements made by Tenant in and to the
Demised Premises, Tenant shall notify each and every contractor making any such
improvements of the provision set forth in the preceding sentence of this
paragraph. The parties agree to execute, acknowledge and deliver to Landlord
without charge a Mechanic's Lien Notice, in recordable form, containing a
confirmation that the interest of the Landlord shall not be subject to liens for
improvements made by Tenant to the Property or the Demised Premises.
29. Certain Rights Reserved to Landlord. Landlord reserves the following rights:
A. Building Name. To name the Building and to change the name or
street address of the Building.
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B. Exterior Signs. To install and maintain a sign or signs on the
exterior of the Building.
C. Redecoration. During the last ninety (90) days of the term, if
during or prior to that time Tenant has vacated the Demised Premises, to
decorate, remodel, repair, alter or otherwise prepare the Demised Premises for
re-occupancy, without affecting Tenant's obligation to pay Minimum Annual
Rental, Additional Rent and all other sums due under the terms of this Lease.
D. Pass Keys. To constantly have pass keys to the Demised Premises.
E. Adjoining Areas. The use and reasonable access thereto through the
Demised Premises for the purposes of operation, maintenance, decoration and
repair of all walls, windows and doors bounding the Demised Premises (including
exterior walls of the Building, core corridor walls and doors and any core
corridor entrance) except the inside surface thereof, any terraces or roofs
adjacent to the Demised Premises and any space in or adjacent to the Demised
Premises used for shafts, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other facilities are reserved to Landlord.
F. Common Areas and Parking Facilities. The exclusive right to manage
the Common Areas and the Parking Facilities.
30. Landlord's Lien. In addition to any statutory Landlord's Lien, Landlord
shall have, at all times, a valid security interest to secure payment of all
Minimum Annual Rental, Additional Rent, and other sums of money becoming due
hereunder from Tenant, and to secure payment of any damages or loss which
Landlord may suffer by reason of the breach by Tenant of any covenant, agreement
or condition contained herein, upon all goods, wares, equipment, fixtures,
furniture, types, improvements and other personal property of Tenant presently
or which may hereinafter be situated in the Demised Premises, and all proceeds
therefrom, and such property shall not be removed therefrom without the consent
of Landlord until all arrearages in Minimum Annual Rental, Additional Rent, and
all other sums of money then due to Landlord hereunder shall first have been
paid and discharged and all of the covenants, agreements, and conditions hereof
have been fully complied with and performed by Tenant. In consideration of this
Lease, upon the occurrence of any event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter upon the Demised Premises
and take possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant situated on or in the Demised
Premises, without liability for trespass or conversation, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place or any public sale or of
the time after which any private sale is to be made, at which sale the Landlord
or its assigns may purchase the above described Property unless otherwise
prohibited by law. Unless otherwise provided by law, and without intending to
exclude any other manner of giving Tenant reasonable notice, the requirement of
reasonable notice shall be met if such notice is given in the manner prescribed
in Paragraph 20 of this Lease at least five (5) days before the time of sale.
The proceeds from any such disposition, less any and all expenses connected with
the taking of possession and selling of the property (including reasonable
attorney's fees and other expenses) shall be applied as a credit against the
indebtedness secured by the security interest granted in this Paragraph 29. Any
surplus shall be paid to Tenant or as otherwise required by law, and Tenant
shall pay any deficiencies upon demand. Upon request by Landlord, Tenant agrees
to execute and deliver to Landlord a financing statement in form sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force in
the state of Florida. Any statutory lien for Rent is not hereby waived, the
security interest herein granted being in addition and supplementary thereto.
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31. Rules and Regulations. Tenant covenants and agrees that it shall comply with
and observe all nondiscriminatory, uniformly applied reasonable rules and
regulations ("Rules and Regulations") which Landlord shall from time to time
promulgate for the management and use of the Demised Premises, the Building and
the Parking Facilities. Landlord's initial Rules and Regulations are set forth
on Exhibit "E" attached hereto and made a part hereof. Landlord shall have the
right from time to time to reasonably amend or supplement the Rules and
Regulations theretofore promulgated.
32. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE ANY AND ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM, OR SUBSEQUENT
PROCEEDING, BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES, THE BUILDING OR THE PARKING
FACILITIES AND/OR ANY CLAIM OF INJURY OR DAMAGE.
33. Radon Gas. Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of Radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding Radon and Radon testing may be obtained from your county public health
unit.
34. No Option. The submission of this Lease to Tenant for examination does not
constitute a reservation of or option for the Demised Premises and this Lease
becomes effective as a lease only upon execution and delivery thereof by the
Landlord and Tenant.
35. Force Majeure. Notwithstanding anything to the contrary contained herein,
Landlord shall not be deemed in default with respect to the delivery of the
Demised Premises or any other obligation of Landlord hereunder, if Landlord's
inability to perform is due to any strike, lockout, civil commotion, warlike
operation, invasion, rebellion, hostilities, military or usurped power,
governmental regulation, moratoriums or controls, acts of God or any other cause
beyond the control of Landlord, provided that such cause is not due to the
willful act or negligence of Landlord.
Landlord and Tenant understand, agree, and acknowledge that: This Lease
has been freely negotiated by both parties; and that, in any controversy,
dispute, or contest over the meaning, interpretation, validity, or
enforceability of this Lease or any of its terms or conditions, there shall be
no inference, presumption, or conclusion drawn whatsoever against either party
by virtue of that party having drafted this Lease or any portion thereof.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the
day and year first aforesaid.
Signed, sealed and delivered LANDLORD:
in the presence of: CANPRO INVESTMENTS LTD.
By:
Authorized Officer
TENANT:
NATIONAL AUTO FINANCE COMPANY, L.P.
By:
Authorized Officer
27
<PAGE>
EXHIBIT "A"
Legal Description
Parcel 2 - Office Building Site
(O.R.B. 4312 PG. 1726)
A portion of section 6, Township 47 south, Range 43 East, Palm Beach County,
Florida, being more particularly described as follows:
Commencing at the South one quarter of said section 6: Thence North 00) 58'48"
East, along said North-South quarter line, a distance of 664.54 feet, Thence
south 89) 41'52" East, a distance of 347.76 feet: Thence, south 89) 41'52" East,
a distance of 347.49 feet: Thence North 01) 00'11" East, a distance of 30.00
feet to the point of beginning of this description: Thence continue North 01)
00'11" East, a distance of 634.46 feet: thence South 89) 41'01" East, a distance
of 347.76 feet: Thence South 01) 01'35" West, a distance of 522.29 feet: Thence
south 72) 29'41" West, a distance of 366.48 feet to the point of beginning:
together with the following described parcel:
Commencing at the South one quarter of said section 6: thence North 00) 58'48"
East along the North-South quarter line, a distance of 664.54 feet: thence south
89) 41'52" East a distance of 347.49 feet: Thence North 01) 00'11" East, a
distance of 30.00 feet: Thence North 72) 29'41" East, a distance of 366.48 feet
to the point of beginning of this description: Thence South 01) 01'35" West, a
distance of 41.33 feet to a point on the right-of-way line of the seaboard
coastline railroad, that is now laid out and in use: Thence North 45) 35'19"
East, a distance of 596.03 feet to the point of curvature of a circular curve to
the left: Thence Northerly and Easterly along the arc of said curve, having a
radius of 3365.62 feet, and an arc distance of 0.25 feet to a point on the
Easterly boundary of the Lake Worth drainage district: the last two described
courses being coincident with said right-of-way line: thence North 17) 26'44"
West, a distance of 40.08 feet: thence North 44) 26"44" West, a distance of
141.82 feet: the last two described courses being coincident with the Easterly
boundary of the Lake Worth drainage district: Thence north West, a distance of
522.29 feet to the point of beginning: less and except therefrom the following
described parcel:
Commencing at the South one quarter of said section 6: Thence North 00) 58'48"
East along said North-South quarter line, a distance of 664.54 feet: Thence
south 89) 41'%2" East, a distance of 347.49 feet: Thence North 01) 00'11" East,
a distance of 242.48 feet to the point of beginning of this description: Thence
continue North 01) 00'11" East, a distance of 421.98 feet: Thence South 89)
41'01" East, a distance of 98.61 feet: thence, South 00) 18'59" West, a distance
of 97.55 feet: Thence, south 89) 41'01" East, a distance of 81.73 feet: Thence
south 44) 24'41" East, a distance of 100.00 feet: Thence South 45) 35'19" West,
a distance of 245.00 feet: Thence South 44) 24'41" East, a distance of 65.00
feet: Thence South 45) 35'19" West, a distance of 80.00 feet: Thence North 44)
24'41" West, a distance of 65.00 feet: Thence South 45) 35'19" West, a distance
of 35.00 feet to the point of beginning.
Said lands situate, lying, and being in Palm Beach County, Florida, and subject
to all easements, reservations, and right-of-way of record.
Together with (a) non-exclusive easements for ingress and egress for pedestrian
and vehicular traffic, and for the installation and maintenance of utility lines
and appurtenances over, across and under Parcel R-1, parcel R-2, parcel R-2A,
parcel R-3, APOC II roads and parcel R-3A to the extent that a portion of parcel
R-3A is not located within the insured lands: and (B) a non-exclusive easement
for water retention, water management and drainage purposes over, across and
under all lakes, water retention areas and drainage easements or areas
established within the total Arvida Property, all as more particularly described
and defined in that certain
A-1
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Agreement for and Grant of Easements and Other Rights, dated September 8, 1982
and recorded in official Records Book 3788, page 1058: as supplemented by
Supplemental Agreement dated September 8, 1982 and recorded in Official Records
Book 3788, page 1095: and as amended by Reconfirmation and Regrant of Easements
and Other Rights dated September 19, 1983 and recorded in Official Records Book
4041, page 1854 and as further amended by Amendment to Agreement for and Grant
of Easements and Other Rights dated April 18, 1984 and recorded in Official
Records book 43212, page 1721 all of the Public Records of Palm Beach County,
Florida.
And, further together with all of the non-exclusive, access easements, parking
easements and utility easements, over the comon areas located within the
perimetrical boundaries of the Park Place Royale lands as set forth in exhibit
"1" attached hereto, as contained in that certain Common Area Operations and
Reciprocal easement Agreement, dated May 30, 1984 and recorded in Official
Records Book 4259, page 1548, as amended by First Amendment to Common Area
Operation and Reciprocal Easement Agreement, dated August 29, 1984 and recorded
in Official Records Book 4341, page 258 and further amended by Second amendment
to common Area Operation and reciprocal Easement Agreement, recorded in Official
Records Books 6403, page 553 all of the public records of Palm Beach County,
Florida.
A-2
<PAGE>
EXHIBIT "B"
B-1
<PAGE>
EXHIBIT "C"
Parking Space Schedule
Tenant shall be permitted to use undercover and/or covered parking spaces based
upon availability.
All said parking spaces shall be in areas designated by Landlord and are subject
to relocation by Landlord at any time. Landlord will not monitor the parking
spaces nor the Parking Facilities and shall have no liability to Tenant, its
employees, agents, licensees or invitees for any damages to or loss of vehicles,
automobiles, or accessories, or the contents thereof, caused by fire, theft,
collision or any other cause whatsoever.
C-1
<PAGE>
"EXHIBIT D"
Cleaning Specifications
Daily (Five times a week)
1. Dust mop (treated) composition floors.
2. Spot mop for spillage on composition floors.
3. Sight vacuum all carpets.
4. Heavy traffic areas to be vacuumed completely.
5. Empty and wipe clean all waste receptacles.
6. Gather all trash and remove to designated areas.
7. Clean all tenant rest rooms as per rest room schedule.
D-1
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EXHIBIT "E"
[PAGE 34 MISSING]
1.
2.
3.
4.
5.
6.
7.
A.
B.
or of the acts or omissions of any person or persons engaged in the operation
thereof, or in the acceptance, holding, handling or dispatch, or any error,
negligence or delay therein.
C. Landlord may from time to time make and amend regulations for the orderly and
efficient operation of the delivery facilities for the Building, and may require
of reasonable and equitable charges for delivery services provided by Landlord.
D. No furniture may be moved in or out of the Building without prior consent of
Landlord. Arrangements for the moving must be made with Landlord's office and
must be supervised by Landlord's representative. Tenant agrees to pay for any
and all damages to any part of the Building or Demised Premises because of such
moving, by either Tenant, its agents or movers. No moving shall be permitted
except between the hours of 8:00 a.m. and 5:00 p.m., Monday through Friday.
Reasonable charges will be made for the use of material and office building
personnel including supervision, needed to assist in the Tenant's move in,
within, or out of the Building.
8. OBSTRUCTIONS. Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells or other common areas of the Building, or use such locations for any
purpose except access to and exit from the Demised Premises without Landlord's
prior written consent, Landlord may remove at Tenant's expense any such
obstruction or item (unauthorized by Landlord) without notice or obligation to
Tenant. Additionally, Tenant shall not permit its employees, agents, invitees,
or customers to loiter, sleep, assemble or congregate within any common areas or
grounds of the Building.
E-1
<PAGE>
9. ODORS. Tenant shall not permit any odors of cooking or other processes, or
any unusual or other objectionable odors to permeate in or emanate from the
Demised Premises.
10. PARKING. Tenant shall ensure that its employees, customers, clients, guests,
invitees and licensees comply with the following parking regulations, and
acknowledges that such regulations shall be strictly enforced by Landlord.
A. The designated area on the first floor of the Parking Facilities
shall be used only by guests, clients and customers of the tenants of the
Building.
B. The other areas of the Parking Facilities shall be used only by the
employees of tenants of the Building.
C. All service vehicles (including those engaged in deliveries, loading
and unloading) must park only in the designated service parking area. Parking in
the service parking area shall be limited to a maximum of one (1) hour,
provided, however, that a tenant may make arrangements with the Landlord for
longer parking periods when moving in or moving out of the Building.
D. Landlord reserves the right to control the method, manner and time
of parking in the Parking Facilities.
E. In the event of any violation of the parking regulations, Landlord
shall have the right to post a notice of violation on the offending vehicle and
to tow the offending vehicle (regardless of whether the vehicle to owned by a
Tenant or any party, including any employee, customer, client, invitee or
licensee or a Tenant), and to charge the expense thereof to the applicable
Tenant as Additional Rent, or terminate the Tenant's license to park in the
Parking Facilities. In the event of continued violations of these Regulations,
and after notice to the Tenant, the Landlord may assess a charge of twenty
dollars ($20.00) against the Tenant for each violation, which shall be payable
as Additional Rent.
11. PROPER CONDUCT. Tenant, its employees and invitees, shall not conduct
themselves in any manner which is inconsistent with the character of the
Building as a first quality Building or which will impair the comfort and
convenience of other tenants in the Building.
12. PERSONAL USE OF PREMISES. The Demised Premises shall not be used or
permitted to be used for residential, lodging or sleeping purposes, or for the
storage of personal effects or property not required for business purposes.
13. REFUSE. Tenant shall place all refuse in proper receptacles provided by
Tenant at its expense in the Demised Premises, or in receptacles (if any)
provided by Landlord for the Building, and shall keep sidewalks and driveways
outside the Building, and lobbies, corridors, stairwells, ducts and shafts of
the Building free of all refuse.
14. SIGNS. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
Demised Premises or the Building (or on the inside of the Demised Premises if
the same is visible from the outside of the Demised Premises) without the prior
written consent of Landlord, except that the name of the Tenant may appear on
the entrance door of the Demised Premises. In the event of the violation of the
foregoing by any Tenant, Landlord may remove same without any liability, and may
charge the expense incurred by such removal to the Tenant violating this Rule.
All signs and
E-2
<PAGE>
lettering, including the Building directory, shall be inscribed, painted or
affixed for each Tenant by Landlord at the expense of such Tenant, and shall be
of a size, color and style acceptable to Landlord.
15. SOLICITATIONS. Landlord reserves the right to prohibit canvassing,
soliciting or peddling in the Building but shall not be in any manner liable for
any such acts within or about the Building.
16. WATER FIXTURES. Tenant shall not use water fixtures for any purposes for
which they are not intended, nor shall water be wasted by tampering with such
fixtures. Any cost or damage resulting from such misuse by Tenant shall be paid
for by Tenant.
17. WINDOWS. The Tenant acknowledges the importance of the exterior glass to the
architectural integrity of the Building, and agrees to observe Landlord's rules
with respect to maintaining at all windows in the Demised Premises so that the
Building presents a uniform exterior appearance. Tenant shall not install any
window shades, drapes, covers or other materials on or at any window in the
Demised Premises without Landlord's prior consent, Landlord shall have the right
to approve the color, design and all materials of window treatments. Further, no
window treatments which may be installed by Landlord shall be removed or altered
by Tenant
18. PUBLIC ACCESS. Landlord reserves the right at all times to exclude the
general public from the Building upon such days and at such hours as in
Landlord's sole judgment will be in the best interest of the Building and its
tenants.
19. WIRES. No wires of any kind or type (including but not limited to T.V. and
radio antennas) shall be attached to the outside of the Building and no wires
shall be run or installed in any part of the Building without Landlord's prior
written consent.
20. LOCKS. No lock or similar devices shall be attached to any door or window in
the Demise Premises without Landlord's prior written consent. In the event
Tenant installs locks incompatible with the Building Master Locking System:
A. Landlord without abatement of Rent, shall be relieved of any
obligation to provide any service whatsoever to areas so restricted;
B. Tenant shall indemnify Landlord against any expense as a result of
forced entry into any areas so restricted which may be required in an emergency;
C. Tenant shall at the and of the term remove such locks at Tenant's
expense.
E-3
<PAGE>
EXHIBIT "F"
Environmental Impact Provisions
SECTION A. Compliance with Law.
Tenant, at, Tenant's expense shall comply with all laws, rules, orders,
ordinances, directions, regulations and requirements of federal, state, county
and municipal authorities pertaining to Tenant's use of the Premises and with
the recorded covenants, conditions and restrictions, regardless of when they
become effective, including, without limitation, all applicable federal, state
and local laws, regulations or ordinances pertaining to air and water quality,
Hazardous Materials (as hereinafter defined), waste disposal, air emissions and
other environmental matters, all zoning and other land use matters, and utility
availability, and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Landlord or Tenant with respect to the
use or occupation of the Premises.
SECTION B. Use of Hazardous Material.
1. Tenant shall not cause or permit any hazardous material to be brought upon,
kept or used in or about the Premises by Tenant, its agents, employees,
contractors or invitees. If Tenant breaches this obligation, the Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses including, without
limitation, diminution in value of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Building, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorney's fees, consultant fees and expert
fees which arise during or after the term of the Lease as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under the
Demised Premises. Without limiting the foregoing, if the presence of any
Hazardous Material on the Demised Premises caused by tenant results in any
contamination of the Demised Premises, Tenant shall promptly take all actions at
its sole expense as are necessary to return the Demised Premises to the
conditions existing prior to the introduction of any such Hazardous Material to
the Demised Premises; provided that Landlord's approval of such actions shall
first be obtained, which approval shall not be unreasonably withhold so long as
such actions would not potentially have any material adverse long-term or
short-term effect on the Demised Premises. The foregoing indemnity shall survive
the expiration or earlier termination of this Lease.
2. As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste, including, but not limited to, those substances,
materials, and wastes listed in the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (140 CFR Part 302) and amendments thereto, or
such substances, materials and wastes that are or become regulated under any
applicable local, state or federal law.
3. Inspection. Landlord and its agents shall have the right, but not the duty,
to inspect the Demised Premises at any time to determine whether Tenant is
complying with the terms of this Lease. If Tenant is not in compliance with this
Lease, Landlord shall have the right to immediately enter upon the Premises to
remedy any contamination caused by Tenant's failure to comply notwithstanding
any other provision of the Lease. Landlord shall use its best efforts to
minimize interference with Tenant's business but shall not be liable for any
interference caused thereby.
F-1
<PAGE>
4. Default. Any default under this paragraph shall be a material default
enabling Landlord to exercise any of the remedies set forth in this Lease.
F-2
<PAGE>
EXHIBIT "G"
Environmental Impact Provisions
Section A. Compliance with Law.
Tenant, at, Tenant's expense shall comply with all laws, rules, orders,
ordinances, directions, regulations and requirements of federal, state, county
and municipal authorities pertaining to Tenant's use of the Premises and with
the recorded covenants, conditions and restrictions, regardless of when they
become effective, including, without limitation, all applicable federal, state
and local laws, regulations or ordinances pertaining to air and water quality,
Hazardous Materials (as hereinafter defined), waste disposal, air emissions and
other environmental matters, all zoning and other land use matters, and utility
availability, and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Landlord or Tenant with respect to the
use or occupation of the Premises.
Section B. Use of Hazardous Material.
1. Tenant shall not cause or permit any hazardous material to be brought upon,
kept or used in or about the Premises by Tenant, its agents, employees,
contractors or invitees. If Tenant breaches this obligation, the Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses including, without
limitation, diminution in value of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Building, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorney's fees, consultant fees and expert
fees which arise during or after the term of the Lease as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under the
Demised Premises. Without limiting the foregoing, if the presence of any
Hazardous Material on the Demised Premises caused by tenant results in any
contamination of the Demised Premises, Tenant shall promptly take all actions at
its sole expense as are necessary to return the Demised Premises to the
conditions existing prior to the introduction of any such Hazardous Material to
the Demised Premises; provided that Landlord's approval of such actions shall
first be obtained, which approval shall not be unreasonably withhold so long as
such actions would not potentially have any material adverse long-term or
short-term effect on the Demised Premises. The foregoing indemnity shall survive
the expiration or earlier termination of this Lease.
2. As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste, including, but not limited to, those substances,
materials, and wastes listed in the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (140 CFR Part 302) and amendments thereto, or
such substances, materials and wastes that are or become regulated under any
applicable local, state or federal law.
3. Inspection. Landlord and its agents shall have the right, but not the duty,
to inspect the Demised Premises at any time to determine whether Tenant is
complying with the terms of this Lease. If Tenant is not in compliance with this
Lease, Landlord shall have the right to immediately enter upon the Premises to
remedy any contamination caused by Tenant's failure to comply notwithstanding
any other provision of the Lease. Landlord shall use its best efforts to
minimize interference with Tenant's business but shall not be liable for any
interference caused thereby.
G-1
<PAGE>
4. Default. Any default under this paragraph shall be a material default
enabling Landlord to exercise any of the remedies set forth in this Lease.
G-2
<PAGE>
GUARANTY
FOR VALUE RECEIVED and in consideration for and as an inducement of
Landlord making the attached Lease with Tenant, the undersigned, on behalf of
himself, his legal representatives, heirs, successors and assigns, as principal
and not as a surety, guarantees to Landlord, Landlord's successor and assigns,
the full performance and observance of all the provisions therein provided to be
performed and observed by Tenant, without requiring any notice of non-payment,
non-performance, or non-observance, or proof, or notice, or demand, whereby to
charge the undersigned therefor, all of which the undersigned hereby expressly
waives and expressly agrees that the validity of this agreement and the
obligations of the guarantor hereunder shall not be terminated, affected or
impaired by reason of the assertion by Landlord against Tenant of any of the
rights or remedies reserved to Landlord pursuant to the provisions of the within
Lease. The undersigned further covenants and agrees that this Guaranty shall
remain and continue in full force and effect as to any renewal, modification,
extension, assignment or sublease of this Lease. AS A FURTHER INDUCEMENT TO
LANDLORD TO MAKE THIS LEASE AND IN CONSIDERATION THEREOF, LANDLORD AND THE
UNDERSIGNED AGREE THAT IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER LANDLORD OR
THE UNDERSIGNED AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF,
UNDER, OR BY VIRTUE OF THE TERMS OF THIS LEASE OR OF THIS GUARANTY, THAT
LANDLORD AND THE UNDERSIGNED SHALL AND DO HEREBY WAIVE TRIAL BY JURY. In the
event Landlord incurs any expenses in the enforcement of this Guaranty, whether
legal action be instituted or not, the undersigned agrees to be liable for same
(including reasonable attorney's fees and costs) and to pay same promptly on
demand by Landlord. This Guaranty when signed by more than one party, their
obligations shall not be joint and several and the release of one of such
Guarantors shall not release any other of such Guarantors.
WITNESSES: GUARANTOR:
MASTER LEASE AGREEMENT
LESSOR: NOVA CORPORATION
ADDRESS: 621 NW 53rd Street, Suite 320
Boca Raton, FL 33487
LESSEE: NATIONAL AUTO FINANCE COMPANY L.P.
ADDRESS: 621 NW 53rd Street, Suite 200
Boca Raton, FL 33487
AGREEMENT DATE: September 1, 1995
This contract is a Master Lease Agreement. The terms of each Equipment Schedule
("Schedule") hereto are subject to any and all conditions and provisions set
forth herein at the time of execution of such Schedule as the same may have been
amended prior to the execution of such Schedule. Each Schedule shall provide a
description of Equipment, Lease Term, Rental, Payment(s), Location of Equipment,
Commencement Date, and such other information as may be required. Each Schedule
is enforceable according to the terms and conditions contained therein and in
the event of a conflict between the language of the Master Lease Agreement and
any Schedule hereto, the language of the Schedule shall prevail in respect to
that Schedule. Each Schedule, together with the terms and conditions of this
Master Lease Agreement incorporated therein is referred to herein as the "Master
Lease Agreement". Lessor, by its acceptance hereof, hereby leases to Lessee, and
the Lessee hereby leases from Lessor, in accordance with the terms and
conditions set forth herein and in the applicable Schedule(s), the Equipment
described on the Schedule(s) and any attachments thereto (the "Equipment").
1. LEASE TERM
This Master Lease Agreement shall be effective from the date hereof. As to any
particular item of Equipment, the term shall continue as stated in the
applicable Schedule, from the respective Commencement Date, as, from time to
time, Equipment described in any Schedule is accepted by Lessee. Said term shall
be automatically extended at the monthly lease rate in effect at the end of said
term unless and until terminated by either party hereto giving the other not
less than ninety (90) days prior written notice. Acceptance ("Acceptance") shall
occur on the following applicable date: (i) in the case of Equipment acquired by
Lessor from a third party vendor, which Equipment by its nature does not require
installation, the date of delivery of the item of Equipment to Lessee; (ii) in
the case of Equipment acquired by Lessor from a third party Vendor, which
Equipment by its nature does require installation,
<PAGE>
the day the Equipment is installed, or (iii) in the case of an item of Equipment
which is the subject of a sale and leaseback between Lessor and Lessee, the date
upon which Lessor purchases such Equipment from Lessee.
2. PAYMENTS OF RENT
Unless otherwise set forth in the respective Schedule, the following shall
apply: The first rental payment shall be due upon the Acceptance of the
Equipment by Lessee, and such payment shall cover the lease month or other
period commencing on the Commencement Date. Each subsequent rental payment shall
be due and payable in advance, for the lease period covered by such payment, on
the first day thereof. In the event Acceptance occurs prior to the Commencement
Date, interim rental shall be paid by Lessee in the amount equal to a proration
on a per diem basis of the Monthly Rent, as hereinafter defined, for the period
commencing as of the date of Acceptance to the Commencement Date. All rental and
other payments by Lessee under this Lease shall be made to Lessor at its address
stated above or at such other address as Lessor may designate in writing and if
payment shall be made by check, such check shall arrive at such address on or
before the date the rental payment shall be due. Monthly rent payable with
respect to each item of Equipment ("Monthly Rent") shall be set forth for such
item in the applicable Schedule. Any and all amounts payable to Lessor hereunder
other than Monthly Rent shall be considered and referred to herein as
"Supplemental Rent." Monthly Rent, together with Supplemental Rent, shall be
referred to herein as "Rent." This Lease provides for a net lease, and the Rent
due hereunder from Lessee to Lessor shall be absolute and unconditional and
shall not be subject to any abatement, recoupment, defense, claim, counterclaim,
reduction, set-off, or any other adjustment of any kind for any reason
whatsoever.
3. ADDITIONAL SUMS PAYABLE BY LESSEE
(a) All transportation, transit insurance and other charges payable for delivery
of the Equipment to Lessee, and for installation of the Equipment, shall be paid
by Lessee.
(b Lessee shall promptly pay all costs, expenses, and obligations of every kind
and nature incurred in connection with the use, maintenance, servicing, repair
or operation of the Equipment which may arise or be payable during the lease
term of such Equipment hereunder, except as specifically provided herein, and
shall keep the Equipment in as good and efficient repair, condition and working
order as when delivered to Lessee hereunder, reasonable wear and tear from the
proper use thereof alone excepted, and shall furnish any and all parts,
mechanisms and devices required to keep the Equipment in such good and efficient
repair, condition and working order, at the expense of Lessee, and in addition
will permit the manufacturer to make all, free-of-charge engineering changes,
all so that the Equipment will remain acceptable to the manufacturer for
maintenance. Without limiting the
2
<PAGE>
foregoing, Lessee shall, during the continuance of this Lease, at its own
expense, make appropriate arrangements for maintenance of each item of
Equipment, including, without limitation, with respect to each item of Equipment
entering into and maintaining in force a contract with the manufacturer of the
Equipment or other person or entity approved in writing by Lessor covering at
least prime shift maintenance.
(c) Lessee shall indemnify and hold harmless Lessor against and shall pay all
federal, state, county or local taxes, fees or other charges, however designated
(together with any related interest or penalties not arising from negligence on
the part of Lessor), imposed or assessed against or with respect to this Lease,
Rent hereunder, the Equipment, Lessor or Lessee or payable by Lessor or Lessee
with respect to the use, lease, sale, purchase, delivery, possession, sublease
or ownership of the Equipment, excepting only (i) taxes on or to the extent
measured by the net income of Lessor, franchise taxes and gross receipts taxes
in the nature of an income tax; and (ii) sales, use or similar taxes or other
amounts paid by Lessor if, and only if, any such taxes or other amounts are
included as part of the acquisition costs of any Equipment. Lessor shall give
Lessee and Lessee shall give Lessor written notice of any event or condition
which requires indemnification by Lessee hereunder or any allegation of such
event or condition, promptly upon obtaining knowledge thereof. Lessee shall not
be obligated to pay any amount under this Section 3 so long as Lessee shall in
good faith and by appropriate proceedings contest and diligently prosecute the
validity or the amount thereof unless such contest would adversely affect the
title of the Lessor to the Equipment or would subject it to forfeiture or sale,
provided that Lessee shall make any required deposits during such contest. Upon
resolution of such contest, Lessee shall promptly pay all amounts then owing. In
case any report or return is required to be made with respect to any obligation
of Lessee arising out of this Section 3, Lessee will either make such report or
return in such manner as shall be satisfactory to Lessor or, if requested by
Lessor, furnish information to Lessor necessary to complete such report or
return by Lessor.
4. WARRANTIES
(a) Lessor hereby warrants and covenants to Lessee that so long as no Event of
Default has occurred under the applicable Schedule hereto, Lessee shall and may
quietly have, hold, and enjoy the Equipment and every part thereof leased
hereunder for the term of this Lease, as such term may be extended hereunder,
free from disturbance by Lessor or its agents, employees, successors or assigns,
or by anyone (whether the holder of a lien or otherwise) claiming solely by,
through, or under Lessor. LESSOR HAS NOT MADE AND MAKES NO, AND HEREBY EXPRESSLY
DISCLAIMS ANY OTHER, EXPRESS OR IMPLIED WARRANTY WHATSOEVER HEREUNDER, INCLUDING
ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PURPOSE, OR OTHERWISE.
REGARDING THE EQUIPMENT OR ANY PART OR THE DESIGN OR CONDITION THEREOF. Subject
to the provisions of Section 10 hereof, Lessor hereby transfers and
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assigns to Lessee during the term of this Lease, all of its right, title and
interest in any express or implied warranties and covenants of any Equipment
manufacturer or vendor which are assignable by Lessor.
(b) Lessee, at the time of execution of this Master Lease Agreement and any
Schedule hereto, hereby warrants and represents to Lessor, Secured Party, as
hereinafter defined, and their respective successors and assigns; (i) that
execution, delivery and performance of this Master Lease Agreement have been
duly authorized by all necessary corporate action on its part and are not in
conflict with its charter or bylaws, nor will constitute a breach of or default
under any indenture, contract or agreement by which it is bound, or with any
statute, judgment, decree, rule or regulation binding upon it; (ii) that no
consent or approval of any trustee or holder of any indebtedness or obligation,
and no consent or approval of, or taking of any other action with respect to,
any governmental authority, is necessary for execution, delivery or performance
of this Master Lease Agreement; (iii) that this Master Lease Agreement is legal,
valid, binding, and enforceable against the Lessee in accordance with its terms,
subject to enforcement limitations imposed by rules of equity or by bankruptcy
or similar laws; (iv) Lessee is a limited partnership validly existing and in
good standing under the laws of the jurisdiction of its formation and the
jurisdiction(s) where the Equipment will be located and has adequate power to
enter into and perform this Master Lease Agreement; and (v) there are no
actions, suits or proceedings pending or, to the knowledge of Lessee threatened
against or affecting Lessee in any court or before any governmental commission,
board or authority which, if adversely determined, will have a materially
adverse effect on the ability of Lessee to perform its obligations under this
Master Lease Agreement.
5. POSSESSION, USE AND MAINTENANCE OF THE EQUIPMENT
(a) The Equipment shall be kept by Lessee (1) subject to inspection by Lessor at
reasonable times and manner, (2) at Lessee's address, as stated on each Schedule
hereto, which Equipment shall not be relocated without prior written consent of
Lessor, which consent shall not be unreasonably withheld, (3) free of all
security interests of any kind whatever, liens, encumbrances and other claims,
except (i) those of persons claiming solely against Lessor but not Lessee on
account of obligations which Lessee is not required by this Master Lease
Agreement to discharge, (ii) liens of current taxes not delinquent (except liens
for taxes which are being contested by Lessee as provided in Section 3 hereof),
(4) marked with the manufacturer's identification marks or numbers and, if
requested by Lessor or Secured Party, conspicuously labeled with labels supplied
by Lessor or Secured Party to disclose Lessor's and any Secured Party's interest
in the Equipment, and (5) in good and efficient repair, condition and working
order, reasonable wear and tear from the proper use thereof alone excepted, and
acceptable for maintenance under the manufacturer's maintenance agreement at the
expiration of the Lease Term, if such agreement is then generally available for
the item of Equipment. Lessee will, within ten (10) business days of receiving
notice
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thereof, promptly notify Lessor in writing of any mortgage, pledge, lien,
attachment, charge, encumbrance or right of others which has arisen with respect
to the Equipment.
(b) Lessee shall use the Equipment with due care to prevent injury thereto, and
to any person or property, and in conformity with all applicable laws,
ordinances, rules, regulations and other requirements of any insurer or
governmental body and with all requirements of the manufacturer with respect to
the use, maintenance and operation of the Equipment. Except as provided below,
Lessee shall not modify any Equipment without the prior written consent of
Lessor, which consent shall not be unreasonably withheld. Lessee shall be
entitled, from time to time during the term of this Master Lease Agreement,
without written consent of Lessor, to acquire and install, at Lessee's expense,
such additional features, options or modifications as may be available at such
time which (i) shall be of the type which are readily removable without causing
material damage to the Equipment; (ii) will not impair the originally intended
function or use of the Equipment in which they are installed; and (iii) will not
interfere with Lessee's ability to obtain and maintain the maintenance contract
required by Section 3 hereof. Any such additional feature, option or
modification not removed prior to the return of the Equipment to Lessor shall
become the property of Lessor. It is the intention and understanding of both
Lessor and Lessee that the Equipment shall be and at all times remain separately
identifiable personal property. Lessee shall not permit any Equipment to be
installed in, or used, stored or maintained with, any personal property (except
other Equipment leased hereunder) in such manner or under such circumstances
that such Equipment might be or become an accession to or confused with such
other personal property. Lessee shall not permit any Equipment to be installed
in or used, stored or maintained with, any real property in such a manner or
under such circumstances that any person might acquire any rights in such
Equipment paramount to the rights of Lessor or Secured Party by reason of such
Equipment being deemed to be real property or a fixture thereon.
6. RISK OF LOSS
(a) Lessee assumes and shall bear the entire risk of partial or complete loss,
theft, damage, destruction, condemnation, requisition, taking by eminent domain
or other interruption or termination of use of the Equipment from any cause
whatsoever, whether or not insured against, from the date of delivery of the
Equipment until the Equipment is returned to and received by Lessor. Except as
otherwise expressly provided herein, no such loss, theft, damage, destruction,
condemnation, requisition, taking by eminent domain or other interruption or
termination of use of the Equipment, and no delay, deficiency or absence of
insurance proceeds, and no unavailability, delay or failure of supplies, parts,
mechanisms, devices or service for the Equipment or any failure of the Equipment
to function for any cause, shall relieve Lessee of the obligation to pay Rent
hereunder. Except as otherwise expressly provided in Section 6(c) hereof, this
Master Lease Agreement shall
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not terminate, nor shall the respective obligations of the Lessor or the Lessee
be affected, by reason of any defect in or Total Casualty (as defined in this
Section 6) to or obsolescence of the Equipment or any item thereof from whatever
cause, or the Equipment or any item thereof from whatever cause, or the
interference with the use thereof by any private person, corporation or
governmental authority, or any other disability of the Lessee to use the
Equipment, or war, act of God, or governmental regulations, any present or
future law or regulation to the contrary notwithstanding. Lessee shall promptly
notify Lessor in writing of the occurrence of any of the above events and all
pertinent details connected therewith. Except during any period when an Event of
Default shall have occurred, Lessee shall be entitled to the proceeds of any
claim or right of Lessor or Lessee against any third party on account of any of
the foregoing events and Lessee shall be subrogated to the Lessor's right of
recovery therefor against any third party. Lessor shall execute and deliver from
time to time such instruments and take such other action as may be necessary or
appropriate more fully to vest in Lessee such proceeds or effect such
subrogation, provided, however, that all costs and expenses, including court
costs and attorneys' fees, incurred in connection with enforcing or realizing
upon any such claim or right to proceeds or obtaining enforcement of or
realizing upon such right of subrogation, shall be paid by Lessee.
(b) In the event any item of Equipment is physically damaged to a material
extent by any occurrence whatsoever, Lessee shall immediately notify Lessor of
such damage and, unless Lessor shall determine that Section 6(c) hereof is
applicable to such damage, Lessee, at Lessee's expense, shall promptly cause
such item of Equipment to be returned to the condition described in Sections 3
and 5 hereto.
(c) In the event any item of Equipment shall be lost, stolen, destroyed, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
or shall be subjected to a requisition, taking by eminent domain or other
interruption or termination of use for a stated period which exceeds the term of
this Master Lease Agreement (any such occurrence being referred to as "Total
Casualty"), Lessee shall promptly notify Lessor and either: (i) obtain
replacement equipment of like model and features, having utility and remaining
useful life at least equal to that of each such replaced item of Equipment and,
in which case, Lessee shall immediately convey to Lessor good title for all such
replacement equipment free of all liens, claims or encumbrances and such
replacement equipment shall be substituted for each such item of Equipment
replaced hereunder; or (ii) pay to Lessor, on the next Monthly Rent payment date
for such item of Equipment following such Total Casualty, an amount equal to the
Casualty Value (specified in the applicable Schedule) of such item of Equipment
on such Monthly Rent payment date. If Lessee elects to pay the Casualty Value
rather than replace the Equipment, after the payment of such Casualty Value and
all Monthly Rent due and owing for the period prior to the date of the Total
Casualty with respect to such item of Equipment, Lessee's obligation to pay
further Monthly Rent for such item of Equipment shall cease, but Lessee's
obligation to pay Rent for all other items of Equipment shall remain
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unchanged. So long as no Event of Default shall have occurred and provided
Lessee shall have made the Casualty Value payment identified above, Lessor shall
pay Lessee any insurance proceeds received by Lessor by reason of such Total
Casualty up to the amount of the Casualty Value paid by the Lessee.
7. INSURANCE
Lessee shall at all times during the term of this Master Lease Agreement and
until the Equipment his been returned to Lessor as provided below, at its own
expense, maintain physical damage insurance in an amount not less than the
replacement value of the Equipment but in no event less than the Casualty Value
thereof, and liability and property damage insurance covering the Equipment
(including Lessee's contractual liability under Section 9 hereof), in such
amount, and with such companies and such endorsements and covering such hazards,
as are in general usage by companies owning or operating similar property and
engaged in a business similar to Lessee's, in order to adequately protect the
parties hereto. All insurance so maintained shall provide for a thirty-day prior
written notice to Lessor and its assigns of any cancellation or reduction of
coverages and an option in Lessor or its assignees to prevent cancellation by
payment of premiums, shall, cover both the interest of the Lessor and any
assigns of which the Lessee has notice and of the Lessee in the Equipment, and
shall provide that all insurance proceeds shall be payable to the Lessee, Lessor
and any such assignee as their respective interests may appear at the time of
any such payment. Lessor and any such assignee shall be named as additional
insureds on any public liability insurance policies so maintained. Lessee shall
furnish to Lessor satisfactory evidence of any insurance so maintained no later
than the date of delivery of each item of Equipment and once annually, upon
Lessor's request, during the term hereof. Lessee's above obligation shall
commence on the initial date of delivery of the Equipment and shall continue
until the Master Lease Agreement term hereof expires and the Equipment is
returned to Lessor. Lessee shall cooperate with Lessor and all companies
providing any insurance to Lessee or Lessor or both with respect to the
Equipment in collection on or enforcement of any such insurance. By this Section
7, Lessor does not modify or limit any provision of this Master Lease Agreement
relating to disclaimer of warranties and liability, or indemnity.
8. RETURN OF EQUIPMENT
Upon the expiration or earlier termination of the Master Lease Agreement, Lessee
shall return the Equipment to Lessor in the same condition as received,
reasonable wear and tear excepted and in the condition required by Sections 3
and 5 hereof, and shall permit the Equipment to be (a) inspected by agent(s) of
the respective manufacturer(s), if Lessor so requests, (b) repaired, if
necessary, so as to place the Equipment in the foregoing condition, (c) secured
for shipping, and (d) shipped by truck or other normal ground transportation to
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such address as Lessor may designate. Lessor shall pay all expenses arising from
the above clause (a) of this Section 8, and Lessee shall pay all expenses
arising from the above clauses (b), (c), and (d) of this Section 8, provided
that shipping charges payable by Lessee under such clause (d) shall be limited
to an amount equal to the cost of shipping the Equipment to any location within
the Continental United States.
9. DISCLAIMER OF LIABILITY AND INDEMNITY
Lessor shall not be liable for, and Lessee agrees to indemnify and hold Lessor,
Secured Party, and their respective successors and assigns, harmless against any
loss, claim, action, suit, demand, proceeding, liability, penalty costs, damage,
obligation, lien or expense of any kind on account of personal injury, property
damage or otherwise, including, but not limited to, any matter arising under
strict liability in tort, imposed on or incurred by or asserted against Lessor
or Secured Party or its or their successors or assigns, including without
limitation attorneys' fees incurred an account of any of the foregoing, in any
way relating to this Master Lease Agreement or any document contemplated hereby,
or in any way relating to the selection, manufacture, purchase, acceptance,
ownership, delivery, installation, lease, sublease, possession, use, operation,
maintenance, condition, return or storage of any item of Equipment, or any
accident in connection therewith, or arising by operation of law as a
consequence of any of the foregoing. The provisions of this Section 9 shall
survive any termination of this Master Lease Agreement, provided, however, that
the Lessee shall not be required to indemnify the Lessor for (a) any claim in
respect of any item of Equipment arising from acts or events which occur after
possession of such item has been redelivered to the Lessor and (b) any claim
resulting from the willful misconduct or negligence of the Lessor. Lessee shall
give Lessor prompt written notice of any matter hereby indemnified against and
agrees that unless directed to the contrary by written notice by the indemnified
party, Lessee shall assume full responsibility for the defense thereof on behalf
of such party.
10. EVENTS OF DEFAULT
(a) Each of the following shall constitute an Event of Default hereunder; (i)
default in the payment of any Rent due hereunder and continuance of default
thereof for ten days after notice by Lessor to Lessee of said default; (ii)
failure by Lessee to make any other payment required by this Master Lease
Agreement, or to perform any other of Lessee's agreements set forth in this
Master Lease Agreement, or as attachments thereto, within 30 days after notice
thereof is given by Lessor to Lessee; (iii) Lessee becomes insolvent or admits
in writing its inability to pay its debts as they mature, or applies for,
consents to, or acquiesces in the appointment of a trustee or a receiver or
similar officer for it or any of its property, or, in the absence of such
application, consent or acquiesce, a trustee or receiver or similar officer is
appointed for Lessee or for a substantial part of Lessee's property and is not
discharged within 60 days, or any bankruptcy, reorganization, debt, dissolution
or other
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proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is instituted by or against Lessee, and if instituted
against Lessee is consented to or acquiesced in by Lessee or remains for 60 days
undismissed; (iv) Lessee shall make an assignment for the benefit of its
creditors; and (v) any warranty, representation, statement or report made in
writing by Lessee in this Lease or in any document or certificate furnished in
connection with this Lease or any financing obtained in connection therewith
proves to have been untrue or incorrect in any material respect.
(b) Upon the occurrence of an Event of Default and so long as the same is
continuing, Lessor may, at its option, declare the applicable Schedule(s) to be
in default by notice to Lessee, and, thereafter, exercise one or more of the
following remedies, as Lessor in its sole discretion lawfully elects:
(1) Proceed by court action, either at law or in equity, to enforce
performance by Lessee of this Master Lease Agreement or to recover damages for
the breach thereof.
(2) By notice terminate the applicable Schedules, whereupon all rights
of Lessee in the Equipment subject to said Schedules will absolutely cease but
Lessee will remain liable as hereinafter provided; and, thereupon, Lessee, if so
requested, will, at its expense, promptly return the Equipment to Lessor at the
place designated by Lessor within the Continental United States and in the
condition required pursuant to the terms hereof, or Lessor, at its option, may
enter the premises where the Equipment is located and take immediate possession
of and remove the same in a lawful manner. Lessee will, without further demand,
forthwith pay Lessor an amount equal to any past due Rent which was due and
payable for all periods up to and including the Monthly Rent payment date
following the date on which Lessor has declared the Schedules to be in default,
plus, as liquidated damages for loss of a bargain and not as a penalty, an
amount (the "Default Value") equal to the present value of (i) the Monthly Rent
which would otherwise have accrued from such Monthly Rent payment date to the
end of the term of the applicable Schedules (the "Rental Amount"), plus (ii) all
other amounts which absent an Event of Default would have been payable by Lessee
hereunder and under the applicable Schedule(s) for the full term thereof,
including, if Lessee is permitted or required pursuant to any applicable
Schedules to purchase the Equipment, or pay any deficiency, the purchase price
or deficiency amount provided therein. Such present value shall be computed
utilizing a rate of five percent (5%) per annum. Following the return of the
Equipment to Lessor pursuant to this clause (2), Lessor will proceed to sell or
re-lease the Equipment in a commercially reasonable manner. The proceeds of such
sale or re-lease will be applied by Lessor: (A) first, to pay all costs and
expenses, including, but not limited to all reasonable legal fees and
disbursements, incurred by Lessor as a result of the Event of Default and the
exercise of its remedies with respect thereto; (B) second, to pay Lessor an
amount equal to any unpaid past Rent due and payable plus the Default Value, to
the extent not previously paid by Lessee, aid (C) third, to reimburse Lessee for
the portion
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of the Default Value attributable to the Rental Amount to the extent that (i)
the full Default Value has been previously paid as liquidated damages and (ii)
such proceeds are attributable or allocated to the period commencing on the
Monthly Rent payment date following the date on which the lessor has declared
the Schedules to be in default and ending on the date the applicable Schedule(s)
would have terminated if Lessee had not defaulted. Any surplus remaining
thereafter will be retained by Lessor. To the extent Lessee has not paid Lessor
the amounts specified in this clause (2), Lessee will forthwith pay such amounts
to Lessor plus interest at the Service Charge Rate, but no more than the highest
lawful rate allowable under applicable law, or such amounts, computed from the
date the Default Value is payable hereunder, until such amounts are paid.
(c) In addition, Lessee shall be liable for any damages and expenses which
Lessor shall have sustained by reason of the breach of any covenant,
representation or warranty of this Master Lease Agreement other than for the
payment of the Monthly Rent, and shall be liable for any and all unpaid amounts
due hereunder before, during or after the exercise of any of the foregoing
remedies and for all reasonable attorneys' fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise of
Lessor's remedies with respect thereto, including all costs and expenses
incurred in connection with the return of any item of Equipment. Upon the
occurrence and during the continuance of an Event of Default hereunder, Lessor
shall be exclusively entitled to enforce the warranties assigned to Lessee
under, Section 4 hereof, notwithstanding such assignment. No remedy referred to
in this Section 10 is intended to be exclusive, but each shall be cumulative and
in addition to any other remedy referred to above or otherwise available to
Lessor at law or in equity.
(d) A cancellation or termination of the Master Lease Agreement hereunder shaH
occur only upon written notice by Lessor to Lessee, or repossession as provided
above, and only with respect to such items of Equipment as Lessor specifically
elects to cancel or terminate by such written notice or repossession. Except as
to any such item of Equipment with respect to which there is a cancellation or
termination, this Lease shall remain in full force and effect and Lessee shall
be and remain liable for the full performance of all its obligations.
11. SUBLEASE AND ASSIGNMENT
(a) LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT AND SECURED PARTY, (i)
SUBLEASE, ASSIGN, PLEDGE, HYPOTHECATE OR IN ANY OTHER WAY TRANSFER THIS LEASE,
THE EQUIPMENT OR ANY PART THEREOF, OR ANY INTEREST THEREIN, OR (ii) PERMIT THE
EQUIPMENT OR ANY PART THEREOF TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEES
EMPLOYEES; except only that so long as no Event of Default hereunder has
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occurred, Lessee may sublease the Equipment provided that the following are
fulfilled as conditions precedent to Lessee's having authority hereunder to
sublease: (1) the sublease shall not contain any provisions which would or the
performance of which would, with notice or lapse of time or both or neither,
result in any Event of Default under this Master Lease Agreement; (2) the
sublease shall contain a provision expressly subordinating the sublease to
Lessor's rights under this Master Lease Agreement, a provision by which the
sublessee agrees, jointly and severally with Lessee, to be bound by and perform
Lessee's obligations under this Master Lease Agreement, and a provision
prohibiting any transfer, and any further subleasing except on conditions
identical to the provisions of this Section 11; (3), such sublease shall be
assigned to Lessor as security for the assignment (including a consent of the
sublessee) in form and substance satisfactory to Lessor; (4) such subleasing
shall not in any way adversely affect any federal, state or other tax benefits
of the Lessor or Secured Party; (5) all such Uniform Commercial Code financing
statements and other instruments necessary or appropriate to perfect or record
Lessor's or Secured Party's interest in the sublease, the payments due
thereunder and the Equipment shall have been duly executed and filed or
recorded; (6) the identity of the sublessee and form of sublease shall have been
approved by Lessor and Secured Party, which approval shall not be unreasonably
withheld. No such permitted sublease shall relieve Lessee of any of its
obligations hereunder. Any assignment, sublease, pledge hypothecation or
transfer for which consent is required hereby and which is made without such
consent shall be void. The consent of Lessor or Secured Party to any of the
foregoing applies only to the specific instance in which given, and shall not be
deemed a consent to any subsequent like act by Lessee or any other person.
Subject to the foregoing, this Master Lease Agreement inures to the benefit of,
and is binding upon, the successors and assigns of the parties hereto. Lessee's
interest herein shall not be assigned by operation of law. Notwithstanding the
foregoing, Lessee shall be entitled to assign or transfer this Master Lease
Agreement, the Equipment, and its interests in this Master Lease Agreement and
the Equipment in connection with a sale of all or substantially all of its
assets to, or a consolidation of Lessee with, or a merger of Lessee into, any
corporation, so long as such corporation assumes the obligations of Lessee under
this Master Lease Agreement and immediately following such sale, consolidation,
or merger, is, in the opinion of Lessor, no less credit-worthy than Lessee
immediately prior to such sale, consolidation or merger. Lessor and any direct
or remote assignee of any right, title and interest of Lessor hereunder shall
have the right at any time or from time to time to assign to any third party all
or any part of its right, title and interest in and to this Master Lease
Agreement or the Equipment. Lessee acknowledges that any assignment or transfer
by Lessor permitted under this lease shall not materially change Lessee's duties
or obligations under this Master Lease Agreement or materially increase the
burdens or risks imposed upon Lessee.
(b) Lessor may obtain financing through financial institutions and secure such
financial institutions ("Secured Party") by granting a security interest in or
lien on all or any part of Lessor's interest in the Equipment, the applicable
Schedule, any collateral therefor, and
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amounts payable by Lessee under the applicable Schedule. Such financing may
include the purchase of the Equipment by Secured Party. In the event of such
financing (1) the lien is subject to Lessee's rights as herein provided; (2)
such assignment of the applicable Schedule or any interest herein will not
relieve Lessor from its obligations hereunder or be construed to be an
assumption by Secured Party of such obligations (but Secured Party may perform,
at its option, some or all of Lessor's obligations); (3) upon appropriate notice
and upon request by Secured Party, Lessee will thereafter pay directly to
Secured Party all Rent and other amounts payable hereunder; and (4) Lessee's
obligation to pay Rent and other amounts hereunder, shall be absolute and
unconditional and shall not be subject to any reduction, abatement, defense,
set-off, counterclaim or recoupment for any reason whatsoever.
12. GENERAL
(a) Any provision herein that obligates Lessee to take any action shall require
Lessee to do so at its sole costs and expense. Lessee shall pay Lessor interest
at the maximum rate permitted by applicable law, but in no event in excess of a
rate of one and one-half percent (1 1/2%) per month, on any amount past due from
the date it is required to make any payment of Rent or other amount hereunder.
Such interest shall be payable with respect to the period commencing on the date
such payment is due through the date such payment is actually made.
(b) Any notice hereunder shall be in writing and shall be deemed to be given
when delivered, including, but not limited to, overnight courier or electronic
transmission or, if mailed, on the third day after mailing by registered or
certified mail, postage prepaid and addressed to Lessee or Lessor at its
respective address shown on the first page hereof, or to either party at such
other address it has designated as its address for purposes of notice hereunder.
(c) Promptly upon Lessor's written request, Lessee agrees to execute,
acknowledge and deliver such instruments, and to take such other action, as may
reasonably be necessary in the opinion of Lessor, or Lessor's counsel, to
protect Lessor's or any Secured Party's interests in the Equipment, this Master
Lease Agreement and any Rent, including, but without limitation, the obtaining
and execution of landlord and mortgage waivers and Uniform Commercial Code
financing statements in recordable form, incumbency certificates and, at
Lessee's expense, opinion of Lessee's legal counsel regarding the matters
contained in Section 4(b) hereof. Upon Lessor's written request, Lessee also
agrees to provide quarterly financial statements and annual audited financial
statements in the form previously furnished to Lessor within 120 days of the end
of each quarter and Lessee's fiscal year end. Lessor may file or record a copy
of this Master Lease Agreement, as a financing statement or for any other
purpose. Lessee agrees to pay Lessor a transaction fee of $100.00 per Schedule
for filing fees in connection with Uniform Commercial Code financing statements.
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(d) This Master Lease Agreement and all Schedules duly executed and attached
hereto from time to time constitute the entire agreement between the parties
hereto with respect to the Equipment, and any change or modification hereto and
any related agreement must be in writing and signed by the parties hereto. There
shall be a single executed original of this Master Lease Agreement which shall
be marked and, for the purposes hereof, shall be referred to as the "Original,"
all other counterparts shall be marked "Duplicate." With respect to any Schedule
to this Master Lease Agreement executed by the parties hereto, the following
shall apply: (i) each such Schedule shall constitute a new lease between the
parties; (ii) there shall be a single executed original of each such Schedule
marked "Original;" (iii) all other counterparts of such Schedule shall be marked
"Duplicate;" and (iv) to the extent, if any, that any such Schedule constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction) no security interest therein may be
created through the transfer or possession of the Original of this Master Lease
Agreement or any Duplicate of such a Schedule, but such security interest may be
created by die transfer or possession of the Original of such Schedule together
with a certified copy of this Master Lease Agreement.
(f) Lessor is not, and shall not be deemed to be, an agent, employee or
representative of Lessee or any manufacturer of any Equipment, for any purpose
whatsoever.
(g) If this Lease or any provision hereof shall be deemed invalid, illegal or
unenforceable in any respect or in any jurisdiction, the validity, legality and
enforceability of this lease in other respects and in other jurisdictions shall
not be in any way impaired or affected thereby. No covenant or condition of this
Master Lease Agreement shall be waived except by the written consent of the
party to be bound by such waiver. No waiver by Lessor of any Event of Default
hereunder shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default. Forbearance or indulgence by Lessor or Lessee in
any regard whatsoever shall not constitute a waiver of the covenant or condition
to be performed by the other party to which such forbearance or indulgence may
apply, and, until complete performance by such party of such covenant or
condition, Lessor or Lessee, as the case may be, shall, be entitled to invoke
any remedy available to such party under this Master Lease Agreement or by law
or in equity or otherwise despite said forbearance or indulgence. This Master
Lease Agreement shall be governed by the laws of the State of Florida. Lessee
hereby submits to the jurisdiction of the state and federal courts located in
Florida.
(h) Should Lessee fail to make any payment or to do any act as herein provided,
after notice to Lessee which is reasonable under the circumstances, Lessor shall
have the right, but not the obligation and without releasing Lessee from any
obligation hereunder or waiving Lessor's right to declare a default hereunder,
to make or do the same, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the reasonable judgment of Lessor appears
to materially and adversely affect Lessor's interest in the Equipment, and in
13
<PAGE>
exercising any such rights, Lessor may in any liability and expend whatever
amount in its reasonable discretion it may deem necessary therefor. All sums so
incurred or expended by Lessor shall, be without demand immediately due and
payable by Lessee.
(i) Whenever the content of this Master Lease Agreement requires, the singular
number includes the plural. Section headings contained herein are solely for the
convenience of the parties, and are not an aid in the interpretation of the
instrument. Although this Master Lease Agreement is dated as of the date first
above written for convenience, the Agreement Date and the Commencement Date
shall be as specified in the applicable Schedule.
(j) This Master Lease Agreement may be canceled by Lessee in writing, provided
all outstanding Schedules hereunder have either expired or have been terminated
with respect to their individual termination provisions, and that no Events of
Default have occurred under any Schedules, and Lessee has fulfilled all
obligations under all such Schedules.
LESSOR:
NOVA CORPORATION
By:
GARY L. SHAPIRO, President
LESSEE:
NATIONAL AUTO FINANCE COMPANY L.P.
By:
KEVIN ADAMS, Chief Financial Officer
14
DAFS03...:\97\64897\0001\2058\AGR4208N.090
<PAGE>
EQUIPMENT SCHEDULE NUMBER I
TO
MASTER LEASE AGREEMENT DATED APRIL 1, 1995
LESSOR: LESSEE:
NOVA CORPORATION NATIONAL AUTO FINANCE COMPANY L.P.
621 NW 53rd Street, Suite 320 621 NW 53rd Street, Suite 200
Boca Raton, FL 33487 Boca Raton, FL 33487
Gary L. Shapiro, President Kevin Adams, Chief Financial Officer
407-241-7790 407-997-2747
Equipment Location if other than Lessee's address above:
Interest Rate: 8%
Rental Term: 60 months
Commencement Date: September 1, 1995
Rental Payment Amount: $2,127.57
The items of Equipment described herein are leased on the terms
specified in and subject to the terms and conditions of that certain Master
Lease Agreement referenced above, which, except as modified herein, remains in
fall force and effect. All of the terms and conditions of the Master Lease
Agreement are hereby incorporated herein and made a part hereof as if such terms
and conditions were set forth in this Equipment Schedule. This Equipment
Schedule, together with the terms and conditions as incorporated herein,
constitutes a separately enforceable lease agreement with respect to the
Equipment.
In the event Acceptance occurs prior to the Commencement Date, interim
rental shall be paid by Lessee in the amount equal to a proration on a per diem
basis of the Monthly Rent, for the period commencing as of the date of
Acceptance to the Commencement Date. All payments provided for herein shall be
payable to such place as Lessor shall direct. - The term of the lease shall be
automatically extended at the monthly lease rate in effect at the end of said
term unless and until terminated by either party hereto giving the other not
less than ninety (90) days prior written notice.
PLEASE REFER TO ATTACHED EQUIPMENT SCHEDULE.
15
MEMORANDUM OF AGREEMENT OF EXTENSION OF LEASE AGREEMENT ENTERED INTO THE CITY
AND DISTRICT OF BOCA RATON, PALM BEACH COUNTY, FLORIDA ON THE _____ DAY OF
NOVEMBER 1996.
BY AND BETWEEN: CANPRO INVESTMENTS LTD., a Canadian
Corporation licensed to do business in Florida
("Landlord")
AND: NATIONAL AUTO FINANCE COMPANY L,P.
("Tenant")
WHEREAS, by a Lease Agreement dated January 16, 1995 ("Lease" for suite 200)
Landlord leased to Tenant for and during a term commencing March 1, 1995 certain
premises comprised of an area of approximately Five Thousand Four Hundred
Forty-Seven (5,447) square feet located in the One Park Place ("Office
Building") at 621 NW 53rd Street, Suite 200, Boca Raton, Florida 33487 ("Leased
Premise");
WHEREAS, the Tenant is desirous of Extending the Term of the Lease, upon terms
and conditions herein described;
THAT in consideration of the sum of TWO DOLLARS ($2.00) paid by each party to
the other, and for other good and valuable consideration (the receipt and
sufficiency of which is hereby acknowledged), the parties agree and covenant as
follows:
1. The preamble hereto shall form part of this Agreement as if
incorporated in the body hereof;
2. The Term of the Lease shall be Extended to February 28, 1999 upon the
same terms and conditions provided for in the Lease. Notwithstanding
anything in the Lease to the contrary, the Leased Premises shall be
occupied by Tenant throughout the Extension Term on an "as is" basis,
in that Landlord shall not be required to perform any work on/or to the
Leased Premises;
3. Renewal Option. Provided the Tenant is not in default of the Terms and
Obligations of this lease, Tenant shall have one (1) two (2) year
option to renew the lease on the same terms and conditions as the
existing lease save for the minimum rent which shall increase in
accordance with paragraph 4.D. Leased premises shall be renewed on an
<PAGE>
"As Is" basis in that Landlord shall not do or perform any of
Landlord's Work in, on or for the Leased Premises. There shall be no
further option to renew;
4. This Agreement shall enure to the benefit of and shall be binding upon
each of the Parties to this Agreement and their respective successors,
heirs, executors, administrators and assigns; and
5. This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
This Extension Agreement and all of its terms and conditions have been freely
negotiated between the parties.
Except as modified hereby, the Lease shall remain in full force and effect in
accordance with the terms and provisions thereof and all of the terms, covenants
and conditions of the Lease are hereby ratified and reaffirmed by the parties
hereto.
IN WITNESS WHEREOF THE PARTIES HAVE SIGNED THESE PRESENTS AT THE PLACE AND ON
THE DATE FIRST HEREIN ABOVE MENTIONED.
LANDLORD:
CANPRO INVESTMENTS LTD.
By:
Witness Name:
Title:
Date:
TENANT:
NATIONAL AUTO FINANCE COMPANY L.P.
By:
Witness Name:
Title:
Date:
2
<PAGE>
REFERENCED DATA
Any reference in this lease to the following subjects shall
incorporate therein the data stated for the subject(s) in this Section:
DATE OF LEASE: 1-16-95
LANDLORD: CANPRO INVESTMENTS LTD., a
corporation organized under the laws of
Canada and authorized to transact
business in the State of Florida
LANDLORD'S ADDRESS: 621 N.W. 53rd Street, Suite 100, Boca
Raton, Florida 33487
TENANT: National Auto Finance Company, L.P.
TENANT'S ADDRESS: 621 NW 53rd Street, Suite 200,
Boca Raton, FL 33487
DEMISED PREMISES: Five Thousand Four Hundred Forty-Seven
(5,447) rentable square feet on the
second (2nd) floor of the Building. For
all purposes hereof the Building shall be
deemed to contain Two Hundred
Thirty-Seven Thousand Three Hundred
Thirty-One (237,331) rentable square
feet, regardless of the actual number of
square feet found to be in the Leased
Premises.
LEASE TERM: Two (2) years.
OPTIONS: One (1) Two (2) year option to renew
Right of First Refusal.
RENTAL COMMENCEMENT DATE: March 1, 1995.
EXPIRATION DATE OF LEASE TERM: April 30, 1997.
MINIMUM ANNUAL RENT: Forty-Three Thousand Five Hundred
Seventy-Six Dollars ($43,576.00). Eight
Dollars ($8.00) per rentable square feet,
<PAGE>
TENANT'S INITIAL SHARE OF TAXES Thirty-Seven Thousand Seven Hundred AND
OPERATING EXPENSES FOR THE Forty-Seven and 7/100 Dollars ($37,747.71) BUILDING
AND FOR OCCUPIED '94 estimated at $6.93 per rentable square PREMISES: foot,
$3,145.64 per month.
TENANT'S PROPORTIONATE SHARE 2.30%.
OF THE BUILDING:
PERMITTED USES: General Office.
SECURITY DEPOSIT: $7,183.59
GUARANTOR: Corporate.
WITNESSES: LANDLORD:
CANPRO INVESTMENTS, LTD.
By:
Authorized Signatory
TENANT:
NATIONAL AUTO FINANCE COMPANY L.P.
By:
Authorized Signatory
INITIALS: _____
2
<PAGE>
OFFICE LEASE
THIS LEASE made and entered into as of the ____ day of
________________, 19___ by and between CANPRO INVESTMENTS LTD., a corporation
organized under the laws of Canada and authorized to do business in the State of
Florida (hereinafter referred to as "Landlord") and National Auto Finance
Company L.B. (hereinafter referred to as "Tenant").
W I T N E S S E T H:
1. Demised Premises.
A. Landlord is the Owner of a tract of land situated at 621 N.W. 53rd
Street, Boca Raton, Florida, more particularly described in Exhibit "A" attached
hereto. Upon said tract is located a multistory building known as ONE PARK PLACE
OF BOCA (hereinafter referred to as the "Building"), a parking garage,
surrounding parking areas and driveways (collectively called the "Parking
Facilities") and curbs, sidewalks, fountains, parks and plazas. The tract, along
with the Building, Parking Facilities and all other improvements presently or
hereafter located upon the tract, are hereinafter collectively referred to as
the "Property."
B. Landlord, for the term and subject to the provisions and conditions
hereof, shall lease to Tenant, and Tenant shall accept from Landlord, certain
space more particularly described by the cross-hatched area an the floor plans
annexed hereto as Exhibit "B", which for all purposes hereof shall be deemed to
contain Five Thousand Four Hundred Forty-Seven (5,447) rentable square feet on
the second (2nd) floor of the Building (the "Demised Premises"), together with a
license for the duration of the term or the Lease to use the parking spaces (the
"Parking Spaces") described in the Parking Space Schedule attached hereto as
Exhibit "C", at the rates set forth therein, for parking of automobiles of
Tenant and Tenant's invitees and employees and for no other purpose.
C. The Demised Premises shall be used for general office purposes and
for no other purposes.
D. The use and occupation by Tenant of the Demised Promises shall
include the non-exclusive use, in common with others entitled thereto, of the
common areas, employees' parking areas, service roads, loading facilities,
sidewalks and customer car parking areas as such common areas now exist or as
such common areas may hereafter be constructed, and other facilities as may be
designated from time to time by Landlord, subject, however, to the terms and
conditions of this agreement and to the rules and regulations for the use
thereof as prescribed from time to time by Landlord.
3
<PAGE>
2. Term.
A. The term of this Lease shall commence on the date hereof and end at
12: 00 Midnight on the last day of the month in which the second (2nd)
anniversary of the Rental Commencement Date occurs, unless sooner terminated as
herein provided.
OPTIONS
(1) Renewal Option. Provided the Tenant is not in default of
the Terms and Obligations of this Tenant shall have one (1) two (2)
year option to renew the lease on the same terms and conditions as the
existing lease save for the minimum rent which shall increase in
accordance with paragraph 4.D. Leased premises shall be renewed on an
"As Is" basis in that Landlord shall not do or perform any of
Landlord's Work in, on or for the Leased Promises. There shall be no
further option to renew.
(2) Right of First Refusal. During the first two (2) years of
the term only, provided the Tenant is not in default of the Terms and
obligations of this lease, Tenant shall have the right of first refusal
to lease 3,700 rentable square feet adjacent to the demised premises,
provided, however, that Tenant's right shall be subject to a prior
right of first refusal on such space granted by Landlord to
Inter-Office. Landlord must give written notice to Tenant of Landlord's
intent to enter into a lease with any third party to occupy all or any
portion of the Available Space prior to entering into any such third
party lease. Tenant shall then have three (3) days thereafter within
which to elect by written notice to Landlord to lease the available
space covered by such third party lease failing which, Tenant's rights
hereunder shall lapse. In the event Tenant exercises such right, all
terms and conditions of this lease shall apply save for minimum rent
which shall be calculated at Market Rate, but in any event not less
than the rate contained in the bona fide third party offer.
3. Construction of Leasehold Improvements.
A. Tenant shall take possession of the Demised Premises in its present
condition, "as is," it being agreed that Landlord shall have no obligation to
improve the Demised Premises and that Tenant, upon taking possession of the
Demised Premises, shall have accepted the condition thereof. Landlord agrees to
provide the following leasehold improvements at Landlord's expense as indicated
on Exhibit B.
B. Tenant shall be responsible for performing, at Tenant's sole
expense, any work in addition to the Leasehold Improvements to be constructed by
Landlord as set forth above. If Tenant desires to perform any additional
improvements beyond the Leasehold Improvements
4
<PAGE>
to be constructed by Landlord, Tenant shall cause Plans and Specifications for
such additional work to be prepared and submit the same to Landlord for
Landlord's approval. Any such approved additional work, shall be performed by
responsible contractors and subcontractors approved by Landlord. All such
contractors and subcontractors shall furnish in advance and maintain in affect
workmen's compensation insurance in accordance with statutory requirements and
comprehensive public liability insurance (naming Landlord and Landlord's manager
and mortgages as additional insured) with limits satisfactory to Landlord and
each shall, prior to commencement of any work, comply with the Mechanic's Lien
Law of the state of Florida. All work shall be performed in such manner and at
such time so as to avoid interference with any work being done by Landlord or
its contractors and subcontractors at the Property generally. Landlord shall,
however, endeavor to allow Tenant access for such work prior to the Rental
Commencement Data. Tenant and its contractors and subcontractors shall be solely
responsible for the transportation, safekeeping and storage of materials and
equipment used in the performance of its work, for the removal of waste and
debris resulting therefrom and for any damage caused by them to any
installations or work performed by Landlord or its contractors and
subcontractors. Tenant;s contractors and subcontractors shall be subject to the
general administrative supervision of Landlord for scheduling purposes, but
Landlord shall not be responsible for any aspect of the work performed by
Tenant's contractors or subcontractors. All work shall be performed in a good
and workmanlike manner, in accordance with applicable building codes and other
governmental requirements, and shall be diligently prosecuted to completion. No
work shall adversely affect the structural integrity of the Building or the
Demised Premises, nor shall such work diminish the value of the Building or the
Demised Premises. Upon the completion of Tenant's work, Tenant shall deliver to
Landlord and/or comply with the following: (1) Tenant's affidavit stating that
Tenant's work has been completed; (2) an Affidavit of all contractors and all
laborers and material suppliers stating that they have all been paid in full and
that all liens therefore that have been filed have been discharged of record or
waived; (3) a complete release and waiver of lien with respect to the Demised
Promises, executed by said contractor or contractors supplying labor and/or
materials for Tenant's work; and (4) all certificates and approvals with respect
to Tenant's work that may be required by any governmental authorities as a
condition for the issuance of a Certificate of Occupancy for the Demised
Premises. Landlord or Landlord's representative shall, during the course of
construction and after completion of construction of the Demised Premises, have
the right to inspect the Demised Promises to verify construction and completion
in accordance with the approved Plans and Specifications. It is agreed that
Tenant assumes the entire responsibility and liability for any and all injuries
or death of any and all persons including Tenant's contractor or subcontractors,
and their respective employees, and for any and all damages to property caused
by, or resulting from or arising out at, any act or omission on the part of the
Tenant, Tenant's contractor or subcontractors, or their respective employees, in
the prosecution of the Tenant's work, and with respect to such work, Tenant
agrees to indemnify and save harmless Landlord from and against any losses
and/or expenses including
5
<PAGE>
reasonable legal fees and expenses, which it may suffer or pay as a result of
claims or lawsuit due to, because of, or arising out of any and all such
injuries or death and/or damage, whether real or alleged and Tenant and Tenant's
contractor and/or subcontractors shall assume and defend at their own expense
all such claims or lawsuits. Tenant agrees to insure this assumed liability in
its comprehensive general liability policy and the Certificate of Insurance or
copy of the policy that Tenant will present to Landlord prior to commencement at
Tenant's work shall so indicate such contractual coverage. If Tenant requests
Landlord to perform any work in addition to the Leasehold improvements, Tenant
shall deposit an amount equal to Landlord's reasonable estimate at the cost of
such work with Landlord prior to commencement of such work, which amount shall
include an overhead and supervision charge equal to 20% of the estimated cost of
the additional work. If the cost of the additional work plus the twenty percent
(20%) overhead and supervision charge exceeds or is less than the estimate of
Landlord, Tenant shall pay such excess or Landlord shall refund such overage as
the case may be.
C. Notwithstanding anything to the contrary contained herein, Landlord
reserves the absolute right to relocate the Demised Premises and the Common
Areas from the locations shown on Exhibit "B," it being agreed by Landlord and
Tenant that the purpose of Exhibit "B" is to show the approximate location of
the Demised Premises, provided that the new locations of the Demised Premises
and Common Areas shall be similar in dimension. If Landlord gives Tenant notice
that Landlord is relocating the Demised Promises after Tenant has commenced or
completed any partitioning or other improvements to the Demised Premises, then
in such event, Landlord shall provide Tenant with partitions and other
improvements of equal quality and quantity in the relocated Demised Premises.
The relocation of the Demised Premises hereunder shall not affect any other
provision of this Lease.
4. Minimum Annual Rental.
A. Until adjusted pursuant to Paragraph 4D hereof, Tenant shall pay as
minimum rent for the Demised Premises the sum of Forty-Three Thousand Five
Hundred Seventy-Six ($43,576.00) annually which is Eight Dollars ($8.00) per
square foot of rentable area (the "Minimum Annual Rental"). Such Minimum Annual
Rental (as may be adjusted annually pursuant to Paragraph 4D hereof) shall be
payable during the term hereof, in advance, in equal monthly installments,
together with all sales, use or other taxes based thereon (including, but not
limited to the tax imposed by Florida Statutes 212.03), and any other state,
federal or other governmental or quasi-governmental tax, service tax, license
fee or other imposition levied on the Rents received by Landlord, all of which
shall collectively be referred to hereafter as "Sales Tax." The first
installment of Minimum Annual Rental shall be payable on the Rental Commencement
Date and payment of Minimum Annual Rental shall continue to be payable on the
first (1st) day or each successive month thereafter. Until otherwise adjusted
pursuant to Paragraph 4D hereof, the monthly installments shall be Three
Thousand Six
6
<PAGE>
Hundred Thirty-One and 33/100 Dollars ($3,631.33), provided Tenant is not in
default hereunder.
B. Concurrently with each monthly installment of Minimum Annual Rent,
Tenant shall pay Tenant's Proportionate Share of Taxes and Operating Expenses of
the Building and Tenant's Proportionate share of the occupied premises in the
Building (the numerator of which is the rentable square foot area of the
Tenant's premises and the denominator shall be the weighted average of occupied
promises in the Building during the year in question), the amount due from
Tenant for its use of the Parking Spaces as provided in Schedule "C" hereof,
together with Sales Tax on all of the above and all other sums which are due to
Landlord under the terms of this Lease (all such sums being hereinafter
collectively referred to as "Additional Rent"). The Minimum Annual Rental and
Additional Rent are hereinafter sometimes collectively referred to as "Rent."
C. If the Rental Commencement Date occurs on a day other than the first
(1st) day of the month, Rent from the Rental Commencement Date until the first
(1st) day of the following month shall be prorated (calculated on the basis of a
thirty (30) day month) and shall be payable in advance of the Rental
Commencement Date (and, in such event, the installment of Rent paid at execution
hereof shall be applied to the Rent due for the first (1st) full calendar month
of the term hereof).
D. The Minimum Annual Rental shall be adjusted annually on the first
(1st) anniversary of the Rental Commencement Date if the Rental Commencement
Date is the first (1st) day of a month (otherwise, it shall be adjusted annually
on the first (1st) day of the month next following the Rental Commencement Date)
and on each subsequent anniversary or such first (1st) day of the month (an
"Adjustment Date") by multiplying the Minimum Annual Rental for the immediately
preceding twelve (12) month period by 1.05. The product of such multiplication
shall be the Minimum Annual Rental for the next twelve (12) month period of the
term of the Lease.
(1) (a) The Minimum Annual Rental established on each
Adjustment Date shall continue in effect until again revised in accordance with
the terms and conditions of this Paragraph 4D. In no event shall the Minimum
Annual Rental established pursuant to this Paragraph 4D be less than the Minimum
Annual Rental for the Lease Year immediately preceding applicable Adjustment
Date.
(2) Lease Year is defined as follows:
(a) "Lease Year" shall mean the period of twelve full
calendar months commencing on the Rental Commencement Date if the Rental
Commencement Date is
7
<PAGE>
the first (1st) day of the month (otherwise, the period of twelve (12) full
calendar months commencing on the first (1st) day of the month next following
the Rental Commencement Date) and each consecutive twelve (12) month period
thereafter.
E. Adjustments to the Minimum Annual Rental under Paragraph 4D hereof
shall be effective as of each applicable Adjustment Date. Tenant shall pay the
Minimum Annual Rental so adjusted for each Lease Year in twelve (12) equal
monthly installments upon receipt of a written statement from Landlord
("Landlord's Statement of Minimum Annual Rental") setting forth (i) the new
Minimum Annual Rental for the Lease Year following the applicable Adjustment
Date and (ii) the difference, if any, between the Minimum Annual Rental paid by
Tenant on and after the applicable Adjustment Date and the amount of Minimum
Annual Rental actually due from Tenant on and after any applicable Adjustment
Date because of adjustments made in accordance with Paragraph 3D hereof. Tenant
shall, immediately with the next installment of rent due after receipt of
Landlord's Statement of Minimum Annual Rental, begin to pay the new Minimum
Annual Rental within ten (10) days after the receipt of such Landlord's
Statement of Minimum Annual Rental, Tenant shall pay the full amount of any
deficiency in the amounts of the monthly installments of Minimum Annual Rental
theretofore made between the Adjustment Date and the date of receipt of
Landlord's Statement of Minimum Annual Rental as set forth in subparagraph (ii)
of this paragraph. Tenant shall not be in default under the terms of this Lease
for failure to pay the full amount of Minimum Annual Rental, as newly adjusted
under Paragraph 4D hereof, until Tenant has received Landlord's Statement of
Minimum Annual Rental and has theretofore failed to pay the installments of
Minimum Annual Rental or any deficiency due as set forth under this Paragraph
4E. Nothing contained herein shall relieve Tenant of the responsibility to pay
Minimum Annual Rental at the prior Lease Year's rate until such time as it has
received Landlord's statement of the new Minimum Annual Rental.
F. Landlord shall arrange for the Demised Premises to be separately
metered so that Florida Power and Light shall provide electricity directly to
the Demised Premises. Tenant agrees to pay to Florida Power and Light (or other
utility company serving the Demised Premises) all charges for electricity
consumed with respect to the Demised Premises as measured by the aforesaid
electric meter for the Demised Premises. Notwithstanding the foregoing, Landlord
may, at Landlord's sole option, and upon notice to Tenant, elect to measure
usage of electricity by Tenant in the Demised Promises by connection to a single
meter commonly shared with some or all of the other tenants in the Building, so
that Florida Power and Light shall provide electricity directly to all spaces
commonly metered. In the event Landlord should elect to so commonly meter the
Building or any portion thereof, Landlord shall pay directly to Florida Power
and Light all charges for electricity so metered and Tenant shall pay, in
addition to Tenant's Proportionate Share of Taxes and Operating Expenses, such
share of the electricity bill so metered which shall be in proportion to a
fraction, the numerator
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<PAGE>
of which shall be the total rentable square footage of the Demised Premises and
the denominator of which shall be the total rentable square footage of all
tenants connected to the common meter, or such share as may be determined in any
other manner Landlord deems appropriate. Tenant acknowledges that the cost of
electricity for the Common Areas is included as an Operating Expense of the
Building separate from the charges for electricity to the Demised Premises.
G. All sums payable by Tenant under this Lease, whether or not stated
to be Minimum Annual Rental or Additional Rent, shall be collectible by Landlord
as Rent, and in the event of a default in payment thereof, Landlord shall have
the same rights and remedies as for a failure to pay Minimum Annual Rental
(without prejudice to any other right or remedy available therefore).
H. If Landlord, at any time or times, shall accept said Rent or any
other sum due to it hereunder after same shall become due and payable, such
acceptance shall not excuse delay upon subsequent occasions, or constitute, or
be construed as, a waiver of any of Landlord's rights hereunder.
I. All Rent and other sums due to Tenant hereunder shall be payable
without demand, deduction, set-off, or counterclaim at the office address of
Landlord first above given, or at such other address as Landlord may designate,
from time to time, by written notice to Tenant.
5. Taxes and Operating Expenses.
A. As used in this Paragraph 5, the following terms shall be defined as
hereinafter set forth:
(1) "Taxes" shall mean all real estate taxes and assessments,
transit taxes, and any other federal, state, city, county or other local
governmental charges or charges by any school, drainage or other special
improvement district, (but not including income taxes or any other taxes imposed
upon or measured by Landlord's income or profits, unless the same shall be
imposed in lieu of real estate taxes or limited solely to income from real
property), general or special, ordinary or extraordinary, foreseen or
unforeseen, which may now or hereafter be levied, assessed or imposed upon the
Property or with respect to the ownership thereof. Taxes shall also include any
personal property taxes imposed upon the furniture, fixtures, machinery,
equipment, apparatus, systems and appurtenances used in connection with the
Property for the operation thereof. If, due to a future change in the method of
taxation, any franchise, income, profit or other tax, however designated, shall
be levied, assessed or imposed in substitution, in whole or in part, for (or in
lieu of) any tax which would otherwise
9
<PAGE>
be included within the definition of Taxes, such other tax shall be deemed to be
included within Taxes as defined herein, Taxes shall also include all of
Landlord's expenses, including, but not limited to, attorney's fees incurred by
Landlord in any effort to minimize taxes; provided, however, that Landlord shall
have no obligation to undertake any contest, appeal or other procedure to
minimize taxes.
(2) Subject to adjustment as herein before provided, "Tenant's
Proportionate Share" for all purposes of this Lease shall be deemed to be 2.30%.
(3) "Tenant's Initial Share shall mean Tenant's initial share
of Taxes and Operating Expenses which is estimated by Landlord to be
Thirty-Seven Thousand Seven Hundred Forty-Seven and 71/100 Dollars ($37,747.71)
for the first (1st) calendar year.
(4) (a) "Operating Expenses" shall mean all expenses incurred
by Landlord in the operation, repair, maintenance, protection, inspection and
management of all or any portion of the Property and shall include, without
limitation:
(i) operation, repair, replacement,
maintenance, inspection, protection and management of the systems and
components of the Building or any portion thereof;
(ii) wages, salaries, fees and other
compensation (and taxes imposed upon employers in connection therewith)
and fringe benefits paid to persons employed by Landlord or Landlord's
managing agent, including but not limited to social security taxes,
unemployment insurance taxes, cost for providing coverage for disability
benefits, cost of any pensions, hospitalization, welfare or retirement
plans, or any other similar or like expenses incurred under the
provisions of any collective bargaining agreement, or any other cost or
expense which Landlord pays or incurs to provide benefits for employees
so engaged in the operation, maintenance, protection and repair of the
Property, excluding any overtime wages or salaries paid for providing
extra services to specific tenants which is directly chargeable to and
paid by such tenants;
(iii) contract costs of independent
contractors hired for the operation, maintenance, inspection, protection
or repair of the Property or any portion thereof, including but not
limited to, service, materials and supplied included in ouch contract
costs;
(iv) costs of electricity, steam,
water, sewer, and all other utilities consumed in the operation, repair,
maintenance, inspection management of the
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Property (excluding utilities consumed within space occupied by
tenants, which are metered to and paid directly by tenants);
(v) cost of all insurance carried by
Landlord for the Property, including, but not limited to, all risk or
fire and extended coverage (including windstorm and flood coverage),
elevator, boiler, sprinkler leakage, water damage, public liability and
property damage, plate glass, rent protection, and workmen's
compensation, but excluding any charge for increased premiums due to
acts or omissions of any tenants of the Property because of extra risks
which are reimbursed to Landlord by such other tenants;
(vi) alterations, additions or
improvements to the non-rentable portions of the Property (hereinafter,
the "Common Areas") which benefit all tenants thereof, or which are made
to decrease the operating Expenses of the Property;
(vii) all materials, supplies, tools
and equipment purchased or rented to maintain and keep the Property in
good condition and repair;
(viii) legal, accounting and other
professional expenses incurred in connection with the operation,
maintenance, repair, protection and management of the Property;
(ix) reasonable reserves for the
operation, maintenance, repair, protection and management of the
Property;
(x) janitorial service for the
Building and Parking Facilities, including, but not limited to, the cost
of window cleaning, uniforms, supplies and sundries;
(xi) cleaning costs for the Property
including the facade, windows, and sidewalks and trash removal and the
cost of all labor, supplies, equipment and materials incidental to, such
cleaning;
(xii) management fees of the managing
agent for the Property, if any, and if there is no managing agent, or if
the managing agent is affiliated with Landlord, management fees shall be
15% of the charges stipulated in Section 5, an amount customarily
charged for the management of a first class office building by an
independent managing agent, in the County of Palm Beach, Florida;
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(xiii) the cost of repainting,
redecorating, or refurbishing any part of the Property, including the
cost of displays, plantings or decorations for the lobby, balconies and
other public portions of the Property; and
(xiv) the amortized portion of the
cost of any capital improvements or alterations made to the Property
which is either required by law (any governmental regulation), required
by any insurance company issuing insurance carried by Landlord or
intended by Landlord to reduce Operating Expenses (including but not
limited to energy costs), it being understood that such amortization
shall be in accordance with generally accepted accounting principles and
shall include interest at the rate incurred by Landlord in connection
with the installation of the capital improvement or alteration;
(xv) any and all sums for
landscaping, ground maintenance, sanitation control, cleaning, lighting,
Parking Facilities and driveway maintenance, line striping and
resurfacing, equipment and fixture replacement, fire protection, and
security;
(xvi) depreciation of hand tools and
other moveable equipment used in the repair, maintenance or operation of
the Property; and
(xvii) all other expenses whether or
not hereinabove mentioned which, in accordance with generally accepted
accounting and management principles, would be considered as an expense
for the repair, maintenance, protection and operation of the Property by
virtue of the ownership thereof.
(b) The term "Operating Expenses" shall not
include: (1) the cost of painting, decorating, or installing fixtures or
equipment in space for the purposes of preparing the space for occupancy by a
tenant; (2) wages, salaries or fees paid to executive personnel of Landlord; (3)
the cost of any repair or replacement item which, by standard accounting
practice, should be capitalized, except as described above; (4) any charge for
depreciation or interest incurred by Landlord, except as described above; (5)
any charge for Landlord's income tax, excess profit taxes, franchise taxes or
similar taxes on Landlord's business; or (6) leasing commissions.
B. For and with respect to each calendar year during the term of this
Lease after the Rental Commencement Date (and any renewals or extensions
thereof), Tenant shall pay to Landlord, as Additional Rent, an amount equal to
Tenant's Proportionate Share of the Taxes and Operating Expenses for such
calendar year, appropriately prorated on a per diem basis for any partial
calendar year included within the beginning and of the term, Tenant's
Proportionate
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Share of Taxes and Operating Expense shall be computed by multiplying the total
amount of Taxes and Operating Expenses by Tenant's Proportionate Share. Tenant's
Initial Share of Taxes and Operating Expenses shall be as set forth in Paragraph
5A(3). Tenant's Proportionate Share of such Taxes and operating Expenses shall
be paid in accordance with the following procedures:
(1) Landlord shall furnish to Tenant on or before April
30 of each calendar year of the term hereof:
(a) A written statement (the "Estimate
Statement") of Landlord's good faith estimate of Taxes and Operating Expenses
and Tenant's Proportionate Share of same (the "Estimated Share"), for the
current calendar year, Landlord may, at any time, change Tenant's Estimated
Share by sending Tenant a revised Estimate Statement if, in Landlord's
reasonable opinion, Landlord determines that Tenant's Proportionate Share of
Taxes and Operating Expenses for any calendar year will exceed those set forth
in the most recent Estimate Statement.
(b) A written statement (the "Expense
Statement") setting forth: (i) Taxes and Operating Expenses for the calendar
year immediately prior to (the "Prior Year") the calendar Year in which any
Expense Statement is issued; (ii) Tenant's Proportionate Share of the Taxes and
Operating Expenses for the Prior Year; (iii) the amount, if any, due from Tenant
for any deficiency between Tenant's Proportionate Share of Taxes and Operating
Expenses for the Prior Year and the actual amounts paid by Tenant as its
Estimated Share during such Prior Year, and (iv) the amount due from Tenant for
any deficiency in the payments of Tenant's Estimated Share for the current
calendar year resulting from any adjustment of Tenant's Estimated Share for the
current calendar year.
(2) Tenant's Proportionate Share of Taxes and Operating
Expenses shall be paid monthly as Additional Rent together with payments of
Minimum Annual Rental as follows:
(a) The amount of any deficiency due from Tenant
as shown on the Expense Statement shall be paid by Tenant within twenty (20)
days from the date of issuance of such Expense Statement described above. If any
Expense Statement reflects an excess paid by Tenant during such period (the "Tax
and Operating Expense Credits"), said Tax Operating Expense Credit shall be
credited against Tenant's Estimated Share falling due after the date of the
applicable Expense Statement until such credit is depleted.
(b) On the first (1st) day of the first (1st)
full month after the Rental Commencement Date, Tenant shall pay Landlord
one-twelfth (1/12th) of the amount of
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Tenant's Initial Share of Taxes and Operating Expenses set forth in the
Referenced Data at the beginning of this Lease, together with the pro rata
portion of Tenant's Initial Share determined on a per diem basis with respect to
a thirty (30) day month for any period of time elapsed between the Rental
Commencement Date and the first (1st) day of the first (1st) full month after
the Rental Commencement Date.
(c) On the first (1st) day of each subsequent
month during the first (1st) calendar year of the term of this Lease, and
continuing thereafter until issuance of any Estimate Statement in which Tenant's
Estimated share exceeds Tenant's Initial Share of Taxes and Operating Expenses,
Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Initial Share of
Taxes and Operating Expenses set forth in the Referenced Data at the beginning
of this Lease.
(d) On the first (1st) day of the month after
receipt of an Estimated Statement increasing Tenant's Estimated Share above
Tenant's Initial Share and on the first (1st) day of each succeeding month
thereafter until Tenant shall receive a revised Estimated Statement, Tenant
shall pay to Landlord, on account of its share of Taxes and Operating Expense,
one-twelfth (1/12th) of the then current Estimated Share.
6. Security. As additional security for the full and prompt performance by
Tenant of the terms and covenants of this Lease, Tenant shall deliver to
Landlord concurrently upon execution of this Lease the amount of Seven Thousand
One Hundred Eighty-Three and 59/100 Dollars ($7,183.59) (the "Security
Deposit"), none of which Security Deposit shall constitute rent for any month
unless so applied by Landlord to compensate Landlord for all loss, cost expense
or damage suffered by Landlord due to default or failure of Tenant hereunder.
Tenant shall, upon demand, restore any portion of said Security Deposit so
applied by Landlord on account of any default or failure by Tenant hereunder and
Tenant's failure to do so shall constitute a default hereunder. To the extent
that Landlord has not applied said sum on account of a default, the Security
Deposit shall be returned (without interest) to Tenant promptly after
termination of this Lease. Landlord may, in its absolute discretion, commingle
the Security Deposit with other funds of Landlord. In the event Landlord
delivers the Security Deposit to a purchaser or other successor to Landlord's
interest in the Property, Landlord shall be discharged of any further liability
with respect to the Security Deposit.
7. Tenant's Covenants. Tenant agrees, on behalf of itself, its employees and
agents, that it shall:
A. Comply at all times with any and all federal, state, and local
statutes, regulations, ordinances and other requirements of any applicable
public authorities relating to its use and occupancy of the Demised Premises.
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B. Give Landlord access to the Demised Premises at all reasonable
times, without charge or diminution of rent, to enable Landlord: (1) to examine
the same and to make such repairs, additions and alterations as Landlord may be
permitted to make hereunder or as Landlord may deem advisable to the Demised
Promises or any other portion of the Property or any part thereof; and (2) upon
reasonable notice, to show the Demised Premises to any prospective mortgagees
and purchasers, and, during the six (6) months prior to expiration of the term,
to prospective tenants.
C. Maintain and repair, at its cost and expense, the Demised Premises,
including the plumbing, electrical, HVAC and other systems within the Demised
Premises, with the exception of such items which are Landlord's responsibility,
as required to keep the Demised Premises in good working order and condition,
Tenant shall commit no waste in or upon the Demised Premises.
D. Upon the termination of this Lease for any reason whatsoever, remove
Tenant's goods and effects and those of any other person claiming under Tenant,
and quit and deliver up the Demised Premises to Landlord peaceably and quietly
in as good order and condition as at the inception of the term of this Lease or
as the same hereafter may be improved by Landlord or Tenant, reasonable use and
wear thereof, damage from fire and other insured casualty and repairs which are
Landlord's obligation excepted. Goods and effects not removed by Tenant at the
termination of this Lease, however terminated, shall be considered abandoned and
Landlord may dispose of and/or store the same as it deems expedient, the cost
thereof to be charged to Tenant.
E. Not place signs on the Demised Premises except in accordance with
sign criteria approved by Landlord. All signs shall be purchased and erected at
Tenant's expense. Identification of Tenant and Tenant's location shall be
provided by Landlord at Tenant's expense in a directory in the Building Lobby.
F. Not overload, damage or deface the Demised Premises or do any act
which might make void or voidable any insurance on the Demised Premises of the
Building and/or the Property or which may render an increased or extra premium
payable for insurance (and without prejudice to any right or remedy of Landlord
regarding this subparagraph, Landlord shall have the right to collect from
Tenant, upon demand, any such increased ar extra premium).
G. Not make any alteration of or addition to the Demised Premises
without the prior written approval of Landlord in accordance with the provisions
of Paragraph 3E of this Lease. All such alterations and additions, as well as
all fixtures, equipment, improvements and
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appurtenances installed in the Demised Premises (but excluding Tenant's trade
fixtures) shall, upon installation, become and remain the property of Landlord
and shall be maintained by Tenant during the term hereof and any renewals and
extensions thereof, in the same good order and repair in which the Demised
Premises are required to be maintained. Tenant shall, at the expiration or the
term hereof, remove Tenant's trade fixtures and other personal property which
can be removed without damage to the Demised Premises and shall likewise remove
such other items as Landlord shall designate for removal by Tenant upon
expiration of the term hereof (and in such case Tenant shall be obligated to
restore any damage caused thereby). The construction of any such alterations and
additions shall be performed at Tenant's expense by Landlord or Tenant, as
Landlord shall elect, subject to the requirements specified in Paragraph 3 of
this Lease. All alterations and additions to the Demised Premises shall be
performed in accordance with plans and specifications therefore submitted to,
and approved by Landlord, in a good and workmanlike manner and in conformity
with all building codes, laws, regulations, rules, ordinances and other
requirements of all governmental or quasi-governmental authorities having
jurisdiction.
H. Not install or authorize the installation of any coin operated
vending machines
I. Not bring any flammable, explosive or dangerous material or
article onto the Property.
J. Not violate Landlord's regulation that only persons approved
from time to time by Landlord may prepare, solicit orders for sell, serve or
distribute foods or beverages in the Building, or use the elevators, corridors
or common areas for any such purpose. Except with Landlord's prior written
consent and in accordance with arrangements approved by Landlord, Tenant shall
not permit on the Demised Premises the use of equipment for dispensing food or
beverages or for the preparation, solicitation of orders for sale, serving or
distribution of food or beverages.
K. Not bring safes, heavy files, or other heavy equipment into
the Property unless the weight, location and handling of same is approved by
Landlord. Regardless of said approval, Tenant shall indemnify, defend and save
Landlord harmless from any and all expanses and other damages, Including
attorney's fees, and costs, resulting from the use or installation by Tenant of
such heavy equipment.
L. Not use, create, store, or permit any toxic or hazardous
material anywhere on the Property, Tenant shall not dispose of any toxic or
other hazardous waste through the plumbing system or drainage system of the
Building or the Property, and Tenant shall not violate any requirement of the
Florida Department of Environmental Regulation or the Florida Department of
Health, or any other governmental agency, with respect to waste disposal,
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Tenant shall indemnify, defend and hold Landlord harmless from any and all
expenses and other damages, including attorney's fees and costs incurred by
Landlord, as a result of improper storage or handling of any hazardous materials
or waste or any improper waste disposal by Tenant, which indemnification shall
survive the explication or earlier termination of this Lease.
M. Immediately and at its expense, Tenant shall repair and restore any
and all damages caused to the Demised Premises or the Property due to Tenant's
improvements, installations, alterations, additions or other work conducted by
Tenant within the Demised Premises, and Tenant shall restore the Property to the
condition existing prior to improvement, installation, alterations, additions or
other work conducted by Tenant within the Demised Premises.
N. Comply with the rules and regulations as initially set forth on
Exhibit "E," which is attached hereto and incorporated herein, and comply with
such other rules and regulations as Landlord may establish, and from time to
time amend, for the general safety, comfort and convenience of Landlord,
occupants and tenants of the Building.
O. Unless Landlord elects to commonly meter the Demised Premises in
accordance with Paragraph 4F of this Lease, Tenant shall pay directly to the
entity providing same, the costs of all utilities consumed within the Demised
Premises and all other sums assessed against Tenant or the Demised Premises by
any governmental or quasi-governmental entity in connection with Tenant's use or
occupancy of the Demised Premises.
P. Not install or operate in the Demised Premises any electrically
operated equipment or other machinery, including computers, unless requiring not
more than three-phase, four-wire 227/480 volt electrical service and normally
used in modern offices, or any plumbing fixtures, without first obtaining the
prior written consent of Landlord. In the event that Landlord determined, in its
sole and absolute discretion, that Tenant's electrical consumption within the
Premises is greater than the normal usage of other tenants within the Building,
Landlord reserves the right to charge Tenant for such additional consumption, or
cause Tenant to separately meter electrical service to the Premises at Tenant's
sole cost and expense. Tenant shall not install any equipment of any kind or
nature whatsoever which would or might necessitate any changes, replacements or
additions to the structural system, water system, plumbing system, heating
system, air conditioning system or the electrical system servicing the Demised
Premises or any other portion of the Building without the prior written consent
of Landlord, and in the event such consent is granted, such replacements,
changes or additions shall be paid for by Tenant.
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8. Services. Landlord agrees that it shall:
A. Provide self-service passenger elevator service to the Demised
Premises from the ground floor. Access to the Demised Premises shall at all
times be subject to compliance with such security measures as shall be in effect
for the Building
B. Provide Janitorial service to the Demised Premises and the Common
Areas in the Building as are customarily provided in first class office
buildings in Palm Beach County, Florida. Any and all additional or specialized
janitorial service desired by Tenant shall be contracted for by Tenant directly
and the cost and payment thereof shall be and remain the sole responsibility of
Tenant. The firm providing such janitorial service shall first be approved by
Landlord, and Tenant shall not be entitled to any reduction, abatement, or other
credit against its Proportionate Share of Operating Expenses on account of any
contract for additional or specialized janitorial services, whether or not
Landlord's janitorial services are continued by Tenant. Janitorial services are
to be provided as detailed in the Cleaning Specifications Schedule attached as
Exhibit "D."
C. Subject to the provisions of Paragraphs 12 and 15 hereof, make all
necessary repairs of damage to the Common Areas of the Building, equipment used
to provide services specified herein and to the roof, outside walls and
structural members of the Building and Parking Facilities. In the event that any
repair is required by reason of the negligence or abuse of Tenant or its agents,
employees or invitees, or of any other person entering the Building with
Tenant's consent, express or implied, Landlord may make such repair and add the
cost thereof to the first installment of rent which will thereafter become due.
D. Furnish the Common Areas of the Property with electrical service for
lighting and normal office use. Furnish the Demised Premises with heating or air
conditioning between the hours of 8:00 a.m. and 6:00 p.m. Monday through Friday,
excluding federal and state holidays. Tenant may be permitted the use of after
hours air conditioning at Landlord's discretion, said after hours air
conditioning to be separately metered by floor only, and Tenant shall pay to
Landlord, in addition to Tenant's Proportionate Share of Operating Expenses, the
after hours air conditioning fee determined by Landlord, in its sole and
absolute discretion to be a reasonable charge for said services, and such sums
shall be paid by Tenant as Additional Rent under this Lease.
E. The costs of all services provided in this Paragraph 8 not
separately charged to Tenant shall constitute Operating Expenses an defined in
Paragraph 5 above, Tenant acknowledges that Landlord does not warrant that any
of the services referred to in this Paragraph 8 will be free from interruption
from causes beyond the reasonable control of Landlord. No interruption of
service shall ever be deemed an eviction or disturbance of Tenant
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or render Landlord liable to Tenant for damages by abatement of Rent or
otherwise, or relieve Tenant from performance of Tenant's obligations under this
Lease, unless Landlord, after reasonable notice, shall willfully and without
cause fail or refuse to take reasonable action within its control to restore
such service.
9. Subletting and Assigning. Tenant shall not assign, mortgage or otherwise
transfer or encumber this Lease or any portion of Tenant's interest herein, or
sublet all or any portion of the Demised Premises without first obtaining
Landlord's prior written consent thereto, which the parties agree may be
withheld for any reason whatsoever in Landlord's sole and absolute discretion.
If Landlord consents to any given assignment or subletting, such consent will
not be deemed a consent to any further subletting or assignment. Duly attempted
assignment, mortgage, sublease or other encumbrance of the Demised Premises in
violation of this paragraph shall be null and void. If Landlord consents to any
subletting or assignment, it shall nevertheless be a condition to the
effectiveness thereof that a fully executed copy of the sublease or assignment
be furnished to Landlord and that any assignee assume in writing all obligations
of Tenant hereunder. Notwithstanding any consent by Landlord to any subletting
or assignment, in the event of any subletting or assignment of the Demised
Premises, Tenant shall remain liable for all of the obligations of Tenant set
forth herein. The sale by Tenant of a controlling interest in the Tenant entity
shall be deemed an assignment of this Lease requiring the consent of Landlord as
specified above.
10. Indemnification; Waiver of Liability.
A. Tenant agrees to indemnify, defend and save harmless Landlord and
its building manager and their officers, employees, agents and independent
contractors, from any and all suits, actions, damages, liability and expenses
(including reasonable attorney's fees and costs) in connection with loss of
income, loss of life, bodily or personal injury or property damage in or about
the Demised Premises arising from any cause whatsoever unless such loss of life,
injury, or property damage is the result of the willful and gross negligence of
Landlord, its building manager, or their officers, employees, agents and
independent contractors, and Landlord and said managers and their officers,
employees, agents and independent contractors shall not be liable to Tenant for
any such damage or loss whether or not the result of their willful and gross
negligence.
B. Tenant agrees to indemnify, defend and hold Landlord and its
building manager, and their employees, officers, agents and independent
contractors harmless of, and from any and all loss, liability or expense
including, without limitation, reasonable attorney's fees and costs incurred by
Landlord in connection with any failure of Tenant to fully perform its
obligations under this Lease, and in connection with any personal injury or
damage to or loss of property of any type or nature resulting out of Tenant's
use of the Property, or caused by
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the negligence, misconduct or breach of this Lease by Tenant, its employees,
subtenants, invitees, contractors, subcontractors, or any other person entering
the Property under express or implied invitation of Tenant.
11. Public Liability and Business Interruption Insurance.
A. Tenant, at its own cost and expense, shall obtain and maintain in
full force and effect during the original term hereof, and any extensions or
renewals, single limit public liability and property damage insurance in an
amount at least equal to Two Million Dollars ($2,000,000) or such other amounts
as Landlord may reasonably require from time to time, upon thirty (30) days
prior written notice.
B. Tenant, at its own cost and expense, shall obtain and maintain in
full force and effect during the original term hereof, and any extensions or
renewals, business interruption insurance payable in case of loss resulting from
damage to the Demised Premises or the Building by fire or other casualty. Such
insurance shall be maintained in an amount not less than the sum of all Minimum
Annual Rental and additional rent coming due for the then current calendar year
as estimated by Landlord.
C. Tenant agrees to carry full replacement cost all risk fire and
extended coverage insurance in form satisfactory to Landlord an all improvements
to the Demised Premises. Tenant also agrees to carry such all risk insurance
covering Tenant's fixtures, furnishings, wall covering, carpeting, drapes,
equipment and all other items of personal property of Tenant located on or
within the Demised Premises.
D. All policies of insurance described above shall name Landlord and
any mortgagee of Landlord as named insured, and shall include an endorsement
providing that the policies will not be cancelled or amended until after thirty
(30) days' prior written notice to Landlord. All such policies of insurance
shall be issued by a financially responsible company or companies satisfactory
to Landlord and authorized to issue such policy or policies, and licensed to do
business in the state of Florida. Tenant shall deposit with Landlord duplicate
originals of such insurance on or prior to the Rental Commencement Date together
with evidence of paid-up premiums, and shall deposit with Landlord renewals
thereof at least fifteen (15) days prior to expiration of any such policies.
12. Fire or Other Casualty. In case of damage to the Demised Premises by fire or
other casualty, Tenant shall promptly give notice thereof to Landlord. In case
of damage to the Building, the Demised Premises or the Parking Facilities by
fire or other casualty, Landlord shall, unless Landlord elects to terminate this
Lease as described below, and subject to the rights of Landlord's Mortgagees,
thereupon undertake the repair and restoration of: (a) the
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Building, to substantially the same condition as existed prior to the casualty;
provided that Landlord is not obligated to restore any portion of the Building
or Parking Facilities not necessary for Tenant's use of the Demised Premises
(hereinafter the "Excluded Area"); and (b) the Demised Premises, to
substantially the condition in which Landlord was obligated to deliver the
Demised Premises to Tenant on the Rental Commencement Date, at the expense of
Landlord, subject to delays which may arise by reason of adjustment of loan
under insurance policies and for delays beyond the reasonable control of
Landlord; provided, however, that Landlord shall not be obligated to restore the
Demised Premises if adequate insurance proceeds are not available to Landlord to
complete such work. The Minimum Annual Rent payable by Tenant hereunder shall be
equitably apportioned during the period of Landlord's repair and/or restoration
of the Demised Premises in accordance with the portion of the Demised Premises
which has been rendered untenantable. If Landlord elects to make such repairs,
Tenant shall, within thirty (30) days after completion by Landlord of such
repair and/or restoration, at Tenant's sole cost and expense, commence to repair
or restore the remainder of the Demised Premises to the condition it was in
prior to such fire or casualty, (which work shall be completed by Tenant, within
one hundred twenty (120) days of commencement). In the event that Landlord, in
Landlord's discretion, shall decide not to repair or rebuild the Demised
Promises, the Building or the Parking Facilities, Landlord shall deliver written
notice to Tenant of its election to terminate this Lease within ninety (90) days
after Landlord is notified of the casualty, and this Lease shall terminate as of
the date specified in such notice, which date shall not be more than ninety (90)
days thereafter, and the Rent (taking into account any apportionment as
aforesaid) shall be adjusted to the termination date, and Tenant shall thereupon
promptly vacate the Demised Premises.
13. Increase in Premiums. Tenant shall not do, permit or suffer to be done any
act, matter, thing or failure to act in respect to the Property or the Demised
Promises or use or occupy the Property or the Demised Premises or conduct or
operate Tenant's business in any manner objectionable to insurance companies
whereby the fire insurance or any other insurance now in force or hereafter to
be placed an the Demised Premises or any part thereof shall become void or
suspended or whereby any premiums in respect of insurance maintained by Landlord
shall be higher than those which would normally have been in effect for the
occupancy contemplated under the permitted uses. In case of a breach of this
covenant, in addition to all other rights and remedies of Landlord hereunder,
Tenant shall (a) indemnify Landlord and hold Landlord harmless from and against
any loss which would have been covered by insurance, which shall become void or
suspended because of such breach by Tenant, and (b) pay to Landlord any and all
increase of premiums on any insurance, including, without limitation, rent
insurance, resulting from any such breach.
14. Waiver of Subrogation. Landlord and Tenant waive, unless said waiver should
invalidate any Insurance required or permitted hereunder, their right to recover
damages
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against each other for any reason whatsoever to the extent the damaged party
recovers indemnity from its insurance carrier. Any insurance policy procured by
either Tenant or Landlord which does not name the other as a named insured
shall, if obtainable, contain an express waiver of any right of subrogation by
the insurance company, including but not limited to Tenant's workmen's
compensation carrier, against Landlord or Tenant, whichever the case may be. All
public liability and property damage policies shall contain an endorsement that
Landlord, although named as an insured, shall nevertheless entitled to recover
for damages caused by the negligence of Tenant.
15. Eminent Domain.
A. If the whole of the Property, or the Demised Premises shall be taken
or condemned for a public or quasi-public use under any law, ordinance or
regulation, or by right of eminent domain or private purchase in lieu thereof by
any competent authority, this Lease shall terminate and Rent shall abate for the
unexpired portion of the term of this Lease as of the date the right to
possession shall vest in the condemning authority.
B. If part of the Demised Premises shall be acquired or condemned as
aforesaid, and such acquisition or condemnation shall render the remaining
portion unsuitable for the business of Tenant (in the reasonable opinion of
Landlord), the term of this Lease shall cease and terminate as provided in
Paragraph 15(A) hereof, provided however, that diminution of rentable area shall
not in and of itself be conclusive as to whether the portion of the Demised
Premises remaining after such acquisition is unsuitable for Tenant's business.
If such partial taking is not extensive enough to render the Demised Promises
unsuitable for the business of Tenant, this Lease shall continue in full force
and effect except that the Minimum Annual Rental shall be reduced in the same
proportion that the rentable area of the Demised Premises taken bears to the
rentable area demised. Subject to the rights of any mortgagee of Landlord's
estate, Landlord shall, upon receipt of the net condemnation award, make all
necessary repairs or alterations to the Building so as to render the portion of
the Building not taken a complete architectural unit, but Landlord shall in no
event be required to spend for such work an amount in excess of the net amount
received by Landlord as damages for the part of the Building so taken. "Net
amount received by Landlord" shall mean that portion of the condemnation award
in excess of any sums required to be paid by Landlord to the holder of any
mortgage on the property so condemned, and all expenses and legal fees incurred
by Landlord in connection with the condemnation proceeding.
C. If part of the Building, but no part of the Demised Premises, is
taken or condemned as aforesaid, and, in the reasonable opinion of Landlord,
such partial acquisition or condemnation shall render Landlord unable to comply
with its obligations under this Lease, or shall render the Demised Premises
unsuitable for the business of Tenant, the term of the Lease
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shall cease and terminate as provided in Paragraph 15(A) hereof, by Landlord
sending written notice to such effect to Tenant, whereupon Tenant shall
immediately vacate the Demised Premises.
D. In the event of any condemnation or taking as hereinbefore provided,
whether whole or partial, Tenant shall not be entitled to any part of the award,
as damages or otherwise, for such condemnation and Landlord is to receive the
full amount of such award, and Tenant hereby expressly waives any right or claim
to any part thereof. Although all damages in the event of any condemnation are
to belong to the Landlord whether such damages are awarded as compensation for
diminution in value of the leasehold or the fee of the Demised Premises, Tenant
shall have the right to claim and recover from the condemning authority, but not
from Landlord, such compensation as may be separately awarded or recoverable by
Tenant in Tenant's own right on account of any damage to Tenant's business by
reason of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's 'merchandise, furniture, fixtures, and
equipment, or the loss of Tenant's business or decrease in value thereof.
16. Events of Default. Each of the following events shall constitute an Event of
Default under this Lease:
A. If Tenant shall fall to pay Minimum Annual Rental, Additional Rent,
or any other sum payable to Landlord hereunder when due; or
B. If Tenant shall fail to perform or observe any of the other
covenants, terms or conditions contained in this Lease within ten (10) clays
after written notice thereof by Landlord; or
C. If a receiver, or trustee is appointed to take possession of all or
a substantial portion of the assets of Tenant or any Guarantor and such receiver
or trustee is not dismissed within thirty (30) days; or
D. If Tenant or any Guarantor makes an assignment for the benefit of
creditors; or
E. If any bankruptcy, reorganization, insolvency, credit or adjustment
or debt rehabilitation proceedings are instituted by or against Tenant or any
Guarantor under any state or federal law and the same are not dismissed within
thirty (30) days; or
F. If levy, execution, or attachment, proceedings or other process of
law are commenced upon, on or against Tenant or any Guarantor or a substantial
portion of Tenant's or any Guarantor's assets and the same are not dismissed
within thirty (30) days; or
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G. If a liquidator, receiver, custodian, sequester, conservator,
trustee, or other similar judicial officer is applied for by Tenant or any
Guarantor; or
H. If Tenant or any Guarantor becomes insolvent in the bankruptcy or
equity sense; or
I. If the Demised Premises are vacated, abandoned or deserted during
the term hereof or Tenant removes or manifests an intention to remove its goods
and property from the Demised Premises other than in the ordinary course of its
business.
17. Remedies.
A. If Tenant fails to pay Minimum Annual Rental, Additional Rent, or
any other sum payable to Landlord hereunder when due, Tenant shall pay a late
charge in the amount or Fifty Dollars ($50.00) plus interest accruing on the
unpaid sums from the date such sums are due at a rate equal to the greater of
(a) eighteen percent (18%) per annum or (b) three percent (3%) per annum in
excess of the prime rate of interest paid by Landlord on sums borrowed by
Landlord (the "Late Charge"). The Late Charge shall be Additional Rent under the
terms of this Lease. In no event, however, shall any interest or other charge on
any delinquent payments exceed the amount allowed to be charged under the usury
laws of the State of Florida, it being acknowledged and agreed that any amount
in excess of such limitation shall be refunded to Tenant by Landlord by means of
a credit against the next installment(s) of Rent coming due hereunder, or if no
such Rent payments remain to be paid, then the excess shall be refunded in cash.
The Late Charge shall be in addition to, and shall not in any way limit any
other rights or remedies available to Landlord under the terms of this Lease or
at law and in equity.
B. Upon the occurrence of an Event of Default, Landlord may, at any
time thereafter, and in addition to any other available rights or remedies at
law and/or in equity, elect any one or more of the following remedies:
(1) Without obligation to relet the Demised Premises, to
accelerate the whole or any part of the Minimum Annual Rental, the Additional
Rent, or any other sum payable to Landlord hereunder for the entire unexpired
balance of the Term of this Lease, as well as all other charges, payments, costs
and expenses herein agreed to be paid by Tenant and for purposes of this
Paragraph, the Minimum Annual Rental shall be deemed to be increased and
adjusted as described in Paragraphs 3C and 3D hereof, with the annual Cost of
Living Increase calculated as if the Adjustment Date was the month in which such
default occurred, and any Rent or other charges, payments, costs and expenses if
so accelerated shall, in addition to any and all installments of Rent already
due and payable and in arrears, and/or any other charge or
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payment herein reserved, included or agreed to be treated or collected as rent
and/or any other charge, expense or cost herein agreed to be paid by Tenant
which may be due and payable and in arrears, be deemed due and payable as if, by
the terms and provisions of this Lease, such accelerated Rent and other charges,
payments, costs and expenses were on that date payable in advance, and Landlord
shall be entitled to all costs of collection, including attorney's fees and
costs through all appellate levels and post-judgment proceedings, and to
interest on all such amounts at the maximum rate allowed by law until such
amounts are actually paid to Landlord.
(2) To immediately re-enter the Demised Premises without
accepting surrender of the leasehold estate and remove all persons and all or
any property therefrom, with or without summary, dispossess proceedings or by
any suitable action or proceeding at law, without being liable to indictment,
prosecution or damages therefore, and repossess and enjoy the Demised Premises;
together with all additions, alterations and improvements. Upon recovering
possession of the Demised Promises by reason of or based upon or arising out of
a default on the part of Tenant, Landlord may, at Landlord's option, either
terminated this Lease or make such alterations and repairs as may be necessary
in order to relet the Demised Premises or any part or parts thereof, either in
Landlord's name or otherwise, for a term or terms which may at Landlord's option
be less than or exceed the period which would otherwise have constituted the
balance of the Term of this Lease and at such rent or rents and upon such other
terms and conditions as in Landlord's sole discretion may seem advisable and to
such person or persons as may in Landlord's discretion seem best. Upon each such
reletting all rents received by Landlord from such reletting shall be applied:
first, to the payment of any indebtedness other than Rent due hereunder from
Tenant to Landlord; second, to the payment of any costs and expenses of such
reletting, including brokerage fees and attorney's fees and all costs of such
alterations and repairs; third, to the payment of Rent due and unpaid hereunder;
and the residue if any, shall be held by Landlord and applied in payment of
future rent as it may become due and payable hereunder. If such rentals received
from such reletting during any month shall be less than that to be paid during
that month by Tenant hereunder, Tenant shall pay any such deficiency to
Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry
or taking possession of the Demised Premises or the making of alterations and/or
improvements thereto or the reletting thereof shall be construed as an election
on the part of Landlord to terminate this Lease unless written notice of such
intention be given to Tenant. Landlord shall in no event be liable in any way
whatsoever for failure to relet the Demised Promises or, in the event that the
Demised Premises or any part or parts thereof are relet, for failure to collect
the rent thereof under such reletting. Tenant, for Tenant and Tenant's
successors and assigns, hereby irrevocably constitutes and appoints Landlord as
Tenant's agent to collect the rents due and to become due under all subleases of
the Demised Premises or any part thereof without in any way affecting Tenant's
obligation to pay any unpaid balance of Rent due or to become due hereunder.
Notwithstanding any such reletting
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without termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach.
(3) To terminate this Lease and the term hereby created
without accepting any surrender of the leasehold estate and without any right on
the part of Tenant to waive the forfeiture by payment of any sum due or by other
performance of any condition, term or covenant broken, whereupon Landlord shall
be entitled to recover, in addition to any and all sums and damages for
violation of Tenant's obligations hereunder in existence at the time of such
termination, damages for Tenant's default in an amount equal to the amount of
the Rent reserved for the balance of the term of this Lease, as well as all
other charges, payments, costs and expenses herein agreed to be paid by Tenant,
all discounted at the rate of six percent (6%) per annum to their then present
worth, less the fair rental value of the Demised Premises for the remainder of
said term, also discounted at the rate of six percent (6%) per annum to its then
present worth, all of which amount shall be immediately due and payable from
Tenant to Landlord.
C. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy herein or by law provided
but each shall be cumulative and in addition to every other right or remedy
given herein or now or hereafter existing at law or in equity or by statute.
D. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Landlord, in its sole and absolute
discretion, shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for in law or in equity.
E. No waiver by Landlord of any breach by Tenant of any of Tenant's
obligations, agreements or covenants herein shall be a waiver of any subsequent
breach or of any obligation, agreement or covenant, nor shall any forbearance by
Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of
any rights and remedies with respect to such or any subsequent breach.
18. Quiet Enjoyment. Upon paying the Minimum Annual Rental, Additional Rent, and
other charges and sums herein provided for, and upon Tenant's observance and
keeping of all the covenants, agreements and conditions of this Lease, Tenant
shall quietly have and enjoy the Demised Premises during the term of this Lease
without hindrance or molestation by anyone claiming by or through Landlord;
subject, however, to the terms, exceptions, reservations and conditions of this
Lease.
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19. No Waiver. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more agreements, terms,
covenants, conditions, or obligations of this Lease, or to exercise any right,
remedy or election therein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease or of the right to exercise such right, remedy or election, with
respect to any subsequent breach, act, or omission. The manner of enforcement or
the failure of Landlord to enforce any of the covenants, conditions, rules and
regulations set forth herein or hereafter adopted, against any tenant in the
Building shall not be deemed a waiver of any such covenants, conditions, rules
and regulations.
20. Attornment and Subordination.
A. Subject to the provisions in subsection B hereof, this Lease, and
the rights of Tenant hereunder, shall be subject or subordinate to any mortgages
which now are or may hereafter be placed upon the Property or any portion
thereof (a "mortgage") or any interest therein or to any leases (hereinafter
called "underlying leases") of the Property as a whole which now exist or may
hereafter be made (any holder of any such mortgage, or landlord with respect to
any underlying lease being hereinafter called an "Interested Party"). The terms
of this Subordination shall be self-operative, provided, however, that Tenant
shall execute such documents as may be requested by Landlord in order to confirm
this Subordination from time to time. Any failure by Tenant to execute any such
documents shall be a default hereunder.
B. Upon the request of Tenant, any Interested Party shall provide to
Tenant its written agreement providing substantially as follows: so long as
Tenant has not defaulted under this Lease; (I) Tenant's rights shall not be
terminated or disturbed by reason of any foreclosure of such mortgage or
termination of such underlying lease; (II) in the event that the property
containing the Demised Premises is sold or otherwise disposed of pursuant to any
right or power contained in or existing by reason of any such mortgage or the
bond, note or debt secured thereby, the purchaser thereof or other person
acquiring title thereto through or by virtue of such sale or other disposition
shall take title thereto subject to this Lease and all rights of Tenant
hereunder; (III) upon termination of any such underlying lease, that lessor
shall accept Tenant's attornment upon all the terms and conditions of this Lease
for the balance of the term hereof. Any such written agreement shall also
reserve to the Interested Party the rights specified in section D hereof.
C. Upon any foreclosure sale on any such mortgage or termination of any
underlying lease, if the holder of the mortgage or other purchaser at
foreclosure sale or any lessor with respect to any underlying lease shall so
request, Tenant shall attorn to such holder, purchaser or lessor as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such holder, purchaser or lessor may reasonably request to
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evidence such attornment. Upon such attornment, this Lease shall continue in
full force and effect as a direct lease between such holder, purchaser or lessor
and Tenant upon all of the terms, conditions and covenants as are set forth in
this Lease.
D. In the event that the holder of such mortgage or the lessor under
such underlying lease shall succeed to the interest of Landlord hereunder, such
Interested Party shall not be: (i) liable for any act or omission of any prior
landlord (including Landlord); (ii) liable for the return of any security
deposit not actually received by it; (iii) subject to any offsets or defenses
which Tenant might have against any prior Landlord (including Landlord); (iv)
bound by any Rent or Additional Rent which Tenant might have paid for more than
the current month to any prior Landlord (including Landlord); or (v) bound by an
amendment or modification of this Lease made without its written consent.
E. Within ten (10) days after written request from Landlord from time
to time, Tenant shall execute and deliver to Landlord, or Landlord's designee, a
written statement certifying, (i) that this Lease is unmodified and in full
force and effect, or is in full force and effect as modified and stating the
modifications; (ii) the amount of Minimum Annual Rent and the date to which
Minimum Annual Rent and Additional Rent have been paid in advance; and (iii)
that Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default; (iv) the amount of security
deposit landlord is holding and (v) any options to renew or purchase that tenant
may have. Within ten (10) days after written request from Tenant from time to
time, Landlord shall execute and deliver to Tenant, or Tenant's designee, a
written statement certifying, (i) that this Lease is unmodified and in full
force and effect, or is in full force and effect as modified and stating the
modifications; (ii) the amount of Minimum Annual Rent and the date to which
Minimum Annual Rent and Additional Rent have been paid in advance; and (iii)
that Tenant is not in default hereunder, or if Tenant is claimed to be in
default, stating the nature of any claimed default.
21. Notices. All bills, statements, notices or communications which either party
hereto may desire or be required to give to the other shall be deemed
sufficiently given or rendered if in writing and either hand delivered to
Landlord or Tenant or sent by registered or certified mail or overnight courier,
postage prepaid, addressed to Landlord or Tenant at the address set forth on the
first page hereof or any other address pursuant to notice given as herein set
forth. Any notices given in accordance with the Lease shall be deemed to be
given when the same is hand delivered to the other party, deposited with the
overnight courier or three (3) days after depositing in the all, as the case may
be.
22. Holding Over. Should Tenant continue to occupy the Demised Premises after
expiration of the term of this Lease or any renewal is thereof, or after a
forfeiture incurred such tenancy shall (without limitation on any of Landlord's
rights or remedies therefore) be
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one at sufferance from month to month at a minimum monthly rent equal to twice
the rent payable for the previous month of the term of this Lease.
23. Brokers. Tenant represents and warrants that it has not employed any broker
or agent as its representative in the negotiation for or the obtaining of this
Lease other than Landlord's leasing agent, and agrees to indemnify and hold
Landlord harmless from and against any and all cost or liability for
compensation claimed by any broker or agent other than Landlord's leasing agent
with whom it has dealt or claimed to have been engaged by Tenant.
24. Definitions of Landlord and Tenant.
A. The word "Tenant" as used in this Lease shall be construed to mean
tenants in all cases where there is more than one tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships, or individuals, men or women, shall in all cases be
assumed as through in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, bind and inure to the benefit of
Tenant and its heirs, legal representatives, successors ana assigns, provided
that this Lease shall not inure to the benefit of any assignee, heir, legal
representative, transferee or successor of Tenant except upon the express
written consent or election of Landlord, except as herein otherwise provided.
B. The term "Landlord" as used in this Lease shall mean the fee owner
of the entire Property or, if different, the party holding and exercising the
right, as against all others (except space tenants of Building) to possession of
the entire Property. In the event of voluntary or involuntary transfer of such
Ownership or right to a successor in interest of Landlord, Landlord shall be
freed and relieved of all liability and obligation hereunder which shall
thereafter accrue (and, as to any unapplied portion of Tenant's security
deposit, Landlord shall be relieved of all liability therefore upon transfer of
such portion to its successor in interest) and Tenant shall look solely to such
successor in interest for the performance of the covenants and obligations of
Landlord hereunder which shall thereafter accrue. Notwithstanding the foregoing,
no mortgagee or ground lessor which shall succeed to the interest or Landlord
hereunder (either in terms of ownership or possessory rights) shall: (1) be
liable for any previous act or omission of a prior Landlord; (2) be subject to
any rental offsets or defenses against a prior landlord; (3) be bound by any
amendment of this Lease made without its written consent, or by payment by
Tenant of rent in advance in excess of one (1) month's rent; or (4) be liable
for any security deposit not actually received by it. Subject to the foregoing,
the provisions hereof shall be binding upon and inure to the benefit of the
heirs, personal representatives, successors and assigns of Landlord. In no event
shall the liability of Landlord to Tenant hereunder exceed Landlord's, interest
in the Property. Tenant agrees that no judgment arising from any default of
Tenant's agreements under the terms of this lapse or
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by reason of any willful or negligent act, of Landlord and its Building manager,
and their employees, officers, agents and independent contractors, shall attach
against any property of Landlord other than the Property, and in no event shall
any such judgment constitute a lien upon any other lands or properties owned by
Landlord wheresoever located. Neither shall any such judgment attach or
constitute a lien against any property of any principal or partner of the
Landlord, or of their heirs, executors, administrators, successors or assigns.
25. Prior Agreements; Amendments. Neither party hereto has made any
representations or promises except as contained herein. No agreement hereinafter
made shall be effective to change, modify, discharge or effect an abandonment of
this Lease, in whole or in part, unless such agreement in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
26. Captions. The captions of the paragraphs in this Lease are inserted and
included solely for convenience and shall not be considered or given any affect
in construing the provisions hereof.
27. Construct+/-on of Lease. If any term of this Lease, or the application
thereof to any person or circumstances, shall to any extent, be invalid or
unenforceable, the remainder of this Lease or the application of such term to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
28. Mechanic's Liens, etc.
A. Tenant shall comply with the Mechanic's Lien Law of the State or
Florida as set forth in Florida Statutes, Chapter 713. Tenant will not create or
permit to be created or remain as a result of any action or work done or
contracted for by Tenant, and will discharge, any lien, encumbrance or charge
(levied on account of any imposition or any mechanic's, laborer's or
materialman's lien) which might be or become a lien, encumbrance or charge upon
the Property, the Demised Promises or any part thereof or the income therefrom,
whether or not the same shall have any priority or preference over or ranking on
a parity with the estate, rights and interest of Landlord in the Property, the
Demised Premises or any part thereof, or the income therefrom, and Tenant will
not suffer any other matter or thing whereby the estate, rights and interest of
Landlord in the Property, the Demised Premises or any part thereof might be
impaired; provided that any mechanic's, laborer's or materialman's lien may be
discharged in accordance with subparagraph B of this Paragraph 28.
B. If any mechanic's, laborer's or materialman's lien shall at any time
be filed against the Building, the Demised Premises or any part thereof as a
result of any action or
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work done on behalf of or contracted for by Tenant, Tenant, within fifteen (15)
days after notice of the filing thereof, will cause it to be discharged of
record by payment, deposit, bond, order of the court of competent jurisdiction
or otherwise. If Tenant shall fall to cause such lien to be discharged within
the period aforesaid, then in addition to any other right or remedy, Landlord
may, but shall not be obligated to, discharge it either by paying the amount
claimed to be due or by transferring same to security, and in any such event,
Landlord shall be entitled, if Landlord so elects, to compel prosecution of any
action for the foreclosure of such lien by the lienor and to pay the amount of
the judgment in favor of the lienor with interest costs and allowances. Any
amount so paid by Landlord and all costs, expenses, and fees including without
limitation attorneys' fees, incurred by Landlord in connection with any
mechanic's, laborer's or materialman's lien, whether or to the same has been
discharged of record by payment, deposit, bond, order of the court of competent
jurisdiction or otherwise, together with interest thereon, at the maximum rate
permitted by law, from the respective dates of Landlord's making of the payments
and incurring of the costs and expanses, shall constitute Additional Rent
payable by Tenant to Landlord upon demand.
C. Nothing contained in this Lease shall be deemed or construed in any
way as constituting the consent or request of Landlord, express or implied by
inference or otherwise, to any contractor, subcontractor, laborer or materialman
for the performance of any labor or the furnishing of any materials for any
alteration, addition, improvement or repair to the Property, the Demised
Premises or any part thereof, nor as giving Tenant any right, power or authority
to contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any lien against the Property,
the Demised Premises or any part thereof, nor to subject Landlord's estate in
the Property to liability under the Mechanic's Lien Law of the state or Florida
in any way, it being expressly understood that Landlord's estate shall not be
subject to any such liability.
D. Notwithstanding any provision to the contrary set forth in this
Lease, it is expressly understood and agreed that the interest of the Landlord
shall not be subject to liens for improvements made by Tenant in and to the
Demised Premises, Tenant shall notify each and every contractor making any such
improvements of the provision set forth in the preceding sentence of this
paragraph. The parties agree to execute, acknowledge and deliver to Landlord
without charge a Mechanic's Lien Notice, in recordable form, containing a
confirmation that the interest of the Landlord shall not be subject to liens for
improvements made by Tenant to the Property or the Demised Premises.
29. Certain Rights Reserved to Landlord. Landlord reserves the following rights:
A. Building Name. To name the Building and to change the name or
street address of the Building,
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B. Exterior Signs. To install and maintain a sign or signs on the
exterior of the Building.
C. Redecoration. During the last ninety (90) days of the term, if
during or prior to that time Tenant has vacated the Demised Premises, to
decorate, remodel, repair, alter or otherwise prepare the Demised Premises for
re-occupancy, without affecting Tenant's obligation to pay Minimum Annual
Rental, Additional Rent and all other sums due under the terms of this Lease.
D. Pass Keys. To constantly have pass keys to the Demised Premises.
E. Adjoining Areas. The use and reasonable access thereto through the
Demised Premises for the purposes of operation, maintenance, decoration and
repair of all walls, windows and doors bounding the Demised Premises (including
exterior walls of the Building, core corridor walls and doors and any core
corridor entrance) except the inside surface thereof, any terraces or roofs
adjacent to the Demised Promises and any space in or adjacent to the Demised
Premises used for shafts, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other facilities are reserved to Landlord.
F. Common Areas and Parking Facilities. The exclusive right to manage
the Common Areas and the Parking Facilities.
30. Landlord's Lien. In addition to any statutory Landlord's Lien, Landlord
shall have, at all times, a valid security interest to secure payment of all
Minimum Annual Rental, Additional Rent, and other sums of money becoming due
hereunder from Tenant, and to secure payment of any damages or loss which
Landlord may suffer by reason of the breach by Tenant of any covenant, agreement
or condition contained herein, upon all goods, wares, equipment, fixtures,
furniture, types, improvements and other personal property of Tenant presently
or which may hereinafter be situated in the Demised Premises, and all proceeds
therefrom, and such property shall not be removed therefrom without the consent
of Landlord until all arrearages in Minimum Annual Rental, Additional Rent, and
all other sums of money then due to Landlord hereunder shall first have been
paid and discharged and all of the covenants, agreements, and conditions hereof
have been fully complied with and performed by Tenant. In consideration of this
Lease, upon the occurrence of any event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter upon the Demised Premises
and take possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant situated on or in the Demised
Premises, without liability for trespass or conversation, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any public sale or of
the time after which any private sale is to be made, at which sale the Landlord
or its assigns
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may purchase the above described Property unless otherwise prohibited by law.
Unless otherwise provided by law, and without intending to exclude any other
manner of giving Tenant reasonable notice, the requirement of reasonable notice
shall be met if such notice is given in the manner proscribed in Paragraph 20 of
this Lease at least five (5) days before the time of sale. The proceeds from any
such disposition, less any and all expenses connected with the taking of
possession and selling of the property (including reasonable attorney's fees and
other expenses) shall be applied as a credit against the indebtedness secured by
the security interest granted in this Paragraph 29. Any surplus shall be paid to
Tenant or as otherwise required by law, and Tenant shall pay any deficiencies
upon demand. Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement in form sufficient to perfect the security
interest of Landlord in the aforementioned property and proceeds thereof under
the provisions of the uniform Commercial Code in force in the State of Florida.
Any statutory lien for Rent is not hereby waived, the security interest herein
granted being in addition and supplementary thereto.
31. Rules and Regulations. Tenant covenants and agrees that it shall comply with
and observe all nondiscriminatory, uniformly applied reasonable rules and
regulations ("Rules and Regulations"), which Landlord shall from time to time
promulgate for the management and use of the Demised Premises, the Building and
the Parking Facilities. Landlord's initial Rules and Regulations are set forth
on Exhibit "E" attached hereto and made a part hereof. Landlord shall have the
right from time to time to reasonably amend or supplement the Rules and
Regulations theretofore promulgated.
32. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE ANY AND ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM, OR SUBSEQUENT
PROCEEDING, BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES, THE BUILDING OR THE PARKING
FACILITIES AND/OR ANY CLAIM OF INJURY OR DAMAGE.
33. Radon Gas. Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of Radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding Radon and Radon testing may be obtained from your county public health
unlit.
34. No Option. The submission of this Lease to Tenant for examination does not
constitute a reservation of or option for the Demised Premises and this Lease
becomes effective as a lease only upon execution and delivery thereof by the
Landlord and Tenant.
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35. Force Majeure. Notwithstanding anything to the contrary contained herein,
Landlord shall not be deemed in default with respect to the delivery of the
Demised Premises or any other obligation of Landlord hereunder, if Landlord's
inability to perform is due to any strike, lockout, civil commotion, warlike
operation, invasion, rebellion, hostilities, military or usurped power,
governmental regulation, moratoriums or controls, acts of God or any other cause
beyond the control of Landlord, provided that such cause is not due to the
willful act or negligence of Landlord.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the
day and year first aforesaid.
Signed, sealed and delivered LANDLORD:
in the presence of:
CANPRO INVESTMENTS, LTD.
By:
Authorized Officer
TENANT:
NATIONAL TO FINANCE COMPANY
L.P.
By:
Authorized Officer
34
<PAGE>
EXHIBIT "A"
Legal Description
Parcel 2 - Office Building Site
(O.R.B. 4312 PG.1726)
A portion of section 6, Township 47 South, Range 43 East, Palm Beach County,
Florida, being more particularly described as follows:
Commencing at the South one quarter corner of said section 6: Thence North
00(degree)58'48" East, along said North-South quarter line, a distance of 664.54
feet; Thence South 89(degree)41'52" East, a distance of 347.49 feet; Thence
North 01(degree)00'11" East, a distance of 30.00 feet to the point of beginning
of this description; Thence continue North 01(degree)00'11 East, a distance of
634.46 feet; Thence South 890(degree)41'01" East, a distance of 347.76 feet;
Thence South 01(degree)01'35" West, a distance of 522.29 feet; Thence South
72(degree)29'41" West, a distance of 366.48 feet to the point of beginning,
together with the following described parcel:
Commencing at the South one quarter of said section 6: Thence North
00(degree)58'48" East along the North-South quarter line, a distance of 664.54
feet; Thence South 89(degree)41'52" East a distance of 347.49 feet; Thence North
01(degree)00'11" East, a distance of 30.00 feet; Thence North 72(degree)29'41"
East, a distance of 366.48 feet to the point of beginning of this description;
Thence South 01(degree)01'35" West, a distance of 41.33 feet is now laid out and
in use; Thence North 45(degree)35'19" East, a distance of 596.04 feet to the
point of curvature of a circular curve to the left; Thence Northerly and
Easterly along the arc of said curve, having a radius of 3365.62 feet, and an
arc distance of 0.25 feet to a point on the Easterly boundary of the Lake Worth
drainage district; The last two described courses being coincident with said
right-of-way line; Thence North 17(degree)26'44" West, a distance of 4.08 feet;
Thence North 44(degree)26'44" West, a distance of 141.82 feet; the last two
described courses being coincident with the Easterly boundary of the Lake Worth
drainage district; Thence North 89(degree)41'01" West, a distance of 309.96
feet; Thence South 01(degree)01'35" West, a distance 522.29 feet to the point of
beginning; less and except therefrom the following described parcel:
Commencing at the South one quarter of said section 6: Thence North
00(degree)58'48" East along said North-South quarter line, a distance of 664.54
feet; Thence South 89(degree)41'52" East, a distance of 347.49 feet; Thence
North 01(degree)00'11" East, a distance of 242.48 feet to the point of beginning
of this description; Thence continue North 01(degree)00'11" East, a distance of
421.98 feet; Thence South 89(degree)41'01" East, a distance of 98.61 feet;
Thence South 00(degree)18'59" West, a distance of 97.55 feet; Thence South
89(degree)41'01" East, a distance of 81.73 feet; Thence South 44(degree)24'41"
East, a distance of 100.00 feet; Thence South 45(degree)35'19" West, a distance
of 245.00 feet; Thence South 44(degree)24'41" East, a distance of 65.00 feet;
Thence South 45(degree)35'19" West, a distance of 80.00 feet; Thence North
44(degree)24'41" West, a distance of 65.00 feet; Thence South 45(degree)35'19"
West, a distance of 35.00 feet to the point of beginning.
Said lands situate, lying, and being in Palm Beach County, Florida, and subject
to all easements, reservations, and right-of-way of record.
Together with (a) non-exclusive easements for ingress and egress for pedestrian
and vehicular traffic, and for the installation and maintenance of utility lines
and appurtenances over, across and under Parcel R-1, Parcel R-2, Parcel R-2A,
Parcel R-3, APOC II Roads and Parcel R-3A to the extent that a portion of Parcel
R-3A is not located within the insured lands; and (b) a non-exclusive easement
for water retention, water management and drainage purposes over, across and
under all lakes, water retention areas and drainage easements or areas
established within the Total Arvida Property, all as more particularly described
and defined in that certain Agreement for and Grant of Easements and Other
Rights, dated September 8, 1982 and recorded in Official Records Book 3788, Page
1058; as supplemented by Supplemental Agreement dated September 8, 1982 and
recorded in Official Records Book 4041, Page 1854 and as further amended by
Amendment to Agreement for and Grant of Easements and Other Rights dated April
18, 1984 and recorded in Official Records Book 4312, Page 1721 all of the Public
Records of Palm Beach County, Florida.
A-1
<PAGE>
And, further together with all of the non-exclusive, access easements, parking
easements and utility easements, over the common areas located within the
perimetrical boundaries of the Park Place Royale lands as set forth in Exhibit
"1" attached hereto, as contained in that certain Common Area Operations and
Reciprocal Easement Agreement, dated May 30, 1984 and recorded in Official
Records Book 4259, Page 1548, as amended by First Amendment to Common Area
Operation and Reciprocal Easement Agreement, dated August 29, 1984 and recorded
in Official Records Book 4341, Page 258 and further amended by Second Amendment
to Common Area Operation and Reciprocal Easement Agreement, recorded in Official
Records Book 6403, Page 553 all of the public records of Palm Beach County,
Florida.
A-2
<PAGE>
EXHIBIT "B"
B-1
<PAGE>
EXHIBIT "C"
Parking Space Schedule
Tenant shall be permitted to use undercover and/or covered parking spaces based
upon availability.
All said parking spaces shall be in areas designated by Landlord and are subject
to relocation by Landlord at any time. Landlord will not monitor the parking
spaces nor the Parking Facilities and shall have no liability to Tenant, its
employees, agents, licensees or invitees for any damages to or loss of vehicles,
automobiles, or accessories, or the contents thereof, caused by fire, theft,
collision or any other cause whatsoever.
C-1
<PAGE>
EXHIBIT "D"
Cleaning Specifications
Daily (Five times a week)
1. Dust mop (treated) composition floors.
2. Spot mop for spillage on composition floors.
3. Sight vacuum all carpets.
4. Heavy traffic areas to be vacuumed completely.
5. Empty and wipe clean all waste receptacles.
6. Gather all trash and remove to designated areas.
7. Clean all tenant rest rooms as per rest room schedule.
D-1
<PAGE>
EXHIBIT "E"
Rules and Regulations
BUILDING RULES AND REGULATIONS. Tenant and its employees, agents, licensees and
invitees shall faithfully observe and comply with the following Rules and
Regulations and all reasonable modifications of any additions thereto from time
to time put into effect by Landlord, Landlord shall not be responsible to Tenant
for the non-performance of any said Rules and Regulations by any other tenant or
occupant of the Building.
1. ADVERTISING. Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's opinion tends to impair the reputation of the
Building or its desirability as an office building, and upon written notice from
Landlord, Tenant promptly shall refrain from or discontinue such advertising.
Without limiting the foregoing, no advertising or notices shall be permitted in
the windows or common areas of the Building.
2. BICYCLES, ANIMALS. Tenant shall not bring any animals or birds into the
Building, and shall not permit any type of vehicle including bicycles, inside or
on the sidewalks outside the Building except in areas designated from time to
time by Landlord for such purposes.
3. DANGEROUS OR IMMORAL ACTIVITIES. Tenant shall not make any use of the Demised
Premises which involves the danger of injury to person or property, nor shall
the same be used for any immoral use.
4. DELIVERIES. Tenant shall ensure that deliveries of materials and supplies to
the Demised Premises are made through such entrances, elevators and corridors
and at such times as may from time to time be designated by Landlord, and shall
promptly pay or cause to be paid to Landlord the cost of repairing any damage to
the Building caused by any person making such deliveries.
5. FURNITURE AND EQUIPMENT. Tenant shall ensure that furniture and equipment
being moved into or out of the Demised Premises is moved through such entrances,
elevators and corridors and at such times as may from time to time be designated
by Landlord, and by movers or a moving company approved by Landlord, and shall
promptly pay or cause to be paid to Landlord the cost of repairing any damage in
the Building caused thereby.
6. HEAVY ARTICLES. Tenant shall not place in or move about the Demised Premises
without Landlord's prior written consent any safe or other heavy article which
in Landlord's reasonable opinion may damage the Building. Landlord may designate
the location of any heavy articles in the Demised Premises.
7. LOADING, UNLOADING AND MOVING.
A. This delivery and shipping of merchandise, supplies, fixtures, and
other materials or goods of whatsoever nature to or from the Demised Premises
and all loading, unloading and handling thereof shall be done only at such
times, in such areas, by such means and through such elevators, entrances, halls
and corridors as are designated by Landlord.
B. Landlord accepts no liability and Tenant hereby releases Landlord of
all liability with respect to the operation of delivery facilities for the
Building, or the adequacy thereof, or of the acts or omissions of any person or
persons engaged in the operation thereof, or in the acceptance, holding,
handling or dispatch, or any error, negligence or delay therein.
C. Landlord may from time to time make and amend regulations for the
orderly and efficient operation of the delivery facilities for the Building, and
may require the payment of reasonable and equitable charges for delivery
services provided by Landlord.
D. No furniture may be moved in or out of the Building without prior
consent of Landlord. Arrangements for the moving must be made with Landlord's
office and must be supervised by Landlord's
E-1
<PAGE>
representative. Tenant agrees to pay for any and all damages to any part of the
Building or Demised Premises because of such moving, by either Tenant, its
agents or movers. No moving shall be permitted except between the hours of 8:00
a.m. and 5:00 p.m., Monday through Friday. Reasonable charges will be made for
the use of material and office building personnel including supervision, needed
to assist in the Tenant's move in, within, or out of the Building.
8. OBSTRUCTIONS. Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells or other common areas of the Building, or use such locations for any
purpose except access to and exit from the Demised Promises without Landlord's
prior written consent, Landlord may remove at Tenant's expense any such
obstruction or item (unauthorized by Landlord) without notice or obligation to
Tenant. Additionally, Tenant shall not permit its employees, agents, invitees,
or customers to loiter, sleep, assemble or congregate within any common areas or
grounds of the Building.
9. ODORS. Tenant shall not permit any odors of cooking or other processes, or
any unusual or other objectionable odors to permeate in or emanate from the
Devised Premises.
10. PARKING. Tenant shall ensure that its employees, customers, clients, guests,
invitees and licensees comply with the following parking regulations, and
acknowledges that such regulations shall be strictly enforced by Landlord.
A. The designated area on the first floor of the Parking Facilities
shall be used only by guests, clients and customers of the tenants of the
Building.
B. The other areas of the Parking Facilities shall be used only by the
employees of tenants of the Building.
C. All service vehicles (including those engaged in deliveries, loading
and unloading) must park only in the designated service parking area. Parking in
the service parking area shall be limited to a maximum of one (1) hour,
provided, however, that a tenant may make arrangements with the Landlord for
longer parking period when moving in or moving out of the Building.
D. Landlord reserves the right to control the method, manner and time
of parking in the Parking Facilities.
E. In the event of any violation of the parking regulations, Landlord
shall have the right to post a notice of violation on the offending vehicle and
to tow the offending vehicle (regardless of whether the vehicle is owned by a
Tenant or any party, including any employee, customer, client, invitee or
licensee of a Tenant), and to charge the expense thereof to the applicable
Tenant as Additional Rent, or terminate the Tenant's license to park in the
Parking Facilities. In the event of continued violations of these Regulations,
and after notice to the Tenant, the Landlord may assess a charge of twenty
dollars ($20.00) against the Tenant for each violation, which shall be payable
as additional rent.
11. PROPER CONDUCT. Tenant, its employees and invitees, shall not conduct
themselves in any manner which is inconsistent with the character of the
Building as a first quality Building or which will impair the comfort and
convenience of other tenants in the Building.
12. PERSONAL USE OF PREMISES. The Demised Premises shall not be used or
permitted to be used for residential, lodging or sleeping purposes, or for the
storage of personal effects or property not required for business purposes.
13. REFUSE. Tenant shall place all refuse in proper receptacles provided by
Tenant at its expense in the Demised Premises, or in receptacles (if any)
provided by Landlord for the Building, and shall keep sidewalks and driveways
outside the Building, and lobbies, corridors, stairwells, ducts and shafts of
the Building free of all refuse.
E-2
DAFS03...:\97\64897\0001\2058\AGR4148S.520 INITIALS: ____
REFERENCED DATA
---------------
Any reference in this lease to the following subjects shall incorporate
therein the data stated for the subject(s) in this Section:
DATE OF LEASE: 4-8-96
LANDLORD: CANPRO INVESTMENTS LTD., a corporation
organized under the laws of Canada and
authorized to transact business in the
State of Florida
LANDLORD'S ADDRESS: 621 N.W. 53rd Street, Ste. 100, Boca
Raton, Florida 33487
TENANT: NATIONAL FINANCE CORPORATION or its
assignee AUTO CREDIT CLEARINGHOUSE L.P.
TENANT'S ADDRESS: 621 NE 53rd Street, Suite 550, Boca Raton,
Florida 33487
DEMISED PREMISES: Eight Thousand Five Hundred Ninety Five
(8,595) rentable square feet on the fifth
(5th) floor of the Building. For all
purposes hereof the Building shall be
deemed to contain Two Hundred Thirty Seven
Thousand, Three Hundred Thirty One
(237,331) rentable square feet, regardless
of the actual number of square feet found
to be in the Leased Premises.
LEASE TERM: Five (5) years.
ESTIMATED DATE OF SUBSTANTIAL
COMPLETION: Approximately June 1, 1996
RENTAL COMMENCEMENT DATE: June 1, 1996
EXPIRATION DATE OF LEASE
TERM: May 31, 2001
MINIMUM ANNUAL RENT: Eighty Three Thousand Eight Hundred One
25/100 Dollars ($83,801.25) 5% annual
escalation of base rent
TENANT'S INITIAL SHARE OF Sixty Two Thousand Three Hundred Thirteen
TAXES AND OPERATING EXPENSES 75/100 Dollars ($62,313.75) Annual
FOR THE BUILDING AND FOR increase capped at 4% per year excluding
OCCUPIED PREMISES: Real Estate Taxes, Insurance and
Utiliities
CONCESSIONS: Base Rent on 1,562 rentable square feet
shall be abated for the first six (6)
months of the Lease
TENANT'S PROPORTIONATE SHARE
OF THE BUILDING: 3.6215%
<PAGE>
PERMITTED USES: General Office
SECURITY DEPOSIT: $21,122.43
GUARANTOR: Corporate
WITNESS: LANDLORD:
CANPRO INVESTMENTS LTD.,
By:
Authorized Signatory
TENANT:
NATIONAL FINANCIAL CORPORATION or its assignee
AUTO CREDIT CLEARINGHOUSE L.P.
By:
Gary L. Shapiro
2
<PAGE>
OFFICE LEASE
THIS LEASE made and entered into as of the ______ day of
________________, 19___ by and between CANPRO INVESTMENTS, LTD., a corporation
organized under the laws of Canada and authorized to do business in the State of
Florida (hereinafter referred to as "Landlord") and NATIONAL FINANCIAL
CORPORATION or its assignee AUTO CREDIT CLEARINGHOUSE L.P. (hereinafter referred
to as "Tenant").
W I T N E S S E T H:
1. Demised Premises.
A. Landlord is the Owner of a tract of land situated at: 621 N.W. 53rd
Street, Boca Raton, Florida, more particularly described in Exhibit "A" attached
hereto. Upon said tract is located a multistory building known as ONE PARK PLACE
OF BOCA (hereinafter referred to as the "Building"), a parking garage,
surrounding parking areas and driveways (collectIvely called the "Parking
Facilities") and curbs, sidewalks, fountains, parks and plazas. The tract, along
with the Building, Parking Facilities and all other improvements presently or
hereafter located upon the tract, are hereinafter collectively referred to as
the "Property".
B. Landlord, for the term and subject to the provisions and conditions
hereof, shall lease to Tenant, and Tenant shall accept from Landlord, certain
space more particularly described by the cross-hatched area on the floor plans
annexed hereto as Exhibit "B", which for all purposes hereof shall be deemed to
contain Eight Thousand Five Hundred Ninety-Five (8,595) rentable square feet, on
the fifth (5th) floor of the Building, (the "Demised Premises"), together with a
license for the duration of the term of the Lease to use the parking spaces (the
"Parking Spaces") described in the Parking Space Schedule attached hereto as
Exhibit "C", at the rates set forth therein, for parking of automobiles of
Tenant and Tenant's invitees and employees and for no other purpose.
C. The Demised Premises shall be used for general office purposes and
for no other purposes.
D. The use and occupation by Tenant of the Demised Premises shall
include the nonexclusive use, in common with others entitled thereto, of the
common areas, employees' parking areas, service roads, loading facilities,
sidewalks and customer car parking areas as such common areas now exist or as
such common areas may hereafter be constructed, and other facilities as may be
designated from time to time by Landlord, subject however to the terms and
conditions of this agreement and to the rules and regulations for the use
thereof as prescribed from time to time by Landlord.
2. Term.
A. The term of this Lease shall commence on the date hereof and end at
12:00 Midnight on the last day of the month in which the fifth (5th) anniversary
of the Rental Commencement Date occurs, unless sooner terminated as herein
provided.
(1) OPTIONS
Renewal Option(s). Tenant shall have two (2) three (3) year
options to renew the lease on the same terms and conditions as the existing
Lease except that (a) Leased Premises shall be renewed on an "As Is" basis in
that Landlord shall not do or perform any of Landlord's Work in, on or for the
Leased Premises (b)
3
<PAGE>
Landlord shall have no obligation to pay to Tenant any Tenant's allowance,
inducement, loan, or provide Tenant any free rent. (c) The minimum annual rent
for the first (1st) year of the First Option Term shall be the minimum annual
rent during the last year of the Initial Term multiplied by 1.05. (d) The
minimum annual rent during the first (1st) year of the Second Option Term shall
be the minimum annual rent during the last year of the First Option Term
multiplied by 1.05. (e) There shall be no further option to renew after the
second (2nd) exercised option.
The Renewal Option(s) may only be exercised if (1) the Tenant is not in default
of the Terms and Obligations of this Lease and (2) the Tenant has notified the
Landlord in writing (a) one hundred and eighty (180) days prior to the
termination of the Initial Term for the First option (b) one hundred and eighty
(180) days prior to the termination of the First Option for the Second Option.
(2) RIGHT OF TERMINATION
Provided Tenant is not or has never been in default of this
Lease, Tenant shall have the right to cancel (the "Termination Option") this
Lease during the initial term only of the Lease, but after the Third (3rd)
anniversary of the Commencement Date of the Initial Term, on the condition that
(a) such Termination Option shall have been exercised in writing and delivered
to Landlord no later than one hundred eighty (180) days prior to the intended
early termination date (the "Early Termination Date"), and (b) simultaneously
with the notice, Tenant pays to Landlord the unamortized portion of the costs of
the Tenant Improvements as per Exhibit "G".
B. The term "Substantial Completion" shall mean completion by Landlord
of the Leasehold Improvements, as hereinafter defined, minor punch list items
excepted, and excepting any improvements or work to be performed by Tenant,
provided Substantial Completion cannot occur unless there is available to the
Demised Premises: (1) required utility services, with the exception of
separately metered electricity, which shall be the responsibility of Tenant, (2)
elevator service servicing the Demised Premises and (3) the Issuance of a
certificate of occupancy for the Demised Premises by the applicable governmental
authorities. Landlord presently estimates that the date of Substantial
Completion will be the date set forth on the Reference Data at the beginning of
this Lease.
C. Anything in Paragraph 2A to the contrary notwithstanding, if
Substantial Completion does not occur on or before the date set forth in the
Reference Data hereof by reason of any of the following, Rent shall commence to
accrue as if the delay had not occurred. Accordingly, on the Rental Commencement
Date, Tenant shall pay to Landlord on account of such accrued rent and in
addition to the rent due pursuant to Paragraph 3, 1/365th of the Minimum Annual
Rental; (as defined in Paragraph 3 hereof) multiplied by the aggregate number of
days of such delay caused by:
(1) changes in the work to be performed by Landlord in
readying the Demised Premises for Tenant's occupancy, which are requested by
Tenant after approval of the Plans and Specifications for the Leasehold
Improvements (as that term is defined in Paragraph 3 hereof), provided that if
Tenant's request for a change is specifically conditioned upon its approval of
Landlord's estimate of such delay, Landlord shall promptly notify Tenant of
Landlord's good faith estimate of the anticipated delay and the change shall not
be placed into effect until Tenant shall approve such estimated delay; or
(2) the unavailability of materials or labor required for
installations or work in the Demised Premises not encompassed within the Plans
and Specifications for the Leasehold Improvements (as that term is defined in
Paragraph 3 hereof), provided that Tenant shall be notified of landlord's
estimate of the
4
<PAGE>
anticipated delay as promptly as reasonably possible after discovery thereof by
landlord and shall be given an opportunity either to specify alternative
materials or requirements or to revert to the Plans and Specifications for the
Leasehold Improvements; or
(3) Tenant's specifications of alternative materials or
requirements, or Tenant's determination to revert to the Plans and
Specifications for the Leasehold Improvements pursuant to subparagraph C(2)
above; or
(4) any failure by Tenant, without regard to any grace period
applicable thereto, to furnish any required plan, information, approval or
consent within a required period of time; or
(5) the performance or non-performance of any work or activity
in the Demised Premises by Tenant or any of its employees, agents or
contractors.
D. If Substantial Completion shall occur on a date later than the date
set forth in the Reference Data, or if Landlord shall be delayed in the delivery
of possession of the Demised Premises to Tenant because of a holdover of a prior
tenant, or if repairs, improvements or decoration of the Demised Premises or
Building to be performed by Landlord are not completed, or for any other reason,
whether or not within Landlord's control, Landlord shall not be subject to any
liability to Tenant. If the delay was not attributable to a matter described in
Paragraph 2C above, the Rent reserved and covenanted to be paid herein shall not
commence and the Rental Commencement Date shall not occur until possession of
Demised Premises can be given to Tenant in the required state of Substantial
Completion. No such failure to give possession shall in any other respect affect
the validity of this Lease or any obligation of Tenant hereunder.
E. On the Rental Commencement Date it shall be presumed that all work
theretofore performed by or on behalf of Landlord was satisfactorily performed
in accordance with meeting the requirements of this Lease, minor punch list
items excepted.
F. When the construction of the Leasehold Improvements (as that term is
defined herein) is completed and the Rental Commencement Date has been
established, Landlord and Tenant shall promptly execute a revision to the
Reference Data containing the actual rental Commencement Date, the Expiration
Date, the actual rentable square footage (which Landlord and Tenant acknowledge
and agree shall include the portion of the common areas attributed to the
Demised Premises for the purpose of calculating the Rent to be paid hereunder
and the actual Tenant's Proportionate Share) and an other information which was
not available at the time of execution of this Lease. The revised Reference Data
shall be incorporated into this Lease automatically upon execution by the
Parties.
3. Construction of Leasehold Improvements.
A. Landlord shall construct all of the improvements required to ready
the Demised Premises for occupancy by Tenant in accordance with plans and
specifications to be prepared by Landlord's Architect (the "Plans and
Specifications"), at Tenant's expense, in accordance with floor plans and other
information regarding Tenant's requirements for the Demised Premises to be
provided by Tenant to Landlord within five days of the date hereof. The
improvements referred to herein to be constructed by Landlord shall be referred
to herein as the "Leasehold Improvements." Upon completion of preparation of the
Plans and Specifications, Landlord shall submit the same to Tenant for Tenant's
approval which approval shall not be unreasonably withheld. If Tenant fails to
approve or disapprove the Plans and Specifications (or any revised set of Plans
and Specifications prepared pursuant to this provision) within five days of
receipt from Landlord, Tenant shall be deemed to have
5
<PAGE>
approved the same. If Tenant disapproves the Plans and Specifications,
Landlord's Architect shall make such modifications as Tenant may reasonably
request and resubmit the revised Plans and Specifications to Tenant. Tenant
shall approve or disapprove the revised Plans and Specifications within five
days of receipt thereof and if Tenant does not approve the revised Plans and
Specifications, the process set forth above shall be repeated. When Landlord and
Tenant have both approved the Plans and Specifications, they shall initial and
date a copy thereof and such Plans and Specifications shall become a part of
this Lease.
B. Within five days of Landlord and Tenant approving and initialing the
Plans and Specifications, Landlord or Landlord's contractor shall commence the
construction of the Leasehold Improvements in accordance with the Plans and
Specifications and diligently pursue the completion of the Leasehold
Improvements, which shall be completed in a good and workmanlike manner and in
accordance with all applicable governmental codes and regulations.
C. All work on the Leasehold Improvements shall be performed by
qualified, responsible contractors selected by Landlord at its reasonable
discretion. Tenant shall not interfere with the construction of the Leasehold
Improvements.
D. Landlord shall provide Tenant with an improvement allowance (the
"Improvement Allowance"), which shall be applied to the cost of completing the
Leasehold Improvements, in an amount equal to the lesser of (a) the actual cost
to Landlord of completing the construction of the Leasehold Improvements in
accordance with the Plans and Specifications or (b) $20.00 dollars per rentable
square foot constructed by Landlord as measured by landlord's Architect to the
inside of all outside glass walls enclosing the Demised Premises and to the
midpoint of all demising walls separating the Demised Premises from areas
occupied by other tenants in the Building or areas designated as common areas
for use by all tenants. For the purpose of this calculation, the portion of the
common areas attributed to Tenant and included in the number of rentable square
feet set forth in the Reference Data shall not be included. The Improvement
Allowance shall only be applied to the cost of Architectural plans, permits
materials, labor and other items included in the Leasehold Improvements to be
constructed by Landlord hereunder. Tenant Improvement allowance of $20.00 per
rentable square foot will include items on Workletter attached as Exhibit "H".
E. Tenant shall be responsible for performing, at Tenant's sole
expense, any work in addition to the Leasehold Improvements to be constructed by
Landlord an set forth above. If Tenant desires to perform any additional
improvements beyond the Leasehold improvements to be constructed by Landlord,
Tenant shall cause Plans and Specifications for such additional work to be
prepared and submit the same to Landlord for Landlord's approval. Any such
approved additional work, shall be performed by responsible contractors and
subcontractors approved by Landlord. All such contractors and subcontractors
shall furnish in advance and maintain in effect workmen's compensation insurance
in accordance with statutory requirements and comprehensive public liability
insurance (naming Landlord and Landlord's manager and mortgagee as additional
insureds) with limits satisfactory to Landlord and each shall, prior to
commencement at any work, comply with the Mechanic's Lien law of the State of
Florida. All work shall be performed in much manner and at such time so as to
avoid interference with any work being done by Landlord or its contractors and
subcontractors at the Property generally. Landlord shall, however, endeavor to
allow Tenant access for such work prior to the Rental Commencement Date. Tenant
and its contractors and subcontractors shall be solely responsible for the
transportation, safekeeping and storage of materials and equipment used in the
performance of its work, for the removal of waste and debris resulting therefrom
and for any damage caused by them to any installations or work performed by
Landlord or it, it's contractors and subcontractors. Tenant's contractors and
subcontractors shall be subject to the general administrative supervision of
Landlord for scheduling purposes, but Landlord shall not be responsible for any
aspect of the work performed by Tenant's contractors or subcontractors. All
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work shall be performed in a good and workmanlike manner, in accordance with
applicable building codes and other governmental requirements, and shall be
diligently prosecuted to completion. No work shall adversely affect the
structural integrity of the Building or the Demised Premises, nor shall such
work diminish the value or the Building or the Demised Premises. Upon the
completion of Tenant's work, Tenant shall deliver to Landlord and/or comply with
the following: (1) Tenant's affidavit stating that Tenant's work has been
completed; (2) an Affidavit of all contractors and all laborers and material
suppliers stating that they have all been paid in full and that all liens
therefor that have been filed have been discharged of record or waived; (3) a
complete release and waiver of lien with respect, to the Demised Premises,
executed by said contractor or contractors supplying labor and/or materials for
Tenant's work; and (4) all certificates and approvals with respect to Tenant's
work that may be required by any governmental authorities an a condition for the
issuance of a Certificate of Occupancy for the Demised Premises. Landlord or
Landlord's representative shall, during the course of construction and after
completion of construction of the Demised Premises, have the right to inspect
the Demised Premises to verify construction and completion in accordance with
the approved Plans and Specifications. It is agreed that Tenant assumes the
entire responsibility and liability for any and all injuries or death of any and
all persons, including Tenant's contractors or subcontractors, and their
respective employees, and for any and all damages to property caused by, or
resulting from or arising out of, any act or omission on the payment of the
Tenant, Tenant's contractor or subcontractors, or their respective employees, in
the prosecution of the Tenant's work, and with respect to such work, Tenant
agrees to indemnify and save harmless Landlord from and against any losses
and/or expenses including reasonable legal fees and expenses, which it may
suffer or pay as a result, of claims or lawsuits due to, because of, or arising
out of any and all such injuries or death and/or damage, whether real or alleged
and Tenant and Tenant's contractor and/or subcontractors shall assume and defend
at their own expense all such claims or lawsuits. Tenant agrees to insure this
assumed liability in its comprehensive general liability policy and the
Certificate of Insurance or copy of the policy that the Tenant will present to
Landlord prior to commencement of Tenant's work shall so indicate such
contractual coverage. If Tenant requests Landlord to perform any work in
addition to the Leasehold improvements, Tenant shall deposit an amount equal to
Landlord's reasonable estimate or the cost of such work with Landlord prior to
commencement of such work, which amount shall include an overhead and
supervision charge equal to 20% of the estimated cost of the additional work. If
the cost of the additional work plus the twenty percent (20%) overhead and
supervision charge exceeds or is less than the estimate of Landlord, Tenant
shall pay such excess or Landlord shall refund such overage as the case may be.
F. Notwithstanding anything to the contrary contained herein, Landlord
reserves the absolute right to relocate the Demised Premises and the Common
Areas from the locations shown on Exhibit "B", it being agreed by Landlord and
Tenant that the purpose of Exhibit "B" is to show the approximate location of
the Demised Premises, provided that the new locations of the Demised Premises
and Common Areas shall be similar in dimension. If Landlord gives Tenant notice
that Landlord is relocating the Demised Premises after Tenant has commenced or
completed any partitioning or other Improvements to the Demised Premises, then
in such event, Landlord shall provide Tenant with partitions and other
improvements of equal quality and quantity in the relocated Demised Premises.
The relocation of the Demised Premises hereunder shall not affect any other
provision of this Lease.
4. Minimum Annual Rental.
A. Until adjusted pursuant to Paragraph 4D hereof, Tenant shall pay as
minimum rent for the Demised Premises the sum of Eighty Three Thousand Eight
Hundred One 25/100 ($83,801.25) annually which is Nine 75/100 Dollars ($9.75)
per square foot of rentable area (the "Minimum Annual Rental"). Such Minimum
Annual Rental (as may be adjusted annually pursuant to Paragraph 4D hereof)
shall be payable during the term hereof, in advance, in equal monthly
installments, together with all sales, use or other taxes based
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thereon (including, but not limited to the tax imposed by Florida Statutes
212.03), and any other state, federal or other governmental or quasi
governmental tax, service tax, license fee or other imposition levied on the
Rents received by landlord, all of which shall collectively be referred to
hereafter as "Sales Tax". The first installment of Minimum Annual Rental shall
be payable on the Rental Commencement Date and payment of Minimum Annual Rental
shall continue to be payable on the first (1st) day of each successive month
thereafter. Until otherwise adjusted pursuant to Paragraph 4D hereof, the
monthly installments shall be Six Thousand Nine Hundred Eighty Three 44/100
($6,983.44) provided Tenant's not in default hereunder.
CONCESSIONS: Base Rent on 1.562 rentable square feet shall be
abated for the first six (6) months of the Lease.
B. Concurrently with each monthly installment of Minimum Annual Rent,
Tenant shall pay Tenant's Proportionate Share of Taxes and Operating Expenses or
the Building and Tenant's Proportionate Share of the occupied premises in the
Building (the numerator of which is the rentable square foot area of the
Tenant's premises and the denominator shall be the weighted average of occupied
promises in the Building during the year in question), the amount due from
Tenant for its use of the Parking Spaces as provided in Schedule "C" hereof,
together with Sales Tax on all of the above and all other sums which are due to
Landlord under the terms of this Lease (all such sums being hereinafter
collectively referred to as "Additional Rent"). The Minimum Annual Rental and
Additional Rent are hereinafter sometimes collectively referred to as "Rent".
C. If the Rental Commencement Date occurs on a day other than the first
(1st) day of the month, Rent from the Rental Commencement Date until the first
(1st) day of the following month shall be prorated (calculated on the basis of a
thirty (30) day month) and shall be payable in advance of the Rental
Commencement Date (and, in such event, the installment of Rant paid at execution
hereof shall be applied to the Rent due for the first (1st) full calendar month
of the term hereof).
D. The Minimum Annual Rental shall be adjusted annually on the first
anniversary of the Rental Commencement Date if the Rental Commencement Date in
the first day of a month (otherwise, it shall be adjusted annually on the first
day of the month next following the Rental Commencement Date) and on each
subsequent anniversary of such first day of the month (an "Adjustment Date") by
multiplying the Minimum Annual Rental for the immediately preceding twelve (12)
month period by 1.05. The product of such multiplication shall be the Minimum
Annual Rental for the next twelve (12) month period of the term of the Lease.
Date.
(1) Lease Year, is defined as follows;
(a) "Lease Year" shall mean the period of twelve
full calendar months commencing on the Rental Commencement Date if the Rental
Commencement Date is the first day of the month (otherwise, the period of twelve
full calendar months commencing on the first day of the month next following the
Rental Commencement Date) and each consecutive twelve month period thereafter.
E. Adjustments to the Minimum Annual Rental under Paragraph 4D hereof
shall be effective as of each applicable Adjustment Date. Tenant shall pay the
Minimum Annual Rental so adjusted for each Lease Year in twelve (12) equal
monthly installments upon receipt of a written statement from Landlord
("Landlord's Statement of Minimum Annual Rental") setting forth (i) the new
Minimum Annual Rental for the Lease Year following the applicable Adjustment
Date and (ii) the difference, if any, between the Minimum Annual Rental
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paid by Tenant on and after the applicable Adjustment Date and the amount of
Minimum Annual Rental actually due from Tenant on and after any applicable
Adjustment Date because of adjustments made in accordance with Paragraph 3D
hereof. Tenant shall, immediately with the next installment at rent due after
receipt of Landlord's Statement of Minimum Annual Rental, begin to pay the new
Minimum Annual Rental. Within ten (10) days after the receipt of such Landlord's
Statement of Minimum Annual Rental, Tenant shall pay the full amount of any
deficiency in the amounts of the monthly installments or Minimum Annual Rental
theretofore made between the Adjustment Date and the date or receipt of
Landlord's Statement of Minimum Annual Rental as set forth in Subparagraph (ii)
of this Paragraph. Tenant shall not be in default under the terms of this Lease
for failure to pay the full amount of Minimum Annual Rental, as newly adjusted
under Paragraph 4D hereof, until Tenant has received Landlord's Statement of
Minimum Annual Rental and has theretofore failed to pay the installments of
Minimum Annual Rental or any deficiency due as set forth under this Paragraph
4E. Nothing contained herein shall relieve Tenant of the responsibility to pay
Minimum Annual Rental at the prior Lease Year's rate until such time as lt has
received Landlord's statement of the new Minimum Annual Rental.
F. Landlord shall arrange for the Demised Premises to be separately
metered so that Florida Power and Light shall provide electricity directly to
the Demised Premises. Tenant agrees to pay to Florida Power and Light (or other
utility company serving the Demised Premises) all charges for electricity
consumed with respect to the Demised Premises as measured by the aforesaid
electric meter for the Demised Premises. Notwithstanding the foregoing, Landlord
may, at Landlord's sole option, and upon notice to Tenant, elect to measure
usage of electricity by Tenant in the Demised Premises by connection to a single
meter commonly shared with some or all of the other Tenants in the Building, so
that Florida Power and Light; shall
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(3) "Tenant's Initial Share " shall mean Tenant's Initial
Share of Taxes and Operating Expenses which is estimated by Landlord to be Sixty
Two Thousand Three Hundred Thirteen 75/100 Dollars ($62,313.75) for the first
calendar year. Annual increases of Operating Expenses capped at 4% excluding
Real Estate Taxes, Insurance and Utilities.
(4) "Operating Expenses" shall mean all expenses incurred by
Landlord in the operation, repair, maintenance, protection, inspection and
management of all or any portion of the Property and shall include, without
limitation:
(i) operation, repair, replacement,
maintenance, inspection, protection and management of the systems and components
of the Building or any portion thereof;
(ii) wages, salaries, fees, and other
compensation (and taxes imposed upon employers in connection therewith) and
fringe benefits paid to persons employed by Landlord or Landlord's managing
agent, including but not limited to social security taxes, unemployment
insurance taxes, cost for providing coverage for disability benefits, cost of
any pensions, hospitalization, welfare or retirement plans, or any other similar
or like expenses incurred under the provisions of any collective bargaining
agreement, or any other cost or expense which Landlord pays or incurs to provide
benefits for employees so engaged in the operation, maintenance, protection and
repair of the Property, excluding any overtime wages or salaries paid for
providing extra services to specific Tenants which is directly chargeable to and
paid by such Tenants;
(iii) contract costs of independent
contractors hired for the operation, maintenance, inspection, protection or
repair of the Property or any portion thereof, including but not limited to,
service, materials and supplies included in such contract costs;
(iv) costs of electricity, steam, water,
sewer, and all other utilities consumed in the operation, repair, maintenance,
inspection management of the Property (excluding utilities consumed within space
occupied by Tenants, which are metered to and paid directly by Tenants);
(v) cost of all insurance carried by
Landlord for the Property, including, but not limited to, all risk or fire and
extended coverage (including windstorm and flood coverage), elevator, boiler,
sprinkler leakage, water damage, public liability and property damage, plate
glass, rent protection, and workmen's compensation, but excluding any charge for
increased premiums due to acts or omissions of any tenants of the Property
because of extra risks which are reimbursed to Landlord by such other tenants;
(vi) alterations, additions or
improvements to the nonrentable portions of the Property (hereinafter, the
"Common Areas") which benefit all tenants thereof, or which are made to decrease
the Operating Expenses of the Property;
(vii) all materials, supplies, tools and
equipment purchased or rented to maintain and keep the Property in good
condition and repair;
(viii) legal, accounting and other professional
expenses incurred in connection with the Operation, maintenance, repair,
protection and management of the Property;
(ix) reasonable reserves for the
operation, maintenance, repair, protection and management of the Property;
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(x) janitorial Service for the Building
and Parking Facilities, including, but not limited to, the cost of window
cleaning, uniforms, supplies and sundries;
(xi) cleaning costs for the Property
including the facade, windows, and sidewalks and trash removal and the cost of
all labor, supplies, equipment, and materials incidental to such cleaning;
(xii) management fees of the managing
agent for the Property, if any, and if there is no managing agent, or if the
managing agent is affiliated with Landlord, management fees shall be an amount
customarily charged for the management of a first class office building by an
independent managing agent in the County of Palm Beach, Florida;
(xiii) the cost of repainting,
redecorating, or refurbishing any part of the Property, including the cost of
displays, plantings or decorations for the lobby, balconies and other public
portions of the Property; and
(xiv) the amortized portion of the cost
of any capital improvements or alterations made to the Property which is either
required by law (or governmental regulation), required by any insurance company
issuing insurance carried by Landlord or intended by Landlord to reduce
Operating Expenses (including but not limited to energy costs), it being
understood that such amortization shall be in accordance with generally accepted
accounting principles and shall include interest at the rate incurred by
Landlord in connection with the installation of the capital improvement or
alteration;
(xv) any and all sums for landscaping,
ground maintenance, sanitation control, cleaning, lighting, Parking Facilities
and driveway maintenance, line striping and resurfacing, equipment and fixture
replacement, fire protection, and security;
(xvi) depreciation or hand tools and other
moveable equipment used in the repair, maintenance or operation of the Property;
and
(xvii) all other expenses whether or not
hereinabove mentioned which in accordance with generally accepted accounting and
management principles would be considered an expense for the repair,
maintenance, protection and operation of the Property by virtue of the ownership
thereof.
The term "Operating Expenses" shall not include:
(i) the cost of painting, decorating, or installing fixtures or equipment in
space for the purposes of preparing the space for occupancy by a Tenant; (2)
wages, salaries or fees paid to executive personnel of Landlord; (3) the cost of
any repair or replacement item which, by standard accounting practice, should be
capitalized, except as described above; (4) any charge for depreciation,
interest or rents paid or incurred by Landlord, except as described above; (5)
any charge for Landlord's income tax, excess profit taxes, franchise taxes or
similar taxes on Landlord's business; or (6) leasing commissions.
G. For and with respect the each calendar year during the term of this
Lease after the Rental Commencement Date (and any renewals or extensions
thereof), Tenant shall pay to Landlord, as Additional Rent, an amount equal to
Tenant's Proportionate Share of the Taxes and Operating Expenses for such
calendar year, appropriately prorated on a per diem basis for any partial
calendar year included within the beginning and end of the term, Tenant's
Proportionate Share of Taxes and Operating Expense shall be computed by
multiplying the total amount of Taxes and Operating Expenses by Tenant's
Proportionate Share, Tenant the
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Initial Share of Taxes and Operating Expenses shall be as set forth in Paragraph
5A(3). Tenant's Proportionate Share of such Taxes and Operating Expenses shall
be paid in accordance with the following procedures:
(1) Landlord shall furnish to Tenant on or before April
30 of each calendar year of the term hereof:
A written statement (the "Estimate
Statement") of Landlord's good faith estimate of Taxes and Operating Expenses
and Tenant's Proportionate Share of same (the "Estimated Share"), for the
current calendar year, Landlord may, at any time, change Tenant's Estimated
Share by sending Tenant's revised Estimated Statement if, in Landlord's
reasonable opinion, Landlord determines that Tenant's Proportionate Share of
Taxes and Operating Expenses for any calendar year will exceed those set forth
in the most recent Estimate Statement.
A written statement (the "Expense
Statement") setting forth: (1) Taxes and Operating Expenses for the calendar
year immediately prior to (the "Prior Year") the calendar Year in which any
Expense Statement is issued; (ii) Tenant's Proportionate Share of the Taxes and
Operating Expenses for the Prior Year; (iii) the amount, if any, due from Tenant
for any deficiency between Tenant's Proportionate Share of Taxes and Operating
Expenses for the Prior Year and the actual amounts paid by Tenants its Estimated
Share during such Prior Year, and (iv) the amount due from Tenant for any
deficiency in the payments of Tenant's Estimated Share for the current calendar
year resulting from any adjustment of Tenant's Estimated Share for the current
calendar year.
(2) Tenant's Proportionate Share of Taxes and Operating
Expenses shall be paid monthly as Additional Rent together with payments of
Minimum Annual Rental as follows:
The amount of any deficiency due from Tenant
as shown on the Expense Statement shall be paid by Tenant within twenty (20)
days from the date of issuance of such Expense Statement described above. If any
Expense Statement reflects an excess paid by Tenant during such period (the "Tax
and operating Expense Credits), said Tax Operating Expense Credit shall be
credited against Tenant's Estimated Share falling due after the date of the
applicable Expense Statement until much credit is depleted.
(b) On the first day of the first full month after
the Rental Commencement Date, Tenant shall pay Landlord one twelfth of the
amount of Tenant's Initial Share of Taxes and Operating Expenses set forth in
the Reference date at the beginning of this Lease, together with the pro rata
provision of Tenant's Initial Share determined an a per them basis with respect
to, a thirty day month for any period of time elapsed between the Rental
Commencement Date and the first day of the first full month after, the Rental
Commencement Date.
(c) On the first day of each subsequent month during
the first calendar year of the term of this Lease, and continuing thereafter
until issuance of any Estimate Statement in which Tenant's Estimated Share
exceeds Tenant's Initial Share of Taxes and Operating Expenses, Tenant shall pay
Landlord one-twelfth of Tenant's Initial Share of Taxes and Operating Expenses
set forth in the Reference Data at the beginning of this Lease.
(d) On the first (1st) day of the month after
receipt of an Estimate Statement increasing Tenants Estimated Share above
Tenants Initial Share and on the first day or each succeeding month thereafter
until Tenant shall receive a revised Estimate Statement, Tenant, shall pay to
Landlord, on account or its share of Taxes and Operating Expense, one-twelfth
(1/12) of the then current Estimated Share.
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6. Security. As additional security for the full and prompt performance
by Tenant of the terms and covenants of this Lease Tenant shall deliver to
Landlord concurrently upon execution of this Lease the amount of Twenty One
Thousand One Hundred Twenty Two 43/100 Dollars ($21,122.43) (the "Security
Deposit"), none of which Security Deposit shall constitute rent for any month
unless so applied by Landlord to compensate Landlord for all loss, cost, expense
or damage suffered by Landlord due to default or failure of Tenant hereunder.
Tenant shall, upon demand, restore any portion of said Security Deposit so
applied by Landlord on account of any default or failure by Tenant hereunder and
Tenant's failure to do so shall constitute a default hereunder. To the extent
that, Landlord has not applied said sum on account of a default, the Security
Deposit shall be returned (without interest) to Tenant promptly after
termination of this Lease. Landlord may, in its absolute discretion, commingle
the Security Deposit with other funds of Landlord. In the event Landlord
delivers the Security Deposit to a purchaser or other successor to Landlord's
interest in the Property, Landlord shall be discharged of any further liability
with respect to the Security Deposit.
7. Tenant's Covenants. Tenant agrees on behalf of itself, its employees
and agents, that it shall:
A. Comply at all times with any and all Federal, state, and
local statutes, regulations, ordinances and other requirements of any applicable
public authorities relating to its use and occupancy of the Demised Premises.
B. Give Landlord access to the Demised Premises at all
reasonable times, without charge or diminution of rent, to enable Landlord; (1)
to examine the same and to make such repairs, additions and alterations as
Landlord may be permitted to make hereunder or as Landlord may deem advisable to
the Demised Premises, or any other portion of the Property or any part thereof;
and (2) upon reasonable notice, to show the Demised Premises to any prospective
mortgagees and purchasers, and, during the four (4) months prior to expiration
of the term, to prospective Tenants.
C. Maintain and repair, at its cost and expense, the Demised
Premises, including the plumbing, electrical, HVAC and other systems within the
Demised Premises, with the exception of such items which are Landlord's
responsibility, as required to keep the Demised Premises in good working order
and condition Tenant shall commit no waste in or upon the Demised Premises.
D. Upon the termination of this Lease for any reason
whatsoever, remove Tenant's goods and effects and those of any other person
claiming under Tenant, and quit and deliver up the Demised Premises to Landlord
peaceably and quietly in as good order and condition as at the inception of the
term of this Lease or as the same hereafter may be improved by Landlord or
Tenant, reasonable use and wear thereof, damage from fire and other insured
casualty and repairs which are Landlord's obligation excepted. Goods and effects
not removed by Tenant at the termination of this Lease, however terminated,
shall be considered abandoned and Landlord may dispose of and/or store the same
as it deems expedient, the cost thereof to be charged to Tenant.
E. Not place signs on the Demised Premises except in
accordance with sign criteria approved by Landlord. All signs shall be purchased
and erected at Tenant's expense. Identification of Tenant and Tenant's location
shall be provided by Landlord at Tenant's expense in a directory in the Building
Lobby.
F. Not overload, damage or deface the Demised Premises or do
any act which might make void or voidable any insurance on the Demised Premises
of the building and/or the Property or which may render an increased or extra
premium payable for insurance (and without prejudice to any right or remedy of
Landlord regarding this Subparagraph, Landlord shall have the right to collect
from Tenant, upon demand, any such increased or extra premium).
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G. Not make any alteration of or addition to the Demised
Premises without the prior written approval of Landlord and in accordance with
the provisions of Paragraph 3E of this Lease. All such alterations and
additions, as well as all fixtures, equipment, improvements and appurtenances
installed in the Demised Premises (but excluding Tenant's trade fixtures) shall,
upon installation, become and remain the property of Landlord and shall be
maintained by Tenant during the term hereof and any renewals and extensions
thereof, in the same good order and repair in which the Demised Premises are
required to be maintained. Tenant shall, at the expiration of the term hereof,
remove Tenant's trade fixtures and other personal property which can be removed
without damage to the Demised Premises and shall likewise remove such other
items as Landlord shall designate for removal by Tenant upon expiration of the
term hereof (and in such case Tenant shall be obligated to restore any damage
caused thereby). The construction of any such alterations and additions shall be
performed at Tenant's expense by Landlord or Tenant, as Landlord shall elect,
subject to the requirements specified in Paragraph 3 of this Lease. All
alterations and additions to the Demised Premises shall be performed in
accordance with plans and specifications therefore submitted to and approved by
Landlord, in a good and workmanlike manner and in conformity with all building
codes, laws, regulations, rules, ordinances and other requirements of all
governmental or quasi-governmental authorities having jurisdiction.
H. Not install or authorize the installation of any coin
operated vending machines.
I. Not bring any flammable, explosive or dangerous material or
article onto the Property.
J. Not violate Landlord's regulation that only persons
approved from time to time by Landlord may prepare, solicit orders for, sell,
serve or distribute foods or beverages in the Building, or use the elevators,
corridors or common areas for any such purpose. Except with Landlord's prior
written consent and in accordance with arrangements approved by Landlord, Tenant
shall not permit on the Demised Premises the use of equipment for dispensing
food or beverages or for the preparation, solicitation of orders for sale,
serving or distribution of food or beverages.
K. Not bring safes, heavy files, or other heavy equipment into
the Property unless the weight, location and handling of same is approved by
Landlord. Regardless of said approval, Tenant shall indemnify, defend and save
Landlord harmless from any and all expenses and other damages, including
attorney's fees, and costs, resulting from the use or installation by Tenant of
such heavy equipment.
L. Not use, create, store, or permit any toxic or hazardous
material anywhere on the Property, Tenant shall not dispose of any toxic or
other hazardous waste through the plumbing system or drainage system of the
Building or the Property, and Tenant shall not violate any requirement of the
Florida Department of Environmental Regulation or the Florida Department of
Health, or any other governmental agency, with respect to waste disposal, Tenant
shall indemnify, defend and hold Landlord harmless from any and all expenses and
other damages, including attorney's fees and costs incurred by Landlord, as a
result of improper storage or handling of any hazardous materials or waste or
any improper waste disposal by Tenant, which indemnification shall survive the
expiration or earlier termination of this Lease.
M. Immediately and at its expense, Tenant shall repair and
restore any and all damages caused to the Demised Premises or the Property due
to Tenant's improvements, installations, alterations, additions or other work
conducted by Tenant within the Demised Premises, and Tenant shall restore the
Property to the condition existing prior to improvement, installations,
alterations, additions or other work conducted by Tenant within the Demised
Premises.
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N. Comply with the rules and regulations as initially set
forth on Exhibit "E" which is attached hereto and incorporated herein, and
comply with such other rules and regulations as Landlord may establish, and from
time to time amend, for the general safety, comfort and convenience of Landlord,
occupants and tenants of the Building.
O. Unless Landlord elects to commonly meter the Demised
Premises in accordance with Paragraph 4F of this Lease, Tenant shall pay
directly to the entity providing same, the costs of all utilities consumed
within the Demised Premises, and all other sums assessed against Tenant or the
Demised Premises by any governmental or quasi-governmental entity in connection
with Tenant's use or occupancy of the Demised Premises.
P. Not install or operate in the Demises Premises any
electrically operated equipment or other machinery, including computers, unless
requiring not more than three-phase, four-wire 227/480 Volt electrical service
and normally used in modern offices, or any plumbing fixtures, without first
obtaining the prior written consent of Landlord. In the event that Landlord
determines in its sole and absolute discretion, that Tenant's electrical
consumption within the Premises is greater than the normal usage of other
Tenants within the building, Landlord reserves the right to charge Tenant for
such additional consumption, or cause Tenant to separately meter electrical
service to the Premises at Tenant's sole cost and expense. Tenant shall not
install any equipment of any kind or nature whatsoever which would or might
necessitate any changes, replacements or additions to the structural system,
water system, plumbing system, heating system, air conditioning system or the
electrical system servicing the Demised Premises or any other portion of the
Building without the prior written consent of Landlord, and in the event such
consent is granted, such replacements, changes or additions shall be paid for by
Tenant.
8. Services. Landlord agrees that it shall:
A. Provide self service passenger elevator service to the
Demised Premises from the ground floor. Access to the Demised Premises shall at
all times be subject to compliance with such security measures as shall be in
effect for the Building.
B. Provide janitorial service to the Demised Premises and the
Common Areas in the Building as are customarily provided in first class office
buildings in Palm Beach County, Florida. Any and all additional or specialized
janitorial service desired by Tenant shall be contracted for by Tenant directly
and the cost and payment thereof shall be and remain the sole responsibility of
Tenant. The firm providing such janitorial service shall first be approved by
Landlord, and Tenant shall not be entitled to any reduction, abatement, or other
credit against its Proportionate Share of Operating Expenses on account of any
contract for additional or specialized janitorial services, whether or not
Landlord's janitorial services are continued by Tenant. Janitorial services are
to be provided as detailed in Cleaning Specifications Schedule attached as
Exhibit "D".
C. Subject to the provisions of paragraphs 12 and 15 hereof,
make all necessary repairs of damage to the Common Areas of the Building,
equipment used to provide services specified herein and to the roof, outside
walls and structural members of the Building and Parking Facilities. In the
event that any repair is required by reason of the negligence or abuse of Tenant
or its agents, employees or invitees, or of any other person entering the
Building with Tenant's consent, express or implied, Landlord may make such
repair and add the cost thereof to the first installment of rent which will
thereafter become due.
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D. Furnish the Common Areas of the Property with electric
service for lighting and normal office use. Furnish the Demised Premises with
heating or air conditioning between the hours of 8:00 a.m. and 6:00 p.m. Monday
through Friday, excluding federal and state holidays. Tenant may be permitted
the use of after hours air-conditioning at Landlord's discretion, said after
hours air-conditioning to be separately metered by floor only, and Tenant shall
pay to Landlord, in addition to Tenant's Proportionate Share of Operating
Expenses, the after hours air conditioning fee determined by Landlord, in its
sole and absolute discretion to be a reasonable charge for said services, and
such sums shall be paid by Tenant as Additional Rent under this Lease.
E. The costs of all services provided in this Paragraph 8,
separately charged to Tenant shall constitute Operating Expenses as defined in
Paragraph 5 above, Tenant acknowledges that Landlord does not warrant that any
of the services referred to in this Paragraph 8 will be free from interruption
from causes beyond the reasonable control of Landlord. No interruption of
service shall ever be deemed an eviction or disturbance of Tenant or render
Landlord liable to Tenant for damages by abatement of Rent or otherwise, or
relieve Tenant from performance of Tenant's obligations under this Lease, unless
Landlord, after reasonable notice, shall willfully and without cause fail or
refuse to take reasonable action within its control to restore such service.
9. Subletting and Assigning. Tenant shall not assign, mortgage or
otherwise transfer or encumber this Lease or any portion of Tenant's interest
herein, or sublet all or any portion of the Demised Premises without first
obtaining Landlord's prior written consent thereto, which the parties agree may
not be unreasonably withhold. If Landlord consents to any given assignment or
subletting, such consent will not be deemed a consent to any further subletting
or assignment without subsequent consent of the Landlord which consent may not
be unreasonably withheld. Duly attempted assignment, mortgage, sublease or other
encumbrance of the Demised Premises in violation of this paragraph shall be null
and void. If Landlord consents to any subletting or assignment, it shall
nevertheless be a condition to the effectiveness thereof that a fully executed
copy of the sublease or assignment be furnished to Landlord and that any
assignee assume in writing all obligations of Tenant hereunder. Notwithstanding
any consent by Landlord to any subletting or assignment, in the event of any
subletting or assignment of the Demised Premises, Tenant shall remain liable for
all of the obligations of Tenant set forth herein. The sale by Tenant of a
controlling interest in the Tenant entity shall be deemed an assignment of this
Lease requiring the consent of Landlord as specified above.
10. Indemnification, Waiver of Liability.
A. Tenant agrees to indemnify, defend and save harmless
Landlord and its building manager and their officers, employees, agents and
independent contractors, from any and all suits. actions, damages, liability and
expenses (including reasonable attorney's fees and costs) in connection with
loss of income, loss of life, bodily or personal injury or property damage in or
about the Demised Premises arising from any cause whatsoever unless such loss of
life, injury, or property damage is the result of the willful and gross
negligence of Landlord, its building manager, or their officers, employees,
agents and independent contractors, and Landlord and said managers and their
officers, employees, agents and independent contractors shall not be liable to
Tenant for any such damage or loss whether or not the result of their willful
and gross negligence.
B. Tenant agrees to indemnify, defend and hold Landlord and
its building manager, and their employees, officers, agents and independent
contractors harmless of and from any and all loss, liability or expense
including, without limitation, reasonable attorney's fees and costs incurred by
Landlord in connection with any failure of Tenant to fully perform its
obligations under this Lease, and in connection with any personal
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injury or damage to or loss of property of any type or nature resulting out of
Tenant's use of the Property, or caused by the neglIgence, misconduct or breach
of this Lease by Tenant, its employees, subtenants, invitees, contractors,
sub-contractors, or any other person entering the Property under express or
implied invitation of Tenant.
11. Public Liability and Business Interruption Insurance.
A. Tenant, at its own cost and expense, shall obtain and
maintain in full force and effect durIng the original term hereof, and any
extensions or renewals, single limit public liability and property damage
insurance in an amount at least equal to Two Million Dollars ($2,000,000.00) or
such other amounts as Landlord may reasonably require from time to time, upon
thirty (30) days prior written notice.
B. Tenant, at its own cost and expense, shall obtain and
maintain in full force and effect during the original term hereof, and any
extensions or renewals, business interruption insurance payable in case of loss
resulting from damage to the Demised Premises or the Building by fire or other
casualty. Such insurance shall be maintained in an amount not less than the sum
of all Minimum Annual Rental and additional rent coming due for the then current
calendar year as estimated by Landlord.
C. Tenant agrees to carry full replacement cost all risk fire
and extended coverage insurance in form satisfactory to Landlord an all
improvements to the Demised Premises. Tenant also agrees to carry such all risk
insurance covering Tenant's fixtures, furnishings, wall covering, carpeting,
drapes, equipment and all other items of personal property of Tenant located on
or within the Demised Premises.
D. All policies of insurance described above shall name
Landlord and any mortgagee of Landlord as named insureds, and shall include an
endorsement providing that the policies will not be canceled or amended until
after thirty (30) days' prior written notice to Landlord. All such policies of
insurance shall be issued by a financially responsible company or companies
satisfactory to Landlord and authorized to issue such policy or policies, and
licensed to do business in the State of Florida. Tenant shall deposit with
Landlord duplicate originals of such insurance on or prior to the Rental
Commencement Date, together with evidence of paid-up premiums, and shall deposit
with Landlord renewals thereof at least fifteen (15) days prior to expiration of
any such policies.
12. Fire or Other Casualty. In case of damage to the Demised Premises
by fire or other casualty, Tenant shall promptly give notice thereof to
Landlord. In case of damage to the Building, the Demised Premises or the Parking
Facilities by fire or other casualty, Landlord shall, unless Landlord elects to
terminate this Lease as described below, and subject to the rights of Landlord's
Mortgagees, thereupon undertake the repair and restoration of: (a) the Building,
to substantially the same condition as existed prior to the casualty; provided
that Landlord is not obligated to restore any portion of the Building or Parking
Facilities not necessary for Tenant's use of the Demised Premises (hereinafter
the "Excluded Area"); and (b) the Demised Premises, to substantially the
condition in which Landlord was obligated to deliver the Demised Premises to
Tenant on the Rental Commencement Date, at the expense of Landlord, subject to
delays which may arise by reason of adjustment of loss under insurance policies
and for delays beyond the reasonable control of Landlord; provided, however,
that Landlord shall not be obligated to restore the Demised Premises if adequate
insurance proceeds are not available to Landlord to complete such work. The
Minimum Annual Rent payable by Tenant hereunder shall be equitably apportioned
during the period of Landlord's repair and/or restoration of the Demised
Premises in accordance with the portion of the Demised Premises which has been
rendered untenantable. If Landlord elects to make such repairs, Tenant shall,
within thirty (30) days after completion by Landlord of such repair and/or
restoration, at Tenant's sole cost, and expense, commence to repair or restore
the remainder of the
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Demised Premises to the condition it was in prior to such fire or casualty,
(which work shall be completed by Tenant within one hundred twenty (120) days of
commencement.) In the event that Landlord, in Landlord's discretion, shall
decide not to repair or rebuild the Demised Premises, the Building or the
Parking Facilities, Landlord shall deliver written notice to Tenant of its
election to terminate this Lease within ninety (90) days after Landlord is
notified of the casualty, and this Lease shall terminate as of the date
specified in such notice which date shall not be more than ninety (90) days
thereafter, and the Rent (taking into account any apportionment as aforesaid)
shall be adjusted to the termination date, and Tenant shall thereupon promptly
vacate the Demised Premises.
13. Increase in Premiums. Tenant shall not do, permit or suffer to be
done any act, matter, thing or failure to act in respect to the Property or the
Demised Premises or use or occupy the Property or the Demised Premises or
conduct or Operate Tenant's business in any manner objectionable to insurance
companies whereby the fire insurance or any other insurance now in force or
hereafter to be placed on the Demised Premises or any part thereof shall become
void or suspended or whereby any premiums in respect of insurance maintained by
Landlord shall be higher than those which would normally have been in effect for
the occupancy contemplated under the permitted uses. In case of a breach of this
covenant, in addition to all other rights and remedies of Landlord hereunder,
Tenant shall (a) indemnify Landlord and hold Landlord harmless from and against
any loss which would have been covered by insurance which shall become void or
suspended because of such breach by Tenant, and (b) pay to Landlord any and all
increase of premiums on any insurance, including, without limitation, rent
insurance, resulting from any such breach.
14. Waiver of Subrogation. Landlord and Tenant waive, unless said
waiver should invalidate any insurance required or permitted hereunder, their
right to recover damages against each other for any reason whatsoever to the
extent the damaged party recovers indemnity from its insurance carrier. Any
insurance policy procured by either Tenant or Landlord which does not name the
other as a named insured shall, if obtainable, contain an express waiver of any
right of subrogation by the insurance company, including but not limited to
Tenant's workmen's compensation carrier, against Landlord or Tenant, whichever
the case may be. All public liability and property damage policies shall contain
an endorsement that Landlord, although named an insured, shall nevertheless
entitled to recover for damages caused by the negligence of Tenant.
15. Eminent, Domain.
A. It the whole of the Property, or the Demised Premises shall
be taken or condemned for a public or quasi-public use under any law, ordinance
or regulation, or by right of eminent domain or private purchase in lieu thereof
by any competent authority, this Lease shall terminate and Rent shall abate for
the unexpired portion of the term of this Lease as of the date the right to
possession shall vest in the condemning authority.
B. If part of the Demised Premises shall be acquired or
condemned as aforesaid, and such acquisition or condemnation shall render the
remaining portion unsuitable for the business of Tenant (in the reasonable
opinion of Landlord) the term of this Lease shall cease and terminate as
provided in Paragraph 15(A) hereof, provided however, that diminution of
rentable area shall not in and of itself be conclusive as to whether the portion
of the Demised Premises remaining after such acquisition is unsuitable for
Tenant's business. If such partial taking is not extensive enough to render the
Demised Premises unsuitable for the business of Tenant, this Lease shall
continue in full force and effect except that the Minimum Annual Rental shall be
reduced in the same proportion that the rentable area of the Demised Premises
taken bears to the rentable area demised. Subject to the rights of any mortgagee
of Landlord's estate, Landlord shall, upon receipt of the net condemnation
award, make all necessary repairs or alterations to the Building so as to render
the portion of the
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Building not taken a complete architectural unit, but Landlord shall in no event
be required to spend for such work an amount in excess of the net amount
received by Landlord as damages for the part of the Building so taken. "Net
amount received by Landlord" shall mean that portion of the condemnation award
in excess of any sums required to be paid by Landlord to the holder of any
mortgage on the property so condemned, and all expenses and legal fees incurred
by Landlord in connection with the condemnation proceeding.
C. If part of the Building, but no part of the Demised
Premises, is taken or condemned as aforesaid, and, in the reasonable opinion of
Landlord, such partial acquisition or condemnation shall render Landlord unable
to comply with its obligations under this Lease, or shall render the Demised
Premises unsuitable for the business of Tenant, the term of the Lease shall
cease and terminate as provided in Paragraph 15(A) hereof, by Landlord sending
written notice to such effect to Tenant, whereupon Tenant shall immediately
vacate the Demised Premises.
D. In the event of any condemnation or taking as hereinbefore
provided, whether whole or partial, Tenant shall not be entitled to any part of
the award, as damages or otherwise, for such condemnation and Landlord to
receive the full amount of such award, and Tenant hereby expressly waives any
right or claim to any part thereof. Although all damages in the event of any
condemnation are to belong to the Landlord whether such damages are awarded as
compensation for diminution in value of the leasehold or the fee of the Demised
Premises, Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right on account of any damage to
Tenant's business by reason of the condemnation and for or on account of any
cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, and equipment, or the loss of Tenant's business or decrease
in value thereof.
16. Events of Default. Each of the following events shall constitute an
Event of Default under this Lease:
A. If Tenant shall fail to pay Minimum Annual Rental,
Additional Rent, or any other sum payable to Landlord hereunder when due; or
B. If Tenant shall fail to perform or observe any of the other
covenants, terms or conditions contained in this Lease within ten (10) days
after written notice thereof by Landlord; or
C. If a receiver or trustee is appointed to take possession of
all or a substantial portion of the assets of Tenant or any Guarantor and such
receiver or trustee is not dismissed within thirty (30) days; or
D. If Tenant or any Guarantor makes an assignment for the
benefit of creditors; or
E. If any bankruptcy, reorganization, insolvency, creditor
adjustment or debt rehabilitation proceedings are instituted by or
against Tenant or any Guarantor under any state or federal law and the
same are not dismissed within thirty (30) days; or
F. If levy, execution, or attachment proceedings or other
process of law are commenced upon, on or against Tenant or any Guarantor or a
substantial portion of Tenant's or any Guarantor's assets and the same are not
dismissed within thirty (30) days; or
G. If a liquidator, receiver, custodian, sequester,
conservator, trustee, or other similar judicial officer is applied for by Tenant
or any Guarantor; or
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H. If Tenant or any Guarantor becomes insolvent in the
bankruptcy or equity sense; or
I. If the Demised Premises are vacated, abandoned or
designated during the term hereof or Tenant removes or manifests an intention to
remove its goods and property from the Demised Premises other than in the
ordinary course of its business.
17. Remedies.
A. If Tenant fails to pay Minimum Annual Rental, Additional
Rent, or any other sum payable to Landlord hereunder when due, Tenant shall pay
a late charge in the amount of Fifty Dollars ($50.00) plus interest accruing on
the unpaid sums from the date such sums are due at a rate equal to the greater
of (a) Eighteen percent (18%) per annum or (b) Three percent (3%) per annum in
excess of the prime rate of interest paid by Landlord on sums borrowed by
Landlord (the "Late Charge"). The Late Charge shall be Additional Rent under the
terms of this Lease. In no event however shall any interest or other charge on
any delinquent payments exceed the amount allowed to be charged under the usury
laws of the State of Florida, it being acknowledged and agreed that any amount
in excess of such limitation shall be refunded to Tenant by Landlord by means of
a credit against the next installment(s) of Rent coming due hereunder, or if no
such Rent payments remain to be paid, then the excess shall be refunded in cash.
The Late Charge shall be in addition to, and shall not in any way limit any
other rights or remedies available to Landlord under the terms of this Lease or
at law and in equity.
B. Upon the occurrence of an Event of Default, Landlord may,
at any time thereafter, and in addition to any other available rights or
remedies at law and/or in equity, elect any one or more of the following
remedies;
(1) Without obligation to relate the Demised
Premises, to accelerate the whole or any part of the Minimum Annual Rental, the
Additional Rent, or any other sum payable to Landlord hereunder for the entire
unexpired balance of the Term of this Lease, as well as all other charges,
payments, costs and expenses herein agreed to be paid by Tenant and for purposes
of this Paragraph, the Minimum Annual Rental shall be deemed to be increased and
adjusted as described in Paragraphs 3C and 3D hereof, with the annual Cost of
Living increase calculated as if the Adjustment Date was the month in which such
default occurred, and any Rent or other charges, payments, costs and expenses if
so accelerated shall, in addition to any and all installments of Rent already
due and payable and in arrears, and/or any other charge or payment herein
reserved, included or agreed to be treated or collected an rent and/or any other
charge, expense or cost herein agreed to be paid by Tenant which may be due and
payable and in arrears, be deemed due and payable as if, by the terms and
provisions of this Lease, such accelerated Rent and other charges, payments,
costs and expenses were on that date payable in advance, and Landlord shall be
entitled to all costs of collection, including attorney's fees and costs through
all appellate levels and post judgment proceedings, and to interest on all such
amounts at the maximum rate allowed by law until such amounts are actually paid
to Landlord.
(2) To immediately re-enter the Demised Premises
without accepting surrender of the leasehold estate and remove all persons and
all or any property therefrom, with or without summary dispossess proceedings or
by any suitable action or proceeding at law, without being liable to indictment,
prosecution or damages therefore, and repossess and enjoy the Demised Premises;
together with all additions, alterations and improvements. Upon recovering
possession of the Demised Premises by reason of or based upon or arising out of
a default on the part of Tenant, Landlord may, at Landlord's option, either
terminate this Lease or make such alterations and repairs as may be necessary in
order to relet the Demised Premises or any part or parts thereof, either in
Landlord's name or otherwise, for a term or terms which may at Landlord's
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option be less than or exceed the period which would otherwise have constituted
the balance of the Term of this Lease and at such rent or rents and upon such
other terms and conditions as in Landlord's sole discretion may seem advisable
and to such person or persons as may in Landlord's discretion seem best. Upon
each such reletting all rents received by Landlord from such reletting shall be
applied: first, to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord; second, to the payment of any costs and expenses of
such reletting, including brokerage fees and attorney's fees and all costs of
such alterations and repairs; third, to the payment of Rent due and unpaid
hereunder; and the residue if any, shall be held by Landlord and applied in
payment of future rent as it may become due and payable hereunder. If such
rentals received from such reletting during any month shall be less than that to
be paid during that month by Tenant hereunder, Tenant shall pay any such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No
such re-entry or taking possession of the Demised Premises or the making of
alterations and/or improvements thereto or the reletting thereof shall be
construed as an election on the part of Landlord to terminate this Lease unless
written notice of such intention be given to Tenant. Landlord shall in no event
be liable in any way whatsoever for failure to relet the Demised Premises or, in
the event that the Demised Premises or any part or parts thereof are relet, for
failure to collect the rent thereof under such reletting. Tenant, for Tenant and
Tenant's successors and assigns, hereby irrevocably constitutes and appoints
Landlord as Tenant's agent to collect the rants due and to become due under all
subleases of the Demised Premises or any part thereof without in any way
affecting Tenant's obligation to pay any unpaid balance of Rent due or to become
due hereunder. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for such previous
breach.
(3) To terminate this Lease and the term hereby
created without accepting any surrender of the leasehold estate and without any
right on the part of Tenant to waive the forfeiture by payment of any sum due or
by other performance of any condition, term or covenant broken, whereupon
Landlord shall be entitled to recover, in addition to any and all sums and
damages for violation of Tenant's obligations hereunder in existence at the time
of such termination, damages for Tenant's default in an amount equal to the
amount of the Rent reserved for the balance of the term of this Lease, as well
as all other charges, payments, costs and expenses herein agreed to be paid by
Tenant, all discounted at the rate of six percent (6%) per annum to their then
present worth, less the fair rental value of the Demised Premises for the
remainder of said term, also discounted at the rate of six percent (6%) per
annum to its then present worth, all of which amount shall be immediately due
and payable from Tenant to Landlord.
(4) Tenant covenants and agrees that if the rent and/or any
charges reserved in this Lease as rent (Including all accelerations of rent
permissible under the provisions of this Lease) shall remain unpaid ten (10)
days after the same is required to be paid, then and in that event, Landlord may
cause Judgment to be entered against Tenant, and for that purpose Tenant hereby
authorizes and empowers Landlord or any Prothonotary, Clerk of Court or Attorney
of any Court of Record to appear for and confess judgment against Tenant and
agrees that Landlord may commence an action pursuant to the laws of Florida for
the recovery from Tenant of all rent hereunder (including all accelerations of
rent permissible under the provisions of this lease) and/or for all charges
reserved hereunder as rent, as well as for interest and costs and reasonable
Attorney's fees, for which authorization to confess judgment, this Lease, or a
true and correct copy thereof, shall be sufficient warrant. Such Judgment may be
confessed against Tenant for the amount of rent in arrears (including all
accelerations of rent permissible under the provisions of this Lease) and/or for
all charges reserved hereunder as rent, as well as for interest and costs;
together with an attorney's fee of five percent (5%) of the full amount of
Landlord's claim against Tenant. Neither the right to institute an action
pursuant to the laws of Florida nor the authority to confess judgment granted
herein shall be exhausted by one or more exercises thereof, but successive
complaints may be filed and successive judgments may be entered for the
aforedescribed
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sums ten (10) days or more after they become due as well as after the expiration
of the original term and/or during or after expiration of any extension or
renewal of this Lease.
Tenant covenants and agrees that if this Lease shall be terminated (either
because of condition broken during the term of this Lease or any renewal or
extension thereof and/or when the term hereby created or any extension thereof
shall have expired) then, and in that event, Landlord may cause a judgment in
eviction to be entered against Tenant for possession of the demised premises,
and for that purpose Tenant hereby authorizes and empowers any Prothonotary,
Clerk of Court or Attorney of any Court of Record to appear for Tenant and to
confess judgment against Tenant in Eviction for possession of the herein demised
premises, and agrees that Landlord may commence an action pursuant to the laws
of Florida for the entry of an order in Eviction for the possession of real
property, and Tenant further agrees that a Writ of Possession pursuant thereto
may issue forthwith, for which authorization to confess judgment and for the
issuance of a writ or writs of possession pursuant thereto, this Lease, or a
true and correct copy thereof, shall be sufficient warrant. Tenant further
covenants and agrees, that if for any reason whatsoever, after said action shall
have commenced the action shall be terminated and the possession of the premises
demised hereunder shall remain in or be restored to Tenant, Landlord shall have
the right upon any subsequent default or defaults, or upon the termination of
this Lease as above set forth to commence successive actions for possession of
real property and to cause the entry of successive judgments by confession in
Eviction for possession of the premises demised hereunder.
In any procedure or action to enter Judgment by Confession for Money pursuant to
Section ___ hereof, or to enter Judgment by Confession in Eviction for
possession of real property pursuant to Section ___ hereof, if Landlord shall
first cause to be filed in such action an affidavit or averment of the facts
constituting the default or occurrence of the condition precedent, or event, the
happening of which default, occurrence, or event authorizes and empowers
Landlord to cause the entry of judgment by confession, such affidavit or
averment shall be conclusive evidence of such facts, defaults, occurrences,
conditions precedent, or events; and if a true copy of this Lease (and of the
truth of which such affidavit, or averment shall be sufficient evidence) be
filed in such procedure or action, it shall not be necessary to file the
original as evidence, any rule of court, custom, or practice to the contrary
notwithstanding.
Tenant hereby releases to Landlord and to any and all attorneys who may appear
for Tenant all errors in any procedure or action to enter Judgment by Confession
by virtue of the sections contained in this Lease, and all liability therefor.
Tenant further authorizes the Prothonotary or any Clerk of any Court of Record
to issue a Writ of Execution or other process, and further agrees that real
estate may be sold on a Writ of Execution or other process. If proceedings shall
be commenced to recover possession of the demised premises either at the end of
the term or sooner termination of this Lease, or for non-payment of rent or for
any other reason, Tenant specifically waives the right to the statutory notice
periods, and agrees that ten (10) days' notice shall be sufficient in either or
any such case.
The right to enter judgment against Tenant by confession and to enforce all of
the other provisions of this Lease herein provided for may at the option of any
assignee of this Lease, be exercised by any assignee of the Landlord's right,
title and interest in this Lease in his, her, or their own name, any statute,
rule of court, custom, or practice to the contrary notwithstanding.
All of the remedies hereinbefore given to Landlord and all rights and remedies
given to it by law and equity shall be cumulative and concurrent. No
determination of this Lease or the taking or recovering possession of the
premises shall deprive Landlord of any of its remedies or actions against the
Tenant for rent due at the time or which, under the terms hereof would in the
future become due as if there had been no determination, nor
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shall the bringing of any action for rent or breach of covenant, or the resort
to any other remedy herein provided for the recovery of rent be construed as a
waiver of the right to obtain possession of the premises.
C. No right or remedy herein conferred upon or reserved to
Landlord is intended to be exclusive of any other right or remedy herein or by
law provided but each shall be cumulative and in addition to every other right
or remedy given herein or now or hereafter existing at law or in equity or by
statute.
D. In the event of a breach or threatened breach by Tenant of
any of the covenants or provisions hereof, Landlord, in its sole and absolute
discretion, shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for in law or in equity.
E. No waiver by Landlord of any breach by Tenant of any of
Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by
Landlord of any rights and remedies with respect to such or any subsequent
breach.
18. Quiet Enjoyment. Upon paying the Minimum Annual Rental, Additional
Rent, and other charges and sums herein provided for, and upon Tenant's
observance and keeping of all the covenants, agreements and conditions of this
Lease, Tenant shall quietly have and enjoy the Demised Premises during the term
of this Lease without hindrance or molestation by anyone claiming by or through
Landlord; subject, however, to the terms, exceptions, reservations and
conditions of this Lease.
19. No Waiver. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more agreements, terms,
covenants, conditions, or obligations of this Lease, or to exercise any right,
remedy or election therein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease or of the right to exercise such right, remedy or election, with
respect to any subsequent breach, act, or omission. The manner of enforcement or
the failure of Landlord to enforce any of the covenants, conditions, rules and
regulations set forth herein or hereafter adopted, against any Tenant in the
Building shall not be deemed a waiver of any such covenants, conditions, rules
and regulations.
20. Attornment and Subordination.
A. Subject to the provisions in subsection B hereof, this
Lease, and the rights of Tenant hereunder, shall be subject or subordinate to
any mortgages which now are or may hereafter be placed upon the Property or any
portion hereof (a "mortgage") or any interest therein or to any leases
(hereinafter called "underlying leases") of the Property as a whole which now
exist or may hereafter be made (any holder of any such mortgage, or landlord
with respect to any underlying lease being hereinafter called an "Interested
Party"). The terms at this Subordination shall be self operative, provided
however, that Tenant shall execute such documents as may be requested by
Landlord in order to confirm this Subordination from time to time. Any failure
by Tenant to execute any such documents shall be a default hereunder.
B. Upon the request of Tenant, any interested Party shall
provide to Tenant its written agreement providing substantially as follows: so
long as Tenant has not defaulted under this Lease; (I) Tenant's rights shall not
be terminated or disturbed by reason of any foreclosure of such mortgage or
termination of such underlying lease: (II) in the event that the property
containing the Demised Premises is sold or otherwise disposed of pursuant to any
right or power contained in or existing by reason of any such mortgage or the
bond,
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note or debt secured thereby, the purchaser thereof or other person acquiring
title thereto through or by virtue of such sale or other disposition shall take
title thereto subject to this Lease and all rights of Tenant hereunder; (III)
upon termination of any such underlying lease, that lessor shall accept Tenant's
attornment upon all the terms and conditions of this Lease for the balance of
the term hereof. Any such written agreement shall also reserve to the Interested
Party the rights specified in section D hereof.
C. Upon any foreclosure sale on any such mortgage or
termination of any underlying lease, if the holder of the mortgage or other
purchaser at foreclosure sale or any lessor with respect to any underlying lease
shall so request, Tenant shall attorn to such holder, purchaser or lessor as
Tenant's landlord under this lease and shall promptly execute and deliver any
instrument that such holder, purchaser or lessor may reasonably request to
evidence such attornment. Upon such attornment, this Lease shall continue in
full force and effect as a direct lease between such holder, purchaser or lessor
and Tenant upon all of the terms, conditions and covenants as are set forth in
this Lease.
D. In the event that the holder of such mortgage or the lessor
under such underlying lease shall succeed to the interest of Landlord hereunder,
such Interested Party shall not be: (i) liable for any act or omission of any
prior landlord (including Landlord); (ii) liable for the return of any security
deposit not actually received by it; (iii) subject to any offsets or defenses
which Tenant might have against any prior landlord (including Landlord); (iv)
bound by any Rent or Additional Rent which Tenant might have paid for more than
the current month to any prior landlord (including Landlord); or (v) bound by an
amendment or modification of this Lease made without its written consent.
E. Within ten (10) days after written request from Landlord
from time to time, Tenant shall execute and deliver to Landlord, or Landlord's
designee, a written statement certifying, (i) that this Lease is unmodified and
in full force and effect, or is in full force and effect, as modified and
stating the modifications; (ii) the amount of Minimum Annual Rent and the date
to which Minimum Annual Rent and Additional Rent have been paid in advance; and
(iii) that Landlord is not in default hereunder or, if Landlord is claimed to be
in default, stating the nature of any claimed default; (iv) the amount of
security deposit Landlord is holding and (v) any options to renew or purchase
that tenant may have. Within ten (10) days after written request from Tenant
from time to time, Landlord shall execute and deliver to Tenant, or Tenant's
designee, a written statement certifying, (i) that this Lease is unmodified and
in full force and effect, or is in full force and effect as modified and stating
the modifications; (ii) the amount of Minimum Annual Rent and the date to which
Minimum Annual Rent and Additional Rent have been paid in advance; and (iii)
that Tenant is not in default hereunder, or if Tenant's claimed to be in
default, stating the nature of any claimed default.
21. Notices. All bills, statements, notices or communications which
either party hereto may desire or be required to give to the other shall be
deemed sufficiently given or rendered if in writing and either hand delivered to
Landlord or Tenant or sent by registered or certified mail or overnight courier,
postage prepaid, addressed to Landlord or Tenant at the address set forth on the
first page hereof or any other address pursuant to notice given as herein set
forth. Any notices given in accordance with the Lease shall be deemed to be
given when the same is hand delivered to the other party, deposited with the
overnight courier or three (3) days after depositing in the mail, as the case
may be.
22. Holding Over. Should Tenant continue to occupy the Demised Premises
after expiration of the term of this Lease or any renewals therefor, or after a
forfeiture incurred such tenancy shall (without limitation on any of Landlord's
rights or remedies therefore) be one at sufferance from month to month at a
minimum monthly rent equal to twice the rent payable for the previous month of
the term of this Lease,
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23. Brokers. Tenant represents and warrants that it has not employed
any broker or agent as its representative in the negotiation for or the
obtaining of this Lease other than Landlord's leasing agent, and agrees to
indemnify and hold Landlord harmless from and against any and all cost or
liability for compensation claimed by any broker or agent other than Landlord's
leasing agent with whom it has dealt or claimed to have been engaged by Tenant.
24. Definitions of Landlord and Tenant.
A. The word "Tenant" as used in this Lease shall be construed
to mean tenants in all cases where there is more than one tenant, and the
necessary grammatical changes required to make the provisions hereof apply to
corporations, partnerships, or individuals, men or women, shall in all cases be
assumed as through in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, bind and inure to the benefit of
Tenant and its heirs, legal representatives, successors and assigns, provided
that this Lease shall not inure to the benefit of any assignee, heir, legal
representative, transferee or successor of Tenant except upon the express
written consent or election of Landlord, except as herein otherwise provided.
B. The term "Landlord" as used in this Lease shall mean the
fee owner of the entire Property or, if different, the party holding and
exercising the right, as against all others (except space tenants of Building)
to possession of the entire Property. In the event of voluntary or involuntary
transfer of such Ownership or right to a successor in interest of Landlord,
Landlord shall be freed and relieved of all liability and obligation hereunder
which shall thereafter accrue (and, as to any unapplied portion of Tenant's
security deposit, Landlord shall be relieved of all liability therefore upon
transfer of such portion to its successor in interest) and Tenant shall look
solely to such successor in interest for the performance of the covenants and
obligations of Landlord hereunder which shall thereafter accrue. Notwithstanding
the foregoing, no mortgagee or ground lessor which shall succeed to the interest
of Landlord hereunder (either in terms of ownership or possessory rights) shall:
(1) be liable for any previous act or omission of a prior landlord; (2) be
subject to any rental offsets or defenses against a prior landlord; (3) be bound
by any amendment of this Lease made without its written consent, or by payment
by Tenant of rent in advance in excess of one (1) month's rent; or (4) be liable
for any security deposit not actually received by it. Subject to the foregoing,
the provisions hereof shall be binding upon and inure to the benefit of the
heirs, personal representatives, successors and assigns of Landlord. In no event
shall the liability of Landlord to Tenant hereunder exceed Landlord's interest
in the Property. Tenant agrees that no judgment arising from any default of
Tenant's agreements under the terms of this Lease or by reason of any willful or
negligent act of Landlord and its Building manager, and their employees,
officers, agents and independent contractors, shall attach against any property
of Landlord other than the Property, and in no event shall any such judgment
constitute a lien upon any other lands or properties owned by Landlord
wheresoever located. Neither shall any such judgment attach or constitute a lien
against any property or any principal or partner of the Landlord, or of their
heirs, executors, administrators, successors or assigns.
25. Prior Agreements; Amendments. Neither party hereto has made any
representations or promises except as contained herein. No agreement hereinafter
made shall be effective to change, modify, discharge or effect an abandonment of
this Lease, in whole or in part, unless such agreement is in writing and signed
by the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
26. Captions. The captions of the paragraph in this Lease are inserted,
and included solely for convenience and shall not be considered or given any
effect in construing the provisions hereof.
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27. Construction of Lease. If any term of this Lease, or the
application thereof to any person or circumstances, shall to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each term of this Lease
shall be valid and enforceable to the fullest extent permitted by law.
28. Mechanics' Liens, etc.
A. Tenant shall comply with the Mechanic's Lien Law of the
State of Florida as set forth in Florida Statutes, Chapter 713. Tenant will not
create or permit to be created or remain as a result of any action or work done
or contracted for by Tenant, and will discharge, any lien, encumbrance or charge
(levied on account of any imposition or any mechanic's, laborer's or
materialman's lien) which might be or become a lien, encumbrance or charge upon
the Property, the Demised Premises or any part thereof or the income therefrom,
whether or not the same shall have any priority or preference over or ranking on
a parity with the estate, rights and interest of Landlord in the Property, the
Demised Premises or any part thereof, or the income therefrom, and Tenant will
not suffer any other matter or thing whereby the estate, rights and interest of
Landlord in the Property, the Demised Premises or any part thereof might be
impaired; provided that any mechanic's, laborer's or materialman's lien may be
discharged in accordance with Subparagraph B of this Paragraph 28.
B. If any mechanic's, laborer's or materialman's lien shall at
any time be filed against the Building, the Demised Premises or any part thereof
as a result of any action or work done an behalf of or contracted for by Tenant,
Tenant, within fifteen (15) days after notice of the filing thereof, will cause
it to be discharged of record by payment, deposit, bond, order of the court of
competent jurisdiction or otherwise. If Tenant shall fail to cause such lien to
be discharged within the period aforesaid, then in addition to any other right
or remedy, Landlord may, but shall not be obligated to, discharge it either by
paying the amount claimed to be due or by transferring same to security, and in
any such event, Landlord shall be entitled, if Landlord so elects, to compel
prosecution of any action for the foreclosure of such lien by the lienor and to
pay the amount of the judgment in favor of the lienor with interest costs and
allowances. Any amount so paid by Landlord and all costs, expenses, and fees
including without limitation attorneys' fees, incurred by Landlord in connection
with any mechanic's, laborer's or materialman's lien, whether or to the same has
been discharged of record by payment, deposit, bond, order of the court of
competent jurisdiction or otherwise, together with interest thereon, at the
maximum rate permitted by law, from the respective dates of Landlord's making of
the payments and incurring of the costs and expenses, shall constitute
Additional Rent payable by Tenant to Landlord upon demand.
C. Nothing contained in this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord, express
or implied by inference or otherwise, to any contractor, subcontractor, laborer
or materialman for the performance of any labor or the furnishing of any
materials for any alteration, addition, improvement or repair to the Property,
the Demised Premises or any part thereof, nor as giving Tenant any right, power
or authority to contract for or permit the rendering of any services or the
furnishing of any materials that would give rise to the filing of any lien
against the Property, the Demised Premises or any part thereof, nor to subject
Landlord's estate in the Property to liability under the Mechanic's Lien Law of
the State of Florida in any way, it being expressly understood that Landlord's
estate shall not be subject to any such liability.
D. Notwithstanding any provision to the contrary set forth in
this Lease, it is expressly understood and agreed that the interest of the
Landlord shall not be subject to liens for improvements made by
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Tenant in and to the Demised Premises, Tenant shall notify each and every
contractor making any such improvements of the provision set forth in the
preceding sentence of this Paragraph. The parties agree to execute, acknowledge
and deliver to Landlord without charge a Mechanics Lien Notice, in recordable
form, containing a confirmation that the interest of the Landlord shall not be
subject to liens for improvements made by Tenant to the Property or the Demised
Premises.
29. Certain Rights Reserved to Landlord. Landlord reserves the
following rights:
A. Building Name. To name the Building and to change the name
or street address of the Building.
B. Exterior Signs. To install and maintain a sign or signs on
the exterior of the Building.
C. Redecoration. During the last ninety (90) days of the term,
if during or prior to that time Tenant has vacated the Demised Premises, to
decorate, remodel, repair, alter or otherwise prepare the Demised Premises for
re-occupancy, without affecting Tenant's obligation to pay Minimum Annual
Rental, Additional Rent and all other sums due under the terms of this Lease.
D. Pass Keys. To constantly have pass keys to the Demised
Premises.
E. Adjoining Areas. The use and reasonable access thereto
through the Demised Premises for the purposes of operation, maintenance,
decoration and repair of all walls, windows and doors bounding the Demised
Premises (including exterior walls of the Building, core corridor walls and
doors and any core corridor entrance) except the inside surface thereof, any
terraces or roofs adjacent to the Demised Premises and any space in or adjacent
to the Demised Premises used for shafts, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other facilities are reserved to Landlord.
F. Common Areas and Parking Facilities. The exclusive right to
manage the Common Areas and the Parking Facilities.
30. Landlord's Lien. In addition to any statutory Landlord's Lien,
Landlord shall have, at all times, a valid security interest to secure payment
of all Minimum Annual Rental, Additional Rent, and other sums of money becoming
due hereunder from Tenant, and to secure payment of any damages or loss which
Landlord may suffer by reason of the breach by Tenant of any covenant, agreement
or condition contained herein, upon all goods, wares, equipment, fixtures,
furniture, types, improvements and other personal property of Tenant presently
or which may hereinafter be situated in the Demised Premises, and all proceeds
therefrom, and such property shall not be removed therefrom without the consent
of Landlord until all arrearages in Minimum Annual Rental, Additional Rent, and
all other sums of money then due to Landlord hereunder shall first have been
paid and discharged and all of the covenants, agreements, and conditions hereof
have been fully complied with and performed by Tenant. In consideration of this
Lease, upon the occurrence of any event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter upon the Demised Premises
and take possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant situated on or in the Demised
Premises, without liability for trespass or conversation, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any public sale or of
the time after which any private sale is to be made, at which sale the Landlord
or its assigns may purchase the above described Property unless otherwise
prohibited by law. Unless otherwise provided by law, and without intending to
exclude any other
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manner of giving Tenant reasonable notice, the requirement of reasonable notice
shall be met if such notice is given in the manner prescribed in Paragraph 20 of
this Lease at least five (5) days before the time of sale. The proceeds from any
such disposition, less any and all expenses connected with the taking of
possession and selling of the property (including reasonable attorneys fees and
other expenses) shall be applied as a credit against the indebtedness secured by
the security interest granted in this Paragraph 29. Any surplus shall be paid to
Tenant or as otherwise required by law, and Tenant shall pay any deficiencies
upon demand. Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement in form sufficient to perfect the security
interest of Landlord in the aforementioned property and proceeds thereof under
the provisions of the Uniform Commercial Code in force in the State of Florida.
Any statutory lien for Rent is not hereby waived, the security interest herein
granted being in addition and supplementary thereto.
31. Rules and Regulations. Tenant covenants and agrees that it shall
comply with and observe all nondiscriminatory, uniformly applied reasonable
rules and regulations ("Rules and Regulations") which Landlord shall from time
to time promulgate for the management, and use of the Demised Premises, the
Building and the Parking Facilities. Landlord's initial Rules and Regulations
are set forth on Exhibit "E" attached hereto and made a part hereof Landlord
shall have the right from time to time to reasonably amend or supplement the
Rules and Regulations theretofore promulgated.
32. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE ANY AND ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM, OR SUBSEQUENT
PROCEEDING, BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES, THE BUILDING OR THE PARKING
FACILITIES AND/OR ANY CLAIM OF INJURY OR DAMAGE.
33. Radon Gas. Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of Radon that
exceed Federal and State guidelines have been found in buildings in Florida.
Additional information regarding Radon and Radon testing may be obtained from
your county public health unit.
34. No Option. The submission of this Lease to Tenant for examination
does not constitute a reservation of or option for the Demised Premises and this
Lease becomes effective as a lease only upon execution and delivery thereof by
the Landlord and Tenant.
35. Force Majeure. Notwithstanding anything to the contrary contained
herein, Landlord shall not be deemed in default with respect to the delivery of
the Demised Premises or any other obligation of Landlord hereunder, if
Landlord's inability to perform is due to any strike, lockout, civil commotion,
warlike operation, invasion, rebellion, hostilities, military or usurped power,
governmental regulation, moratoriums or controls, acts of God or any other cause
beyond the control of Landlord, provided that such cause is not due to the
willful act or negligence of Landlord.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease on the
day and year first aforesaid.
Signed, sealed and delivered LANDLORD:
in the presence of: CANPRO INVESTMENTS LTD.
By:
Authorized Officer
Tenant:
NATIONAL FINANCIAL CORPORATION
or its assignee AUTO CREDIT
CLEARINGHOUSE L.P.
By:
Gary L. Shapiro
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Exhibit "A"
Legal Description
Parcel 2 - Office Building Site
(O.R.B. 4312 PG. 1726)
A portion of section 6, Township 47 South, Range 43 East, Palm Beach County,
Florida, being more particularly described as follows:
Commencing at the South one quarter corner of said section 6: Thence North
00)58'48" East, along said North- South quarter line, a distance of 664,54 feet,
Thence South 89)41'52" East, a distance of 347.76 feet: Thence South
89)41'52"East, a distance of 347.49 feet: Thence North 01)00'11" East, a
distance of 30.00 feet to the point of beginning of this description: Thence
continue North 01)00'11" East, a distance of 634.46 feet: Thence South 89)41'01"
East, a distance of 347.76 feet: Thence South 72)29'41" West, a distance of
366.48 feet to the point of beginning: together with the following described
parcel:
Commencing at the South one quarter of said section 6: Thence North 00)58'48"
East along the North-South quarter line, a distance of 664.54 feet: Thence South
89)41'52" East a distance of 347.49 feet: Thence North 01)00'11" East, a
distance of 30.00 feet: Thence North 72)29'41" East, a distance of 366.48 feet
to the point of beginning of this description: Thence South 01)01'35" West, a
distance of 41.33 feet to a point on the right-of-way line of the seaboard
coastline railroad, that is now laid out and in use: Thence North 45)35'19"
East, a distance of 596.03 feet to the point of curvature of a circular curve to
the left: Thence Northerly and Easterly along the arc of said curve, having a
radius of 3365.62 feet, and an arc distance of 0.25 feet to a point on the
Easterly boundary of the Lake Worth drainage district: The last two described
courses being coincident with said right-of-way line: Thence North 17)26'44"
West, a distance of 40.08 feet: Thence North 44)26'44" West, a distance of
141.82 feet: the last two described courses being coincident with the Easterly
boundary of the Lake Worth drainage district: Thence North 89)41'01" West, a
distance of 309.96 feet: Thence South 01)01'35" West, a distance 522,29 feet to
the point of beginning: less and except therefrom the following described
parcel:
Commencing at the South one quarter of said section 6: Thence North 00)58'48"
East along said North-South quarter line, a distance of 664.54 feet: Thence
South 89)41'52" East, a distance of 347.49 feet: Thence North 01)00'11" East, a
distance of 242.48 feet to the point of beginning of this description: Thence
continue North 01)00'11" East, a distance of 421.98 feet: Thence South 89)41'01"
East, a distance of 98.61 feet: Thence South 00)18'59" West, a distance of 97.55
feet: Thence South 89)41'01" East, a distance of 81.73 feet: Thence South
44)24'41" East, a distance of 100.00 feet: Thence South 45)35'19" West, a
distance of 245.00 feet: Thence South 44)24'41" East, a distance of 65.00 feet:
Thence South 45)35'19" West, a distance of 80.00 feet: Thence North 44)24'41"
West, a distance of 65.00 feet: Thence South 45)35'19" West, a distance of 35.00
feet to the point of beginning.
Said lands situate, lying, and being in Palm Beach County, Florida, and subject
to all easements, reservations, and right-of-way of record.
Together with (a) non-exclusive easements for ingress and egress for pedestrian
and vehicular traffic, and for the installation and maintenance of utility lines
and appurtenances over, across and under Parcel R-1, Parcel R- 2, Parcel R-2A,
Parcel R-3, APOC II Roads and Parcel R-3A to the extent that a portion of Parcel
R-3A is not located within the insured lands: and (B) a non-exclusive easement
for water retention, water management and drainage purposes over, across and
under all lakes, water retention areas and drainage easements or areas
established within the Total Arvida Property, all as more particularly described
and defined in that certain Agreement for and Grant of Easements and Other
Rights, dated September 8, 1982 and recorded in Official
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Records Book 3788, page 1058: as supplemented by Supplemental Agreement dated
September 8, 1982 and recorded in Official Records Book 3788, page 1095: and as
amended by Reconfirmation and Regrant of Easements and Other Rights dated
September 19, 1983 and recorded in Official Records Book 4041, page 1854 and as
further amended by Amendment to Agreement for and Grant of Easements and Other
Rights dated April 18, 1984 and recorded in Official Records Book 4312, page
1721 all of the Public Records of Palm Beach County, Florida.
And, further together with all of the non-exclusive, access easements, parking
easements and utility easements, over the common areas located within the
perimetrical boundaries of the Park Place Royale lands as set forth in exhibit
"??" attached hereto, as contained in that certain Common Area Operations and
Reciprocal Easement Agreement, dated May 30, 1984 and recorded in Official
Records Book 4259, page 1548, as amended by First Amendment to Common Area
Operation and Reciprocal Easement Agreement, dated August 29, 1984 and recorded
in Official Records Book 4341, page 258 and further amended by Second Amendment
to Common Area Operation and Reciprocal Easement Agreement, recorded in Official
Records Books 6403, page 553 all of the public records of Palm Beach County,
Florida.
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EXHIBIT "C"
Parking Space Schedule
Tenant shall be permitted to use undercover and/or covered parking spaces based
upon availability.
All said parking spaces shall be in areas designated by Landlord and are subject
to relocation by Landlord at any time. Landlord will not monitor the parking
spaces nor the Parking Facilities and shall have no liability to Tenant, its
employees, agents, licensees or invitees for any damages to or loss of vehicles,
automobiles, or accessories, or the contents thereof, caused by fire, theft,
collision or any other cause whatsoever.
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EXHIBIT "D"
Cleaning Specifications
Daily (Five times a week)
1. Dust Mop (treated) composition floors.
2. Spot mop for spillage on composition floors.
3. Sight vacuum all carpets.
4. Heavy traffic areas to be vacuumed completely.
5. Empty and wipe clean all waste receptacles.
6. Gather all trash and remove to designated areas.
7. Clean all Tenant rest rooms as per rest room schedule.
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EXHIBIT "E"
Rules and Regulations
BUILDING RULES AND REGULATIONS. Tenant and its employees, agents, licensees and
invitees shall faithfully observe and comply with the following Rules and
Regulations and all reasonable modifications of any additions thereto from time
to time put into effect by Landlord, Landlord shall not be responsible to Tenant
for the non-performance of any said Rules and Regulations by any other Tenant or
occupant of the Building.
1. ADVERTISING. Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's opinion tends to impair the reputation of the
Building or its desirability as an office building, and upon written notice from
Landlord, Tenant promptly shall refrain from or discontinue such advertising.
Without limiting the foregoing, no advertising or notices shall be permitted in
the windows or common areas of the Building.
2. BICYCLES, ANIMALS. Tenant shall not bring any animals or birds into the
Building, and shall not permit any type of vehicle including bicycles, inside or
on the sidewalks outside the Building except in areas designated from time to
time by Landlord for such purposes.
3. DANGEROUS OR IMMORAL ACTIVITIES. Tenant shall not make any use of the
Demised Premises which involves the danger of injury to person or property, nor
shall the same be used for any immoral use.
4. DELIVERIES. Tenant shall ensure that deliveries of materials and supplies to
the Demised Premises are made through such entrances, elevators and corridors
and at such times as may from time to time be designated by Landlord, and shall
promptly pay or cause to be paid to Landlord the cost of repairing any damage to
the Building caused by any person making such deliveries.
5. FURNITURE AND EQUIPMENT. Tenant shall ensure that furniture and equipment
being moved into or out of the Demised Premises is moved through such entrances,
elevators and corridors and ar such times as may from time to time be designated
by Landlord, and by movers or a moving company approved by Landlord, and shall
promptly pay or cause to be paid to Landlord the cost of repairing any damage in
the Building caused thereby.
6. HEAVY ARTICLES. Tenant shall not place in or move about the Demised Premises
without Landlord's prior written consent any safe or other heavy article which
in Landlord's reasonable opinion may damage the Building. Landlord may designate
the location of any heavy articles in the Demised Premises.
7. LOADING, UNLOADING AND MOVING.
A. The delivery and shipping of merchandise, supplies, fixtures, and
other materials or goods of whatsoever nature to or from the Demised Premises
and all loading, unloading and handling thereof shall be done only at such
times, in such areas, by such means and through such elevators, entrances, halls
and corridors as are designated by Landlord.
B. Landlord accepts no liability and Tenant hereby releases Landlord of
all liability with respect to the operation of delivery facilities for the
building, or the adequacy thereof, or of the acts or omissions of
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any person or persons engaged in the operation thereof, or in the acceptance,
holding, handling or dispatch, or any error, negligence or delay therein.
C. Landlord may from time to time make and amend regulations for the
orderly and efficient operation of the delivery facilities for the Building, and
may require the payment of reasonable and equitable charges for delivery
services provided by Landlord.
D. No furniture may be moved in or out of the Building without prior
consent, of Landlord. Arrangements for the moving must be made with Landlord's
office and must be supervised by Landlord's representative. Tenant agrees to pay
for any and all damages to any part of the Building or Demised Premises because
of such moving, by either Tenant, its agents or movers. No moving shall be
permitted except between the hours of 8:00 a.m. and 5:00 p.m., Monday through
Friday. Reasonable charges will be made for the use of material and office
building personnel including supervision, needed to assist in the Tenant's move
in, within, or out of the Building.
8. OBSTRUCTIONS. Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells or other common areas of the Building, or use such locations for any
purpose except access to and exit from the Demised Premises without Landlord's
prior written consent, Landlord may remove at Tenant's expense any such
obstruction or item (unauthorized by Landlord) without notice or obligation to
Tenant. Additionally, Tenant shall not permit its employees, agents, invitees,
or customers to loiter, sleep, assemble or congregate within any common areas or
grounds of the Building.
9. ODORS. Tenant shall not permit any odors of cooking or other processes, or
any unusual or other objectionable odors to permeate in or emanate from the
Demised Premises.
10. PARKING. Tenant shall ensure that its employees, customers, clients, guests,
invitees and licensees comply with the following parking regulations, and
acknowledges that such regulations shall be strictly enforced by Landlord.
A. The designated area on the first floor of the Parking Facilities
shall be used only by guests, clients and customers of the Tenants of the
Building.
B. The other areas of the Parking Facilities shall be used only by the
employees of Tenants of the Building.
C. All service vehicles (including those engaged in deliveries, loading
and unloading) must park only in the designated service parking area. Parking in
the service parking area shall be limited to a maximum of one (1) hour,
provided, however, that a Tenant may make arrangements with the Landlord for
longer parking periods when moving in or moving out of the Building.
D. Landlord reserves the right to control the method, manner and time
of parking in the Parking Facilities.
E. In the event of any violation of the parking regulations, Landlord
shall have the right to post a notice of violation on the offending vehicle and
to tow the offending vehicle (regardless of whether the vehicle is owned by a
Tenant or any party, including any employee, customer, client, invitee or
licensee of a Tenant), and to charge the expense thereof to the applicable
Tenant as Additional Rent, or terminate the Tenant's license to park in the
Parking Facilities. In the event of continued violations of these Regulations,
and after notice to
36
<PAGE>
the Tenant, the Landlord may assess a charge of twenty dollars ($20.00) against
the Tenant for each violation, which shall be payable an additional rent.
11. PROPER CONDUCT. Tenant, it's employees and invitees, shall not conduct
themselves in any manner which is inconsistent with the character of the
Building as a first quality Building or which will impair the comfort and
convenience of other Tenants in the Building.
12. PERSONAL USE OF PREMISES. The Demised Premises shall not be used or
permitted to be used for residential, lodging or sleeping purposes, or for the
storage of personal effects or property not required for business purposes.
13. REFUSE. Tenant shall place all refuse in proper receptacles provided by
Tenant at its expense in the Demised Premises, or in receptacles (if any)
provided by Landlord for the Building, and shall keep sidewalks and driveways
outside the Building, and lobbies, corridors, stairwells, ducts and shafts of
the Building free of all refuse.
14. SIGNS. No sign, advertisement, notice, or other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside of the Demised Premises or the Building (or on the inside of the Demised
Premises if the same is visible from the outside of the Demised Premises)
without the prior written consent of Landlord, except that the name of the
Tenant may appear on the entrance door of the Demised Premises. In the event of
the violation of the foregoing by any Tenant Landlord may remove same without
any liability, and may charge the expense incurred by such removal to the Tenant
violating this Rule. All signs and lettering, including the Building directory,
shall be, inscribed, painted or affixed for each Tenant by Landlord at the
expense of such Tenant, and shall be of a size, color and style acceptable to
Landlord.
15. SOLICITATIONS. Landlord reserves the right to prohibit canvassing,
soliciting or peddling in the Building but shall not be in any manner liable for
any such acts within or about the Building.
16. WATER FIXTURES. Tenant shall not use water fixtures for any purposes for
which they are not intended, nor shall water be wasted by tampering with such
fixtures. Any cost or damage resulting from such misuse by Tenant shall be paid
for by Tenant.
17. WINDOWS. The Tenant acknowledges the importance of the exterior glass to the
architectural integrity of the Building, and agrees to observe Landlord's rules
with respect to maintaining at all windows in the Demised Premises so that the
Building presents a uniform exterior appearance. Tenant shall not install any
window shades, drapes, covers or other materials, on or at any window in the
Demised Premises without Landlord's prior consent, Landlord shall have the right
to approve the color, design and all materials of window treatments. Further, no
window treatments which may be installed by Landlord shall be removed or altered
by Tenant.
18. PUBLIC ACCESS. Landlord reserves the right at all times to exclude the
general public from the Building upon such days and at such hours as in
Landlord's sole judgment will be in the best interest of the Building and its
Tenants.
19. WIRES. No wires of any kind or type (including but not limited to T.V. and
radio antennas) shall be attached to the outside of the Building and no wires
shall be run or installed in any part of the Building without Landlord's prior
written consent.
37
<PAGE>
20. LOCKS. No lock or similar devices shall be attached to any door or window in
the Demised Premises without Landlord's Prior Written consent. In the event
Tenant installs locks incompatible with the Building Master Locking System:
A. Landlord without abatement of Rent, shall be relieved of any
obligation to provide any service whatsoever to areas so restricted;
B. Tenant shall indemnify Landlord against any expense as a result of
forced entry into any areas so restricted which may be required in an emergency;
C. Tenant shall at the end of the term remove such locks at Tenant's
expense.
38
<PAGE>
EXHIBIT "F"
Environmental Impact Provisions
Section A. Compliance with Law.
Tenant, at Tenant's expense, shall comply with all laws, rules, orders,
ordinances, directions, regulations and requirements of federal, state, county
and municipal authorities pertaining to Tenant's use of the Premises and with
the recorded covenants, conditions and restrictions, regardless of when they
become effective, including, without limitation, all applicable federal, state
and local laws, regulations or ordinances pertaining to air and water quality,
hazardous Materials (as hereinafter defined), waste disposal, air emissions and
other environmental matters, all zoning and other land use matters, and utility
availability, and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Landlord or Tenant with respect to the
use or occupation of the Premises.
Section B. Use of Hazardous Material.
1. Tenant shall not cause or permit any hazardous material to be brought upon,
kept or used in or about the Premises by Tenant, its agents, employees,
contractors or invitees. If Tenant breaches this obligation, the Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses including, without
limitation, diminution in value of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Building, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorneys' fees, consultant fees and expert
fees which arise during or after the term of the Lease as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup remedial, removal or restoration work required by any
federal, state or local governmental agency or political subdivision because of
Hazardous Material present in the soil or ground water on or under the Demised
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Demised Premises caused by Tenant results in any contamination
of the Demised Premises, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Demised Premises to the conditions
existIng prior to the introduction of any such Hazardous Material to the
Premises; provided that Landlord's approval of such actions shall first be
obtained, which approval shall not be unreasonably withheld so long as such
actions would not potentially have any material adverse long-term or short-term
affect on the Demised Premises. The foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
2. As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste, including, but not limited to, those substances,
materials, and wastes listed in the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection
Agency as hazardous substances (140 CFR Part 302) and amendments thereto, or
such substances, materials and wastes that are or become regulated under any
applicable local, state or federal law.
3. Inspection. Landlord and its agents shall have the right, but not the duty,
to inspect the Demised Premises at any time to determine whether Tenant's
complying with the terms of this Lease. If Tenant's not in compliance with this
Lease, Landlord shall have the right to immediately enter upon the Premises to
remedy any contamination caused by Tenant's failure to comply notwithstanding
any other provision of this Lease. Landlord shall use its best efforts to
minimize interference with Tenant's business but shall not be liable for any
interference caused thereby.
39
<PAGE>
4. Default. Any default under this Paragraph shall be a material default
enabling Landlord to exercise any of the remedies set forth in this Lease.
40
<PAGE>
GUARANTY
FOR VALUE RECEIVED and in consideration for and as an inducement of
Landlord making the attached lease with Tenant, the undersigned, on behalf of
himself, his legal representatives, heirs, successors and assigns, as principal
and not as a surety, guarantees to Landlord, Landlord's successor and assigns,
the full performance and observance of all the provisions therein provided to be
performed and observed by Tenant, without requiring any notice of non-payment,
non-performance, or non-observance, or proof, or notice, or demand, whereby to
charge the undersigned therefor, all of which the undersigned hereby expressly
waives and expressly agrees that the validity of this agreement and the
obligations of the guarantor hereunder shall not be terminated, affected or
impaired by reason of the assertion by Landlord against Tenant of any of the
rights or remedies reserved to Landlord pursuant to the provisions of the within
Lease. The undersigned further covenants and agrees that this guaranty shall
remain and continue in full force and effect as to any renewal, modification,
extension, assignment or sublease of this Lease. AS A FURTHER INDUCEMENT TO
LANDLORD TO MAKE THIS LEASE AND IN CONSIDERATION THEREOF, LANDLORD AND THE
UNDERSIGNED AGREE THAT IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER LANDLORD OR
THE UNDERSIGNED AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF,
UNDER, OR BY VIRTUE OF THE TERMS OF THIS LEASE OR OF THIS GUARANTY, THAT
LANDLORD AND THE UNDERSIGNED SHALL AND DO HEREBY WAIVE TRIAL BY JURY. In the
event Landlord incurs any expenses in the enforcement of this guaranty, whether
legal action be instituted or not, the undersigned agrees to be liable for same
(including reasonable attorney's fees and costs) and to pay same promptly on
demand by Landlord. This Guaranty when signed by more than one party, their
obligations shall not be joint and several and the release of one of such
Guarantors shall not release any other of such Guarantors.
WITNESSES: GUARANTOR:
41
<PAGE>
SPECIFICATIONS TO OFFICE SPACE
LANDLORD'S WORK
The Landlord will make the following improvements to the Leased
Premises:
1. Ceiling
Building Standard suspended acoustical ceiling.
2. Lighting
One four foot long, three tube recessed fluorescent light fixture as
per Building Standard. All lighting to be controlled by means of a
central time switch with a manual override switch.
3. Demising Walls
The Tenant's demising walls to be constructed of Building Standard
drywall steel stud partitioning, ready for paint finish, including a
Building Standard entrance door with transom frame and hardware.
4. Toilet Facilities
Each floor will contain one Men's and one Women's washroom, for the use
of the Tenant's personnel, one janitor closet will be provided on each
floor. All additional plumbing requirements shall be at the Tenant's
expense. Refrigerated cold water fountains to be centrally located on
each floor.
5. Identification
Tenant's identification will be provided on the central directory board
in the main lobby and room number identification will be provided in
Building Standard lettering on the entrance door at Tenant's expense.
6. Cleaning Service
Daily cleaning in accordance with Building Standard for office.
7. Electrical and Telephone System
Pre-wired under floor distribution system for 120/208 volt service
strategically located in walls at various points. Un-wired under floor
conduit system for telephone service located in walls at various
points. Provision for telephone wiring and service is a matter of
Tenant's attention and expense. The Landlord will supply ___ outlets
for Bell Telephone and up to ___ outlets for power.
8. Heating and Air-conditioning
Perimeter heating and air-conditioning will be provided through an
induction air-conditioning and heating system, which will also provide
humidity, and will include thermostat controls as Per Building
42
<PAGE>
Standard. An interior zone variable volume system will provide
ventilation and air-conditioning for interior zones.
Any special requirements such as exhaust for Printing machines,
computer room, or special ducting for toilets and air circulation for
board rooms or reception areas shall be at Tenant's expense.
9. Sprinkler System
The building is completely sprinklered with flush mounted sprinkler
heads according to the standards of the Fire Department of the City of
Boca Raton. Should changes be required to the Building Standard system,
due to the Tenant's partitioning, the changes and/or additional
sprinklers shall be at Tenant's expense.
10. Improvements
All improvements to the Leased Premises other than those set out in
this Schedule shall be at Tenant's expense and any such improvements
shall only be effected after plans and specifications for the same have
been submitted to the Landlord and have been approved in writing by the
Landlord.
11. General
All items and finishes as supplied by the Landlord are in accordance
with the Building Standard specification color, quantity and quality;
such specifications are subject to change by Landlord, if and when it
is considered desirable.
12. Communications
The Building will be controlled by a console nerve center in the front
lobby. This center will identify the sprinkler head's operation.
A communication network between the console nerve center and the
intercom speakers on each floor will provide for emergency
communications between Tenants and public safety officials.
13. Computer Installation
A specially reinforced bay of 30 X 30 suitable for a computer
installation is provided on each typical floor, bounded by column lines
3, 4, D and E.
14. Window Covering
Building Standard mini blinds to cover all exterior glass.
43
<PAGE>
EXHIBIT "H"
ONE PARK PLACE
WORKLETTER
GENERAL SPECIFICATIONS
The following specifications are building standard Tenant finishes at One Park
Place located at 621 NW 53rd Street, Boca Raton, Florida 33487.
DRYWALL PARTITIONING
Demising Partition:
3-5/8" Metal Studs 24 O.C. with 5/8 type "X" drywall; 3-1/2" sound
attenuation blankets from floor slab to deck above; 1 hour rated.
Interior Partition:
3-5/8" Metal Studs 24 O.C., 1/2" drywall each side to 8'6" finished
ceiling height and capped. Provide support bracing 4" O.C. minimum.
DOORS, FRAMES AND HARDWARE
Entry Door:.
3'0" x 8'3" solid core Walnut veneer stained in painted hollow metal
frame. Hardware to be standard Corbin Lever Arm Brushed Chrome Series
with matching deadbolt.
Interior Door:
3'0" x 7'10" solid core wood Walnut veneer, stained in painted hollow
metal knock-down frame. Hardware to be Building Standard Corbin
polished chrome passage lock set with matching hinges and wall stops.
PAINTING
Walls:
All wall surfaces within the leased area to receive one (1) prime coat
and one (1) base coat of Building Standard latex paint. Colors to be
selected from Building Standard.
Doors:
Ali door frames within the leased area to receive one (1) prime cont
and one (1) base coat of enamel paint. Interior doors to be stained.
Colors to be selected from Building Standard.
44
<PAGE>
EXHIBIT "G"
================================================================================
LOAN AMORTIZATION SCHEDULE
================================================================================
Principal $171,900.00
Annual interest rate (nominal) 9.000%
Number of payments (Max. 360) 60
Number of composition per year 2.00
Residual Value 0.00
Monthly interest factor 0.7363%
Effective interest rate 0.2025%
Monthly payment 3664.67
<TABLE>
<CAPTION>
===================================================================================================================================
Payment Interest
Number Interest Principal Prepayment Balance Paid to Date
===================================================================================================================================
<S> <C> <C> <C> <C>
171,900.00
1 1,266.72 2,288.95 169,611.05 1,265.72
- -----------------------------------------------------------------------------------------------------------------------------------
2 1,248.87 2,305.80 167,305.24 2,514.59
- -----------------------------------------------------------------------------------------------------------------------------------
3 1,231.89 2,322.78 164,952.46 3,746.48
- -----------------------------------------------------------------------------------------------------------------------------------
4 1,214.79 2,339.88 162,642.58 4,961.27
- -----------------------------------------------------------------------------------------------------------------------------------
5 1,197.56 2,357.11 160,265.46 6,158.83
- -----------------------------------------------------------------------------------------------------------------------------------
6 1,180.20 2,374.47 157,910.99 7,339.03
- -----------------------------------------------------------------------------------------------------------------------------------
7 1,162.72 2,391.95 155,519.04 8,301.75
- -----------------------------------------------------------------------------------------------------------------------------------
8 1,145.11 2,409.56 153,109.47 9,646.86
- -----------------------------------------------------------------------------------------------------------------------------------
9 1,127.36 2,427.31 150,682.15 10,774.22
- -----------------------------------------------------------------------------------------------------------------------------------
10 1,109.49 2,445.18 148,236.97 11,883.71
- -----------------------------------------------------------------------------------------------------------------------------------
11 1,091.49 2,463.18 145,773.79 12,975.20
- -----------------------------------------------------------------------------------------------------------------------------------
12 1,073.35 2,481.32 143,292.47 14,048.55
- -----------------------------------------------------------------------------------------------------------------------------------
13 1,055.08 2,499.59 140,792.87 15,103.63
- -----------------------------------------------------------------------------------------------------------------------------------
14 1,036.68 2,517.99 138,274.83 16,140.31
- -----------------------------------------------------------------------------------------------------------------------------------
15 1,018.13 2,536.54 135,738.34 16,140.31
- -----------------------------------------------------------------------------------------------------------------------------------
16 999.46 2,555.21 133,163.12 18,157.90
- -----------------------------------------------------------------------------------------------------------------------------------
17 980.64 2,574.03 130,609.09 19,138.54
45
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
18 961.69 2,592.96 126,016.11 20,100.23
- -----------------------------------------------------------------------------------------------------------------------------------
19 942.60 2,612.07 125,404.03 21,042.83
- -----------------------------------------------------------------------------------------------------------------------------------
20 923.37 2,631.30 122,772.73 21,966.20
- -----------------------------------------------------------------------------------------------------------------------------------
21 903.99 2,660.68 120,122.05 22,870.19
- -----------------------------------------------------------------------------------------------------------------------------------
22 884.47 2,670.20 117,451.84 23,754.66
- -----------------------------------------------------------------------------------------------------------------------------------
23 864.81 2,689.86 114,761.95 24,619.47
- -----------------------------------------------------------------------------------------------------------------------------------
24 845.01 2,709.66 112,052.31 25,464.48
- -----------------------------------------------------------------------------------------------------------------------------------
25 825.05 2,729.62 109,572.98 27,094.49
- -----------------------------------------------------------------------------------------------------------------------------------
26 804.96 2,749.71 106,572.98 27,094.49
- -----------------------------------------------------------------------------------------------------------------------------------
27 784.71 2,769.96 103,803.01 27,879.20
- -----------------------------------------------------------------------------------------------------------------------------------
28 764.31 2,790.36 101,012.65 28,643.51
- -----------------------------------------------------------------------------------------------------------------------------------
29 743.77 2,810.90 98,210.75 29,367.28
- -----------------------------------------------------------------------------------------------------------------------------------
30 723.07 2,831.60 95,370.14 30,011.35
- -----------------------------------------------------------------------------------------------------------------------------------
31 702.22 2,852.45 92,517.69 30,812.57
- -----------------------------------------------------------------------------------------------------------------------------------
32 681.22 2,873.45 89,644.24 31,493.79
- -----------------------------------------------------------------------------------------------------------------------------------
33 660.06 2,894.61 86,749.62 32,153.85
- -----------------------------------------------------------------------------------------------------------------------------------
34 638.75 2,915.92 83,833.31 32,792.60
- -----------------------------------------------------------------------------------------------------------------------------------
35 617.26 2,937.39 80,896.31 33,409.88
- -----------------------------------------------------------------------------------------------------------------------------------
36 595.65 2,959.02 77,937.28 34,005.53
46
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
37 573.86 2,980.81 74,956.47 34,579.39
- -----------------------------------------------------------------------------------------------------------------------------------
38 551.91 3,002.76 71,953.71 35,131.30
- -----------------------------------------------------------------------------------------------------------------------------------
39 529.60 3,024.87 68,928.83 35,661.10
- -----------------------------------------------------------------------------------------------------------------------------------
40 507.53 3,047.14 65,881.69 36,168.63
- -----------------------------------------------------------------------------------------------------------------------------------
41 485.09 3,069.58 62,812.10 36,653.72
- -----------------------------------------------------------------------------------------------------------------------------------
42 462.49 3,092.15 59,719.92 37,116.21
- -----------------------------------------------------------------------------------------------------------------------------------
43 439.73 3,114.94 56,604.98 37,555.94
- -----------------------------------------------------------------------------------------------------------------------------------
44 416.79 3,137.88 53,467.09 37,972.73
- -----------------------------------------------------------------------------------------------------------------------------------
45 393.68 3,160.99 50,306.10 38,366.41
- -----------------------------------------------------------------------------------------------------------------------------------
46 370.41 3,184.26 47,121.84 38,736.41
- -----------------------------------------------------------------------------------------------------------------------------------
47 346.96 3,207.71 43,914.12 39,083.75
- -----------------------------------------------------------------------------------------------------------------------------------
48 323.35 3,231.32 40,682.80 39,407.13
- -----------------------------------------------------------------------------------------------------------------------------------
49 299.55 3,255.12 37,427.66 39,706.68
- -----------------------------------------------------------------------------------------------------------------------------------
50 275.68 3,279.09 34,148.58 39,982.26
- -----------------------------------------------------------------------------------------------------------------------------------
51 251.44 3,303.23 30,845.35 40,233.70
- -----------------------------------------------------------------------------------------------------------------------------------
52 227.12 3,327.55 27,517.60 40,460.82
- -----------------------------------------------------------------------------------------------------------------------------------
53 202.62 3,352.05 24,165.74 40,663.44
- -----------------------------------------------------------------------------------------------------------------------------------
54 177.94 3,376.73 20,789.01 40,841.38
- -----------------------------------------------------------------------------------------------------------------------------------
55 153.07 3,401.60 17,387.41 40,994.45
47
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
56 128.03 3,426.64 13,960.76 41,122.48
- -----------------------------------------------------------------------------------------------------------------------------------
57 102.79 3,451.88 10,506.66 41,255.27
- -----------------------------------------------------------------------------------------------------------------------------------
58 77.38 3,477.29 7,031.68 41,354.42
- -----------------------------------------------------------------------------------------------------------------------------------
59 51.77 3,502.90 3,528.68 41,380.40
- -----------------------------------------------------------------------------------------------------------------------------------
60 25.98 3,628.69 (0.01) 41,380.40
- -----------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A N/A N/A
===================================================================================================================================
</TABLE>
48
<PAGE>
FLOORING
Carpeting:
Standard 30 ounce cut pile glued down carpeting, anti-stain,
anti-static throughout leased area.
Base:
Building Standard 34" x 3-1/2" vinyl base throughout leased area.
CEILING
Building Standard 24" x 24" x 5/8" acoustical lay-in panel on mechanical
suspension grid system. Armstrong Natural Fissured #705A regular, white with
matching grid; 8'6" ceiling height.
FIRE SECURITY
Fire Sprinkler System:
Building Standard concealed CP recessed type sprinkler heads as per
code. Manuf. Viking, Grinnell, Automatic Sprinkler, Central.
Fire Security:
Approved fire alarm device wired to existing fire security system.
Audible sprinkler alarm.
ELECTRICAL
Lighting:
Building Standard 2'x4' (3) tube fluorescent lay-in light fixture with
parabolic lenses.
Receptacles and Switches:
As required per Commercial Code.
Telephone Conduits:
3/4" empty conduit stub-up to above ceiling.
ARCHITECTURAL DRAWINGS
This Workletter provides for the initial space planning plus one (1) revision;
and working drawings plus one (1) revision.
49
<PAGE>
CONSTRUCTION TIME
Construction time approximately sixty (60) to ninety (90) days from issue date
of Building Permit.
50
DAFS03...:\97\64897\0001\2058\LSE4168N.470
BNI, INC.
SOFTWARE LICENSE, SUPPORT AND USAGE AGREEMENT
Recitals
THIS AGREEMENT made this 14th day of February, 1997, by and between BNI,
INC., a Florida corporation, (hereinafter referred to as "BNI"), and PINNACLE
PORTFOLIO SERVICES LLC, a Delaware limited liability company (hereinafter
referred to as "customer"). BNI will (1) furnish Licensed Program to the
customer, (2) provide optional materials in support of such Licensed Program(s),
(3) grant the customer a non-transferable, exclusive license to use the program
and materials, (4) provide services as described herein.
Terms
1. Licensed Program. The term "Licensed Program" in this Agreement shall
mean a licensed data processing program as described on "Exhibit A" attached
hereto, as modified by the Agreed Changes (hereinafter defined), including,
without limitation, the System Documentation source codes for the Licensed
Program, and all related materials, documentation, manuals, suer documentation,
training materials and documentation provided by BNI with respect to such
Licensed Program. As used herein, the term "System Documentation" shall mean the
documentation with respect to the Licensed Program which is described on
"Exhibit A-1" attached hereto.
As used herein, the term "Agreed Changes shall mean the changes to the
computer program covered by this Agreement to be made by BNI which will (1)
customize the computer screen layouts to consolidate existing screens in BNI's
existing program as designated by customer, (2) provide queuing through the
computer program that is automated based on user parameters specified by
customer, (3) include credit scoring in the program provided by customer, (4)
include management reports designed by customer, (5) customize the original and
credit functions in the program to meet customer's specifications, and (6)
integrate the program with the NADA valuation computer program and database. As
soon as reasonably practicable after the execution and delivery of this
Agreement, BNI and customer agree to use commercially reasonable efforts to
formulate a written agreed-upon description of the changes which will need to be
made to BNI's existing computer program in order to implement each of the Agreed
Changes.
2. Confidentiality. Customer agrees to use commercially reasonable efforts
to keep confidential the written information provided by BNI with respect to the
Licensed
<PAGE>
Program. The term "Confidential Information" as used herein shall not include
information which (1) becomes generally available to the public as he result of
a disclosure by BNI, (2) was available to customer or any permitted party on a
non-confidential basis prior to its disclosure to customer by BNI, and (3)
becomes available to customer or any Permitted Party on a non-confidential basis
from a source other than BNI provided such source is not required to keep such
information confidential by law or confidentiality agreement with any other
disclosing party. Customer agrees that customer will not disclose such
confidential information to any third party except the following parties in
connection with the use of the Licensed Program: (a) beneficial owners,
partners, lenders, potential and current syndication investors, employees,
officers and directors of customer; National Auto Finance Company LLC ("NAFC")
or Auto Credit Clearinghouse LLC ("ACCH"); (b) accountants, auditors, rating
agencies and government regulatory agencies; (c) political purchasers of, or
merge candidates with, customer or any of its affiliates; and (d) the agents,
representatives, attorneys, accountants, financial advisors and other
professional advisors and consultants of any of the Persons listed in clauses
(a), (b) and (c); ([a], [b], [c], and [d], individually, a "Permitted Party" and
collectively the "Permitted Parties"). Any other parties, the customer will need
written consent by BNI for disseminating confidential information. Further, any
information requested for Permitted Parties concerning the technical
documentation specifically, but not limited to System Documentation, system
specifications and source code must have BNI's written consent which will not be
unreasonably withheld.
Customer and each Permitted party may disclose only Confidential
Information as required by law. Should customer be served with any subpoena or
other court order which requires the disclosure of any of the Confidential
Information, customer shall promptly deliver written notice of same to BNI.
Customer will not reveal any part of the Confidential Information until customer
has notified BNI in writing and BNI has had a reasonable time to seek, if it so
chooses, a protective order to prevent or limit disclosure of the Confidential
Information.
3. Term of Agreement. This Agreement shall become effective on the date
signed by BNI. This Agreement is for a term beginning with the effective date,
and continues for ninety-nine (99) years from the effective date.
4. Title: Title to the Licensed Program(s), shall at all times remain with
BNI during and after the termination of this Agreement. The customer acquires no
property rights to the Licensed Program(s) which shall at all times remain with
BNI. BNI grants the customer a non-exclusive and non-transferable license to use
the Licensed Program(s).
2
<PAGE>
5. Use of System. The customer acknowledges that the Licensed Program(s)
are owned by BNI and constitute a valuable asset and trade secret of BNI, (and
that any information with respect thereto, is confidential). Accordingly, the
customer agrees as follows:
(a) Subject to the provisions of Section 5(b), the Licensed
Program(s) may be used in multiple locations by customer provided that
customer shall provide BNI with prior written notice of the location of
each site in which such program(s) are being used. Notwithstanding the
multiple location sites, customer agrees that all support obligations of
BNI with respect to the Licensed Program(s) shall be required and received
from one site designated by the custome, which site may be changed by
customer from time to time by giving seven (7) days' written notice to
BNI. See attached "Exhibit B" as to current location. This restriction
shall not prohibit the customer from moving the location so long as the
customer gives prior seven (7) days' written notice to BNI (except in a
bona fide emergency relocation). An additional support fee is required for
the BNI support service to be provided by BNI to an additional entity such
as a parent, subsidiary or 50% controlled entity of customer, if
applicable, except that (1) NAFC and (2) ACCH shall be entitled to use the
Licensed Program without the payment of any additional fees, subject
however to the provisions of this Section 5(a).
(b) Notwithstanding anything to the contrary in this Agreement, (1)
in the event customer elects to offer customer's data processing services
to NAFC and ACCH pursuant to terms acceptable to customer, and NAFC and
ACCH accept such offer pursuant to a written agreement by and among
customer, NAFC and ACCH (such agreement, the "Sublicense Agreement"),
then, NAFC and ACCH shall have the right, without the prior written
consent of BNI, to use the Licensed Program(s) and receive all of the
benefits and services under this Agreement, without the payment of an
additional license fee or an additional annual support fee; and (2)
customer shall be entitled to use, employ and utilize all or any portion
of the Licensed Program to provide, in exchange for fees and other
compensation which shall not be shared by, or paid to, BNI in any way, all
manner of services to any entity and/or any of their respective portfolios
or assets, including, without limitation, origination services, servicing
services, collection services, securitization related services or
otherwise.
(c) In the event of a Sale of the Business (hereinafter defined),
merger, corporate restructuring, or consolidation (collectively, a "Major
Transaction") of the customer and the new customer or surviving customer
(in the case of the Sale of the Business) desires to continue to use the
Licensed Program, then, the surviving entity
3
<PAGE>
or purchaser, as the case may be, shall execute and deliver to BNI an
agreement in substantially the form of this Agreement on or before thirty
(30) days after such Major Transaction. In the event that such entity or
purchaser does not desire to execute and deliver such new agreement, then,
on or before the expiration of such 30-day period, such entity or
purchaser, as the case may be, shall send written notice to BNI that such
entity or purchaser, as the case may be, desire to terminate this
Agreement, in which case the terms of Section 8 shall apply for all
purposes. Customer shall not be required to obtain the consent of BNI in
connection with any Major Transaction involving customer. As used herein,
the term "Sale of the Business" shall mean the collective reference to the
sale or other disposition of all or substantially all of the assets or
ownership interests of the entity in question.
(d) Except as set forth in this Section 5(d), no transfer fee,
additional or increased support and usage fee, or other payment shall be
required in connection with a Major Transaction involving customer and/or
NAFC or their respective successors and assigns.
(1) In the event that, at any time during the term of this
Agreement, 51% of both NAFC and customer is not owned by the same
beneficial owner group, then, the entity that is transferred shall be
obligated to pay to BNI a one-time transfer fee of $375,000 on or before
30 days after the closing of such transaction. Such transferred entity
shall execute and deliver an agreement with BNI substantially similar to
this Agreement which shall govern the use of the Licensed Program by such
transferred entity. Thereafter, both entities shall be obligated to pay
support payments to BNI under their separate agreements with BNI, in the
event that such entities elect to continue to utilize BNI's support
services with respect to the Licensed Program. No additional transfer fees
or other payments shall be payable by either customer or NAFC (or their
respective successors and assigns) in connection with any subsequent Major
Transactions involving either customer or NAFC (or their respective
successors and assigns), so long as in each such transaction, the "selling
entity" transfers to the "purchasing entity" all of the rights to use the
Licensed Program(s) following the consummation of such Major Transaction
and the "selling entity" does not retain any such rights to use the
Licensed Program.
(2) No transfer fee shall be payable to BNI if (1) 51% or more
of either customer or NAFC is sold to the other party or (2) 51% or more
of both NAFC and customer is sold to the same beneficial owner group. See
Addendum attached hereto.
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(e) The customer agrees with respect to the Licensed Program(s),
that the customer has examined the program(s), and the customer has
approved its selection to achieve the customer's intended results, and its
use and the program(s), are suitable for and fit customer's intended use.
Subject to warranties of BNI set forth in Section 6, the customer further
accepts responsibility for its selection of the Licensed Program.
(f) BNI acknowledges that the customer is a newly formed legal
entity. The customer agrees that at least 51% of the ownership of both
NAFC and customer is held by the same beneficial owners as of the date
hereof. See Addendum attached hereto.
6. Customer Satisfaction Guarantee. For a period of ninety (90) days after
the Production Environment Date (hereinafter defined), BNI represents and
warrants to customer (and, if applicable, NAFC and ACCH) that the Licensed
Program(s) shall perform in the manner described in the System Documentation
(hereinafter defined), as amended by the Agreed Changes (hereinafter defined).
For the entire term of this Agreement, BNI hereby represents, warrants and
covenants with customer and, if applicable, NAFC and ACCH as follows: (1) BNI is
the owner of 100% of the rights, titles and interest in and to the Licensed
Program(s); (2) BNI is not, in any way, prohibited from granting any of the
rights to customer which are set forth in this Agreement with respect to the
Licensed Program; (3) this Agreement constitutes a legal, valid and binding
obligation of BNI enforceable in accordance with its terms, and the execution
and delivery of and performance under this Agreement are within BNI's powers and
have been duly authorized by all requisite corporate action, (4) there is no
pending or, to the knowledge of BNI, threatened litigation by or against BNI,
any director, officer or shareholder of BNI which could adversely affect title
to the Licensed Program(s) or any part thereof or the ability of BNI to perform
its obligations hereunder; (5) no consent or approval of any entity or of any
governmental agency or authority is required with respect to the execution and
delivery of this Agreement by BNI or the consummation by BNI of the transactions
contemplated hereby or the performance by BNI of its obligations hereunder, and
(6) all of the information, reports, correspondence and other documentation
generated or created by Licensed Program complies and shall comply with all
federal and state laws, rules and regulations related thereto which are then in
effect, including without limitation, Truth in Lending Laws and regulations,
usury laws, consumer credit laws, installment sales laws, state and federal fair
debt collection laws. Each of the representations and warranties of BNI which
are set forth in clauses (1) through and including (6) shall continue in full
force and effect until the termination of the term of this Agreement, provided
however, that the
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representation and warranty set forth in clause (6) shall apply to the time
period covered by BNI updated information which has been provided by BNI. For
instance, if BNI has provided to customer the 1997 updated information,
including legal updated information, to the Licensed Program, but not the 1998
updated information because customer had elected not to continue such support by
BNI and not to purchase such updated information, then BNI would not be
responsible for any change in the law after termination of the support services.
As used herein, the term "Production Environment Date" shall mean the date
that customer is performing its day to day operations, including, if applicable,
servicing the existing portfolio of NAFC and ACCH, at one location, pursuant to
the Sublicense Agreement on the Licensed Program(s) (which "existing portfolio"
shall not include the portfolios of NAFC and ACCH which are presently being
serviced by World Omni unless customer timely elects to accomplish the
conversion described in Section 16(a) with the assistance of BNI personnel),
without any major interruptions caused by the Licensed Program(s) not working
according to System Documentation as amended by the Agreed Changes. It is agreed
that BNI and customer shall use their respective commercially reasonable efforts
to achieve the "production Environment Date" as soon as reasonably practicable
after the execution and delivery of this Agreement by customer and BNI. The
"Production Environment Date", however, will not be extended further than one
hundred twenty (120) days from the date of delivery of the Licensed Program(s)
unless agreed to in writing by both parties.
THE EXPRESSED WARRANTIES CONTAINED IN THIS AGREEMENT CONSTITUTE THE ONLY
WARRANTIES MADE BY BNI, EITHER EXPRESSED OR IMPLIED,WITH RESPECT TO THE LICENSED
PROGRAM(S) AND THE SERVICE PERFORMED BY BNI HEREUNDER. THERE ARE NO OTHER
WARRANTIES, EXPRESSED OR IMPLIED, WHICH EXTEND BEYOND THE FACE HEREOF, INCLUDING
ANY OTHER IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. IN NO EVENT SHALL BNI BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
7. Customer Obligations. The customer's basic commitments and obligations
pursuant to this Agreement, in addition to payment charges as set forth in
Section 17 include the following:
(a) The customer will designate a responsible person, reasonably
acceptable to BNI, to represent customer and help coordinate customer'
personnel during the
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installation period and thereafter. Customer may replace such person by
giving written notice to BNI, subject to BNI's reasonable approval.
(b) The customer will ensure that all payments and charges billed by
BNI will be paid timely.
8. Termination. In the event this Agreement is terminated by BNI following
the occurrence of an event of default by customer, then, on the effective date
of such terminations set forth in Section 10, customer shall promptly return the
Licensed Program(s) and any related documentation provided by BNI to BNI and
shall cease to use such Licensed Program.
After customer has paid the one-time license fee for the Licensed Program,
in accordance with Section 17, then the customer shall have the right to
terminate this Agreement at any time, for any reasons or for no reason by giving
written notice of termination by BNI. However, any provide ongoing technical
support and services and shall not require customer (and, if applicable, NAFC
and ACCH) to return the Licensed Program provided by BNI to BNI and shall not
required customer (and if applicable, NAFC and ACCH) to cease to use such
Licensed Program.
9. BNI'S Obligations. BNI's basic commitments and obligations to this
Agreement, in addition to the express warranties and representations set forth
in Section 6, include the following:
(a) BNI will designate a responsible person, reasonable acceptable
to customer to represent BNI and coordinate BNI's personnel during the
installation period and thereafter. BNI may replace its person by giving
written notice to customer, subject to customer's reasonable approval.
(b) BNI shall use its commercially reasonable efforts to achieve the
Production Environment Date as soon as reasonably practicable.
(c) To the extent requested by customer from time to time BNI shall
use its commercially reasonable efforts to provide ongoing technical and
user support services with respect to the Licensed Program(s) including
all enhancements and improvements thereto.
(d) BNI shall provide improvements to the Licensed Programs it deems
necessary to maintain competitive marketability for the licensed products
and to assist
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customer in complying with federal and state regulations applicable to the
data used in the Licensed programs. There is no additional cost for such
enhancements if customer is still maintaining the annual support. However,
if the customer is not receiving the annual support and usage, then no
additional enhancements will be forthcoming and if the law changes after
the expiration of the support regarding the Licensed Programs(s), the
warranties shall expire as to those specific affected areas of the law
which have changed since the last such legal update enhancement. For each
twelve (12) month period in which customer has paid the applicable support
and usage fee, BNI shall provide to customer, without additional charge,
the necessary database information in diskette form to update the Licensed
Program to conform the Licensed Program to changes in state and federal
laws and regulations enacted or in effect since the last such update.
10. Default. Each of the following events shall constitute an "event of
default" under this Agreement.
(a) The failure of customer to make any required payments under this
Agreement, as the same shall become due and payable; provided that such
failure continues after the expiration of thirty (3) days after receipt by
customer of written notice and demand for payment by BNI;
(b) The failure of either party to timely and promptly observe, keep
or perform any covenant, agreement, warranty or condition therein required
but not to be reserved, kept or performed, if such failure continues for
thirty (3) days after receipt by such breaching party of written notice
and demand for the performance of such covenant, agreement, warranty or
condition by the non-breaching party; or
(c) Any representation or warranty contained in this Agreement made
by BNI to customer is determined to be false and/or misleading in any
material respect;
Upon the occurrence of an event of default by customer, BNI shall be entitled to
terminate this Agreement by giving written notice of termination to customer,
which termination shall be effective for all purposes sixty (60) days after the
date such written notice is received by customer. Customer agrees upon the
occurrence of any actual or threatened breach by customer of the restrictions
upon the use, sale, transfer, or disclosure of the Licensed Programs(s), that
BNI will suffer irreparable harm, that monetary damages alone shall not be
sufficient remedy of protection for BNI, and that BNI shall be entitled to such
injunctive or other equitable relief as may be deemed proper or necessary by a
court of competent jurisdiction.
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11. Limitation of Liability. BNI shall not be liable to any entity other
than customer for the failure of BNI to fulfill its obligations under this
Agreement. Customer shall not be liable to any entity, other than BNI, for the
failure of customer to fulfill its obligations under this Agreement. The
liability of BNI under this Agreement shall be limited to the actual damages
incurred by customer caused by the breach of BNI of its obligations under this
Agreement, not to exceed the sum of (1) three times the total amount of one-time
license fee paid by customer, to BNI under this Agreement, plus (2) any and all
attorney fees and expenses or other collection costs incurred by customer to
collect the amounts owing by BNI to customer. The liability of customer under
this Agreement shall be limited to the actual damages incurred by BNI caused by
a breach by the customer of its obligations under this Agreement, not to exceed
the sum of (1) three times the total amount of one-time license fee payable
under this Agreement, plus (2) any and all attorney fees and expenses and other
collection costs incurred by BNI to collect the amounts owing by customer to BNI
under this Agreement. BNI has no liability to any party other than customer
arising out of customer's use of BNI material under this Agreement. BNI has no
liability to any party, if the customer or authorized user does not use the
Licensed Program according to System Documentation as amended by the Agreed
Changes. BNI makes no warranties, either expressed or implied, with respect to
the Licensed Program(s) except as set forth herein. (This limitation of
liability provision shall only apply in regards to the customer, if the original
one-time license fee has been paid in full).
12. Expenses and Cost of Collection. BNI shall have the right to collect
from customer reasonable expenses, specifically including, but not limited to
attorney's fees and costs incurred in enforcing the collection of charges,
taxes, or any other sums payable hereunder, or in connection with the
enforcement by BNI of its rights or remedies, hereunder. No failure of BNI to
demand, when due, any installment, tax or fees, shall be deemed as a waiver by
BNI of reasonable expenses, specifically including, but not limited to
attorney's fees and costs incurred in enforcing the performance of BNI of its
obligations under this Agreement or in connection with the enforcement by
customer of its rights or remedies, hereunder.
13. Execution. This Agreement shall not be binding until it is executed by
BNI and customer.
14. Entire and Separate Agreement Changes. This Agreement contains the
entire agreement between parties, and may not be altered, amended, modified, or
otherwise changed nor may the printed form of this Agreement be modified, except
in writing, and signed by an authorized officer of BNI and customer.
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15. Patent and Copyright. BNI agrees to defend, indemnify, and hold
harmless, the customer, NAFC, ACCH, customer's parent, subsidiary and/or fifty
percent (50% controlled persons or entities (collectively, the "Indemnified
Parties") from and against any loss, claim, damages, and costs (including
attorney's fees), arising out of any action against any of the Indemnified
Parties asserting a claim that such Indemnified Party's use of the Licensed
Program as contemplated by this Agreement infringes any patent, copyright,
tradename, trade secret, or other property right held by another party.
16. General. This Agreement shall be governed and construed in accordance
with the laws of the State of Florida.
17. Investment:
Total Annual
(a) Total Licensed One-Time Diskette Support
Program Description License Fee and Usage Fee Size/Type Required
Full System including 3.5" __________
Origination Servicing, 5.25"__________
Collections and Securitization HD ____________
$750,000.00 $112,500.00 LD ___________
Payments:
- $200,00 at contract signing - $80,000 per month for three (3) months.
- $80,000 on the date that the Licensed Program is delivered and
installed in accordance with the Licensed Program documentation as
amended by the additional changes.
- $230,000 on the Production Environment Date.
In the event that Sublicense Agreement is executed and delivered and customer
elects under such agreement to provide all of the servicing that World Omni
currently provides to NAFC and ACCH, then, BNI shall charge customer a $90.00
per hour per BNI employee charge, plus normal out-of-pocket expenses, to convert
all of the data presently processed by World Omni for NAFC and ACCH to
customer's computer data processing system. BNI shall give customer ten (10)
days written notice of the last date in which customer may elect to include such
conversion the determination of the "Production Environment Date." In the event
customer elects to accomplish such conversion within such 10-day period, then
the conversion of the NAFC and ACCH data processed by World Omni shall be
included in the
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determination of the "day to day operations" of customer for the purposes of
determining when the "Production Environment Date" occurs.
(b) The "implementation/training period" is defined as the time
between when the Licensed Program is installed and functioning according
to the System Documentation as amended by the Agreed Changes at customer's
designated location and when customer has formally accepted the initial
installation of the Licensed Program(s). All agreed-up modifications will
have been made and tested prior to the Licensed Program being installed at
customer's location, once the Licensed Program is installed, the customer
has five (5) working days to identify any discrepancies in the Licensed
Program. If such discrepancies are found, BNI shall promptly correct such
discrepancies and a new 5 (five) working day test period shall commence.
This procedure shall continue until no discrepancies in the Licensed
Program occur during a 5-working day testing period. At the expiration of
a 5-working day period without the occurrence of any discrepancies, then,
the "implementation/training period: shall commence. No $90.00 per hour
implementation/training fees shall accrue or be payable by customer to
BNI, as described in Section 17(a) until after the
"implementation/training period" commences.
(c) BNI shall provide the necessary staff to implement/train, at one
location, the employee(s) of customer, NAFC and ACCH to use the Licensed
Program. Customer agrees to provide trainable employees. BNI shall
receive, as compensation for such implementation/training, a fee of $90.00
per hour per BNI employee for each hour of implementation/training
conducted by BNI plus normal out-of-pocket expenses. The
implementation/training fees shall be payable at the end of every two (2)
calendar weeks upon receipt from BNI of an invoice of such
implementation/training hours. BNI agrees that the implementation/training
process shall not be complete until BNI delivers to customer the System
Documentation for each user at a reasonable fee per manual cost (15 copies
are included in the initial cost) which sets forth the procedure for
workflow and procedures for each available function for each computer
screen in such Licensed Program. Further, the customer must accept in
writing the Licensed Program as contemplated in Section 17(b).
(d) BNI agrees to maintain a rate of $90.00 per hour, subject to an
annual rate change as described in Section 17(g), plus normal
out-of-pocket expenses, for providing computer programming services
requested by customer (in addition to the periodic enhancements and
updates provided by BNI under this Agreement for no additional charge) to
the Licensed Program. These are billed every two (2) weeks and are payable
upon receipt.
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(e) The initial annual support and usage fee is payable ninety (90)
days after the Production Environment Date for the following twelve (12)
month period. The end of the initial twelve (12) month period is the
support anniversary date.
(f) If the customer elects such support service for any subsequent
calendar year, the applicable support usage fee shall be payable in four
(4) equal installments on a quarterly basis during such twelve-month
period.
(g) On the support anniversary date, BNI shall be entitled to adjust
each subsequent twelve (12) month support, usage fee and hourly rate
charged for modification and/or enhancements to the Licensed Program, to
the lesser of ten percent (10%) or the change in the Consumer Price Index.
This increase shall be announced by BNI on or before one hundred twenty
(120) days prior to the applicable support anniversary date.
18. Charges, Applicable Taxes, and Other Fees: In addition to the charges
due under this Agreement, the customer agrees to pay any property, sales, use,
and/or, excise taxes or other similar taxes which are assessed or payable on
account of this Agreement, any.
19. Support and Usage Fee: For the term of this Agreement, BNI will
provide on-going technical and user support services, including all enhancements
to the License Program(s) described herein. On or before ninety (90) days prior
to each support anniversary date, customer shall give written notice to BNI as
to whether customer desires to receive BNI support services for the following
twelve (12) month period. In the event that customer requests such support in
writing, BNI shall provide such support services at customer's request for such
twelve (12) month period. BNI shall be obligated to offer such support services
in any twelve (12) month period in which customer requests such support and
customer shall be entitled to not request such support in a particular twelve
(12) month period or periods and request such support in subsequent periods. In
the event customer fails to request such support for any time period, customer
shall retain the rights to use the Licensed Program(s) without obligation to pay
any usage, fees, royalties, or fees or other payments to BNI and all warranties,
either expressed or implied, shall cease upon the expiration of the current
support term and any unauthorized modifications to the Licensed Program will
cancel all warranties either expressed or implied with the exception of Section
6 concerning legal updates. If customer subsequently elects to license the
enhancements to the Licensed Program(s), the customer acknowledges that these
updates and/or enhancements may produce inaccurate results if the Licensed
Program(s) have been modified. In the event that customer elects not to use
BNI's support services for any 12 month period pursuant to
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Section 19, then, customer shall have the right and option to purchase the
enhancements and updated information for the Licensed Program for such 12 month
period at a price reasonably acceptable to BNI and customer.
The policy of BNI is to provide improvements to maintain competitive
marketability of its products, and to asset customer in its duty to comply with
appropriate governmental regulations applicable to the data used in the Licensed
Program(s). BNI, therefore, reserves the right to make such changes in the
Licensed Program(s), as it deems appropriate. As part of its services,
hereunder, BNI will provide the customer with the program diskettes and
documentation changes, resulting from the foregoing "Systems Releases."
20. No Conflicting Engagement or Activity. BNI will have necessary
personnel and resources available for the customer to properly install and
implement the Licensed Program. BNI agrees not to exceed at any time, four (4)
installation projects of the Licensed Program(s) at customer's sites until (a)
the Production Environment Date has occurred; or (b) customer has otherwise
consented in writing to any additional projects by BNI or by any affiliate of
BNI.
21. Performance Standards for BNI Support: On or before the occurrence of
the Production Environment Date, BNI and customer agree to establish performance
criteria for BNI, response times for BNI and monetary fines payable by BNI for
certain specified failures with respect to the Licensed Program in connection
with the support services to be produced by BNI under this Agreement.
Notwithstanding anything to the contrary set forth in this Agreement, BNI agrees
that 50% of the initial support and usage fee of $112,500.00 shall not be
payable by customer to BNI until such written criteria, response times and fines
have been agreed to by BNI and customer. BNI covenants and agrees to comply with
such criteria, response times and fines which are set forth in a written
agreement by BNI and customer.
22. Proprietary Customer Enhancement to Licensed Program:
(a) Notwithstanding anything to the contrary set forth in this
Agreement, BNI acknowledges and agrees that changes requested by customer
to existing software programs owned by BNI deemed to be unique by both BNI
and customer, in writing, shall constitute the sole and exclusive
property, valuable asset and trade secret of customer.
(b) BNI agrees to use commercially reasonable efforts to keep
confidential the unique enhancements that are the property of customer
with respect to the
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Licensed Program. The term "Confidential Information" as used herein shall
not include information which (1) becomes generally available to the
public as the result of a disclosure by customer, (2) was available to BNI
or any permitted party on a non-confidential basis prior to its disclosure
to BNI by customer, and (3) becomes available to BNI on a non-confidential
basis from a source other than customer provided such source is not
required to keep such information confidential by law or confidentiality
agreement with any other disclosing party. BNI agrees that BNI will not
disclose such confidential information to any third party except the
following parties in connection with the use of the Licensed Program: (a)
beneficial owners, partners, lenders, employees, officers and directors of
BNI, (b) accountants, governmental regulatory agencies and attorneys. ([a]
and [b] are the "Permitted Parties".) Any other parties, then BNI will
need written consent by customer for disseminating confidential
information.
(c) In the event that customer elects to sell all or any portion of
the Customer Enhancements, customer shall given written notice to BNI and
a first right of opportunity to purchase such change, the "Customer
Enhancements" for the price designated by customer which right must be
exercised on or before ten (10) days after written notice is received by
BNI. In the event that BNI fails to exercise such right, customer shall be
entitled to sell such Customer Enhancements at a price which is equal to
or greater than the designated price. In the event that customer desires
to sell such Customer Enhancements for a price which is less than the
designated price, then, customer shall given such ten (10) day right of
first opportunity to BNI with respect to such new designated price.
BNI AND CUSTOMER ACKNOWLEDGES THAT HE OR SHE HAS READ AND
UNDERSTANDS THIS AGREEMENT AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS.
PINNACLE PORTFOLIO SERVICES LLC BNI, INC.
By: By:
Robert W. Barron J. D. _____________
Its: Managing Member Its: President
Date: 2/14/97 Date: 2/19/97
14
FIRST AMENDMENT TO SOFTWARE
LICENSE, SUPPORT AND USAGE AGREEMENT
This Agreement (the "Agreement") is entered into by and among PINNACLE
PORTFOLIO SERVICES LLC ("Pinnacle"), BNI, INC. ("BNI") and NATIONAL AUTO
FINANCE COMPANY INC. ("NAFI") as of the 15th day of December, 1997.
RECITALS
A. Reference is hereby made to that certain BNI, Inc. Software License,
Support and Usage Agreement dated February 14, 1997 (the "BNI Agreement") by and
between BNI and Pinnacle, whereby BNI granted to Pinnacle a nonexclusive and
perpetual license and right to use the CLASS Licensed Program as set forth in
such agreement. The parties acknowledge that NAFI has been granted a sublicense
by Pinnacle to the software program(s) covered by the BNI Agreement (the "NAFI
Sublicense") as contemplated by such BNI Agreement and that this letter
agreement is being executed in connection with the BNI Agreement and the NAFI
Sublicense. As used in this Agreement, all references to "NAFI" shall mean the
collective reference to NAFI and its division, Auto Credit Clearinghouse or
ACCH. Each capitalized term which is used but not defined in this Agreement
shall have the meaning set forth in the BNI Agreement.
B. The parties to the BNI Agreement contemplated that BNI would deliver
the Licensed Program, written in Visual FoxPro 5.0 using Microsoft SQL Server
6.5 Relational
Database as its database. However, BNI has proposed that BNI make two deliveries
and two installations to NAFI, (1) the first delivery and installation is the
CLASS Licensed Program written in Visual FoxPro 5.0 using Visual FoxPro 5.0 as
its database and (2) the second delivery and installation is the CLASS Licensed
Program written in Visual FoxPro 5.0 using Microsoft SQL Server 6.5 Relational
Database as its database. Since the original BNI Agreement contemplated only the
Visual FoxPro 5.0 using the SQL Server 6.5 Database, the parties desire to amend
the BNI Agreement with respect to the two versions of the Licensed Program. In
addition, the parties desire to make certain other amendments to the BNI
Agreement as set forth herein.
Now Therefore, in consideration of the mutual premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Definitions.
a. Licensed Program. As used in the BNI Agreement and this
Agreement, the term "Licensed Program" shall mean the BNI C.L.A.S.S. computer
program, which is the "Licensed Program" (as such term is defined in the BNI
Agreement), as modified by the "Agreed Changes"
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(as such term is defined in the BNI Agreement, including the items set forth on
Exhibit A attached hereto) (I) utilizing FoxPro 5.0 as the graphic user
interface programming language and (A) utilizing Visual FoxPro 5.0 as its
database ("FoxPro 5.0 Language") or (B) utilizing Microsoft SQL Server 6.5
Relational Database as its database ("FoxPro/SQL Language") and (II) in each
case, containing the following eight modules (each a "CLASS Module"): (i) System
Administration, (ii) New Application Processing, (iii) Contract Processing, (iv)
New Loan Bookings, (v) Loan Processing, (vi) Collections, (vii) Securitizations,
and (viii) Portfolio Acquisition Bookings, plus (a) the programming interface
between the Licensed Program (with BNI being entitled to charge separately for
such programming as set forth in Paragraph 4.c.(iii)) and installed separately
by NAFI) (the "SQL Financial Interface"). The Licensed Program, as written in
the FoxPro 5.0 Language, shall be referred to as the "FoxPro 5.0 Program." The
Licensed Program, as written in the Fox/SQL Language, shall be referred to as
the "Fox/SQL Program."
b. Agreed Changes and Project Schedule . BNI and NAFI have formulated a
written agreed-upon description of the changes which will need to be made to
BNI's existing CLASS program in order to implement the "Agreed Changes" as
contemplated by Section 1 of the BNI Agreement. Attached hereto as Exhibit A is
the "BNI MASTER SCHEDULE" (herein so called) which has been prepared by BNI and
approved by NAFI and which sets forth a short form description of each "Agreed
Change", the priority for the completion of such date (which priorities are set
forth as Priority A, B or C, with Priority A being the first changes to be
completed, etc.), scheduled start date by BNI and scheduled finish date by BNI
for each such Agreed Change. In addition, the BNI Master Schedule also
constitutes a project schedule prepared by BNI which sets the time schedule of
BNI to perform BNI's obligations which are set forth in the BNI Agreement, as
amended by this Agreement in accordance with the deadlines set forth in this
Agreement. Any requested changes, amendments or time extensions to any portion
of the BNI Master Schedule must be approved in writing by NAFI. To the extent a
conflict exists between the terms of the BNI Master Schedule and this Agreement,
the terms of this Agreement shall govern and control for all purposes.
d. Implementation Plan. The parties agree that an IMPLEMENTATION PLAN
(herein so called) will be prepared and agreed to in writing by BNI and NAFI
which sets forth the implementation plan and training program with respect to
the Licensed Program. To the extent a conflict exists between the terms of the
Implementation Plan and this Agreement, the terms of this Agreement shall govern
and control for all purposes.
e. Out of Pocket Expenses. As used in the BNI Agreement and this
Agreement, the term "OUT-OF-POCKET EXPENSES" (herein so called) shall mean
travel expenses, room and board expenses and other reasonable expenses incurred
by BNI from third parties in connection with the performance of the specific
BNI's duty in question in accordance with the terms of the BNI Agreement, as
amended hereby; provided however that BNI shall be required to obtain the prior
written consent of NAFI for any out-of-pocket expense (other than travel and
room and board
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expenses) in excess of $500 for any one item and provided further that BNI shall
not retain or purchase services from a third party subcontracting, consulting,
computer programming or other firm to be billed to NAFI as an "out-pocket
expense" without the prior written consent of NAFI. "Out of pocket expenses"
shall not include any per hour charge or cost incurred by BNI with respect to
any employee, consultant or contractor providing services to BNI or NAFI. BNI
shall bill NAFI, utilizing a detailed billing format, for any out-of-pocket
expenses every two weeks for expenses incurred by BNI during the previous two
week period.
f. Acceptable Response Times. As used herein, the term "ACCEPTABLE
RESPONSE TIME" shall mean a performance standard measured by a 3 to 5 seconds or
better response time for each system action initiated by a user of the Licensed
Program.
2. BNI Duties, Response Time and Personnel - Completion of BNI Master
Schedule Projects.
a. BNI agrees that James D. Rustin shall devote substantially all of
his business time with NAFI during all phases of BNI's obligations as described
in Paragraphs 3, 4, 5, 6, 7 and 8 of this Agreement and BNI will cause James
McAuliffe, Michael Schwaid, Rodney Langston and Fred McLean or their respective
replacements if such individual(s) cease to be employed by BNI (each, a "BNI
Team Member") for the CLASS Module related to such BNI Team Member to devote
substantially all of their respective business time AS AND WHEN NEEDED DURING
SUCH TIME PERIOD WITH RESPECT TO THE CLASS MODULE IN QUESTION in order to ensure
a successful and complete performance of BNI's obligations under Paragraphs 3,
4, 5, 6, 7 and 8 of this Agreement. During the performance of BNI's obligations
as set forth in Paragraphs 3, 4, 5, 6, 7 and 8 of this Agreement, BNI agrees to
respond to any discrepancy in the Licensed Program within one hour of a NAFI
personnel telephone call with respect to such discrepancy. In the event such
discrepancy cannot be solved by BNI personnel from BNI's offices, then, BNI
agrees to make the responsible BNI Team Member available at NAFI's offices in
Jacksonville, at BNI's cost (except as otherwise set forth in Paragraphs 3, 4,
5, 6, 7 and 8 of this Agreement), in order to resolve such discrepancy as soon
as practicable.
b. BNI covenants and agrees to perform each of the projects set forth
in the BNI Master Schedule in accordance with the time schedule and the other
terms and provision of the BNI Master Schedule for each such project as set
forth in such BNI Master Schedule.
3. NAFI Project Manager. BNI acknowledges that NAFI has retained Dronen
Consulting, Incorporated, d/b/a DC Systems Consulting (the "DCS") to act as
NAFI's project manager with respect to the Licensed Program and the BNI
Agreement. In no event shall DCS have any right or power to legally bind NAFI in
any way whatsoever. BNI agrees to work with DCS as NAFI's project manager in
connection with the services to be provided by BNI under the BNI Agreement, as
amended hereby. NAFI shall be responsible for any breach by DCS of Section 2 of
the BNI Agreement with respect to confidentiality. BNI agrees that DCS is a
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"Permitted Party" as defined in Section 2 of the BNI Agreement. BNI agrees to
provide to NAFI weekly written status reports that reflect the work that has
been accomplished by BNI for such week and any areas of concern, together with a
reconciliation report by BNI of the progress of the work with the time schedule
set forth in the BNI Project Schedule (such reports, the "WEEKLY BNI REPORTS") .
BNI agrees to provide NAFI or DCS with sufficient information, reasonably
acceptable to NAFI, in order that NAFI may verify the progress of BNI's work
product on a weekly basis.
4. Delivery and Installation of FoxPro 5.0.
a. Conversion of World Omni Test Data for Testing of FoxPro 5.0
Program. On or before DECEMBER 22, 1997, BNI shall have completed the conversion
test of the September 30th Month End NAFI data furnished by World Omni and shall
have made any necessary changes or modifications to the FoxPro 5.0 Program in
order that (i) the NAFI/World Omni data is fully integrated, (ii) the FoxPro 5.0
Program reports the same results in all categories and in all CLASS Modules as
the results reported by World Omni for such data for the particular data which
was received by BNI from World Omni and (iii) all of the features and
functionalities of the FoxPro 5.0 Program are fully operational, with only minor
or insignificant failures or defects, with respect to those features which are
to be completed and incorporated into the Licensed Program as of December 22,
1997 as set forth in the BNI Master Schedule (such successful test, the "FoxPro
5.0 Data Conversion Tests"). Pursuant to Section 17(a) of the BNI Agreement,
NAFI shall pay BNI $90.00 per hour per BNI employee, plus normal out-of-pocket
expenses to convert all of the World Omni data. BNI shall bill NAFI, in a
detailed billing report, every two weeks for such World Omni conversion hourly
charges and expenses. Notwithstanding anything to the contrary in this Agreement
or otherwise, BNI shall not be responsible for validating the World Omni data
which is being converted by BNI.
b. Installation of Five Modules. On or before DECEMBER 8, 1997, BNI
shall deliver, install and configure on NAFI's hardware in Jacksonville, Florida
the FoxPro 5.0 Program (other than the New Application Processing, Contract
Processing, New Loan Bookings Module and Portfolio Acquisition Bookings Module).
On or before DECEMBER 29, 1997, BNI shall deliver to NAFI accurate and complete
user documentation manuals for each Module that is being delivered by BNI (such
documentation, the "USER DOCUMENTATION MANUALS"). Notwithstanding anything to
the contrary set forth in the BNI Agreement, NAFI shall reimburse BNI for the
reasonable out-of-pocket expenses incurred by BNI in connection with the
installation of the FoxPro 5.0 Program.
c. Installation of Other Modules.
(i) On or before DECEMBER 22, 1997, BNI shall deliver, install and
configure on NAFI's hardware in Jacksonville, Florida an evaluation version of
the New Application Module, the Contract Module and the New Loan Bookings Module
(collectively, the "ORIGINATIONS MODULES") of the FoxPro 5.0 Program.
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(ii) On or before DECEMBER 29, 1997, BNI shall deliver, install and
configure on NAFI's hardware in Jacksonville, Florida the Portfolio Acquisition
Bookings Module.
(iii) On or before JANUARY 8, 1998, BNI shall deliver, install and
configure on NAFI's hardware in Jacksonville, Florida the final version of the
Originations Modules of the FoxPro 5.0 Program plus the SQL Financial Interface
with the converted World Omni data in accordance with Paragraph 5 of this
Agreement. It is agreed that NAFI shall purchase the SQL Financial Software
utilized in the SQL Financial Interface and that BNI shall be entitled to charge
$90.00 per hour plus normal out-of-pocket expenses incurred in programming such
SQL Financial Interface.
(iv) After the FoxPro 5.0 Program is fully operational, BNI
acknowledges that NAFI, at NAFI's sole cost, intends to install a copy of the
Licensed Program in NAFI's offices in Boca Raton, Florida. The installation in
NAFI's Boca Raton offices will include fully operational copies of all programs,
databases and files being installed in the Jacksonville offices of NAFI,
together with software or methodology that will synchronize data between the
Jacksonville and Boca Raton offices of NAFI in order that the business
operations of NAFI in Jacksonville and Boca Raton can be accomplished in a
reasonable and timely manner in accordance with Acceptable Response Times.
(v) In the event NAFI requests the assistance of BNI with the
installation of the Licensed Program in NAFI's offices in Boca Raton, Florida,
BNI shall be entitled to charge $90.00 per hour plus normal out-of-pocket
expenses incurred with providing such assistance to NAFI. Contemporaneous with
such delivery, BNI shall deliver to NAFI the User Documentation Manuals for each
Module that is being delivered by BNI. Notwithstanding anything to the contrary
set forth in the BNI Agreement, NAFI shall reimburse BNI for the reasonable
out-of-pocket expenses incurred by BNI in connection with the installation of
the FoxPro 5.0 Program.
d. Delivery of FoxPro 5.0 Package. In connection with such installation
set forth in Paragraph 4.b. and c. of this Agreement, BNI shall deliver to NAFI
two complete copies of the FoxPro 5.0 Program, in a CD ROM format, together with
copies of the latest source program code for the NAFI version of the Licensed
Program, programming documentation and user documentation for each of eight
CLASS Modules plus the SQL Financial Interface (collectively, the "FoxPro 5.0
Package"). Upon receipt of such two copies, NAFI shall deliver one copy of the
FoxPro 5.0 Package to Pinnacle for its use pursuant to the BNI Agreement.
5. Prior to Implementation/Training Period - Testing of FoxPro
5.0 Program.
a. Commencement of Initial 5 Working Day Time Period. After delivery,
installation and configuration of the FoxPro 5.0 Program to NAFI, Section 17(b)
of the BNI Agreement contemplates that the Licensed Program would be tested by
NAFI for successive 5
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consecutive working day time periods before the commencement of the
implementation/training period. The initial 5 consecutive working day time
period described in Section 17(b) of the BNI Agreement shall not commence until
the latest to occur of (1) the delivery, installation and configuration of the
final version of all eight Modules of the FoxPro 5.0 Program (which incorporates
each of the projects described in ID 24 through and including ID 158 in the BNI
Master Schedule) and the User Documentation Manuals by BNI in NAFI's offices in
Jacksonville, (2) the conversion by BNI of the World Omni data, with delivery to
NAFI and downloaded with the Licensed Program, and (3) the notification by NAFI
to BNI in writing that the converted World Omni data is in a format (and has
been validated by NAFI) such that NAFI is able to utilize such converted data to
test the FoxPro 5.0 Program. Notwithstanding anything to the contrary in this
Agreement or otherwise, BNI shall not be responsible for validating the World
Omni data which is being converted by BNI.
b. Testing by NAFI - Cure by BNI. During such successive 5 consecutive
working day time periods, NAFI intends to beta test and stress test the FoxPro
5.0 Program using actual NAFI/World Omni generated data of NAFI's open and
closed accounts until NAFI determines that each of the CLASS Modules of the
FoxPro 5.0 Program is effectively functional, without failure, in all respects,
is running the day to day operations of NAFI servicing all of NAFI's open and
closed accounts (both the existing loan portfolio covered by the previous
securitizations and the new loans which are being daily funded by NAFI) and is
meeting the Acceptable Response Times. BNI shall promptly correct any
discrepancies of the FoxPro 5.0 Program that are discovered during such
successive 5 consecutive working day testing process. During this time period,
among other aspects of the testing process, NAFI intends to run "parallel
servicing" tests of a portion of NAFI's open and closed accounts with the
servicing then currently being conducted by World Omni of the NAFI data.
Notwithstanding anything to the contrary set forth in the BNI Agreement, NAFI
shall reimburse BNI for the reasonable out-of-pocket expenses incurred by BNI in
connection with the testing of the FoxPro 5.0 Program.
c. Corrections After Implementation/Training Period Commences. As
contemplated by Section 17(b) of the BNI Agreement, after the completion of five
consecutive working days without the occurrence of any discrepancies in the
Licensed Program, then, the implementation/training period shall commence. After
the commencement of the implementation/training period, in the event a
discrepancy in the Licensed Program results solely from the improper use by NAFI
personnel of the Licensed Program in a manner which does not conform to the User
Documentation Manuals to be provided by BNI pursuant to Section 4.b and c. of
this Agreement, then, BNI shall be entitled to charge NAFI $90.00 per hour plus
normal out-of-pocket expenses in connection with BNI's work in correcting such
discrepancy or error. NAFI shall not be required to pay for BNI's time to cure a
discrepancy if such discrepancy constitutes (1) a BNI programming error, (2) a
BNI internal system design error or (3) some other type of discrepancy which is
not solely caused by the Improper Use (hereinafter defined) by NAFI personnel of
the Licensed Program. As used herein, the term "IMPROPER USE" shall mean the
tampering or modification by NAFI of software programming data or program source
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codes which, in each case, are not intended to be accessed or modified by NAFI
as set forth in the system documentation for the Licensed Program to be
delivered by BNI.
d. Training by BNI. Notwithstanding the terms of Section 17(c) of the
BNI Agreement, in the event BNI trains any NAFI employees using the User
Documentation Manuals with respect to the use of the Licensed Program after the
installation of the Licensed Program in NAFI's offices in Jacksonville, Florida
and in Boca Raton, Florida and prior to the commencement of the
implementation/training period, then, BNI shall be entitled to charge NAFI a fee
of $90.00 per hour per BNI employee for each hour of training conducted by BNI
plus normal out-of-pocket expenses. Following the commencement of the
implementation/training period, BNI will train NAFI's employees in NAFI's
offices in Boca Raton and in Jacksonville with respect to the use of the
Licensed Program pursuant to the terms of the Implementation Plan and shall
deliver the User Documentation for the Licensed Program as contemplated by
Section 17(c) of the BNI Agreement.
e. Delivery of Corrected FoxPro 5.0 Package. At the completion of such
successive 5 consecutive working day time periods, BNI shall deliver to NAFI two
complete copies, in a CD ROM format, of the then current version of the FoxPro
5.0 Package, including, any changes and modifications to the latest source
program code for the NAFI version of such program following such testing. Upon
receipt of such copies, NAFI shall forward one copy to Pinnacle for its use
pursuant to the BNI Agreement.
6. World Omni Conversion Using FoxPro 5.0 Program.
a. Election for BNI to Convert World Omni Data. As contemplated by
Section 17 of the BNI Agreement, Pinnacle and NAFI have timely notified BNI that
NAFI has elected to accomplish the conversion from the World Omni servicing
system. BNI agrees that such conversion from the World Omni servicing system
shall be included in the determination of the "Production Environment Date" (as
such term is used in the BNI Agreement) with respect to the Fox/SQL Program.
b. World Omni Data Conversion. BNI shall complete the entire World Omni
data conversions of the September 30th Month End NAFI data on or before DECEMBER
22, 1997 as contemplated by Paragraph 4.a.. NAFI reserves the right to conduct,
with the assistance of BNI, a complete "dry run" test conversion of all of the
World Omni data (utilizing in such test the data designated by NAFI at such
time) using the Licensed Program on or before FEBRUARY 5, 1998 (provided that
BNI shall be entitled to charge NAFI $90.00 per hour plus normal out-of-pocket
expenses in connection with BNI's work in such test conversion). Following the
commencement of the implementation/training period, BNI will work with NAFI
personnel to finally complete the conversion of all of NAFI's open and closed
accounts which are currently being serviced by World Omni to the FoxPro 5.0
Program, which conversion and complete "cut over" from World
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Omni to NAFI will be finally completed on or before MARCH 1, 1998 (the date that
such conversion is finally completed, the "World Omni Cut Over Date"). As
contemplated by Section 17(a) of the BNI Agreement, BNI shall charge NAFI $90.00
per hour plus normal out-of-pocket expenses incurred by BNI in connection with
the conversion of the World Omni data.
7. Delivery and Testing of Fox/SQL Program.
a. Performance Response Time Standard of Fox/SQL Program. BNI
acknowledges that the manner by which the FoxPro 5.0 Program is converted into
the Fox/SQL Program will affect the ability of BNI and NAFI to achieve the
performance and response time expectations from the Licensed Program and to
economically make changes, enhancements and alterations to the Licensed Program
from time to time in the future. Accordingly, BNI represents and warrants to
Pinnacle and NAFI that the Fox/SQL Program, when completed by BNI and delivered,
installed and configured in accordance with the time schedules set forth in this
Agreement, shall satisfy the Acceptable Response Times. BNI agrees to permit
NAFI and NAFI's project manager to participate in, and review, the Fox/SQL
conversion project at BNI's offices during BNI's business hours as such project
progresses.
b. Delivery and Testing of Fox/SQL Program. At BNI's sole cost and
expense, (except for the payment by NAFI of the license fee pursuant to Section
17(a) of the BNI Agreement), BNI covenants to modify the entire FoxPro 5.0
Program (including all eight CLASS Modules plus the SQL Financial Interface)
into the Fox/SQL Language and to deliver, install and configure on NAFI's
hardware in Jacksonville, Florida such converted and rewritten Fox/SQL Program
on or before JULY 31, 1998. In connection with such installation, BNI shall also
install and configure on NAFI's hardware the Microsoft SQL Server 6.5 Relational
Database (which database shall be purchased by NAFI at its sole cost and
expense) to the extent such software program is not resident with, or included
in, the delivery and installation of the Fox/SQL Program.
c. Testing by NAFI of Fox/SQL Program - Cure by BNI. After delivery,
installation and configuration of the Fox/SQL Program to NAFI's offices in
Jacksonville, NAFI shall test the Fox/SQL Program and BNI shall perform BNI's
obligations with respect to the Fox/SQL Program in the same manner and pursuant
to the same time periods as set forth in Paragraph 5 a., b., c., d. and e of
this Agreement with respect to the FoxPro 5.0 Program. The parties contemplate
that such testing for the Fox/SQL Program will occur between AUGUST 1, 1998 AND
AUGUST 31, 1998 and that any necessary changes to the Fox/SQL Program as
contemplated in Paragraph 5.c. (for the Fox/SQL Program) will be completed on or
before AUGUST 31, 1998.
d. Conversion of Fox Pro 5.0 Data to Fox/SQL Data for Testing of
Fox/SQL Program. At BNI's sole cost and expense (except for the payment by NAFI
of the license fee pursuant to Section 17(a) of the BNI Agreement and except for
the reimbursement by NAFI of normal out of pocket expenses incurred by BNI), BNI
covenants to convert and load into NAFI's database all of NAFI's data which will
then be residing in the FoxPro 5.0 database after the World Omni Cut Over Date
into the Microsoft SQL Server 6.5 Relational Database on or before
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SEPTEMBER 1, 1998 for the purpose of testing the Fox/SQL Program prior to the
conversion of all of the NAFI data from the Fox Pro 5.0 Program to the Fox/SQL
Program. NAFI reserves the right to conduct, with the assistance of BNI, a
complete "dry run" test conversion of all of the NAFI data from using the Fox
Pro 5.0 Licensed Program to using the Fox/SQL Program on or before SEPTEMBER 1,
1998 (provided that BNI shall be entitled to charge NAFI $90.00 per hour plus
normal out-of-pocket expenses in connection with BNI's work in such test
conversion).
e. Delivery of Fox/SQL Package. In connection with such installation,
BNI shall deliver to NAFI two complete copies of the Fox/SQL Program, in a CD
ROM format, together with copies of the latest source program code for the NAFI
version of the Licensed Program, programming documentation and user
documentation for each of the CLASS Modules (collectively, the "Fox/SQL
Package"). Upon receipt of such two copies, NAFI shall deliver one copy of the
Fox/SQL Package to Pinnacle for its use pursuant to the BNI Agreement. At the
completion of such testing, BNI shall deliver to NAFI two complete copies, in a
CD ROM format, of the then current version of Fox/SQL Package, including, any
changes and modifications to the latest source program code for the NAFI version
of such program following such testing. Upon receipt of such copies, NAFI shall
forward one copy to Pinnacle for its use pursuant to the BNI Agreement.
8. NAFI Conversion From Using FoxPro 5.0 Program to Using Fox/SQL
Program. Following the completion of the testing of the Fox/SQL Program
contemplated by Paragraph 7 of this Agreement, BNI will work with NAFI personnel
to convert all of NAFI's open and closed accounts which will then be serviced by
NAFI using the FoxPro 5.0 Program to the Fox/SQL Program, which conversion and
complete "cut over" from FoxPro 5.0 Program to Fox/SQL Program will be finally
completed on or before SEPTEMBER 1, 1998 (the "Fox/SQL Cut Over Date"). The
"Production Environment Date" shall not occur until after the occurrence of the
Fox/SQL Cut Over Date.
9. Customer Satisfaction Guarantee/Obligations of BNI. All references
to the "Production Environment Date" in the BNI Agreement, as amended hereby,
shall constitute a reference to the Fox/SQL Program (and not to the FoxPro 5.0
Program), provided however that the parties agree that the "Production
Environment Date" for the Fox/SQL Program shall be determined based upon the
same needs and product design designated by NAFI for the FoxPro 5.0 Program in
December of 1997, except that NAFI's portfolio will contain a greater number of
open and closed accounts when the Fox/SQL Program is operational. Each of the
representations, warranties and covenants of BNI which are set forth in the BNI
Agreement with respect to the Licensed Program shall apply, with equal dignity
in all respects, to the FoxPro 5.0 Program and the Fox/SQL Program and each
reference in the BNI Agreement and the NAFI SubLicense to the "Licensed Program"
shall constitute a collective reference to the FoxPro 5.0 Program and the
Fox/SQL Program.
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10. License Fee - BNI Master Schedule.
a. License Fee and Amount Remaining Unpaid. The original license fee
under the BNI Agreement was $750,000. BNI acknowledges receipt from NAFI under
the BNI Agreement and the NAFI Sublicense of the sum of $440,000 as partial
payment of such license fee. As of the date hereof, $310,000 of the license fee
as set forth in Section 17 of the BNI Agreement remains unpaid by Pinnacle and
NAFI. The parties acknowledge that, pursuant to the terms of the BNI Agreement,
no additional payments of the license fee are payable to BNI prior to the
delivery and installation of the Fox/SQL Program by BNI. However, as an
accommodation to BNI, NAFI is willing to advance certain funds to BNI on a
periodic basis in payment of the unpaid license fee prior to the delivery and
installation of the Fox/SQL Program subject to the terms and conditions of this
Paragraph 10.
b. Payments by NAFI. Upon the execution and delivery by BNI, Pinnacle
and NAFI of this Agreement, NAFI shall advance to BNI the sum of $125,000, as a
partial payment of the unpaid license fee. Commencing on Friday, JANUARY 2,
1998, NAFI shall pay to BNI the sum of $12,500 via wire transfer as a partial
payment of the unpaid license fee. Provided that NAFI determines, in NAFI's sole
and absolute discretion, that (1) BNI is performing BNI's obligations under this
Agreement for the prior calendar week through and including the payment date in
question in accordance with the terms and time schedule set forth in this
Agreement, the Implementation Plan, the BNI Master Schedule, and the Weekly BNI
Reports and (2) BNI is devoting the time and resources necessary to perform
BNI's obligations under this Agreement, then, NAFI shall pay to BNI via wire
transfer as a partial advance of the unpaid license fee in the amount of $12,500
on each of FRIDAY thereafter until $250,000 shall have been paid to BNI by NAFI
and applied against the unpaid license fee. In no event shall NAFI be obligated
to make any payments to BNI of the unpaid license fee in the event NAFI
determines, in NAFI's sole and absolute discretion, that the conditions to each
advance have not been satisfied by BNI. No payment by NAFI to BNI shall
constitute a waiver or release of any duty, responsibility or breach by BNI
under the BNI Agreement, as amended hereby.
c. Payment of $60,000. The final $60,000 of the unpaid license fee
shall be paid by NAFI to BNI on the date that the Production Environment Date
occurs with respect to the Fox/SQL Program. After such Production Environment
Date, NAFI and Pinnacle shall return to BNI their respective CD ROM copies of
the Fox Pro 5.0 Program which were received from BNI.
11. Successors and Assigns/Counterparts. The terms, provisions,
covenants and conditions hereof shall be binding upon the successors and assigns
of each party hereto and shall inure to the benefit of each party and their
respective successors and assigns. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had signed the
same document.
12. Time is of the Essence. Time is of the essence in the performance
of the obligations of the parties under the BNI Agreement, as amended by this
Agreement.
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13. Modification. This Agreement may only be modified by a written
instrument or instruments executed by the party against which enforcement of the
modification is asserted. Any alleged modification which is not so documented
shall not be effective as to any party.
14. Governing Law. The terms and provisions of this Agreement shall be
governed by the laws of the State of Florida (without regard to the conflict of
laws rules of such State) and to applicable federal law.
15. Entire Agreement. The BNI Agreement, as amended by this Agreement,
and the NAFI SubLicense constitute the entire understanding and agreement
between the parties hereto with respect to the transactions referenced herein
and supersede all prior written or oral understandings and agreements between
the parties hereto with respect thereto. Each party hereto hereby acknowledges
that, except as incorporated in writing in the BNI Agreement, as amended by this
Agreement, or in the NAFI SubLicense, there are not, and were not, and no
persons are or were authorized by such party to make, any representations,
understandings, stipulations, agreements or promises, oral or written, with
respect to the transaction which is the subject of this Agreement. The terms and
provisions of the BNI Agreement shall continue in full force and effect except
as amended by this Agreement. To the extent a conflict exists between the BNI
Agreement and this Agreement, then, the terms and provisions of this Agreement
shall control such conflict for all purposes. Each reference to the BNI
Agreement in the NAFI SubLicense shall hereinafter mean the BNI Agreement, as
amended by this Agreement.
SIGNATURES ON NEXT PAGE
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EXECUTED AND AGREED as of the date first above written.
PINNACLE PROCESSING SERVICES LLC
By:
Robert W. Barron, Member
BNI, Inc.
By:
James D. Rustin, President
NATIONAL AUTO FINANCE COMPANY INC.
By:
Name:
Title:
12
SOFTWARE SUBLICENSE,
SUPPORT AND USAGE AGREEMENT
This Software Sublicense, Support and Usage Agreement (this
"Agreement") is entered into as of the 17th day of February, 1997 by and between
Pinnacle Portfolio Services LLC, a Delaware limited liability company
("Pinnacle") and National Auto Finance Company, Inc., a Delaware corporation
("National").
RECITALS
A. Pinnacle has executed and delivered that certain BNI, Inc. Software
License, Support and Usage Agreement, by and between BNI, Inc. ("BNI") and
Pinnacle, dated as of the date hereof in the form attached hereto as Exhibit A
(as amended from time to time, the "BNI Software Agreement"). Each capitalized
term which is used but not defined herein shall have the meaning set forth in
the BNI Software Agreement.
B. Pinnacle desires to grant to National the right to use the Licensed
Program and receive all of the benefits and services under the BNI Software
Agreement and National is willing to accept such grant in accordance with the
terms and provisions of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Sublicense. Pinnacle hereby irrevocably grants to National
a sublicense in and to the Licensed Program(s) pursuant to, and in accordance
with, the terms and provisions of the BNI Software Agreement, including, without
limitation, Section 5(b) of the BNI Software Agreement. To the fullest extent
permitted under the BNI Software Agreement, Pinnacle and National agree that
National shall have the right, without the prior written consent of BNI, to use
the Licensed Program(s) and to receive all of the benefits and services under
the BNI Software Agreement to the same extent as if National were the customer
named in the BNI Software Agreement. Pinnacle and National hereby agree that
this Agreement is intended to constitute the "Sublicense Agreement" as such term
is used in Section 5(b) of the BNI Software Agreement.
2. Payments by National. The parties hereto acknowledge that National
has paid the sum of $280,000 to BNI, on behalf of Pinnacle, in order to obtain
an option to enter into this Agreement, which amount has been credited by BNI
against the amounts owing by Pinnacle under the BNI Software Agreement. National
covenants and agrees to pay directly to BNI, for the account of Pinnacle under
the BNI Software Agreement, each of the payments which are now required or
hereafter may be required to be paid by the "customer" under the BNI Software
Agreement as and when such payments become due and payable thereunder.
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3. Right to Direct Access to BNI. National shall have the right to
communicate directly with BNI under and with respect to the BNI Software
Agreement; provided however, that such direct communication shall not affect,
limit or expand, in any way whatsoever, the obligations of Pinnacle under this
Agreement.
4. Other Rights and Remedies/Property of Pinnacle and National.
Pinnacle hereby assigns (while retaining all of Pinnacle's rights and remedies)
to National a non-exclusive right in and to the representations, warranties,
covenants, agreements and indemnities of BNI set forth in the BNI Software
Agreement. Notwithstanding such assignment and the grant by Pinnacle of the
right of direct access by National to BNI as set forth in Section 3 of this
Agreement, Pinnacle hereby retains all of Pinnacle's rights and remedies granted
to Pinnacle under the BNI Software Agreement for all purposes. Any and all
Agreed Changes, Systems Releases, program improvements, legal updates,
information updates, software enhancements and modifications and any other
services and benefits provided by BNI under the BNI Software Agreement shall
constitute the property of both Pinnacle and National for all purposes and shall
be utilized by both parties pursuant to the terms of the BNI Software Agreement
and this Agreement. Each party shall provide to the other party, on a periodic
basis, any information, materials, diskettes and other media received from BNI,
from time to time, with respect to the Licensed Programs or otherwise under the
BNI Software Agreement.
5. No Representation or Warranty/No Duty. National acknowledges and
agrees that the grant of the sublicense in and to the Licensed Program(s) is
being made without representation or warranty (express, statutory, contractual,
implied or otherwise) by Pinnacle and without recourse to Pinnacle. In no event
shall Pinnacle have any liability, obligation or duty (in each case, express or
implied) for the non-performance by BNI of any of BNI's obligations under the
BNI Software Agreement. In no event shall Pinnacle have any duty (express or
implied) to cause BNI to perform any of BNI's obligations under the BNI Software
Agreement or to take any other action whatsoever.
6. Potential Revenue Sharing By Pinnacle With National. In the event,
and only in the event, that Pinnacle generates revenues through the use of the
Licensed Program(s) from and after the date hereof, then, Pinnacle agrees to pay
to National, on a quarterly basis in arrears, an amount equal to two percent
(2%) of the gross revenues generated by Pinnacle from the use of the Licensed
Program(s) until National shall have received the sum of $432,000. After
National shall have received the sum of $432,000 pursuant to the foregoing
sentence, then, Pinnacle shall not be obligated to make any additional payments
to National pursuant to this Agreement. In no event shall Pinnacle be obligated,
in any way whatsoever, to generate any level of sales or to otherwise utilize
the Licensed Program(s). In no event shall any member of Pinnacle have any
personal liability for any obligation of Pinnacle arising under this Section 6
or otherwise. At the request of National, Pinnacle agrees to provide to National
such supporting information which may be reasonably requested by National in
order to substantiate the amount of gross revenues generated by Pinnacle through
the use of the Licensed Program(s).
2
<PAGE>
7. Payment by National of Transfer Fee. The parties acknowledge that,
under certain circumstances set forth in Section 5(d) of the BNI Software
Agreement, either Pinnacle or National is obligated to pay to BNI a one-time
transfer fee of $375,000. Reference is hereby made to paragraph 1, clause (2) of
the Addendum to the BNI Software Agreement. The parties agree that in the event
that the condition relating to a change of National's ownership set forth in
such paragraph 1, clause (2) of such Addendum ceases to exist such that a
transfer fee is due and payable or in the event that a change in the ownership
of National (or any other act or omission of National) triggers the obligation
of Pinnacle to pay the transfer fee to BNI set forth in Section 5(d) of the BNI
Software Agreement, then, in any such case, National covenants and agrees to pay
to BNI 100% of such transfer fee in connection with such transaction.
8. Indemnification by National. National will indemnify and hold
harmless Pinnacle (for purposes of this paragraph, the terms "Pinnacle" shall
include the members, directors, officers, partners, employees and agents of
Pinnacle and any persons or entities owned or controlled by, owning or
controlling, or under common control or affiliated with Pinnacle or such
individuals, respectively) from and against, and reimburse them for, all claims,
demands, liabilities, losses, damages, causes of action, judgments, penalties,
costs and expenses (including, without limitation, reasonable attorney's fees)
which may be imposed upon, asserted against, or incurred or paid by them by
reason of, or on account of any act, omission or transaction arising out of or
in any way connected with BOTH (1) National or any director, officer, employee
or agent of National AND (2) BNI, the Licensed Program(s), the BNI Software
Agreement, this Agreement, or any other document or instrument executed in
connection with the foregoing. Without limitation, it is the intention of
National and Pinnacle and National agrees that the foregoing indemnities shall
apply to each indemnified party with respect to claims, demands, liabilities,
losses, damages, causes of action, judgments, penalties, costs and expenses
(including without limitation, reasonable attorney's fees) which in whole or in
part are caused by or arise out of the negligence of such (and/or any other)
indemnified party. However, such indemnities shall not apply to any indemnified
party to the extent the subject of the indemnification is caused by or arises
out of the gross negligence or willful misconduct of such indemnified party. Any
amount to be paid hereunder by National to Pinnacle shall be a demand obligation
owing by National to Pinnacle and shall bear interest at the annual rate of
twelve percent. The foregoing indemnities shall not terminate upon the
termination of this Agreement and/or the BNI Software Agreement.
9. Indemnification by Pinnacle. Pinnacle will indemnify and hold
harmless National (for purposes of this paragraph, the terms "National" shall
include the members, directors, officers, partners, employees and agents of
National and any persons or entities owned or controlled by, owning or
controlling, or under common control or affiliated with National or such
individuals, respectively) from and against, and reimburse them for, all claims,
demands, liabilities, losses, damages, causes of action, judgments, penalties,
costs and expenses (including, without limitation, reasonable attorney's fees)
which may be imposed upon, asserted against, or incurred or paid by them by
reason of, or on account of any act, omission or transaction arising out of or
in any way connected with BOTH (1) Pinnacle or any member,
3
<PAGE>
director, officer, employee or agent of Pinnacle AND (2) BNI, the Licensed
Program(s), the BNI Software Agreement, this Agreement, or any other document or
instrument executed in connection with the foregoing. Without limitation, it is
the intention of National and Pinnacle and Pinnacle agrees that the foregoing
indemnities shall apply to each indemnified party with respect to claims,
demands, liabilities, losses, damages, causes of action, judgments, penalties,
costs and expenses (including without limitation, reasonable attorney's fees)
which in whole or in part are caused by or arise out of the negligence of such
(and/or any other) indemnified party. However, such indemnities shall not apply
to any indemnified party to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful misconduct of such
indemnified party. Any amount to be paid hereunder by Pinnacle to National shall
be a demand obligation owing by Pinnacle to National and shall bear interest at
the annual rate of twelve percent. The foregoing indemnities shall not terminate
upon the termination of this Agreement and/or the BNI Software Agreement.
10. Exculpation. Notwithstanding anything to the contrary set forth in
this Agreement, the BNI License Agreement or otherwise, in no event shall any
director, member, managing director, partner, shareholder, director, employee,
or agent of either Pinnacle or National have any personal liability under this
Agreement or under the BNI License Agreement.
11. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon the successors and assigns of either
party hereto and shall inure to the benefit of either party and their respective
successors and assigns. All references in this Agreement to either party hereto
shall be deemed to include all such successors and assigns.
12. Severability. A determination that any provision of this Agreement
is unenforceable or invalid shall not affect the enforceability or validity of
any other provision and any determination that the application of any provision
of this Agreement to any person or circumstance is illegal or unenforceable
shall not affect the enforceability or validity of such provision as it may
apply to any other persons or circumstances. A determination that any provision
of this Agreement constitutes a violation of the BNI Software Agreement shall
cause such offending provision to be automatically reformed and amended in the
manner which is the least likely to adversely affect the parties hereto and
which minimizes, to the greatest extent possible, any material alternation of
the business arrangement of the parties hereto in order that such violation
shall cease to exist for all purposes.
13. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one instrument, but in making proof hereof it shall only be necessary to produce
one such counterpart.
14. Modification. This Agreement may only be modified by a written
instrument or instruments executed by the party against which enforcement of the
modification is asserted.
4
<PAGE>
15. Negation of Partnership. Nothing contained in this Agreement is
intended to create any partnership, joint venture or association between the
parties hereto or in any way make the either party a co-principal with the other
party with reference to the property or the agreements referenced herein and any
inferences to the contrary are hereby expressly negated.
16. Governing Law. The terms and provisions of this Agreement shall be
governed by the laws of the State of Delaware (without regard to the conflict of
laws rules of such State) and to applicable federal law.
17. No Third Party Beneficiary. Except as expressly set forth to the
contrary in this Agreement, each of the parties agree that neither BNI or any
other individual and/or entity is intended to have, nor shall BNI, such
individual and/or entity be deemed to have, any rights or remedies as a third
party beneficiary to, or under, this Agreement or otherwise and each of the
parties acknowledge and agree that any benefit conferred to BNI, any such
individual and/or entity is, and shall be deemed for all purposes to be, merely
incidental.
18. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto with respect to the
transactions referenced herein and supersedes all prior written or oral
understandings and agreements between the parties hereto with respect thereto.
Each party hereto hereby acknowledges that, except as incorporated in writing in
this Agreement, there are not, and were not, and no persons are or were
authorized by such party to make, any representations, understandings,
stipulations, agreements or promises, oral or written, with respect to the
transaction which is the subject of this Agreement.
END OF PAGE
5
<PAGE>
IN WITNESS WHEREOF, each party set forth below has executed this
Agreement as of the date first above written.
PINNACLE PORTFOLIO SERVICES LLC, a
Delaware limited liability company
By:
Name:
Title:
NATIONAL AUTO FINANCE COMPANY,
INC., a Delaware corporation
By:
Name:
Title:
6
<PAGE>
EXHIBIT A
7
CONSENT
THIS CONSENT is made as of September 25, 1997 (as the same may be amended,
supplemented, restated or otherwise modified from time to time by the
undersigned in writing, this "Consent"), by Financial Security Assurance Inc., a
New York stock insurance company ("Financial Security"), pursuant to (i) Section
2.03 of the Insurance and Indemnity Agreement, dated as of November 21, 1995
(the "Series 1995-1 Insurance Agreement"), among Financial Security, National
Financial Auto Funding Trust, a Delaware business trust ("Funding Trust I"), and
National Auto Finance Company, Inc., a Delaware corporation ("National Auto")
(formerly National Auto Finance Company L.P., a Delaware limited partnership),
(ii) Section 2.03 of the Insurance and Indemnity Agreement, dated as of November
13, 1996 (the "Series 1996-1 Insurance Agreement"), among Financial Security,
Funding Trust I and National Auto and (iii) Sections 2.06 and 2.09 of the
Insurance and Indemnity Agreement, dated as of July 23, 1997 (the "Series 1997-1
Insurance Agreement"; the Series 1995-1 Insurance Agreement, the Series 1996- 1
Insurance Agreement and the Series 1997-1 Insurance Agreement each an "Insurance
Agreement" and collectively, the "Insurance Agreements"), among Financial
Security, National Auto Finance 1997-1 Trust, a Delaware business trust, Funding
Trust I and National Auto. Capitalized terms used and not defined herein shall
have the meanings ascribed thereto in the Insurance Agreement or Insurance
Agreements with respect to which such terms are used.
RECITALS
WHEREAS, Funding Trust I desires to pledge to Bankers Trust Company, as
Trustee of National Financial Auto Receivables Master Trust (the "Trustee"), the
property identified as the Recourse Property in that certain Consent and
Amendment, made as of September 25, 1997 (the "Consent and Amendment"), among
Funding Trust I, National Auto, First Union National Bank of North Carolina and
the Trustee.
WHEREAS, the execution and delivery by National Auto and Funding Trust I
of the Consent and Amendment without Financial Security's written consent would
be in violation of their respective covenants set forth in each of the Insurance
Agreements not to pledge any of the property of Funding Trust I without
Financial Security's written consent.
NOW, THEREFORE, for purposes of the provisions of the Insurance Agreements
set forth below, Financial Security hereby provides its consent to the execution
and delivery of the Consent and Amendment in the form attached hereto as Exhibit
A, but solely to the extent that the execution and delivery of such Consent and
Amendment by National Auto and Funding Trust I would otherwise result in a
violation of the following provisions of the Insurance Agreements:
(a) Sections 2.03(e) and (i) of the 1995 Insurance Agreement;
(b) Sections 2.03(e) and (i) of the 1996 Insurance Agreement; and
<PAGE>
(c) Sections 2.06(e) and (i) of the 1997 Insurance Agreement.
[Remainder of Page Intentionally Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the day and year first above written.
FINANCIAL SECURITY ASSURANCE INC.
By: ______________________________________
Name:
Title:
-3-
<PAGE>
EXHIBIT A
CONSENT AND AMENDMENT
-4-
NATIONAL AUTO FINANCE COMPANY, INC.
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT, dated as of September 29, 1997, between NATIONAL
AUTO FINANCE COMPANY, INC., a Delaware corporation (the "Company"), and
BANKBOSTON, N.A., a national banking association, as agent (hereinafter, in such
capacity, the "Agent") for itself and other banking institutions (hereinafter,
collectively, the "Banks") which are or may become parties to a Revolving Credit
Agreement, dated as of September 29, 1997 (as amended and in effect from time to
time, the "Credit Agreement"), among the Company, the Banks and the Agent.
WHEREAS, it is a condition precedent to the Banks' making any loans or
otherwise extending credit to the Company under the Credit Agreement that the
Company execute and deliver to the Agent, for the benefit of the Banks and the
Agent, a security agreement in substantially the form hereof; and
WHEREAS, the Company wishes to grant security interests in favor of the
Agent, for the benefit of the Banks and the Agent, as herein provided;
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definitions
-----------
shall have the respective meanings provided therefor in the Credit Agreement.
All terms defined in the Uniform Commercial Code of the Commonwealth of
Massachusetts and used herein shall have the same definitions herein as
specified therein.
2. GRANT OF SECURITY INTEREST.
--------------------------
2.1. COLLATERAL GRANTED.
(a) The Company hereby grants to the Agent, for the
benefit of the Agent and the Banks, to secure the payment and
performance in full of all of the Obligations, a security
interest in and so pledges and assigns to the Agent for the
benefit of the Agent and the Banks, the following properties,
assets and rights of the Company, wherever located, whether
now owned or hereafter acquired or arising, and all proceeds
and products thereof (all of the same being hereinafter called
the "Collateral"):
All personal and fixture property of every
kind and nature including without limitation all
furniture, fixtures, equipment, raw materials,
inventory, other goods, accounts, spread accounts,
excess spread receivables, contract rights, rights to
<PAGE>
2
the payment of money, notes, bills, drafts,
acceptances, choses in action, and all other debts,
obligations and liabilities, in whatever form owing
to the Company from any person, firm or corporation
or any other legal entity, whether now existing or
hereinafter arising, now or hereafter received by or
belonging or owing to the Company however the same
may have been established or created, all guaranties
and securities therefore, all right, title and
interest of the Company in the Eligible Vehicles
which gave rise thereto, including the rights of
repossession, all rights of an unpaid seller of
merchandise or services and in the proceeds thereof,
all insurance refund claims and all other insurance
claims and proceeds, tort claims, chattel paper,
documents, instruments, securities and other
investment property, deposit accounts and all general
intangibles including, without limitation, all tax
refund claims, license fees, patents, patent
applications, trademarks, trademark applications,
trade names, copyrights, copyright applications,
rights to sue and recover for past infringement of
patents, trademarks and copyrights, computer
programs, computer software, engineering drawings,
service marks, customer lists, goodwill, and all
licenses, permits, agreements of any kind or nature
pursuant to which the Company possesses, uses or has
authority to possess or use property (whether
tangible or intangible) of others or others possess,
use or have authority to possess or use property
(whether tangible or intangible) of the Company, and
all recorded data of any kind or nature, regardless
of the medium of recording including, without
limitation, all software, writings, plans,
specifications and schematics, except to the extent
the grant of such security interest would be in
violation of any previously entered into lease or
license agreements as in effect on the date hereof.
(b) The Company hereby grants to the Agent for the
benefit of the Lenders and the Agent a non-exclusive license
(the "License") to use the Company's entire right, title and
interest in the Company's trademarks, trademark registrations,
trademark registration applications, tradenames, service
marks, service mark registrations, service mark registration
applications and copyrights; provided, that the Agent may
exercise its rights under the License only upon or after the
occurrence and during the continuance of an Event of Default
and upon the written demand of the Agent at any time during
such continuance.
2.2. EXCLUDED COLLATERAL. Notwithstanding the foregoing
provisions of this ss.2, such grant of security interest shall not
extend to, and the term "Collateral" shall not include:
(a) all of the Company's right, title and interest in
and to (i) Vehicle Loans purchased by an SPV pursuant to a
Permitted Securitization Transaction, (ii) all monies due or
<PAGE>
3
to become due and all amounts received with respect to such
Vehicle Loans and (iii) all proceeds of and collections of
such Vehicle Loans, in each case which have been sold by the
Company to an SPV pursuant to a Permitted Securitization
Transaction; provided however, that the foregoing grant of
security interest shall extend to, and the term "Collateral"
shall include, any cash or non-cash proceeds received by the
Company in exchange for the sale of any Vehicle Loans
described in this ss.2.2; and
(b) any chattel paper and general intangibles which
are now or hereafter held by the Company as licensee, lessee
or otherwise, to the extent that (i) such chattel paper and
general intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of the
license, lease or other agreement applicable thereto (but
solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the
licensor or lessor thereof or other applicable party thereto
and (ii) such consent has not been obtained; provided,
however, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any
and all proceeds of such chattel paper and general intangibles
to the extent that the assignment or encumbering of such
proceeds is not so restricted and (B) upon any such licensor,
lessor or other applicable party consent with respect to any
such otherwise excluded chattel paper or general intangibles
being obtained, thereafter such chattel paper or general
intangibles as well as any and all proceeds thereof that might
have theretofore have been excluded from such grant of a
security interest and the term "Collateral".
SS.2.3. CONFIRMATION RELATING TO SECURITIZATION. In connection
with Permitted Securitization Transactions, the Company and each SPV
have or shall have entered into agreements pursuant to which from time
to time certain accounts, contract rights, rights to the payment of
money, chattel paper instruments, deposit accounts, general
intangibles, and other assets will be purchased by such SPV from the
Company, or otherwise contributed to the capital of such SPV by the
Company. The Agent hereby agrees that any assets and rights of the
Company sold or contributed to such SPV pursuant to such agreements is
and shall be acquired by such SPV free and clear of the Agent's
security interest in such property, right or asset, provided, however,
that the Agent's security interest shall (a) immediately attach to any
asset excluded from the Agent's security interest under ss.2.2(a)
hereof, upon its repurchase by the Company from an SPV, and (b)
otherwise immediately attach to any and all proceeds received by the
Company from any SPV in exchange for such sale. The Agent agrees to
take, at the expense of the Company, such steps as the Company or any
SPV may reasonably request from time to time to confirm that any asset
has been released from the Agent's security interest as contemplated by
this Agreement.
2.4. TRADEMARK ASSIGNMENT. Concurrently herewith the Company
is also executing and delivering to the Agent, for the benefit of the
<PAGE>
4
Banks and the Agent, the Trademark Assignment pursuant to which the
Company is assigning to the Agent, for the benefit of the Banks and the
Agent, certain Collateral consisting of trademarks, service marks and
trademark and service mark rights, together with the goodwill
appurtenant thereto. The provisions of the Trademark Assignment are
supplemental to the provisions of this Agreement, and nothing contained
in the Trademark Assignment shall derogate from any of the rights or
remedies of the Agent or any of the Banks hereunder. Nor shall anything
contained in the Trademark Assignment be deemed to prevent or extend
the time of attachment or perfection of any security interest in such
Collateral created hereby.
3. TITLE TO COLLATERAL, ETC. The Company is the owner of the Collateral
------------------------
free from any adverse lien, security interest or other encumbrance, except for
the security interest created by this Agreement and other liens permitted by the
Credit Agreement. None of the Collateral constitutes, or is the proceeds of,
"farm products" as defined in ss.9-109(3) of the Uniform Commercial Code of the
Commonwealth of Massachusetts. None of the account debtors in respect of any
accounts, chattel paper or general intangibles and none of the obligors in
respect of any instruments included in the Collateral is a governmental
authority subject to the Federal Assignment of Claims Act.
4. CONTINUOUS PERFECTION. The Company's place of business or, if more
---------------------
than one, chief executive office is indicated on the Perfection Certificate
delivered to the Agent herewith (the "Perfection Certificate"). The Company will
not change the same, or the name, identity or corporate structure of the Company
in any manner, without providing at least thirty (30) days prior written notice
to the Agent. The Collateral will be kept at those locations listed on the
Perfection Certificate and the Company will not remove the Collateral from such
locations, without providing at least thirty (30) days prior written notice to
the Agent.
5. NO LIENS. Except for the security interest herein granted and liens
--------
permitted by the Credit Agreement, the Company shall be the owner of the
Collateral free from any lien, security interest or other encumbrance, and the
Company shall defend the same against all claims and demands of all persons at
any time claiming the same or any interests therein adverse to the Agent or any
of the Banks. The Company shall not pledge, mortgage or create, or suffer to
exist a security interest in the Collateral in favor of any person other than
the Agent, for the benefit of the Banks and the Agent, except for liens
permitted by the Credit Agreement.
6. NO TRANSFERS. The Company will not sell or offer to sell or
------------
otherwise transfer the Collateral or any interest therein except for (a)
transfers of Vehicle Loans to an SPV as part of a Permitted Securitization
Transaction in accordance with the provisions of the Credit Agreement and this
Agreement, (b) releases of inventory to Obligors pursuant to the terms of the
Vehicle Loans and (c) sales otherwise permitted by the Credit Agreement.
<PAGE>
5
7. INSURANCE.
---------
7.1. MAINTENANCE OF INSURANCE. The Company will maintain with
financially sound and reputable insurers (x) skips, errors and
omissions insurance with respect to the Vehicle Loans, and (y)
insurance with respect to its properties and business against such
casualties and contingencies, in each case as shall be in accordance
with general practices of businesses engaged in similar activities in
similar geographic areas. Such insurance shall be in such minimum
amounts that the Company will not be deemed a co-insurer under
applicable insurance laws, regulations and policies. In addition, all
such insurance shall be payable to the Agent as loss payee under a
"standard" or "New York" loss payee clause for the benefit of the Bank
and the Agent and the Agent shall be named as additional insured with
respect to all liability insurance. Without limiting the foregoing, the
Company will (a) keep all of its physical property insured with
casualty or physical hazard insurance on an "all risks" basis, with
broad form flood and earthquake coverages and electronic data
processing coverage, with a full replacement cost endorsement and an
"agreed amount" clause in an amount equal to 100% of the full
replacement cost of such property, (b) maintain all such workers'
compensation or similar insurance as may be required by law and (c)
maintain, in amounts and with deductibles equal to those generally
maintained by businesses engaged in similar activities in similar
geographic areas, general public liability insurance against claims of
bodily injury, death or property damage occurring, on, in or about the
properties of the Company; business interruption insurance; and product
liability insurance.
7.2. INSURANCE PROCEEDS. At the Agent's discretion, all or any
part of the proceeds of any skips, errors and omissions insurance and
any casualty insurance in excess of $100,000 in the aggregate shall be
applied to the Obligations.
7.3. NOTICE OF CANCELLATION, ETC. Upon receipt by the Company
of a cancellation notice with respect to any insurance, the Company
shall promptly notify the Agent thereof. In the event of failure by the
Company to provide and maintain insurance as herein provided, the Agent
may, at its option, provide such insurance and charge the amount
thereof to the Company. The Company shall furnish the Agent with
certificates of insurance and policies evidencing compliance with the
foregoing insurance provision.
8. MAINTENANCE OF COLLATERAL; COMPLIANCE WITH LAW. The Company will
----------------------------------------------
keep the Collateral in good order and repair and will not use the same in
violation of law or any policy of insurance thereon. The Agent, or its designee,
may inspect the Collateral at any reasonable time during normal business hours,
wherever located. The Company will pay promptly when due all taxes, assessments,
governmental charges and levies upon the Collateral or incurred in connection
with the use or operation of such Collateral or incurred in connection with this
Agreement. The Company has at all times operated, and the Company will continue
<PAGE>
6
to operate, its business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all applicable provisions
of federal, state and local statutes and ordinances dealing with the control,
shipment, storage or disposal of hazardous materials or substances.
9. COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.
----------------------------------------------------------
9.1. EXPENSES INCURRED BY AGENT. In its discretion, the Agent
may discharge taxes and other encumbrances at any time levied or placed
on any of the Collateral, make repairs thereto and pay any necessary
filing fees. The Company agrees to reimburse the Agent on demand for
any and all expenditures so made. The Agent shall have no obligation to
the Company to make any such expenditures, nor shall the making thereof
relieve the Company of any default.
9.2. AGENT'S OBLIGATIONS AND DUTIES. Anything herein to the
contrary notwithstanding, the Company shall remain liable under each
contract or agreement comprised in the Collateral to be observed or
performed by the Company thereunder. Neither the Agent nor any Bank
shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt
by the Agent or any Bank of any payment relating to any of the
Collateral, nor shall the Agent or any Bank be obligated in any manner
to perform any of the obligations of the Company under or pursuant to
any such contract or agreement, to make inquiry as to the nature or
sufficiency of any payment received by the Agent or any Bank in respect
of the Collateral or as to the sufficiency of any performance by any
party under any such contract or agreement, to present or file any
claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Agent or to
which the Agent or any Bank may be entitled at any time or times. The
Agent's sole duty with respect to the custody, safe keeping and
physical preservation of the Collateral in its possession, under
ss.9-207 of the Uniform Commercial Code of the Commonwealth of
Massachusetts or otherwise, shall be to deal with such Collateral in
the same manner as the Agent deals with similar property for its own
account.
10. SECURITIES AND DEPOSITS. The Agent may at any time, at its option,
-----------------------
transfer to itself or any nominee any securities constituting Collateral,
receive any income thereon and hold such income as additional Collateral or
apply it to the Obligations. Whether or not any Obligations are due, the Agent
may demand, sue for, collect, or make any settlement or compromise which it
deems desirable with respect to the Collateral. Regardless of the adequacy of
Collateral or any other security for the Obligations, any deposits or other sums
at any time credited by or due from the Agent or any Bank to the Company may at
any time be applied to or set off against any of the Obligations.
11. FURTHER ASSURANCES. The Company, at its own expense, shall do,
------------------
make, execute and deliver all such additional and further acts, things, deeds,
assurances and instruments as the Agent may require more completely to vest in
and assure to the Agent and the Banks their respective rights hereunder or in
<PAGE>
7
any of the Collateral, including, without limitation, (a) executing, delivering
and, where appropriate, filing financing statements and continuation statements
under the Uniform Commercial Code and (b) obtaining governmental and other third
party consents and approvals, including without limitation any consent of any
licensor, lessor or other applicable party referred to in ss.2.2.
12. POWER OF ATTORNEY.
-----------------
12.1. APPOINTMENT AND POWERS OF AGENT. The Company hereby
irrevocably constitutes and appoints the Agent and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the
place and stead of the Company or in the Agent's own name, for the
purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorneys the power and right, on behalf
of the Company, without notice to or assent by the Company, to do the
following:
(a) upon the occurrence and during the continuance of
an Event of Default, generally to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of
the Collateral in such manner as is consistent with the
Uniform Commercial Code of the Commonwealth of Massachusetts
and as fully and completely as though the Agent were the
absolute owner thereof for all purposes, and to do at the
Company's expense, at any time, or from time to time, all acts
and things which the Agent deems necessary to protect,
preserve or realize upon the Collateral and the Agent's
security interest therein, in order to effect the intent of
this Agreement, all as fully and effectively as the Company
might do, including, without limitation, the execution,
delivery and recording, in connection with any sale or other
disposition of any Collateral, of the endorsements,
assignments or other instruments of conveyance or transfer
with respect to such Collateral; and
(b) to file such financing statements with respect
hereto, with or without the Company's signature, or a
photocopy of this Agreement in substitution for a financing
statement, as the Agent may deem appropriate and to execute in
the Company's name such financing statements and amendments
thereto and continuation statements which may require the
Company's signature.
12.2. RATIFICATION BY COMPANY. To the extent permitted by law,
the Company hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
12.3. NO DUTY ON AGENT. The powers conferred on the Agent
hereunder are solely to protect the interests of the Agent and the
Banks in the Collateral and shall not impose any duty upon the Agent to
<PAGE>
8
exercise any such powers. The Agent shall be accountable only for the
amounts that it actually receives as a result of the exercise of such
powers and neither it nor any of its officers, directors, employees or
agents shall be responsible to the Company for any act or failure to
act, except for the Agent's own gross negligence or willful misconduct.
13. REMEDIES. If an Event of Default shall have occurred and be
--------
continuing, the Agent may, without notice to or demand upon the Company, declare
this Agreement to be in default, and the Agent shall thereafter have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code, including, without limitation, the right to take
possession of the Collateral, and for that purpose the Agent may, so far as the
Company can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom. The Agent may in its
discretion require the Company to assemble all or any part of the Collateral at
such location or locations within the state(s) of the Company's principal
office(s) or at such other locations as the Agent may designate. The Agent shall
give to the Company at least ten (10) Business Days prior written notice of the
time and place of any public sale of Collateral or of the time after which any
private sale or any other intended disposition is to be made. The Company hereby
acknowledges that ten (10) Business Days prior written notice of such sale or
sales shall be reasonable notice. In addition, the Company waives any and all
rights that it may have to a judicial hearing in advance of the enforcement of
any of the Agent's rights hereunder, including, without limitation, its right
following an Event of Default to take immediate possession of the Collateral and
to exercise its rights with respect thereto. To the extent that any of the
Obligations are to be paid or performed by a person other than the Company, the
Company waives and agrees not to assert any rights or privileges which it may
have under ss.9-112 of the Uniform Commercial Code of the Commonwealth of
Massachusetts.
14. NO WAIVER, ETC. The Company waives demand, notice, protest, notice
--------------
of acceptance of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect to both the
Obligations and the Collateral, the Company assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Agent may deem advisable. The Agent shall have no duty
as to the collection or protection of the Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe custody thereof as
set forth in ss.9.2. The Agent shall not be deemed to have waived any of its
rights upon or under the Obligations or the Collateral unless such waiver shall
<PAGE>
9
be in writing and signed by the Agent with the consent of the Majority Banks. No
delay or omission on the part of the Agent in exercising any right shall operate
as a waiver of such right or any other right. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right on any future occasion. All
rights and remedies of the Agent with respect to the Obligations or the
Collateral, whether evidenced hereby or by any other instrument or papers, shall
be cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as the Agent deems expedient.
15. MARSHALLING. Neither the Agent nor any Bank shall be required to
-----------
marshal any present or future collateral security (including but not limited to
this Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of the rights of the
Agent hereunder and of the Agent or any Bank in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights, however existing or arising. To the extent that it lawfully
may, the Company hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Agent's rights under this Agreement or under any other instrument
creating or evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Company hereby irrevocably waives the benefits of all such laws.
16. PROCEEDS OF DISPOSITIONS; EXPENSES. The Company shall pay to the
----------------------------------
Agent on demand any and all expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Agent in protecting, preserving or
enforcing the Agent's rights under or in respect of any of the Obligations or
any of the Collateral. After deducting all of said expenses, the residue of any
proceeds of collection or sale of the Obligations or Collateral shall, to the
extent actually received in cash, be applied to the payment of the Obligations
in such order or preference in such order or preference as is provided in the
Credit Agreement, proper allowance and provision being made for any Obligations
not then due. Upon the final payment and satisfaction in full of all of the
Obligations and after making any payments required by Section 9-504(1)(c) of the
Uniform Commercial Code of the Commonwealth of Massachusetts, any excess shall
be returned to the Company, and the Company shall remain liable for any
deficiency in the payment of the Obligations.
17. OVERDUE AMOUNTS. Until paid, all amounts due and payable by the
---------------
Company hereunder shall be a debt secured by the Collateral and shall bear,
whether before or after judgment, interest at the rate of interest for overdue
principal set forth in the Credit Agreement.
18. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT IS INTENDED
--------------------------------------
TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Company
agrees that any suit for the enforcement of this Agreement may be brought in the
courts of the Commonwealth of Massachusetts or any federal court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Company by mail at the address
specified in ss.19 of the Credit Agreement. The Company hereby waives any
<PAGE>
10
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court.
19. WAIVER OF JURY TRIAL. THE COMPANY WAIVES ITS RIGHT TO A JURY TRIAL
--------------------
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF
ANY SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Company waives
any right which it may have to claim or recover in any litigation referred to in
the preceding sentence any special, exemplary, punitive or consequential damages
or any damages other than, or in addition to, actual damages. The Company (a)
certifies that neither the Agent or any Bank nor any representative, agent or
attorney of the Agent or any Bank has represented, expressly or otherwise, that
the Agent or any Bank would not, in the event of litigation, seek to enforce the
foregoing waivers and (b) acknowledges that, in entering into the Credit
Agreement and the other Loan Documents to which the Agent or any Bank is a
party, the Agent and the Banks are relying upon, among other things, the waivers
and certifications contained in this ss.19.
20. MISCELLANEOUS. The headings of each section of this Agreement are
-------------
for convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Company and its respective successors and assigns, and shall inure to the
benefit of the Agent, the Banks and their respective successors and assigns. If
any term of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Agreement shall be construed and be enforceable as if
such invalid, illegal or unenforceable term had not been included herein. The
Company acknowledges receipt of a copy of this Agreement.
[Remainder of page intentionally left blank]
<PAGE>
11
IN WITNESS WHEREOF, intending to be legally bound, the Company has
caused this Agreement to be duly executed as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:________________________________________________
Title:
Accepted:
BANKBOSTON, N.A.,
as Agent
By:________________________________________
Timothy G. Clifford,
Vice President
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ____ day of _____________, 1997, personally appeared
___________________ to me known personally, and who, being by me duly sworn,
deposes and says that he is the _______________ of National Auto Finance
Company, Inc., and that said instrument was signed and sealed on behalf of said
corporation by authority of its Board of Directors, and said ________________
acknowledged said instrument to be the free act and deed of said corporation.
------------------------------
Notary Public
My commission expires:
AMENDMENT TO POOLING AND SERVICING AGREEMENTS
THIS AMENDMENT, dated as of September 25, 1997 (the "Amendment") to
the Pooling and Servicing Agreement, dated as October 1, 1995, and the Pooling
and Servicing Agreement, dated as of October 21, 1996 (each, as such agreement
may be amended, supplemented, amended and restated or otherwise modified in
accordance with the terms thereof, a "Pooling Agreement" and together, the
"Pooling Agreements"), each among National Financial Auto Funding Trust
("Funding Trust"), National Auto Finance Company, Inc. ("NAFI"), as successor to
National Auto Finance Company L.P., and Harris Trust and Savings Bank, as
trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend certain terms of the
Pooling Agreements;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used but not defined
herein shall have the respective meanings assigned to them as set forth in the
Pooling Agreements.
SECTION 2. Amendments to the Pooling Agreements. (a) Section 4.04(a)
of each of the Pooling Agreements is hereby amended as follows: (i) the phrase
"clauses (i) through (iii), inclusive, of subsection 4.01(b)", as such phrase
appears in both the first and second sentences of Section 4.04(a) of each
Pooling Agreement, is hereby modified to read "clauses (i) through (iv),
inclusive, of Section 4.01(b)"; and (ii) the reference to "Certificateholders"
that appears in the fourth sentence of such Section 4.04(a) is hereby amended to
read "the Persons referred to in clauses (i) through (iv), inclusive, of Section
4.01(b), as applicable,".
SECTION 3. Effectiveness of Agreement. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of any of
the parties to the Pooling Agreements under the Pooling Agreements, nor alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Pooling Agreements, all of which are
hereby ratified and affirmed in all respects by the parties hereto and shall
continue in full force and effect. This Amendment shall apply and be effective
only with respect to the provisions of the Pooling Agreements specifically
referred to herein and any references in the Pooling Agreements to the
provisions of the Pooling Agreements specifically referred to herein shall be to
such provisions as amended by this Amendment.
SECTION 4. Effectiveness of Amendment. This Amendment shall become
effective when counterparts hereof executed and delivered on behalf of each
party hereto shall have been received by the Certificate Insurer and the
Certificate Insurer shall have executed a written consent to this Amendment
pursuant to Section 10.01 of each of the Pooling Agreements.
<PAGE>
SECTION 5. Execution in Counterparts. This Amendment may be executed
by the parties hereto in several counterparts and be deemed to be an original
and all of which shall constitute together but one and the same agreement.
SECTION 6. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
HARRIS TRUST AND SAVINGS BANK
as trustee
By: _______________________________
Name: _______________________________
Title: _______________________________
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: ______________________________
Name: ______________________________
Title: ______________________ of Chase
Manhattan Bank Delaware, as trustee for
National Financial Auto Funding Trust
NATIONAL AUTO FINANCE COMPANY, INC.
By: ______________________________
Name: ______________________________
Title: ______________________________
<PAGE>
Consented and Agreed:
FINANCIAL SECURITY ASSURANCE INC.
By: _________________________________
Name: _________________________________
Title: _________________________________
FINANCIAL SECURITY ASSURANCE INC.
350 PARK AVENUE
NEW YORK, NEW YORK 10022
September 25, 1997
National Auto Finance Company, Inc.
One Park Place (Suite 200)
621 N.W. 53rd Street
Boca Raton, Florida 33487
National Financial Auto Funding Trust
c/o The Chase Manhattan Bank Delaware
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Re: Insurance and Indemnity Agreement, dated as of November 21, 1995,
among Financial Security Assurance Inc. ("Financial Security"),
National Financial Auto Funding Trust (the "Transferor") and
National Auto Finance Company, Inc. (formerly National Auto
Finance Company L.P.) ("NAFI")
-----------------------------------------------------------------
Ladies and Gentlemen:
Reference is hereby made to (i) the above-referenced Insurance and
Indemnity Agreement, (ii) the Insurance and Indemnity Agreement, dated as of
November 13, 1996, among Financial Security, the Transferor and NAFI and (iii)
the Insurance and Indemnity Agreement, dated as of July 23, 1997, among
Financial Security, the Transferor, NAFI and National Auto Finance 1997-1 Trust
(as amended, supplemented or otherwise modified as of the date hereof in
accordance with the respective terms thereof, and as the same may be further
amended, supplemented or otherwise modified from time to time in accordance with
the respective terms thereof, the "Series 1995-1 Insurance Agreement," the
"Series 1996-1 Insurance Agreement" and the "Series 1997-1 Insurance Agreement,"
respectively). Capitalized terms used herein and not defined herein shall have
the meanings assigned thereto in the Series 1995-1 Insurance Agreement.
Pursuant to Section 5.02(d) of the Series 1995-1 Insurance Agreement,
Financial Security hereby permanently waives any Event of Default under Section
5.01 of the Series
DAFS03...:\97\64897\0001\2058\LTR4228T.280
<PAGE>
1995-1 Insurance Agreement that shall have occurred prior to the date hereof and
the consequences thereof, including, without limitation, (i) Financial
Security's right to receive the Premium Supplement due and payable under the
Premium Letter and Section 5.02 of the Series 1995-1 Insurance Agreement and
(ii) the occurrence of an Event of Default under the Series 1996-1 Insurance
Agreement or the Series 1997-1 Insurance Agreement solely as a result of any
such Event of Default under the Series 1995-1 Insurance Agreement. Pursuant to
Section 5.02(d) of the Series 1995-1 Insurance Agreement, Financial Security
hereby further waives any right that it may have to collect the Premium
Supplement specified in the Premium Letter and the Series 1995-1 Insurance
Agreement as a result of any Event of Default under the Series 1995-1 Insurance
Agreement occurring on any date up through and including March 31, 1998. The
waiver granted by Financial Security in this paragraph shall extend only to the
specific events and occurrences expressly waived in this paragraph and not to
any other similar event or occurrence.
Financial Security hereby reserves all of its rights and remedies, at law,
in equity or otherwise, arising out of or in connection with the documents
referenced herein and all related documents, except for the rights expressly and
specifically waived herein. Financial Security's failure to exercise any rights
or remedy (other than rights and remedies expressly and specifically waived)
shall not be construed as a waiver of any such right or remedy.
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ Russell B. Brewer II
----------------------------
Name: Russell B. Brewer II
Title: Managing Director
cc: The Chase Manhattan Bank Delaware,
as Owner Trustee
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
2
EXECUTION COPY
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL AUTO FINANCE 1997-1 TRUST,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
NATIONAL AUTO FINANCE COMPANY, INC.,
Dated as of July 23, 1997
National Auto Finance 1997-1 Trust
6.35% Automobile Receivables-Backed Notes
$66,891,200
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions...................................................2
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of the Trust...................3
Section 2.02. Affirmative Covenants of the Trust............................7
Section 2.03. Negative Covenants of the Trust..............................14
Section 2.04. Representations and Warranties of
NAFI and the Transferor................................16
Section 2.05. Affirmative Covenants of NAFI and
the Transferor...........................................25
Section 2.06. Negative Covenants of NAFI and
the Transferor...........................................33
Section 2.07. Representations and Warranties of NAFI
and the Transferor with respect to the
Master Trust and Funding Trust II........................36
Section 2.08. Affirmative Covenants of NAFI and
the Transferor with respect to the
Master Trust and Funding Trust II........................37
Section 2.09. Negative Covenants of NAFI and
the Transferor with respect to the
Master Trust and Funding Trust II........................38
ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy.......................................39
Section 3.02. Payment of Fees and Premium..................................39
Section 3.03. Reimbursement Obligation.....................................40
Section 3.04. Indemnification..............................................42
Section 3.05. Subrogation..................................................45
ARTICLE IV.
FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement............................45
Section 4.02. Obligation Absolute..........................................45
Section 4.03. Assignments; Reinsurance; Third-Party
Rights...................................................47
Section 4.04. Liability of Financial Security..............................48
-i-
<PAGE>
Page
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default............................................48
Section 5.02. Remedies; Waivers............................................51
ARTICLE VI.
MISCELLANEOUS
Section 6.01. Amendments, Etc..............................................52
Section 6.02. Notices......................................................52
Section 6.03. Payment Procedure............................................53
Section 6.04. Confidentiality..............................................54
Section 6.05. Severability.................................................54
Section 6.06. Governing Law................................................54
Section 6.07. Consent to Jurisdiction......................................55
Section 6.08. Consent of Financial Security................................55
Section 6.09. Counterparts.................................................56
Section 6.10. Trial by Jury Waived.........................................56
Section 6.11. Limited Liability............................................56
Section 6.13. Entire Agreement.............................................57
Appendix I Definitions
Appendix II Conditions Precedent to Issuance of the Policy
Annex I Form of Financial Guaranty Insurance Policy
Appendix A Opinions of Counsel
-ii-
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of July 23, 1997, by and among
FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL AUTO FINANCE
1997-1 TRUST (the "Trust"), NATIONAL FINANCIAL AUTO FUNDING TRUST (the
"Transferor") and NATIONAL AUTO FINANCE COMPANY, INC. ("NAFI", and in its
capacity as Servicer, the "Servicer").
INTRODUCTORY STATEMENTS
A. On the Closing Date, (i) the Master Trust will sell all of its right,
title and interest in and to the Initial Receivables and certain other property
related thereto to Funding Trust II pursuant to the Assignment Agreement and
will simultaneously release its liens on such Initial Receivables and such other
property related thereto, (ii) Funding Trust II will simultaneously (A) sell all
of its right, title and interest in and to certain of the Initial Receivables
and such other property related thereto to the Transferor pursuant to the Sale
Agreement and (B) convey all of its right, title and interest in and to certain
of the Initial Receivables and such other property related thereto to NAFI as a
dividend, and in each case will simultaneously release its liens on such Initial
Receivables and such other property related thereto, (iii) NAFI will contribute
all of its right, title and interest in and to the Initial Receivables and the
other property related thereto conveyed to NAFI by Funding Trust II as a
dividend to the Transferor pursuant to the Purchase and Contribution Agreement,
and (iv) the Transferor will simultaneously sell all of its right, title and
interest in and to the Initial Receivables and such other property related
thereto to the Trust pursuant to the Sale and Servicing Agreement.
B. On each Subsequent Transfer Date, the Transferor proposes to purchase
Subsequent Receivables and certain other property related thereto from NAFI
pursuant to the Purchase and Contribution Agreement and to simultaneously sell
to the Trust all of its right, title and interest in and to such Subsequent
Receivables and such other property related thereto pursuant to the Sale and
Servicing Agreement and the related Subsequent Transfer Agreement.
C. The Trust will issue the Securities pursuant to the Indenture and the
Certificates pursuant to the Trust Agreement. The Trust has requested that
Financial Security issue a financial guaranty insurance policy guaranteeing
certain distributions of the principal of and interest on the Securities
(including any such distributions subsequently avoided as a preference under
<PAGE>
applicable bankruptcy law) upon the terms and subject to the conditions provided
herein.
D. It is contemplated that NAFI and/or Funding Trust II and/or the
Transferor and/or any other Affiliate of NAFI may in the future enter into one
or more pooling and servicing agreements, sale and servicing agreements,
indentures, receivables purchase agreements or other financing documents (each,
a "Securitization Agreement") pursuant to which NAFI, Funding Trust II, the
Transferor and/or such other Affiliate of NAFI will sell, pledge or otherwise
transfer all or a portion of its right, title and interest in and to pools of
contracts and/or other financial assets or property to a trust or other Person
and in connection therewith Financial Security in its discretion may in the
future issue additional policies with respect to certain guaranteed
distributions or scheduled payments with respect to the corresponding
securities, certificates, notes or other obligations issued or arising under
such Securitization Agreements.
E. The parties hereto desire to specify the conditions precedent to the
issuance of the Policy, the terms of payment of premium in respect of the
Policy, the indemnity and reimbursement to be provided to Financial Security in
respect of amounts paid by Financial Security under the Policy or otherwise and
certain other matters.
In consideration of the premises and of the agreements herein contained,
Financial Security, the Trust, the Transferor and NAFI hereby agree as follows:
ARTICLE
DEFINITIONS
Section Definitions. Capitalized terms used herein shall have the meanings
provided in Appendix I hereto unless the context otherwise requires. In
addition, all terms defined in the Sale and Servicing Agreement or in the Spread
Account Agreement shall have the same meanings in this Insurance Agreement.
Unless otherwise specified, if a word or phrase defined in the Sale and
Servicing Agreement or in the Spread Account Agreement can be applied with
respect to one or more Series, such a word or phrase shall be used herein as
applied to Series 1997-1.
ARTICLE
REPRESENTATIONS, WARRANTIES AND COVENANTS
-2-
<PAGE>
Section Representations and Warranties of the Trust. The Trust represents,
warrants and covenants, as of the date hereof, the Date of Issuance and each
Subsequent Transfer Date, with respect to itself and otherwise as follows:
Due Organization and Qualification. The Trust is a Delaware
statutory business trust, duly formed, validly existing and in good
standing under the laws of the State of Delaware, with power and authority
to own its properties and to conduct its business. The Trust is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Offering Document and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals would render any Receivable unenforceable in any respect or
would otherwise have a material adverse effect upon the Transaction.
Power and Authority. The Trust has all necessary trust power
and authority to conduct its business as currently conducted and as
described in the Offering Document, to execute, deliver and perform its
obligations under the Transaction Documents and to consummate the
Transaction.
Due Authorization. The execution, delivery and performance of the
Transaction Documents by the Trust have been duly authorized by all
necessary action on the part of the Trust and do not require any
additional approvals or consents or other action by or any notice to or
filing with any Person by or on behalf of the Trust, including, without
limitation, any governmental entity.
Noncontravention. None of the execution and
delivery of the Transaction Documents by the Trust, the
consummation of the transactions contemplated thereby or the
satisfaction of the terms and conditions of the Transaction
Documents,
conflicts with or results in any breach or violation of any
provision of the certificate of trust of the Trust or the Trust
Agreement, or any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award currently in effect
having applicability to the Trust, or any of its properties,
including regulations issued by an administrative agency or other
governmental authority having supervisory powers over the Trust,
-3-
<PAGE>
constitutes or will constitute a default by the Trust under
or a breach of any provision of any loan agreement, mortgage,
indenture or other agreement or instrument to which the Trust is a
party or by which it or any of its properties may be bound or
affected, or
results in or requires the creation of any Lien upon or in
respect of any of the assets of the Trust except as otherwise
contemplated by the Transaction Documents.
Legal Proceedings. There is no action, proceeding or
investigation, by or before any court, governmental or administrative
agency or arbitrator against or affecting all or any of the Receivables,
the Trust, or any properties or rights of the Trust, pending or
threatened, which, in any case, if decided adversely, could result in a
Material Adverse Change with respect to the Trust or any Receivable.
Valid and Binding Obligations. Each of the Transaction Documents
to which the Trust is a party when executed and delivered by the Owner
Trustee on behalf of the Trust, will constitute the legal, valid and
binding obligations of the Trust, enforceable in accordance with its
respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles.
The Securities, when executed, authenticated and delivered in accordance
with the Indenture, will be entitled to the benefits of the Indenture and
will constitute legal, valid and binding obligations of the Trust,
enforceable in accordance with their terms. The Certificates, when
executed, authenticated and delivered in accordance with the Trust
Agreement, will be validly issued and outstanding and entitled to the
benefits of the Trust Agreement and will evidence the entire beneficial
interest in the Trust.
ERISA. The Trust does not maintain or contribute
to, or have any obligation to maintain or contribute to, any
Plan. The Trust is not subject to any of the provisions of
ERISA.
Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to the Trust or the
Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to the Trust that would render any of the
-4-
<PAGE>
Provided Documents untrue or misleading in any material respect. There is
no fact known to the Trust which has a material possibility of causing a
Material Adverse Change with respect to the Trust or the Receivables.
Compliance With Securities Laws. The offer and sale of the
Securities and the Certificates comply in all material respects with all
requirements of law, including all applicable registration requirements of
securities laws. Without limitation of the foregoing, the Offering
Document does not contain any untrue statement of a material fact and does
not omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that no
representation is made with respect to information included in an Offering
Document and furnished by Financial Security in writing expressly for use
therein (all such information so furnished being referred to herein as
"Financial Security Information"), it being understood that, in respect of
the Offering Document, the Financial Security Information is limited to
the information included under the caption "THE INSURER", and such
additional information as may be deemed to be included in the Offering
Document pursuant to the second paragraph under the heading "Incorporation
Of Certain Documents By Reference" on page S-3 of the Offering Document.
None of the Trust Agreement, the Indenture or the Sale and Servicing
Agreement is required to be qualified under the Trust Indenture Act.
Incorporation of Certain Representations and Warranties. Each of
the representations and warranties of the Trust contained in the
Transaction Documents is true and correct in all material respects and the
Trust hereby makes each such representation and warranty made by it to,
and for the benefit of, Financial Security as if the same were set forth
in full herein.
No Consents. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required with respect to, or to be obtained by,
the Trust in connection with the execution, delivery and performance by
the Trust of this Insurance Agreement or any other Transaction Document to
which the Trust is a party, except (in each case) such as have been
obtained and are in full force and effect.
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Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by the Trust in the conduct of its
business violates any law, regulation, judgment, agreement, order or
decree applicable to it which, if enforced, would result in a Material
Adverse Change with respect to the Trust.
Special Purpose Entity.
The capital of the Trust is adequate for the business and
undertakings of the Trust.
Other than the transactions as provided in the Transaction
Documents, the Trust is not engaged in any business transactions
with NAFI, the Transferor or any of their respective Subsidiaries or
Affiliates.
The Trust's funds and assets are not, and will not be,
commingled with the funds of any other Person.
Solvency; Fraudulent Conveyance. The Trust is solvent and will not
be rendered insolvent by the Transaction and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount
of capital with which to engage in its business. The Trust does not intend
to incur, or believe that it has incurred, debts beyond its ability to pay
such debts as they mature. The Trust does not contemplate the commencement
of insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Trust or any of its assets. The Trust is not
pledging the Collateral to the Trust Collateral Agent, or issuing the
Securities and the Certificates, as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Trust's creditors.
Investment Company Act Compliance. Neither the Trust nor the Owner
Trust Estate is required to be registered as an "investment company" under
the Investment Company Act. The Trust is not subject to the information
reporting requirements of the Securities Exchange Act.
Collateral. On the Date of Issuance, and on each Subsequent
Transfer Date, the Trust will be the owner of, and will have good and
marketable title to, each item of Other Trust Property conveyed on such
date and will own each such item free and clear of all Liens and
Restrictions on Transferability (other than Liens contemplated under the
Indenture) or any equity or participation interest of any
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other Person and will have full right, power and lawful authority to
pledge such Other Trust Property. The Indenture constitutes a valid pledge
of the Collateral to the Trust Collateral Agent, and the Trust Collateral
Agent shall have a valid and perfected first priority security interest in
the Collateral, free and clear of all Liens and Restrictions on
Transferability.
Perfection of Liens and Security Interest. On the Closing
Date, the Lien and security interest in favor of (i) the Trust Collateral
Agent with respect to the Collateral will be perfected by the delivery of
the Receivable Files to the Custodian, which Receivable Files the
Custodian will hold on behalf of the Trust Collateral Agent, the filing of
financing statements on Form UCC-1 in each jurisdiction where such
recording or filing is necessary for the perfection of such Lien and
security interest, and the establishment of the Collection Account, the
Pre-Funding Account, the Pre-Funding Period Reserve Account, the
Distribution Account, the Note Distribution Account and the Lockbox
Account in accordance with the provisions of the Transaction Documents,
and no other filings in any jurisdiction or any other actions (except as
expressly provided herein) are necessary to perfect the Trust Collateral
Agent's first priority Lien on and security interest in the Collateral as
against any third parties.
Security Interest in Funds and Investments. Assuming the
retention of funds in the Trust Accounts and the acquisition of Eligible
Investments in accordance with the Transaction Documents, such funds and
Eligible Investments will be subject to a valid and perfected, first
priority security interest in favor of the Trust Collateral Agent on
behalf of the Indenture Trustee (on behalf of the holders of the
Securities) and Financial Security. Assuming the retention of funds in the
Spread Account and the acquisition of Eligible Investments in accordance
with the Spread Account Agreement, such funds and Eligible Investments
will be subject to a valid and perfected, first priority security interest
in favor of the Collateral Agent on behalf of Financial Security.
Section Affirmative Covenants of the Trust. The Trust hereby agrees, that
during the Term of this Agreement, unless Financial Security shall otherwise
expressly consent in writing:
Compliance With Agreements and Applicable Laws.
The Trust shall perform each of its obligations under the
Transaction Documents and shall comply with all material
requirements of, and the Securities and the Certificates
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shall be offered and sold in accordance with, any law, rule or regulation
applicable to it or thereto, or that are required in connection with its
performance under any of the Transaction Documents. The Trust will not
cause or permit to become effective any amendment to or modification of
any of the Transaction Documents to which it is a party unless Financial
Security shall have previously approved in writing the form of such
amendment or modification. The Trust shall not take any action or fail to
take any action that would interfere with the enforcement of any rights
under the Transaction Documents.
Financial Statements; Accountants' Reports; Other Information. The
Trust shall keep or cause to be kept in reasonable detail books and
records of account of its assets and business, which shall be furnished to
Financial Security upon request. The Trust shall furnish or cause to be
furnished to Financial Security the following to the extent any of the
following is prepared by or on behalf of the Trust:
Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of each fiscal year of the
Trust, the audited balance sheets of the Trust as of the end of such
fiscal year and the audited statements of income, changes in
shareholders' equity and cash flows of the Trust, all in reasonable
detail and stating in comparative form the respective figures for
the corresponding date and period in the preceding fiscal year,
prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by the certificate
of the Trust's independent accountants (who shall be, in each case,
a nationally recognized firm or otherwise acceptable to Financial
Security) and by the certificate specified in Section 2.02(c)
hereof.
Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each fiscal year of the Trust, the unaudited balance
sheets of the Trust, as of the end of such quarter and the unaudited
statements of income, changes in shareholders' equity and cash flows
of the Trust for the portion of the fiscal year then ended, all in
reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding
fiscal year, prepared in accordance with generally accepted
accounting principles, consistently applied (subject to normal
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year-end adjustments), and accompanied by the certificate specified
in Section 2.02(c) hereof.
Accountants' Reports. Copies of any
reports submitted to the Trust by its independent
accountants in connection with any examination of the
financial statements of the Trust.
Other Information. Promptly upon receipt thereof, copies of
all reports, statements, certifications, schedules, financial
statements, notices or other similar items delivered to or by the
Trust pursuant to the terms of the Transaction Documents and,
promptly upon request, such other data as Financial Security may
reasonably request. The books and records of the Trust will be
maintained at the address designated herein for receipt of notices,
unless the Trust shall otherwise advise the parties hereto in
writing.
Documents. The Trust shall provide or cause to be provided to
Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the
date of closing.
Tax Documentation. Not less than ten days prior to the date
of filing with the IRS of any tax return or amendment thereto,
copies of the proposed form of such return or amendment and promptly
after the filing or sending thereof, copies of all tax returns and
amendments thereto, proxy statements, financial statements, reports
and registration statements which the Trust files, or delivers to,
the IRS, the Commission, or any other federal, state or foreign
government agency, authority or body which supervises the issuance
of securities by the Trust or any national securities exchange.
Compliance Certificate. The Trust shall deliver to Financial
Security concurrently with the delivery of the financial statements
required pursuant to Section 2.02(b)(i) hereof and concurrently with the
delivery of the financial statements required pursuant to Section
2.02(b)(ii) hereof a certificate signed by an officer of the Trust stating
that:
a review of the Trust's performance under the Transaction
Documents during such period has been made under such officer's
supervision;
to the best of such individual's knowledge,
no Special Event, Default or Event of Default has
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occurred, or if a Special Event, Default or Event of Default has
occurred, specifying the nature thereof and, if the Trust has a
right to cure any such Default or Event of Default pursuant to
Section 5.01, stating in reasonable detail the steps, if any, being
taken by the Trust to cure such Default or Event of Default or to
otherwise comply with the terms of the agreement to which such
Default or Event of Default relates; and
the attached financial reports submitted in accordance with
Section 2.02(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial
condition and results of operations of the Trust, as of the dates
and for the periods indicated, in accordance with generally accepted
accounting principles consistently applied (subject as to interim
statements to normal year end adjustments).
Notice of Material Events. The Trust shall
promptly inform Financial Security in writing of the
occurrence of any of the following:
the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Trust pertaining to the Receivables in general, (B) with
respect to a material portion of the Receivables or (C) in which a
request has been made for certification as a class action (or
equivalent relief) that would involve a material portion of the
Receivables;
any change in the location of the Trust's
principal office or any change in the location of the
Trust's books and records;
the occurrence of any Default or Special
Event; or
any other event, circumstance or condition that has
resulted, or the Trust reasonably believes might result, in a
Material Adverse Change in respect of the Trust or the Receivables.
Access to Records, Discussions with Officers and Accountants.
The Trust shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of
the Trust as they may relate to the Securities, the Certificates, the
Receivables and the Other Trust Property, the obligations of the Trust
under the Transaction Documents, the Trust's
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business and the Transaction and (ii) to discuss the affairs, finances and
accounts of the Trust with any of its personnel and representatives,
including its independent accountants. Such inspections and discussions
shall be conducted during normal business hours and shall not unreasonably
disrupt the business of the Trust. The books and records of the Trust will
be maintained at the address of the Trust designated herein for receipt of
notices, unless the Trust shall otherwise advise the parties hereto in
writing.
Further Assurances. The Trust will file all necessary financing
statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed
in such manner and in such places as may be required by law to preserve
and protect fully the Lien on and security interest in, and all rights of
the Trust Collateral Agent with respect to the Collateral under the
Indenture. In addition, the Trust shall, upon the request of Financial
Security, from time to time, execute, acknowledge and deliver, or cause to
be executed, acknowledged and delivered, within ten (10) days of such
request, such amendments hereto and such further instruments and take such
further action as may be reasonably necessary to effectuate the intention,
performance and provisions of the Transaction Documents or to protect the
interest of the Trust Collateral Agent in the Collateral under the
Indenture, free and clear of all Liens and Restrictions on Transferability
except the Lien in favor of the Trust Collateral Agent. In addition, the
Trust agrees to cooperate with S&P and Moody's in connection with any
review of the Transaction which may be undertaken by S&P and Moody's after
the date hereof.
Retirement of Securities. The Trust shall, upon retirement of the
Securities, furnish to Financial Security a notice of such retirement,
and, upon retirement of the Securities and the expiration of the Term of
the Policy, surrender the Policy to Financial Security for cancellation.
Third-Party Beneficiary. The Trust agrees that Financial Security
shall have all rights of a third-party beneficiary in respect of each of
the Transaction Documents and hereby incorporates and restates its
representations, warranties and covenants as set forth therein for the
benefit of Financial Security.
Preservation of Existence. The Trust shall
observe in all material respects all procedures required by
its certificate of trust and the Trust Agreement and
preserve and maintain its existence as a trust and its
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rights, franchises and privileges in the jurisdiction of its organization,
and duly qualify and remain in good standing in each jurisdiction where
the nature of its business requires it to do so.
Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/ casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only
statutory accounting practices for determining and reporting
the financial condition and results of operations of an
insurance company, for determining its solvency under the New
York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its
stockholders. No consideration is given by the New York State
Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in
making such determinations.
(2) Each Offering Document delivered with respect to the Securities
subsequent to the Date of Issuance shall be in form and substance
satisfactory to Financial Security in its sole discretion as evidenced by
Financial Security's prior written consent to the use thereof.
Special Purpose Entity.
The Trust shall conduct its business solely in its own name
through its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those officers
are concerned, and particularly will avoid the appearance of
conducting business on behalf of NAFI, the Transferor or any of
their respective Affiliates or that the assets of the Trust are
available to pay the creditors of NAFI, the Transferor or any of
their respective Affiliates. Without limiting the generality of the
foregoing, all oral and written communications, including, without
limitation, letters, invoices,
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purchase orders, contracts, statements and loan applications, will
be made solely in the name of the Trust.
The Trust shall maintain trust records and books of account
separate from those of NAFI, the Transferor or any of their
respective Affiliates. The books and records of the Trust will be
separate from those of NAFI, the Transferor and their respective
Affiliates and will be maintained at the address designated herein
for receipt of notices, unless the Trust shall otherwise advise the
parties hereto in writing with respect to such address.
The Trust shall obtain proper authorization from its equity
owners of all trust action requiring such authorization, and copies
of each such authorization and the minutes or other written summary
of each such meeting shall be delivered to Financial Security within
two weeks of such authorization or meeting, as the case may be.
Although the organizational expenses of the Trust have been
paid by the Seller, operating expenses and liabilities of the Trust
shall be paid from its own funds.
The annual financial statements of the Trust shall disclose
the effects of the Trust's transactions in accordance with generally
accepted accounting principles and shall disclose that the assets of
the Trust are not available to pay creditors of NAFI, the Transferor
or any of their respective Affiliates.
The resolutions, agreements and other instruments of the
Trust underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Trust as official records of the Trust separately
identified and held apart from the records of NAFI, the Transferor
or any of their respective Affiliates.
The Trust shall maintain an arm's-length relationship with
NAFI, the Transferor and their respective Affiliates and will not
hold itself out as being liable for the debts of NAFI, the
Transferor or any of their respective Affiliates.
The Trust shall keep its assets and its
liabilities wholly separate from those of all other
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entities, including, but not limited to NAFI, the
Transferor and their respective Affiliates.
Maintenance of Licenses. The Trust shall maintain all licenses,
permits, charters and registrations which are material to the performance
by the Trust of its business and of its obligations under this Insurance
Agreement and each other Transaction Document to which the Trust is a
party or by which the Trust is bound.
Tax Matters. The Trust will take all actions necessary to ensure
that the Trust is taxable as a partnership for federal and state income
tax purposes and not as an association (or publicly traded partnership) or
taxable as a corporation.
Securities Laws. The Trust shall comply in all material respects
with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated
thereunder for which non-compliance would result in a Material Adverse
Change with respect to the Trust.
Incorporation of Covenants. The Trust shall comply with each of
the Trust's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
Section Negative Covenants of the Trust. The Trust hereby agrees that
during the Term of this Agreement, unless Financial Security shall otherwise
expressly consent in writing:
Restrictions on Liens. The Trust shall not, except as
contemplated by the Transaction Documents (i) create, incur or suffer to
exist, or agree to create, incur or suffer to exist, or consent to cause
or permit in the future (upon the happening of a contingency or otherwise)
the creation, incurrence or existence of any Lien or Restriction on
Transferability on the Receivables and the Other Trust Property except for
the Lien in favor of the Trust Collateral Agent under the Indenture or
(ii) sign or file under the Uniform Commercial Code of any jurisdiction
any financing statement which names the Trust as a debtor, or sign any
security agreement authorizing any secured party thereunder to file such
financing statement, with respect to the Receivables and the Other Trust
Property, except in each case any such instrument solely securing the
rights and preserving the Lien of the Trust Collateral Agent, for the
benefit of the holders of the Securities and Financial Security.
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Impairment of Rights. The Trust shall not take any action, or fail
to take any action, if such action or failure to take action may (i)
interfere with the enforcement of any rights under the Transaction
Documents that are material to the rights, benefits or obligations of the
Indenture Trustee, the Certificateholders, the holders of Securities or
Financial Security, (ii) result in a Material Adverse Change in respect of
the Receivables or (iii) impair the ability of the Trust to perform its
obligations under the Transaction Documents.
Waiver, Amendments, Etc. The Trust shall not waive, modify or
amend, or consent to any waiver, modification or amendment of, any of the
provisions of any of the Transaction Documents or its certificate of trust
or the Trust Agreement unless Financial Security shall have consented
thereto in writing.
Successors. The Trust shall not terminate or designate, or
consent to the termination or designation of, the Servicer, the Backup
Servicer, the Custodian, the Owner Trustee, the Trust Collateral Agent,
the Indenture Trustee or the Collateral Agent or any successor thereto
without the prior approval of Financial Security.
Creation of Indebtedness; Guarantees. The Trust shall not create,
incur, assume or suffer to exist any indebtedness other than indebtedness
guaranteed or approved in writing by Financial Security. Without the prior
written consent of Financial Security, the Trust shall not assume,
guarantee, endorse or otherwise be or become directly or contingently
liable for the obligations of any Person by, among other things, agreeing
to purchase any obligation of another Person, agreeing to advance funds to
such Person or causing or assisting such Person to maintain any amount of
capital.
Subsidiaries. The Trust shall not form, or cause
to be formed, any Subsidiaries.
Issuance of Additional Beneficial Ownership Interests. The Trust
shall not issue or allow the issuance of any additional beneficial
ownership interests or securities convertible into or exchangeable for
beneficial ownership interests in the Trust.
No Mergers. The Trust shall not consolidate with or merge into any
Person or transfer all or any material portion of its assets to any Person
or liquidate or dissolve except as contemplated by the Transaction
Documents.
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Other Activities. The Trust shall not:
sell, transfer, exchange or otherwise dispose
of any of its assets except as permitted under the
Transaction Documents; or
engage in any business or activity except as contemplated by
the Transaction Documents and as permitted under its certificate of
trust.
Insolvency. The Trust shall not commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to the bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, corporation or other
relief with respect to it or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or make a general assignment for the
benefit of its creditors. The Trust shall not take any action in
furtherance of, or indicating the consent to, approval of, or acquiescence
in any of the acts set forth above. The Trust shall not admit in writing
its inability to pay its debts.
ERISA. The Trust shall not contribute or incur
any obligation to contribute to, or incur any liability in
respect of, any Plan or Multiemployer Plan.
Section Representations and Warranties of NAFI and the Transferor. NAFI
represents, warrants and covenants, as of the date hereof, the Date of Issuance
and each Subsequent Transfer Date with respect to itself, with respect to the
Transferor and otherwise as follows, and the Transferor represents, warrants and
covenants, as of the date hereof, the Date of Issuance and each Subsequent
Transfer Date, with respect to itself and otherwise, as follows:
Due Organization and Qualification. NAFI is a corporation,
duly organized, validly existing and in good standing under the laws of
the State of Delaware. The Transferor is a Delaware statutory business
trust, duly formed, validly existing and in good standing under the laws
of the State of Delaware. Each of NAFI and the Transferor is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Offering Document and the
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performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals would render any Receivable unenforceable in any respect or
would otherwise have a material adverse effect upon the Transaction.
Power and Authority. Each of NAFI and the Transferor has all
necessary power and authority to conduct its business as currently
conducted and as described in the Offering Document, to execute, deliver
and perform its obligations under the Transaction Documents and to
consummate the Transaction.
Due Authorization. The execution, delivery and performance of the
Transaction Documents by each of NAFI and the Transferor have been duly
authorized by all necessary action and do not require any additional
approvals or consents or other action by or any notice to or filing with
any Person.
Noncontravention. None of the execution and
delivery of the Transaction Documents by the Transferor or
NAFI, the consummation of the transactions contemplated
thereby or the satisfaction of the terms and conditions of
the Transaction Documents,
conflicts with or results in any breach or violation of any
provision of the certificate of trust and the trust agreement of the
Transferor or the certificate of incorporation and by-laws of NAFI,
or any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award currently in effect having
applicability to the Transferor or NAFI, as the case may be, or any
of their respective properties, including regulations issued by an
administrative agency or other governmental authority having
supervisory powers over the Transferor or NAFI, as the case may be,
constitutes a default by the Transferor or NAFI, as the case
may be, under or a breach of any provision of any loan agreement,
mortgage, indenture or other agreement or instrument to which the
Transferor or NAFI, as the case may be, or any of their respective
Subsidiaries or Affiliates is a party or by which it or any of its
or their properties is or may be bound or affected, or
results in or requires the creation of any
Lien upon or in respect of any of the assets of the
Transferor or NAFI or any of their respective
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Subsidiaries or Affiliates except as otherwise expressly
contemplated by the Transaction Documents.
Legal Proceedings. There is no action, proceeding or investigation
by or before any court, governmental or administrative agency or
arbitrator against or affecting all or any of the Receivables, NAFI, the
Transferor or any of their respective Subsidiaries or Affiliates, or any
properties or rights of NAFI, the Transferor or any of their respective
Subsidiaries or Affiliates, pending or threatened, which, in any case, if
decided adversely, would result in a Material Adverse Change with respect
to NAFI, the Transferor or any Receivable.
Valid and Binding Obligations. Each of the Transaction Documents
to which either NAFI or the Transferor is a party when executed and
delivered by NAFI or by the Transferor, as the case may be, will
constitute the legal, valid and binding obligations of such Person,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles. The Securities, when executed, authenticated
and delivered in accordance with the Indenture, will be binding
obligations of the Trust, enforceable in accordance with their terms,
validly issued and outstanding and entitled to the benefits of the
Indenture, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general equitable principles. The
Certificates, when executed, authenticated and delivered in accordance
with the Trust Agreement, will be validly issued and outstanding and
entitled to the benefits of the Trust Agreement and will evidence the
entire beneficial ownership interest in the Trust.
Financial Statements. The Financial Statements of each of the
Transferor and NAFI, copies of which have been furnished to Financial
Security, (i) are, as of the dates and for the periods referred to
therein, complete and correct in all material respects, (ii) present
fairly the financial condition and results of operations of each of the
Transferor and NAFI as of the dates and for the periods indicated and
(iii) have been prepared in accordance with generally accepted accounting
principles consistently applied, except as noted therein (subject as to
interim statements to normal year-end adjustments). Since the date of the
most recent Financial Statements, there has been no Material Adverse
Change in such financial condition or results of operations. Except as
disclosed in the Financial
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Statements, neither the Transferor nor NAFI is subject to any contingent
liabilities or commitments that, individually or in the aggregate, have a
material possibility of causing a Material Adverse Change in respect of
the Transferor or NAFI, as the case may be.
ERISA. Each of the Transferor and NAFI is in compliance with ERISA
and has not incurred and does not reasonably expect to incur any
liabilities to the PBGC under ERISA in connection with any Plan or
Multiemployer Plan or to contribute now or in the future in respect of any
Plan or Multiemployer Plan.
Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to NAFI, the Transferor or
the Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to NAFI or to the Transferor, that would render any of the Provided
Documents untrue or misleading in any material respect. There is no fact
known to NAFI or to the Transferor which has a material possibility of
causing a Material Adverse Change with respect to NAFI, the Transferor or
the Receivables.
Compliance With Securities Laws. The offer and sale of the
Securities and the Certificates comply in all material respects with all
requirements of law, including all applicable registration requirements of
securities laws. Without limitation of the foregoing, the Offering
Document does not contain any untrue statement of a material fact and does
not omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that no
representation is made with respect to information included in an Offering
Document and furnished by Financial Security in writing expressly for use
therein (all such information so furnished being referred to herein as
"Financial Security Information"), it being understood that, in respect of
the Offering Document, the Financial Security Information is limited to
the information included under the caption "THE INSURER", and such
additional information as may be deemed to be included in the Offering
Document pursuant to the second paragraph under the heading "Incorporation
Of Certain Documents By Reference" on page S-3 of the Offering Document.
Neither the Trust nor the Owner Trust Estate is required to be registered
as an "investment company" under the Investment Company Act. None of the
Trust Agreement, the Indenture or
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the Sale and Servicing Agreement is required to be qualified
under the Trust Indenture Act.
Incorporation of Certain Representations and Warranties. Each of
the representations and warranties of NAFI and of the Transferor contained
in the Transaction Documents is true and correct in all material respects
and each of NAFI and the Transferor hereby makes each such representation
and warranty made by it to, and for the benefit of, Financial Security as
if the same were set forth in full herein.
No Consents. No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required in connection with the execution,
delivery and performance by NAFI or by the Transferor of this Insurance
Agreement or of any other Transaction Document to which such Person is a
party, except (in each case) such as have been obtained and are in full
force and effect.
Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by NAFI or by the Transferor in the
conduct of their respective businesses violates any law, regulation,
judgment, agreement, order or decree applicable to it which, if enforced,
would result in a Material Adverse Change with respect to such Person or
the Receivables.
Special Purpose Entity.
The capital of the Transferor is adequate for the business
and undertakings of the Transferor.
Other than with respect to the ownership by NAFI and its
Affiliates of all of the beneficial ownership interests of the
Transferor and the transactions as provided in (A) the Transaction
Documents and (B) the corresponding applicable agreements relating
to the issuance by each of National Auto Finance 1995-1 Trust and
National Auto Finance 1996-1 Trust of a Series, the Transferor is
not engaged in any business transactions with NAFI or any of its
Affiliates.
At least one co-trustee of the Transferor shall be a Person
who is not, and will not be, a director, officer, employee or holder
of any
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partnership interests or equity securities or other beneficial
ownership interests of NAFI or any of its Affiliates.
The Transferor's funds and assets are not, and will not be,
commingled with the funds of any other Person.
The trust agreement of the Transferor requires it to
maintain (A) correct and complete books and records of account, and
(B) minutes of the meetings and other proceedings of its holders of
beneficial ownership interests and trustees (including any
co-trustees).
Solvency; Fraudulent Conveyance. Each of NAFI and the
Transferor is solvent and will not be rendered insolvent by the
Transaction and, after giving effect to such Transaction, neither NAFI nor
the Transferor will be left with an unreasonably small amount of capital
with which to engage in its business. Neither NAFI nor the Transferor
intends to incur, or believes that it has incurred, debts beyond its
ability to pay such debts as they mature. Neither NAFI nor the Transferor
is contemplating the commencement of insolvency, bankruptcy, liquidation
or consolidation proceedings or the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of NAFI or the
Transferor, as the case may be, or any of their respective assets. The
amount of consideration being received by the Transferor upon the sale of
the Receivables and related Other Trust Property to the Trust constitutes
reasonably equivalent value and fair consideration for such Receivables
and related Other Trust Property. The amount of consideration being
received by the Master Trust upon the sale of the Initial Receivables and
related Other Trust Property to Funding Trust II constitutes reasonably
equivalent value and fair consideration for such Receivables and related
Other Trust Property. The amount of consideration being received by
Funding Trust II upon the sale of the Initial Receivables and related
Other Trust Property to the Transferor constitutes reasonably equivalent
value and fair consideration for such Receivables and related Other Trust
Property. The amount of consideration to be received by NAFI upon the
transfer of the Subsequent Receivables and related Other Trust Property to
the Transferor constitutes reasonably equivalent value and fair
consideration for such Subsequent Receivables and related Other Trust
Property. None of (i) the Master Trust, with respect to the Initial
Receivables and related Other Trust Property transferred by it to Funding
Trust II, (ii) Funding Trust II, with respect to the Initial Receivables
and
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related Other Trust Property transferred by it to the Transferor and NAFI,
and (iii) NAFI, with respect to any Subsequent Receivables and related
Other Trust Property transferred by it to the Transferor, is transferring
any of the above-mentioned Receivables and related Other Trust Property or
interests with any intent to hinder, delay or defraud any of their
respective creditors. The Transferor is not transferring the Receivables
and related Other Trust Property to the Trust or selling the Securities,
as provided in the Transaction Documents, with any intent to hinder, delay
or defraud any of the Transferor's creditors.
Investment Company Act Compliance. Neither NAFI
nor the Transferor is required to be registered as an
"investment company" under the Investment Company Act.
Good Title; Valid Transfer; Absence of Liens; Security Interest.
(i) Immediately prior to the sale of the Initial Receivables and related
Other Trust Property by the Transferor to the Trust pursuant to the Sale
and Servicing Agreement on the Closing Date and immediately prior to the
sale of any Subsequent Receivables and related Other Trust Property by the
Transferor to the Trust pursuant to the Sale and Servicing Agreement and
the related Subsequent Transfer Agreement on any Subsequent Transfer Date,
the Transferor was the owner of, and had good and marketable title to,
such property free and clear of all Liens and Restrictions on
Transferability, and had full right, power and lawful authority to assign,
transfer and pledge such Receivables and related Other Trust Property. The
Sale and Servicing Agreement constitutes a valid sale, transfer and
assignment of the Initial Receivables and related Other Trust Property to
the Trust, and the Sale and Servicing Agreement and each related
Subsequent Transfer Agreement constitute a valid sale, transfer and
assignment of the Subsequent Receivables and related Other Trust Property
to the Trust, in each case enforceable against creditors of and purchasers
of the Transferor. In the event that, in contravention of the intention of
the parties, the transfer of such Receivables and related Other Trust
Property by the Transferor to the Trust is characterized as other than a
sale, such transfer shall be characterized as a secured financing, and the
Trust shall have a valid and perfected first priority security interest in
the Receivables and related Other Trust Property free and clear of all
Liens and Restrictions on Transferability.
(ii) Immediately prior to the pledge of the Collateral by the Trust
to the Trust Collateral Agent pursuant to the Indenture, the Trust was the
owner of, and had good and marketable title to, the Receivables and
related Other Trust
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Property free and clear of all Liens and Restrictions on Transferability,
and had full right, trust power and lawful authority to assign, transfer
and pledge such property. The Indenture constitutes a valid pledge of the
Collateral to the Trust Collateral Agent, and the Trust Collateral Agent
shall have a valid and perfected first priority security interest in the
Collateral, free and clear of all Liens and Restrictions on
Transferability.
Perfection of Liens and Security Interest. On the Closing
Date, the Lien and security interest in favor of the Trust Collateral
Agent with respect to the Collateral will be perfected by the delivery of
the Receivable Files to the Custodian, which Receivable Files the
Custodian will hold on behalf of the Trust Collateral Agent, the filing of
financing statements on Form UCC-1 in each jurisdiction where such
recording or filing is necessary for the perfection of the security
interest in favor of the Trustee and the establishment of the Collection
Account, the Distribution Account, the Note Distribution Account, the
Pre-Funding Period Reserve Account, the Pre-Funding Account and the
Lockbox Account in accordance with the provisions of the Transaction
Documents, and no other filings in any jurisdiction or any other actions
(except as expressly provided herein) are necessary to perfect the Trustee
Collateral Agent's first priority Lien on and security interest in the
Collateral as against any third parties.
Security Interest in Funds and Investments. Assuming the
retention of funds in the Trust Accounts and the acquisition of Eligible
Investments in accordance with the Transaction Documents, such funds and
Eligible Investments will be subject to a valid and perfected, first
priority security interest in favor of the Trust Collateral Agent on
behalf of the Indenture Trustee (on behalf of the holders of the
Securities) and Finance Security. Assuming the retention of funds in the
Spread Account and the acquisition of Eligible Investments in accordance
with the Spread Account Agreement, such funds and Eligible Investments
will be subject to a valid and perfected, first priority security interest
in favor of the Collateral Agent on behalf of Financial Security.
Taxes. Each of NAFI and the Transferor have and each of their
respective Subsidiaries have filed all Federal and state tax returns which
are required to be filed and paid all taxes, including any assessments
received by it, to the extent that such taxes have become due. Any taxes,
fees and other governmental charges payable by the Transferor or NAFI in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of
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the Securities and the Certificates have been paid or shall have been paid
at or prior to the Date of Issuance.
Subsequent Receivables. With respect to the transfer by NAFI of
Subsequent Receivables and related Other Trust Property on any Subsequent
Transfer Date, immediately prior to the sale of such Subsequent
Receivables and related Other Trust Property to the Transferor pursuant to
the Purchase and Contribution Agreement and the related Conveyance, NAFI
was the owner of, and had good and marketable title to, such Subsequent
Receivables and related Other Trust Property free and clear of all Liens
and Restrictions on Transferability, and had full right, corporate power
and lawful authority to assign, transfer and pledge such Subsequent
Receivables and related Other Trust Property. The Purchase and
Contribution Agreement and the related Conveyance constitute a valid sale,
transfer and assignment of the related Subsequent Receivables and related
Other Trust Property by NAFI to the Transferor enforceable against
creditors of and purchasers of NAFI. In the event that, in contravention
of the intention of the parties, the transfer of such Subsequent
Receivables and related Other Trust Property by NAFI to the Transferor is
characterized as other than a sale, such transfer shall be characterized
as a secured financing, and the Transferor shall have a valid and
perfected first priority security interest in such Subsequent Receivables
and related Other Trust Property free and clear of all Liens and
Restrictions on Transferability.
Registration Statement; Prospectus. The Transferor has filed with
the Commission a registration statement on Form S-3 (No. 333-28829),
including a preliminary prospectus and prospectus supplement for the
registration of the Securities under the Securities Act, has filed such
amendments thereto, and such amended preliminary prospectuses and
prospectus supplements as may have been required to the date hereof, and
will file such additional amendments thereto and such amended prospectuses
and prospectus supplements as may hereafter be required. Such registration
statement (as amended, if applicable) and the prospectus, together with
the prospectus supplement relating to the Securities, constituting a part
thereof (including in each case all documents, if any, incorporated by
reference therein and the information, if any, deemed to be part thereof
pursuant to the rules and regulations of the Commission under the
Securities Act, as from time to time amended or supplemented pursuant to
the Securities Act or otherwise), are hereinafter referred to as the
"Registration Statement" and the "Prospectus", respectively, except that
if any revised prospectus or prospectus supplement shall be provided by
the Transferor for use in connection with the
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offering of the Securities which differs from the Prospectus filed with
the Commission pursuant to Rule 424 of the rules and regulations under the
Securities Act (whether or not such revised prospectus is required to be
filed by the Transferor pursuant to such rules and regulations), the term
"Prospectus" shall refer to such revised prospectus and prospectus
supplement from and after the time it is first provided to the Underwriter
for such use. The Registration Statement at the time it became effective
complied, and at each time that the Prospectus is provided to the
Underwriter for use in connection with the offering or sale of any
Securities will comply, in all material respects with the requirements of
the Securities Act and the rules and regulations thereunder. The
Registration Statement and the Prospectus at the time the Registration
Statement became effective did not and on the date hereof does not,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and the Prospectus at the time it was first
provided to the Underwriter for use in connection with the offering of the
Securities did not, and on the date hereof does not, contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein in light of the circumstances under which they
were made not misleading.
Section Affirmative Covenants of NAFI and the Transferor. NAFI hereby
agrees with respect to itself and with respect to the Transferor, and the
Transferor hereby agrees with respect to itself, that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
Compliance With Agreements and Applicable Laws. Each of the
Transferor and NAFI shall perform each of its respective obligations under
the Transaction Documents and shall comply with all material requirements
of, and the Securities and the Certificates shall be offered and sold in
accordance with, any law, rule or regulation applicable to it or thereto,
or that are required in connection with its performance under any of the
Transaction Documents.
Financial Statements; Accountants' Reports; Other Information.
Each of NAFI and the Transferor shall keep or cause to be kept in
reasonable detail books and records of account of its respective assets
and business and, in the case of NAFI, shall clearly reflect therein the
transfer of Subsequent Receivables to the Transferor, and, in the case of
the Transferor, shall clearly reflect therein the transfer of the
Receivables to the Trust. NAFI shall cause the Master Trust to keep in
reasonable detail books and
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records of account of its assets and business and to clearly reflect
therein the transfer of the Initial Receivables to Funding Trust II. NAFI
shall cause Funding Trust II to keep in reasonable detail books and
records of account of its assets and business and to clearly reflect
therein the transfer of the Initial Receivables to the Transferor. Each of
NAFI and the Transferor shall furnish or cause to be furnished to
Financial Security:
Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of each fiscal year of NAFI
and the Transferor, the audited balance sheets of NAFI and the
Transferor, as the case may be, as of the end of such fiscal year
and the audited statements of income, changes in equity and cash
flows of NAFI and the Transferor, as the case may be, for such
fiscal year, all in reasonable detail and stating in comparative
form the respective figures for the corresponding date and period in
the preceding fiscal year, prepared in accordance with generally
accepted accounting principles, consistently applied, and
accompanied by the certificate of NAFI's and the Transferor's
independent accountants (who shall be, in each case, a nationally
recognized firm or otherwise acceptable to Financial Security) and
by the certificate specified in Section 2.05(c) hereof.
Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each fiscal year of NAFI and the Transferor, as the case
may be, the unaudited balance sheets of NAFI and the Transferor, as
the case may be, as of the end of such quarter and the unaudited
statements of income, changes in equity and cash flows of NAFI and
the Transferor, as the case may be, for the portion of the fiscal
year then ended, all in reasonable detail and stating in comparative
form the respective figures for the corresponding date and period in
the preceding fiscal year, prepared in accordance with generally
accepted accounting principles, consistently applied (subject to
normal year-end adjustments), and accompanied by the certificate
specified in Section 2.05(c) hereof if such certificate is required
to be provided pursuant to such Section.
Accountants' Reports. If a Special Event
has occurred, copies of any reports submitted to NAFI
or the Transferor by their respective independent
accountants in connection with any examination of the
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financial statements of NAFI or the Transferor,
promptly upon receipt thereof.
Other Information. Promptly upon receipt thereof, copies of
all reports, statements, certifications, schedules, or other similar
items delivered to or by NAFI or the Transferor pursuant to the
terms of the Transaction Documents and, promptly upon request, such
other data as Financial Security may reasonably request; provided,
however, that neither NAFI nor the Transferor shall be required to
deliver any such items if provision by some other party to Financial
Security is required under the Transaction Documents unless such
other party wrongfully fails to deliver such item. NAFI and the
Transferor shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (A) to inspect the books
and records of NAFI and the Transferor as they may relate to the
Securities, the Certificates, the Receivables and the Other Trust
Property, the obligations of NAFI or of the Transferor under the
Transaction Documents, the Transaction and, but only following the
occurrence of a Special Event, NAFI's business; (B) to discuss the
affairs, finances and accounts of NAFI or the Transferor with its
respective Chief Operating Officer and Chief Financial Officer, no
more frequently than annually, unless a Special Event has occurred;
and (C) to discuss the affairs, finances and accounts of NAFI or the
Transferor with its independent accountants, provided that an
officer of NAFI or the Transferor, as the case may be, shall have
the right to be present during such discussions. Such inspections
and discussions shall be conducted during normal business hours and
shall not unreasonably disrupt the business of NAFI or the
Transferor, as the case may be. In addition, NAFI shall promptly
(but in no case more than 30 days following issuance or receipt by a
Commonly Controlled Entity) provide to Financial Security a copy of
all correspondence between a Commonly Controlled Entity and the
PBGC, IRS, Department of Labor or the administrators of a
Multiemployer Plan relating to any Reportable Event or the
underfunded status, termination or possible termination of a Plan or
a Multiemployer Plan. The books and records of NAFI and the
Transferor will be maintained at the respective addresses designated
herein for receipt of notices, unless NAFI or the Transferor shall
otherwise advise the parties hereto in writing.
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NAFI shall provide or cause to be provided to Financial
Security an executed original copy of each document executed in
connection with the Transaction within 10 days after the date of
closing.
Promptly after the filing or sending thereof, copies of all
proxy statements, financial statements, reports and registration
statements which NAFI or the Transferor files, or delivers to, the
IRS, the Commission, or any other Federal, state or foreign
government agency, authority or body which supervises the issuance
of securities by NAFI or the Transferor or any national securities
exchange.
Compliance Certificate. Each of NAFI and the Transferor shall
deliver to Financial Security concurrently with the delivery of the
financial statements required pursuant to Section 2.05(b)(i) hereof and
concurrently with the delivery of the financial statements required
pursuant to Section 2.05(b)(ii) hereof, a certificate signed by the Chief
Financial Officer of each of NAFI and the Transferor stating that:
a review of NAFI's and the Transferor's respective
performance under the Transaction Documents during such period has
been made under such officer's supervision;
to the best of such individual's knowledge, no Special
Event, Default or Event of Default has occurred, or if a Special
Event, Default or Event of Default has occurred, specifying the
nature thereof and, if NAFI or the Transferor has a right to cure
any such Default or Event of Default pursuant to Section 5.01,
stating in reasonable detail the steps, if any, being taken by NAFI
or the Transferor, as the case may be, to cure such Default or Event
of Default or to otherwise comply with the terms of the agreement to
which such Default or Event of Default relates; and
the attached financial reports submitted in accordance with
Section 2.05(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial
condition and results of operations of NAFI or the Transferor, as
the case may be, as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles
consistently applied (subject as to interim statements to normal
year-end adjustments).
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Notice of Material Events. Each of NAFI and the Transferor shall
promptly inform (unless, in the case of clause (i) only, prohibited by
applicable law) Financial Security in writing of the occurrence of any of
the following:
the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against NAFI or the Transferor pertaining to the Receivables in
general, (B) with respect to a material portion of the Receivables
or (C) in which a request has been made for certification as a class
action (or equivalent relief) that would involve a material portion
of the Receivables;
any change in the location of NAFI's or the
Transferor's principal office or any change in the
location of NAFI's or of the Transferor's books and
records;
the occurrence of any Default, Event of
Default or Special Event; or
any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material
Adverse Change in respect of NAFI or of the Transferor.
Further Assurances. Each of NAFI and the Transferor will file or
cause to be filed all necessary financing statements, assignments or other
instruments, and any amendments or continuation statements relating
thereto, necessary to be kept and filed in such manner and in such places
as may be required by law to preserve and protect fully the Lien on and
first priority security interest in, and all rights of the Trust
Collateral Agent with respect to the Collateral under the Indenture. In
addition, each of NAFI and the Transferor shall, upon the request of
Financial Security, from time to time, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, within ten (10) days
of such request, such amendments hereto and such further instruments and
take such further action as may be reasonably necessary to effectuate the
intention, performance and provisions of the Transaction Documents or to
protect the interest of the Trust Collateral Agent with respect to the
Collateral under the Indenture, free and clear of all Liens and
Restrictions on Transferability except the Lien in favor of the Trust
Collateral Agent under the Indenture. In addition, each of NAFI and the
Transferor agrees to cooperate with S&P and
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Moody's in connection with any review of the Transaction which may be
undertaken by S&P and Moody's after the date hereof.
Retirement of Securities. Each of NAFI and the Transferor shall
cause the Trust Collateral Agent, upon retirement of the Securities
pursuant to the Indenture or otherwise, to furnish to Financial Security a
notice of such retirement, and, upon retirement of the Securities and the
expiration of the Term of the Policy, to surrender the Policy to Financial
Security for cancellation.
Third-Party Beneficiary. Each of NAFI and the Transferor agrees
that Financial Security shall have all rights of a third-party beneficiary
in respect of each of the Transaction Documents and hereby incorporates
and restates its representations, warranties and covenants as set forth
therein for the benefit of Financial Security.
Preservation of Existence. Except as provided in Section 2.06(h),
each of NAFI and the Transferor shall maintain its existence as a
corporation organized under the laws of the State of Delaware and as a
statutory business trust organized the laws of the State of Delaware,
respectively, and shall at all times continue to be duly organized under
the laws of the jurisdiction of its formation and duly qualified and duly
authorized (as described in Sections 2.04(a), (b) and (c) hereof) and
shall conduct its business in accordance with the terms of its certificate
of incorporation and by-laws or certificate of trust and trust agreement
or other applicable governing documents, as the case may be.
Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/ casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only
statutory accounting practices for determining and reporting
the financial condition and results of operations of an
insurance company, for determining its solvency under the New
York Insurance Law, and for determining whether its financial
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condition warrants the payment of a dividend to its
stockholders. No consideration is given by the New York State
Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in
making such determinations.
(2) Each Offering Document delivered with respect to the Securities
subsequent to the Date of Issuance shall be in form and substance
satisfactory to Financial Security in its sole discretion as evidenced by
Financial Security's prior written consent to the use thereof.
Special Purpose Entity.
The Transferor shall conduct its business solely in its own
name through its duly authorized officers or agents so as not to
mislead others as to the identity of the entity with which those
officers are concerned, and particularly will use its best efforts
to avoid the appearance of conducting business on behalf of NAFI or
any Affiliate thereof or that the assets of the Transferor are
available to pay the creditors of NAFI or any Affiliate thereof.
Without limiting the generality of the foregoing, all oral and
written communications, including, without limitation, letters,
invoices, purchase orders, Receivables, statements and loan
applications, will be made solely in the name of the Transferor.
The Transferor shall maintain records and books of account
separate from those of NAFI and the Affiliates thereof. The
Transferor's books and records shall clearly reflect the transfer of
the Receivables to the Trust as a sale of the Transferor's interest
in the Receivables. The books of account and records of the
Transferor will be separate from those of NAFI and its Affiliates
and will be maintained at the address designated herein for receipt
of notices, unless the Transferor shall otherwise advise the parties
hereto in writing with respect to such address.
The Transferor shall obtain proper authorization of all
action requiring approval of the co-trustees or holders of
beneficial ownership interests of the Transferor, as the case may
be. Meetings of the holders of beneficial ownership interests of the
Transferor shall be held not less frequently than one time per annum
and copies of each such authorization and the minutes of each such
meeting
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shall be delivered to Financial Security within two weeks of such
authorization or meeting, as the case may be.
Although the organizational expenses of the Transferor have
been paid by NAFI, operating expenses and liabilities of the
Transferor shall be paid from its own funds.
The annual financial statements of the Transferor shall
disclose the effects of the Transferor's transactions in accordance
with generally accepted accounting principles and shall disclose
that the assets of the Transferor are not available to pay creditors
of NAFI or any Affiliate thereof.
The resolutions, agreements and other instruments of the
Transferor underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Transferor as official records of the Transferor
separately identified and held apart from the records of NAFI and
each Affiliate thereof.
The Transferor shall maintain an arm's-length relationship
with NAFI and the Affiliates thereof and will not hold itself out as
being liable for the debts of NAFI or any Affiliate thereof.
The Transferor shall keep its assets and its liabilities
wholly separate from those of all other entities, including, but not
limited to NAFI and the Affiliates thereof.
Maintenance of Licenses. NAFI and the Transferor shall each
maintain all licenses, permits, charters and registrations which are
material to the performance by NAFI or the Transferor, as the case may be,
of its business and of its respective obligations under this Insurance
Agreement and each other Transaction Document.
Incorporation of Covenants. NAFI and the Transferor shall each
comply with their respective covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each
were set forth herein.
Release of Liens. NAFI and the Transferor shall each duly file or
cause to be duly filed with respect to itself and on behalf of the Master
Trust and Funding Trust II and other relevant parties, no later than the
Business
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Day immediately following the Closing Date or the related Subsequent
Transfer Date, as applicable, (i) the amendments to, and/or terminations
of, UCC financing statements, evidencing the release by NAFI, the
Transferor, the Master Trust and Funding Trust II and other relevant
parties of any Liens, security interests and/or ownership interests in the
Receivables and Other Trust Property and (ii) the financing statements on
Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection of Liens and security interest of the Trust
Collateral Agent in favor of the Collateral.
Section Negative Covenants of NAFI and the Transferor. NAFI hereby agrees
with respect to itself and with respect to the Transferor and the Transferor
hereby agrees with respect to itself that during the Term of this Agreement,
unless Financial Security shall otherwise expressly consent in writing:
Restrictions on Liens. Neither NAFI nor the Transferor shall
(i) create, incur or suffer to exist, or agree to create, incur or suffer
to exist, or consent to cause or permit in the future (upon the happening
of a contingency or otherwise) the creation, incurrence or existence of
any Lien or Restriction on Transferability on the Receivables or the Other
Trust Property except for the Lien in favor of the Trust Collateral Agent
under the Indenture for the benefit of the holders of the Securities and
Financial Security or (ii) with respect to the Receivables or the Other
Trust Property, sign or file under the Uniform Commercial Code of any
jurisdiction any financing statement which names either NAFI or the
Transferor as a debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, except in each
case any such instrument solely securing the rights and preserving the
Lien of the Trust Collateral Agent, for the benefit of the holders of the
Securities and Financial Security, under the Indenture.
Impairment of Rights. Neither NAFI nor the Transferor shall take
any action, or fail to take any action, if such action or failure to take
action may (i) interfere with the enforcement of any rights under the
Transaction Documents that are material to the rights, benefits or
obligations of the Trust, the Trust Collateral Agent, the holders of the
Securities, the Certificateholders or Financial Security, (ii) result in a
Material Adverse Change in respect of the Receivables or the Other Trust
Property or (iii) impair the ability of NAFI or of the Transferor to
perform its obligations under the Transaction Documents, including any
consolidation or merger with any Person or any transfer of all or any
material amount of
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NAFI's or the Transferor's assets to any other Person if such
consolidation, merger or transfer would materially impair the net worth of
NAFI or the Transferor or any successor Person obligated, after such
event, to perform NAFI's or the Transferor's obligations under the
Transaction Documents.
Waiver, Amendments, Etc. Neither NAFI nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or
amendment of, any of the provisions of any of the Transaction Documents or
the Transferor's certificate of trust or trust agreement.
Successors. Neither NAFI nor the Transferor shall terminate or
designate, or consent to the termination or designation of, the Servicer,
the Backup Servicer, the Custodian, the Owner Trustee, the Trust
Collateral Agent, the Indenture Trustee or the Collateral Agent or any
successor thereto without the prior written approval of Financial
Security.
Creation of Indebtedness; Guarantees. Other than as permitted in
the Transaction Documents, the Transferor shall not create, incur, assume
or suffer to exist any indebtedness other than indebtedness guaranteed or
approved in writing by Financial Security. Without the prior written
consent of Financial Security, the Transferor shall not assume guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital.
Subsidiaries. The Transferor shall not form, or
cause to be formed, any Subsidiaries.
Issuance of Additional Beneficial Ownership Interests. The
Transferor shall not issue or allow the issuance of any additional
beneficial ownership interests or securities convertible into or
exchangeable for beneficial ownership interests in the Transferor.
No Mergers. (a) The Transferor shall not consolidate with or merge
into any Person or transfer all or any material portion of its assets to
any Person or liquidate or dissolve; and (b) NAFI shall not consolidate
with or merge into any Person unless it complies with the procedures set
forth in Section 9.3 of the Sale and Servicing Agreement with respect to
the merger or consolidation of the Servicer or transfer all or any
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material portion of its assets to any Person or liquidate or
dissolve.
Other Activities. The Transferor shall not:
sell, transfer, exchange or otherwise dispose
of any of its assets except as permitted under the
Transaction Documents; or
engage in any business or activity other than as
contemplated in the Transaction Documents and as permitted under its
certificate of trust and trust agreement.
Insolvency. Neither NAFI nor the Transferor shall commence with
respect to the Transferor any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to the bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it,
or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, corporation or other relief with respect to it
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets,
or make a general assignment for the benefit of its creditors. Neither
NAFI nor the Transferor shall take any action in furtherance of, or
indicating the consent to, approval of, or acquiescence in any of the acts
set forth above. The Transferor shall not admit in writing its inability
to pay its debts.
ERISA. The Transferor shall not contribute or
incur any obligation to contribute to, or incur any
liability in respect of, any Plan or Multiemployer Plan.
Distributions. The Transferor shall not declare or make payment of
(i) any distribution on or in respect of any of its beneficial ownership
interests, or (ii) any payment on account of the purchase, redemption,
retirement or acquisition of any option, warrant or other right to acquire
its beneficial ownership interests unless (in each case) at the time of
such declaration or payment (and after giving effect thereto) no amount
payable by the Transferor or the Trust under any Transaction Document with
respect to any Series is then due and owing but unpaid.
Transfer of the Certificates. The Transferor shall not sell,
transfer, assign, convey or pledge, and shall not permit or allow the
sale, transfer, assignment, conveyance or pledge of, any Certificates at
any time
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subsequent to the Date of Issuance to any Person that is an Affiliate of
NAFI or the Transferor unless, prior to such sale, transfer, assignment,
conveyance or pledge, the Transferor delivers to Financial Security an
opinion of counsel addressed to Financial Security and satisfactory to
Financial Security in its sole discretion and substantially similar in
form and substance to the opinion of counsel delivered on the Date of
Issuance as to non-consolidation of the assets and liabilities of (x) the
Transferor and NAFI and (y) the Transferor and any such Person that is an
Affiliate of the Transferor (other than NAFI); provided, however, that the
Transferor shall not sell, transfer, assign, convey or pledge, and shall
not permit or allow the sale, transfer, assignment, conveyance or pledge
of, any Certificate at any time subsequent to the Date of Issuance to any
Person that is not an Affiliate of either the Transferor or NAFI unless,
(i) prior to such sale, transfer, assignment, conveyance or pledge, such
Person delivers to Financial Security (A) its agreement in writing to the
effect that so long as it has any interest in any Certificate such Person
shall not become an Affiliate of the Transferor or NAFI and (B) its
agreement in writing containing a nonpetition covenant with respect to the
Transferor in form and substance satisfactory to Financial Security in its
sole discretion, and (ii) the obligations of the Transferor to such Person
in connection with such sale, transfer, assignment, conveyance or pledge
shall be recourse only to the extent of amounts, if any, received by the
Transferor pursuant to Section 3.03(b) of the Spread Account Agreement.
Section Representations and Warranties of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II. Each of the Transferor and
NAFI represents, warrants and covenants, as of the date hereof, as of the Date
of Issuance and as of each Subsequent Transfer Date, with respect to itself,
with respect to the Master Trust, with respect to Funding Trust II and
otherwise, as follows:
Good Title; Valid Transfer; Absence of Liens; Security Interest.
Immediately prior to the sale of the Initial Receivables and related Other
Trust Property to Funding Trust II pursuant to the Assignment Agreement on
the Closing Date, the Master Trust was the owner of, and had good and
marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Receivables and related
Other Trust Property. Immediately prior to the sale of the Initial
Receivables and related Other Trust Property to the Transferor pursuant to
the Sale Agreement on the Closing
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Date, Funding Trust II was the owner of, and had good and marketable title
to, such property free and clear of all Liens and Restrictions on
Transferability, and had full right, power and lawful authority to assign,
transfer and pledge such Receivables and related Other Trust Property. The
Assignment Agreement constitutes a valid sale, transfer and assignment of
the Initial Receivables and related Other Trust Property to Funding Trust
II, enforceable against creditors of and purchasers of the Master Trust.
The Sale Agreement constitutes a valid sale, transfer and assignment of
the Initial Receivables and the related Other Trust Property to the
Transferor, enforceable against creditors of and purchasers of Funding
Trust II. In the event that, in contravention of the intention of the
parties, (i) the transfer of the Initial Receivables and related Other
Trust Property by the Master Trust to Funding Trust II or (ii) the
transfer of the Initial Receivables and related Other Trust Property by
Funding Trust II to the Transferor is characterized as other than a sale,
such transfer shall be characterized as a secured financing, and Funding
Trust II or the Transferor, as applicable, shall have a valid and
perfected first priority security interest in such Receivables and related
Other Trust Property free and clear of all Liens and Restrictions on
Transferability other than as imposed by the Transaction Documents.
Compliance With Agreements and Applicable Laws. Each of the Master
Trust and Funding Trust II has performed each of its obligations under the
Assignment Agreement and the Sale Agreement, respectively, and is in
compliance with all material requirements of any law, rule or regulation
applicable to it, or that are required in connection with its performance
under the Assignment Agreement and the Sale Agreement, respectively. Each
of the Master Trust and Funding Trust II has not taken any action that
would interfere with the enforcement of any rights under the Assignment
Agreement and the Sale Agreement, respectively.
Section Affirmative Covenants of NAFI and the Transferor with respect to
the Master Trust and Funding Trust II. Each of NAFI and the Transferor hereby
agrees with respect to itself, with respect to the Master Trust, with respect to
Funding Trust II and otherwise, that during the Term of this Agreement, unless
Financial Security shall otherwise expressly consent in writing:
Notice of Material Events. Each of NAFI and the
Transferor shall promptly inform Financial Security in
writing of the occurrence of any of the following:
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the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Master Trust or Funding Trust II, as the case may be,
(B) with respect to any of the Receivables transferred by the Master
Trust to Funding Trust II or Funding Trust II to the Transferor, or
(C) in which a request has been made for certification as a class
action (or equivalent relief) that would involve any of the
Receivables transferred by the Master Trust to Funding Trust II or
Funding Trust II to the Transferor; or
any other event, circumstance or condition that has resulted
in a material adverse change in the ability of the Master Trust or
Funding Trust II to perform its obligations under the Assignment
Agreement or the Sale Agreement, respectively.
Further Assurances. Each of NAFI and the Transferor will file, or
cause to be filed, all necessary termination statements, assignments or
other instruments, and any amendments or continuation statements relating
thereto, necessary to be kept and filed in such manner and in such places
as may be required by law to release the Lien and security interest of (i)
the Master Trust in any Receivables transferred by the Master Trust to
Funding Trust II or (ii) Funding Trust II in any Receivables transferred
by Funding Trust II to the Transferor. In addition, each of NAFI and the
Transferor shall, upon the written request of Financial Security, from
time to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within ten (10) days of such request, such
further instruments and take such further action as may be reasonably
commercially necessary to protect the interest of the Transferor in the
Receivables transferred by the Master Trust to Funding Trust II and by
Funding Trust II to the Transferor, free and clear of all Liens and
Restrictions on Transferability created by or for the benefit of the
Master Trust or Funding Trust II, as the case may be.
Third-Party Beneficiary. The Transferor and NAFI agree that
Financial Security shall have all rights of a third-party beneficiary in
respect of the Assignment Agreement and the Sale Agreement and each of
NAFI and the Transferor hereby restates the representations, warranties
and covenants of the Master Trust and Funding Trust II as set forth
therein for the benefit of Financial Security.
Section Negative Covenants of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II. Each of
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NAFI and the Transferor hereby agrees with respect to itself, with respect to
the Master Trust, with respect to Funding Trust II and otherwise that during the
Term of this Agreement, unless Financial Security shall otherwise expressly
consent in writing:
Restrictions on Liens. Neither NAFI nor the Transferor shall
permit the execution or filing under the Uniform Commercial Code of any
jurisdiction any financing statement naming the Master Trust or Funding
Trust II as a debtor, or the execution of any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Receivables transferred by the Master Trust to Funding
Trust II and by Funding Trust II to the Transferor, except in each case
any such instrument solely securing the rights and preserving the Lien of
the Trustee, for the benefit of the holders of the Securities and
Financial Security.
Waiver, Amendments, Etc. Neither NAFI nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or
amendment of, any of the provisions of the certificate of trust or trust
agreement of Funding Trust II (including not permitting any Affiliate of
NAFI or the Transferor to take any such action).
ARTICLE
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section Issuance of the Policy. Financial Security agrees to issue the
Policy subject to satisfaction of the conditions precedent set forth in Appendix
II hereto.
Section Payment of Fees and Premium.
Inducement Letter Fees and Expenses. On the Date of Issuance,
NAFI and the Transferor agree to pay or cause to be paid the amounts
specified with respect to fees, expenses and disbursements in the
Inducement Letter unless otherwise agreed between NAFI and Financial
Security.
Legal Fees. On the Date of Issuance, NAFI shall pay or cause to be
paid legal fees and disbursements incurred by Financial Security in
connection with the issuance of the Policy.
Rating Agency Fees. The initial fees of S&P and
Moody's with respect to the Securities and the transactions
contemplated hereby shall be paid by the Transferor in full
on the Date of Issuance, or otherwise provided for to the
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satisfaction of Financial Security. All periodic and subsequent fees of
S&P or Moody's with respect to, and directly allocable to, the Securities
shall be for the account of, and shall be billed to, the Transferor. The
fees for any other rating agency shall be paid by the party requesting
such other agency's rating, unless such other agency is a substitute for
S&P or Moody's in the event that S&P or Moody's is no longer rating the
Securities, in which case the cost for such agency shall be paid by the
Transferor.
Auditors' Fees. The Transferor shall pay on demand any
additional fees of Financial Security's auditors payable in respect of any
Offering Document that are incurred after the Date of Issuance. It is
understood that Financial Security's auditors shall not incur any
additional fees in respect of future Offering Documents except at the
request of or with the consent of the Transferor.
Premium. In consideration of the issuance by Financial
Security of the Policy, Financial Security shall be entitled to receive
the Premium as and when due in accordance with the terms of the Premium
Letter (i) in the case of Premium due on or before the Date of Issuance,
directly from the Transferor and (ii) in the case of Premium due after the
Date of Issuance, first, from monies available for such payment in
accordance with Section 5.7 of the Sale and Servicing Agreement and
second, to the extent that such monies are insufficient, from NAFI. The
Premium paid hereunder or under the Sale and Servicing Agreement shall be
nonrefundable without regard to whether Financial Security makes any
payment under the Policy or any other circumstances relating to the
Securities or provision being made for payment of the Securities prior to
maturity. Although the Premium is fully earned by Financial Security as of
the Closing Date, the Premium shall be payable in periodic installments as
provided in the Premium Letter. Anything herein or in any of the
Transaction Documents notwithstanding, upon the occurrence of an Event of
Default, the entire outstanding balance of further installments of the
Premium shall be immediately due and payable. All payments of Premium
shall be made by wire transfer to an account designated from time to time
by Financial Security by written notice to the Transferor and NAFI.
Section Reimbursement Obligation. Notwithstanding any of the following
provisions of this Section 3.03 to the contrary, the payment obligations set
forth in Sections 3.03(a), (b) (other than in respect of amounts due from NAFI),
(c) (other than in respect of amounts due from NAFI and other amounts that,
after due notice and any required passage of time, would not be
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payable as a "Scheduled Payment" under the Policy), and (d)(v) shall be
non-recourse obligations with respect to NAFI, the Transferor or any Affiliate
of either (other than the Trust) and shall be payable only from monies available
for such payment in accordance with Section 5.7 of the Sale and Servicing
Agreement (except to the extent that any such payment obligation arises from a
failure to perform or default of NAFI, the Transferor or any of their respective
Affiliates under any Transaction Document or by reason of negligence, willful
misconduct or bad faith on the part of NAFI, the Transferor or any of their
respective Affiliates in the performance of its duties and obligations
thereunder or reckless disregard by NAFI, the Transferor or any of their
respective Affiliates of its duties and obligations thereunder). NAFI, the
Transferor and the Trust agree to pay to Financial Security the following
amounts as and when incurred:
a sum equal to the total of all amounts paid by
Financial Security under the Policy;
interest on any and all amounts described in this Section 3.03 or
Section 3.02(e) from the date due to Financial Security pursuant to the
provisions hereof until payment thereof in full, payable to Financial
Security at the Late Payment Rate per annum;
any payments made by Financial Security on behalf of, or advanced
to, NAFI, in its capacity as Servicer, the Trust, the Owner Trustee, the
Trust Collateral Agent, the Collateral Agent or the Indenture Trustee,
including, without limitation, any amounts payable by NAFI, in its
capacity as Servicer, the Trust, the Owner Trustee, the Trust Collateral
Agent, the Collateral Agent or the Indenture Trustee pursuant to the
Securities or any other Transaction Documents; and any payments made by
Financial Security as, or in lieu of, any servicing, management, trustee,
custodial or administrative fees payable, in the sole discretion of
Financial Security to third parties in connection with the Transaction;
and
any and all out-of-pocket charges, fees, costs and expenses which
Financial Security may reasonably pay or incur, including, but not limited
to, attorneys' and accountants' fees and expenses, in connection with (i)
in the event of payments under the Policy, any accounts established to
facilitate payments under the Policy, to the extent Financial Security has
not been immediately reimbursed on the date that any amount is paid by
Financial Security under the Policy, or other administrative expenses
relating to such payments under the Policy, (ii) the administration,
enforcement, defense or preservation of any rights in respect of any of
the Transaction Documents,
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including defending, monitoring or participating in any litigation or
proceeding (including any insolvency or bankruptcy proceeding in respect
of any Transaction participant or any Affiliate thereof) relating to any
of the Transaction Documents, any party to any of the Transaction
Documents or the Transaction, (iii) any amendment, waiver or other action
with respect to, or related to, any Transaction Document whether or not
executed or completed, (iv) any review or investigation made by Financial
Security in those circumstances where its approval or consent is sought
under any of the Transaction Documents, (v) the foreclosure against, sale
or other disposition of any collateral securing any obligations under any
of the Transaction Documents or otherwise in the discretion of Financial
Security, or pursuit of any other remedies under any of the Transaction
Documents, to the extent such costs and expenses are not recovered from
such foreclosure, sale or other disposition, (vi) preparation of bound
volumes of the Transaction Documents (vii) the transfer of Subsequent
Receivables to the Trust and related Other Trust Property and (viii) any
Federal, state or local tax (other than taxes payable in respect of the
gross income of Financial Security) or other governmental charge imposed
in connection with the issuance of the Policy.
Section Indemnification.
Indemnification by NAFI and the Transferor. In addition to any and
all rights of reimbursement, indemnification, subrogation and any other
rights pursuant hereto or under law or in equity, each of NAFI and the
Transferor, jointly and severally, agrees to pay, and to protect,
indemnify and save harmless, Financial Security and its officers,
directors, shareholders, employees, agents and each Person, if any, who
controls Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act from and
against any and all claims, losses, liabilities (including penalties),
actions, suits, judgments, demands, damages, costs or expenses (including,
without limitation, fees and expenses of attorneys, consultants and
auditors and reasonable costs of investigations) of any nature arising out
of or relating to the transactions contemplated by the Transaction
Documents by reason of:
any statement, omission or action (other than of or by
Financial Security) in connection with the offering, issuance, sale,
remarketing or delivery of the Securities or the Certificates;
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the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer, employee or
agent of the Trust, the Transferor or NAFI, as the case may be;
the breach by the Trust, the Transferor or NAFI, as the case
may be, of any representation, warranty or covenant under any of the
Transaction Documents or the occurrence, in respect of the Trust,
the Transferor or NAFI, as the case may be, under any of the
Transaction Documents of any "event of default" or any event which,
with the giving of notice or the lapse of time or both, would
constitute any "event of default";
the violation by the Trust, the Transferor or NAFI of any
federal, state or foreign law, rule or regulation, or any judgment,
order or decree applicable to it; or
any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any
Offering Document or in any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such claims arise out of
or are based upon any untrue statement or omission in the Financial
Security Information, it being understood that in respect of the
Offering Document, the Financial Security Information is limited to
information included under the caption "THE INSURER", or such
additional information as may be deemed to be included in the
Offering Document pursuant to the second paragraph under the heading
"Incorporation of Certain Documents by Reference" on page S-3 of the
Offering Document.
Conduct of Actions or Proceedings. If any action
or proceeding (including any governmental investigation)
shall be brought or asserted against Financial Security, any
officer, director, shareholder, employee or agent of
Financial Security or any Person controlling Financial
Security (individually, an "Indemnified Party" and,
collectively, the "Indemnified Parties") in respect of which
indemnity may be sought from the Transferor and NAFI (the
"Indemnifying Party") hereunder, Financial Security shall
promptly notify the Indemnifying Party in writing, and the
Indemnifying Party shall assume the defense thereof,
including the employment of counsel satisfactory to
Financial Security and the payment of all expenses. An
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Indemnified Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof at the expense of
the Indemnified Party; provided, however, that the fees and expenses of
such separate counsel shall be at the expense of the Indemnifying Party if
(i) the Indemnifying Party has agreed to pay such fees and expenses, (ii)
the Indemnifying Party shall have failed to assume the defense of such
action or proceeding and employ counsel satisfactory to Financial Security
in any such action or proceeding or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party, and the Indemnified Party
shall have been advised by counsel that (A) there may be one or more legal
defenses available to it which are different from or additional to those
available to the Indemnifying Party and (B) the representation of the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate or contrary to prudent practice (in which case, if the
Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified Party,
it being understood, however, that the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys at any time for the Indemnified Parties, which firm
shall be designated in writing by Financial Security). The Indemnifying
Party shall not be liable for any settlement of any such action or
proceeding effected without its written consent to the extent that any
such settlement shall be prejudicial to the Indemnifying Party but, if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding with respect to which the
Indemnifying Party shall have received notice in accordance with this
subsection (b), the Indemnifying Party agrees to indemnify and hold the
Indemnified Parties harmless from and against any loss or liability by
reason of such settlement or judgment.
Contribution. To provide for just and equitable contribution if
the indemnification provided by the Indemnifying Party is determined to be
unavailable for any Indemnified Party (other than due to application of
this Section), the Indemnifying Party shall contribute to the losses
incurred by the Indemnified Party on the basis of the
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relative fault of the Indemnifying Party, on the one hand,
and the Indemnified Party, on the other hand.
Section Subrogation. Subject only to the priority of payment provisions of
the Sale and Servicing Agreement, each of the Trust, the Transferor and NAFI
acknowledges that, to the extent of any payment made by Financial Security
pursuant to the Policy, Financial Security is to be fully subrogated to the
extent of such payment and any additional interest due on any late payment, to
the rights of the holders of the Securities to any moneys paid or payable in
respect of the Securities under the Transaction Documents or otherwise. Each of
the Trust, the Transferor and NAFI agrees to such subrogation and, further,
agrees to execute such instruments and to take such actions as, in the sole
judgment of Financial Security, are necessary to evidence such subrogation and
to perfect the rights of Financial Security to receive any moneys paid or
payable in respect of the Securities under the Transaction Documents or
otherwise.
ARTICLE
FURTHER AGREEMENTS
Section Effective Date; Term of Agreement. This Insurance Agreement shall
take effect on the Date of Issuance and shall remain in effect until the later
of (a) such time as Financial Security is no longer subject to a claim under the
Policy and the Policy shall have been surrendered to Financial Security for
cancellation and (b) all amounts payable to Financial Security and the holders
of the Securities under the Transaction Documents and under the Securities have
been paid in full; provided, however, that the provisions of Sections 3.02,
3.03, 3.04 and 4.02 hereof shall survive any termination of this Insurance
Agreement.
Section Obligation Absolute. The payment obligations of the Trust, the
Transferor and NAFI hereunder shall be absolute and unconditional, and shall be
paid strictly in accordance with this Insurance Agreement under all
circumstances irrespective of the following:
any lack of validity or enforceability of, or any
amendment or other modifications of, or waiver with respect
to, any of the Transaction Documents, the Securities or the
Policy;
any exchange or release of any other obligations
hereunder;
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the existence of any claim, setoff, defense, reduction, abatement
or other right which the Trust, the Transferor or NAFI may have at any
time against Financial Security or any other Person;
any document presented in connection with the Policy proving to be
forged, fraudulent, invalid or insufficient in any respect, including any
failure to strictly comply with the terms of the Policy, or any statement
therein being untrue or inaccurate in any respect;
any failure of the Transferor to receive the
proceeds from the sale of the Securities;
any breach by the Trust, the Transferor or NAFI
of any representation, warranty or covenant contained in any
of the Transaction Documents;
any other circumstances, other than payment in full, which might
otherwise constitute a defense available to, or discharge of the Trust,
the Transferor or NAFI in respect of any Transaction Document.
Each of the Trust, the Transferor and NAFI and any and all others who
are now or may become liable for all or part of the obligations of any of them
under this Insurance Agreement agree to be bound by this Insurance Agreement and
(i) to the extent permitted by law, waive and renounce any and all redemption
and exemption rights and the benefit of all valuation and appraisement
privileges against the indebtedness, if any, and obligations evidenced by any
Transaction Document or by any extension or renewal thereof; (ii) waive
presentment and demand for payment, notices of nonpayment and of dishonor,
protest of dishonor and notice of protest; (iii) waive all notices in connection
with the delivery and acceptance hereof and all other notices in connection with
the performance, default or enforcement of any payment hereunder except as
required by the Transaction Documents; (iv) waive all rights of abatement,
diminution, postponement or deduction, or to any defense other than payment, or
to any right of setoff or recoupment arising out of any breach under any of the
Transaction Documents, by any party thereto or any beneficiary thereof, or out
of any obligation at any time owing to the Trust, the Transferor or NAFI; (v)
agree that any consent, waiver or forbearance hereunder with respect to an event
shall operate only for such event and not for any subsequent event; (vi) consent
to any and all extensions of time that may be granted by Financial Security with
respect to any payment hereunder or other provisions hereof and to the release
of any security at any time given for any payment hereunder, or any part
thereof, with or without substitution, and to the release of any Person or
entity liable for any such
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payment; and (vii) consent to the addition of any and all other makers,
endorsers, guarantors and other obligors for any payment hereunder, and to the
acceptance of any and all other security for any payment hereunder, and agree
that the addition of any such obligors or security shall not affect the
liability of the parties hereto for any payment hereunder.
Nothing herein shall be construed as prohibiting the Trust, NAFI or the
Transferor from pursuing any rights or remedies it may have against any Person
other than Financial Security in a separate legal proceeding.
Section Assignments; Reinsurance; Third-Party Rights.
This Insurance Agreement shall be a continuing obligation of
the parties hereto and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. None of
the Trust, the Transferor nor NAFI may assign its rights under this Insurance
Agreement, or delegate any of its duties hereunder, without the prior written
consent of Financial Security. Any assignment made in violation of this
Insurance Agreement shall be null and void.
Financial Security shall have the right to give participations in its
rights under this Insurance Agreement and to enter into contracts of reinsurance
with respect to the Policy upon such terms and conditions as Financial Security
may in its discretion determine; provided, however, that no such participation
or reinsurance agreement or arrangement shall relieve Financial Security of any
of its obligations hereunder or under the Policy.
In addition, Financial Security shall be entitled to assign or pledge to
any bank or other lender providing liquidity or credit with respect to the
Transaction or the obligations of Financial Security in connection therewith any
rights of Financial Security under the Transaction Documents, or with respect to
any real or personal property or other interests pledged to Financial Security,
or in which Financial Security has a security interest, in connection with the
Transaction.
Except as provided herein with respect to participants and reinsurers,
nothing in this Insurance Agreement shall confer any right, remedy or claim,
express or implied, upon any Person, including, particularly, any holder of the
Securities or Certificateholder other than Financial Security, against the
Trust, the Transferor or NAFI, and all the terms, covenants, conditions,
promises and agreements contained herein shall be for the sole and exclusive
benefit of the parties hereto and their successors and permitted assigns. None
of the Trust Collateral Agent, the Indenture Trustee, the Owner Trustee, any
holder of the Securities or any Certificateholder shall have any right to
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payment from any premiums paid or payable hereunder or from any other amounts
paid by NAFI or the Transferor pursuant to Section 3.02, 3.03 or 3.04 hereof.
Section Liability of Financial Security. Neither Financial Security nor
any of its officers, directors or employees shall be liable or responsible for:
(a) the use which may be made of the Policy by the Trust Collateral Agent or for
any acts or omissions of the Trust Collateral Agent in connection therewith or
(b) the validity, sufficiency, accuracy or genuineness of documents delivered to
Financial Security (or its Fiscal Agent) in connection with any claim under the
Policy, or of any signatures thereon, even if such documents or signatures
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged (unless Financial Security had actual knowledge thereof).
In furtherance and not in limitation of the foregoing, Financial Security (or
its Fiscal Agent) may accept documents that appear on their face to be in order,
without responsibility for further investigation.
ARTICLE
EVENTS OF DEFAULT; REMEDIES
Section Events of Default. The occurrence of any of
the following events shall constitute an Event of Default
hereunder:
any demand for payment shall be made under the
Policy;
any representation or warranty made by the Trust, the Transferor,
the Servicer or NAFI under any of the Transaction Documents, or in any
certificate or report furnished under any of the Transaction Documents,
shall prove to be untrue or incorrect in any material respect; provided,
however, that if the Trust, the Transferor, the Servicer or NAFI, as
applicable, effectively cures any such defect in any representation or
warranty under any Transaction Document, or certificate or report
furnished under any Transaction Document, within the time period specified
in the relevant Transaction Document as the cure period therefor, such
defect shall not in and of itself constitute an Event of Default
hereunder;
(i) the Trust, the Transferor, the Servicer or NAFI shall fail to
pay when due any amount payable by the Trust, the Transferor, the Servicer
or NAFI under any of the Transaction Documents, unless such amounts are
paid in full within any applicable cure period explicitly provided for
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under the relevant Transaction Document; (ii) the Trust, the Transferor,
the Servicer or NAFI shall have asserted that any of the Transaction
Documents to which it is a party is not valid and binding on the parties
thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents
or any property thereof shall find or rule that any material provision of
any of the Transaction Documents is not valid and binding on the parties
thereto;
the Trust, the Transferor, the Servicer, or NAFI shall fail to
perform or observe any other covenant or agreement contained in any of the
Transaction Documents (except for the obligations described under clause
(c) above and clauses (m) and (n) below and such failure shall continue
for a period of 30 days after written notice given to the Trust, the
Transferor, the Servicer or NAFI, as the case may be;
the Trust, NAFI, the Servicer or the Transferor shall fail to pay
its debts generally as they come due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors, or shall institute any proceeding seeking to
adjudicate it insolvent or seeking a liquidation, or shall take advantage
of any insolvency act, or shall commence a case or other proceeding naming
it as debtor under the United States Bankruptcy Code or similar law,
domestic or foreign, or a case or other proceeding shall be commenced
against any of the Trust, NAFI, the Servicer or the Transferor under the
United States Bankruptcy Code or similar law, domestic or foreign, or any
proceeding shall be instituted against any of the Trust, NAFI, the
Servicer or the Transferor seeking liquidation of its assets and such
Person shall fail to take appropriate action resulting in the withdrawal
or dismissal of such proceeding within 30 days or there shall be appointed
or any of the Trust, NAFI, the Servicer or the Transferor shall consent
to, or acquiesce in, the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of such Person or the
whole or any substantial part of its properties or assets or such Person
shall take any corporate action in furtherance of any of the foregoing;
the Average Delinquency Ratio as of any Reporting
Date shall have been equal to or greater than 11.0%;
the Average Default Rate as of any Reporting Date (i) occurring
prior to the July 1999 Distribution Date, is equal to or greater than
25.0% and (ii) occurring subsequent
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to the July 1999 Distribution Date, is equal to or greater
than 17.0%;
the Average Net Loss Rate as of any Reporting Date (i) occurring
on or prior to the July 1999 Distribution Date, is equal to or greater
than 11.0% and (ii) occurring subsequent to the July 1999 Distribution
Date, is equal to or greater than 8.0%;
the Trust becomes taxable as an association (or
publicly traded partnership) or taxable as a corporation for
Federal or state income tax purposes;
the occurrence of a Servicer Termination Event
under the Sale and Servicing Agreement; and
the occurrence of an "Event of Default" under and as defined in
any Insurance and Indemnity Agreement or similar agreement among (x)
Financial Security and (y) NAFI and/or the Transferor and/or any other
Affiliate of NAFI, entered into with respect to another Series.
any default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default in the
payment of the interest or principal of any Security when due) or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue
or not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been
given, by registered or certified mail, to the Trust, NAFI and the
Indenture Trustee by Financial Security, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied;
the failure of NAFI and the Transferor to comply
with Section 2.05(m) of this Insurance Agreement; and
the failure to file in the appropriate jurisdictions any of the
financing statements described in Section 2.01(q) or 2.04(r) by the Date
of Issuance or Section 2.05(m) within the time frame set forth therein for
any such filing.
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Section Remedies; Waivers. Upon the occurrence of an Event of Default,
Financial Security may exercise any one or more of the rights and remedies set
forth below:
declare the Premium Supplement to be immediately due and payable,
and the same shall thereupon be immediately due and payable, whether or
not Financial Security shall have declared an "Event of Default" or shall
have exercised, or be entitled to exercise, any other rights or remedies
hereunder;
exercise any rights and remedies available under the Transaction
Documents in its own capacity or in its capacity as the Controlling Party
under the Transaction Documents, including, without limitation, its right
to accelerate the Securities or to terminate NAFI as Servicer and to
appoint a substitute servicer; or
take whatever action at law or in equity may appear necessary or
desirable in its judgment to enforce performance of any obligation of the
Trust, the Transferor or NAFI under the Transaction Documents.
Unless otherwise expressly provided, no remedy herein conferred upon or
reserved is intended to be exclusive of any other available remedy, but each
remedy shall be cumulative and shall be in addition to other remedies given
under the Transaction Documents or existing at law or in equity. No delay or
failure to exercise any right or power accruing under any Transaction Document
upon the occurrence of any Event of Default or otherwise shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle Financial Security to exercise any remedy
reserved to Financial Security in this Article, it shall not be necessary to
give any notice, other than such notice as may be expressly required in this
Article.
If any proceeding has been commenced to enforce any right or remedy
under this Insurance Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to Financial
Security, then and in every such case the parties hereto shall, subject to any
determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.
Financial Security shall have the right, to be exercised in its complete
discretion, to waive any covenant, Default or Event of Default by a writing
setting forth the terms,
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conditions and extent of such waiver signed by Financial Security and delivered
to the Trust, the Transferor and NAFI. Any such waiver may only be effected in
writing duly executed by Financial Security, and no other course of conduct
shall constitute a waiver of any provision hereof. Unless such writing expressly
provides to the contrary, any waiver so granted shall extend only to the
specific event or occurrence so waived and not to any other similar event or
occurrence.
ARTICLE
MISCELLANEOUS
Section Amendments, Etc. This Insurance Agreement may be amended, modified
or terminated only by written instrument or written instruments signed by the
parties hereto. No act or course of dealing shall be deemed to constitute an
amendment, modification or termination hereof.
Section Notices. All demands, notices and other communications to be given
hereunder shall be in writing (except as otherwise specifically provided herein)
and shall be mailed by registered mail or personally delivered or telecopied to
the recipient as follows:
To Financial Security: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: National Auto Finance 1997-1
Trust, 6.35% Automobile Receivables
Backed Notes
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518,
(212) 339-3529
(in each case in which notice or
other communication to Financial
Security refers to an Event of
Default, a claim on the Policy or
with respect to which failure on
the part of Financial Security to
respond shall be deemed to
constitute consent or acceptance,
then a copy of such notice or other
communication should also be sent
to the attention of each of the
General Counsel and the Head-
Financial Guaranty Group and shall
be marked to indicate "URGENT
MATERIAL ENCLOSED.")
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To the Transferor: National Financial Auto Funding
Trust
c/o Chase Manhattan Bank Delaware
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust
Administration
Telecopy No: (302) 575-5467
Confirmation: (302) 575-5099
with a copy to: Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust
Administration
Telecopy No: (718) 242-3529
Confirmation: (718) 242-7283
To NAFI: National Auto Finance Company, Inc.
One Park Place (Suite 200)
621 N.W. 53rd Street
Boca Raton, Florida 33487
Attention: President
Telecopy No: (800) 787-6232
Confirmation: (407) 997-2747
To the Trust: National Auto Finance 1997-1 Trust
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust
Administration
Telecopy No: (302) 651-8882
Confirmation: (302) 651-1000
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section Payment Procedure. In the event of any payment by Financial
Security for which it is entitled to be reimbursed or indemnified as provided
above, each of the Trust, the Transferor and NAFI agrees to accept the voucher
or other evidence of payment as prima facie evidence of the propriety
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thereof and the liability therefor to Financial Security. All payments to be
made to Financial Security under this Insurance Agreement shall be made to
Financial Security in lawful currency of the United States of America in
immediately available funds to the account number provided in the Premium Letter
before 1:00 p.m. (New York, New York time) on the date when due or as Financial
Security shall otherwise direct by written notice to the Trust, the Transferor
and NAFI. In the event that the date of any payment to Financial Security or the
expiration of any time period hereunder occurs on a day which is not a Business
Day, then such payment or expiration of time period shall be made or occur on
the next succeeding Business Day with the same force and effect as if such
payment was made or time period expired on the scheduled date of payment or
expiration date. Payments to be made to Financial Security under this Insurance
Agreement shall bear interest at the Late Payment Rate from the date due to the
date paid.
Section Confidentiality. Any information obtained by Financial Security
pursuant to this Insurance Agreement shall be held in confidence by Financial
Security unless (i) such information has become available to the public other
than as a result of a disclosure by or through Financial Security, (ii) such
information was available to Financial Security on a nonconfidential basis prior
to its disclosure to Financial Security hereunder, (iii) Financial Security
shall be required in connection with any legal or regulatory proceeding to
disclose such information, or (iv) Financial Security, in its sole discretion,
deems it necessary to disclose such information to the Rating Agencies;
provided, that, in any such instance, Financial Security will use its best
efforts to notify the Trust, the Transferor or NAFI of its intention to make any
such disclosure prior to making any such disclosure and, in the case of
disclosure to a Rating Agency, Financial Security shall notify such Rating
Agency that such information is confidential and should be treated as such by
such Rating Agency.
Section Severability. In the event that any provision of this Insurance
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, the parties hereto agree that such holding shall not invalidate or
render unenforceable any other provision hereof. The parties hereto further
agree that the holding by any court of competent jurisdiction that any remedy
pursued by any party hereto is unavailable or unenforceable shall not affect in
any way the ability of such party to pursue any other remedy available to it.
Section Governing Law. THIS INSURANCE AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
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<PAGE>
Section Consent to Jurisdiction. THE PARTIES HERETO HEREBY IRREVOCABLY
SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY
AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR,
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE
THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT 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. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.
To the extent permitted by applicable law, the parties hereto shall not
seek and hereby waive the right to any review of the judgment of any such court
by any court of any other nation or jurisdiction which may be called upon to
grant an enforcement of such judgment.
Each of the Trust, the Transferor and NAFI hereby irrevocably appoints
and designates CT Corporation System, whose address is 1633 Broadway, New York,
New York 10019, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process. Each of the Trust, the Transferor and
NAFI agrees that service of such process upon such Person shall constitute
personal service of such process upon it.
Nothing contained in this Insurance Agreement shall limit or affect
Financial Security's right to serve process in any other manner permitted by law
or to start legal proceedings relating to any of the Transaction Documents
against the Trust, the Transferor or NAFI or its respective property in the
courts of any jurisdiction.
Section Consent of Financial Security. In the event that Financial
Security's consent is required under any of the Transaction Documents, the
determination whether to grant or withhold such consent shall be made by
Financial Security in its
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sole discretion without any implied duty towards any other Person, except as
otherwise expressly provided therein.
Section Counterparts. This Insurance Agreement may
be executed in counterparts by the parties hereto, and all such
counterparts shall constitute one and the same instrument.
Section Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.
Section Limited Liability. No recourse under any Transaction Document
shall be had against, and no personal liability shall attach to, any officer,
employee, director, Affiliate or shareholder of any party hereto, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise in respect of any of the Transaction
Documents, the Securities or the Policy, it being expressly agreed and
understood that each Transaction Document is solely a corporate obligation of
each party hereto, and that any and all personal liability, either at common law
or in equity, or by statute or constitution, of every such officer, employee,
director, Affiliate or shareholder for breaches by any party hereto of any
obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Insurance Agreement.
Section Servicing Transfer; Termination of Sub-Servicer. Financial
Security hereby acknowledges that (i) it has been present at one or more
meetings with NAFI at which the establishment by NAFI of a servicing center, the
transfer to NAFI of servicing functions previously performed by OFSA and the
termination of OFSA as Sub-Servicer were discussed, (ii) NAFI has assumed
certain servicing functions previously performed by OFSA pursuant to the Amended
and Restated Servicing Agreement, dated as of December 5, 1994 (the "Servicing
Agreement"), between OFSA (as assignee of World Omni Financial Corp.) and NAFI
(as successor to National Auto Finance Company L.P.), and (iii) NAFI has taken
significant steps and entered into certain material commitments in furtherance
of the establishment of the servicing center and the assumption by NAFI of all
servicing functions previously or currently performed by OFSA pursuant to the
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<PAGE>
Servicing Agreement. NAFI hereby covenants to provide Financial Security with
prior notification of the occurrence of any event or events that, individually
or the aggregate, constitute a material transfer of servicing functions from
OFSA to NAFI. In addition, NAFI shall, prior to the effectiveness of the
termination of OFSA as Sub-Servicer, obtain the written consent of Financial
Security to such termination, which consent shall not be unreasonably withheld.
Section Entire Agreement. This Insurance Agreement, the Premium Letter,
the Inducement Letter and the Policy set forth the entire agreement between the
parties with respect to the subject matter thereof, and this Insurance Agreement
supersedes and replaces any agreement or understanding that may have existed
between the parties prior to the date hereof in respect of such subject matter.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Insurance Agreement, all as of the day and year first above written.
FINANCIAL SECURITY ASSURANCE INC.
By:____________________________
Name:
Title:
NATIONAL AUTO FINANCE 1997-1
TRUST
By:____________________________
Name:
Title:____________________of
Wilmington Trust Company, not in its
individual capacity, but solely in its
capacity as owner trustee for National
Auto Finance 1997-1 Trust
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:____________________________
Name:
Title:__________________of
Chase Manhattan Bank Delaware, not in
its individual capacity, but solely in
its capacity as trustee for National
Financial Auto Funding Trust
NATIONAL AUTO FINANCE COMPANY, INC.
By:____________________________
Name:
Title:
<PAGE>
APPENDIX I
DEFINITIONS
"Accumulated Funding Deficiency" has the meaning provided in Section 412
of the Code and Section 302 of ERISA, whether or not waived.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities
Act.
"Assignment Agreement" means the Assignment Agreement, dated as of June
29, 1997, between the Master Trust and Funding Trust II, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof.
"Business Day" means any day other than (a) a Saturday or Sunday or (b) a
day on which banking institutions in the City of New York, Wilmington, Delaware,
Chicago, Illinois or the State of Florida are authorized or obligated by law or
executive order to
be closed.
"Certificate" means a Certificate of Trust (as defined in
the Trust Agreement).
"Code" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Collateral" has the meaning specified in the Indenture.
"Commission" means the Securities and Exchange Commission.
"Commonly Controlled Entity" means, with respect to the Trust, the
Transferor or NAFI, as the case may be, and each entity, whether or not
incorporated, which is affiliated with the Trust, the Transferor or NAFI
pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Conveyance" has the meaning specified on the Purchase and
Contribution Agreement.
"Custodian Agreement" means the Custodian Agreement, dated
as of June 29, 1997, between NAFI and Omni Financial Services of
America, Inc. as custodian, as the same may be amended, amended
Appendix I
1
<PAGE>
and restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
"Date of Issuance" means the date on which the Policy is
issued as specified therein.
"Default" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Event of Default" means any event of default specified in Section 5.01 of
this Insurance Agreement.
"Expiration Date" means the final date of the Term of the
Policy, as specified in the Policy.
"Financial Security" means Financial Security Assurance Inc., a New York
stock insurance company, its successors and assigns.
"Financial Security Information" has the meaning provided in Sections
2.01(i) and 2.04(j) of this Insurance Agreement.
"Financial Statements" means with respect to NAFI and the Transferor, as
the case may be, the balance sheet as of December 31, 1996 and the statements of
income, retained earnings and cash flows for the 12-month period then ended and
the notes thereto and the balance sheet as of March 31, 1997 and the statement
of income, retained earnings and cash flows for the three months then ended and
the notes thereto.
"Fiscal Agent" means the Fiscal Agent, if any, designated pursuant to the
terms of the Policy.
"Funding Trust II" means National Financial Auto Funding Trust II, a
business trust formed by NAFI under the laws of the State of Delaware.
"Indemnification Agreement" means the Indemnification Agreement dated as
of June 29, 1997, among Financial Security, the Transferor and the Underwriter,
as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Indenture" means the Indenture, dated as of June 29, 1997, between
National Auto Finance 1997-1 Trust and Harris Trust and
Appendix I
2
<PAGE>
Savings Bank, as Indenture Trustee and Trust Collateral Agent, as the same may
be amended, amended and restated, supplemented or otherwise modified from time
to time in accordance with the terms thereof.
"Indenture Trustee" means Harris Trust and Savings Bank, an Illinois
banking corporation, as indenture trustee under the Indenture, and any successor
thereto as indenture trustee under the Indenture.
"Inducement Letter" means that letter dated November 21, 1995, from NAFI
to Financial Security.
"Insurance Agreement" means this Insurance and Indemnity Agreement dated
as of July 23, 1997, among Financial Security, the Trust, the Transferor and
NAFI, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"Insurance Agreement Indenture Cross Default" means an Event of Default
specified in clauses (a), (e), (i) and (l) of Section 5.01 of this Insurance
Agreement.
"Investment Company Act" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
"Late Payment Rate" means the lesser of (a) the greater of (i) the per
annum rate of interest, publicly announced from time to time by Chase Manhattan
Bank at its principal office in the City of New York, as its prime or base
lending rate (any change in such rate of interest to be effective on the date
such change is announced by Chase Manhattan Bank) plus 3%, and (ii) the then
applicable highest rate of interest on the Securities and (b) the maximum rate
permissible under applicable usury or similar laws limiting interest rates. The
Late Payment Rate shall be computed on the basis of the actual number of days
elapsed over 360 days.
"Lien" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting
Appendix I
3
<PAGE>
r making available the same for the payment of debt or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person.
"Master Trust" means National Financial Auto Receivables Master Trust, a
trust formed by the Transferor under the laws of the State of New York.
"Material Adverse Change" means, (a) in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations
or properties of such Person or any of its Subsidiaries or Affiliates, or (ii)
the ability of such Person to perform its obligations under any of the
Transaction Documents to which it is a party, (b) in respect of any Receivable,
a material adverse change in (i) the value or marketability of such Receivable,
or (ii) the probability that amounts now or hereafter due in respect of such
Receivable will be collected on a timely basis or (c) the ability of Financial
Security or the Trust to realize the benefits of the security afforded under the
Transaction Documents.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation,
and any successor thereto, and, if such corporation shall for any reason no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized rating agency designated by
Financial Security.
"Multiemployer Plan" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"NAFI" means National Auto Finance Company, Inc., a Delaware
corporation.
"National Auto Finance 1995-1 Trust" means the National Auto Finance
1995-1 Trust.
"National Auto Finance 1996-1 Trust" means the National Auto Finance
1996-1 Trust.
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Exhibit A to Endorsement No. 1 to the Policy.
"Offering Document" means the Prospectus and any other offering document
of the Transferor or an Affiliate thereof in respect of the Securities that
makes reference to the Policy.
Appendix I
4
<PAGE>
"OFSA" means Omni Financial Services of America, Inc., a
Florida corporation.
"Other Trust Property" means the Trust Property and the property and
proceeds conveyed by the Transferor to the Trust pursuant to Section 2.2 of the
Sale and Security Agreement and any Subsequent Transfer Agreement, in each case
exclusive of the Policy.
"Owner Trust Estate" has the meaning provided in the Trust
Agreement.
"Owner Trustee" means Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor thereto as owner trustee under the Trust
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Person" means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, business or owner trust, partnership,
limited liability company, limited liability partnership or other organization
or entity (whether governmental or private).
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Policy" means the financial guaranty insurance policy, including any
endorsements thereto, issued by Financial Security with respect to the
Securities, substantially in the form attached as Annex I to this Insurance
Agreement.
"Premium" means the premium payable in accordance with Section 3.02 of
this Insurance Agreement and the Premium Supplement, if any.
"Premium Letter" means the side letter dated July 23, 1997, among
Financial Security, NAFI, the Transferor and the Trust Collateral Agent in
respect of the premium payable in consideration of the issuance of the Policy.
"Premium Supplement" means a non-refundable premium, in addition to the
premium payable in accordance with Section 3.02 of this Insurance Agreement,
payable to Financial Security in monthly installments commencing on the first
Distribution Date
Appendix I
5
<PAGE>
following the Premium Supplement Commencement Date and on each Distribution Date
thereafter in accordance with the terms set forth in the Premium Letter.
"Premium Supplement Commencement Date" means the date of occurrence of the
Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of this Insurance
Agreement.
"Prospectus" has the meaning provided in Section 2.04(v) of
this Insurance Agreement.
"Provided Documents" means the Transaction Documents and any documents,
agreements, instruments, schedules, certificates, statements, cash flow
schedules, number runs or other writings or data furnished to Financial Security
by or on behalf of the Trust, the Transferor or NAFI with respect to itself, its
Subsidiaries or Affiliates, the Receivables or the Transaction.
"Purchase and Contribution Agreement" means the Purchase and Contribution
Agreement dated as of June 29, 1997, between NAFI and the Transferor, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Receivables" has the meaning provided in the Sale and
Servicing Agreement.
"Registration Statement" has the meaning provided in
Section 2.04(v) of this Insurance Agreement.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"Restrictions on Transferability" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.
"Sale Agreement" means the Sale Agreement, dated as of June 29, 1997,
between the Transferor and Funding Trust II, as the same may be amended, amended
and restated, supplemented or
Appendix I
6
<PAGE>
otherwise modified from time to time in accordance with the terms
thereof.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of June 29, 1997, among the Trust, the Transferor, the Servicer and the
Trust Collateral Agent, as the same may be amended, amended and restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Securities" means the $66,891,200 of National Auto Finance 1997-1 Trust,
6.35% Automobile Receivables-Backed Notes issued pursuant to the Indenture.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Securitization Agreement" has the meaning provided in paragraph D of the
Introductory Statements to this Insurance Agreement.
"Series 1997-1" means the Series issued on the date hereof
pursuant to the Indenture.
"Series of Certificates" or "Series" means Series 1997-1 or any, or as the
context may require, all, additional series of securities, certificates, notes
or other obligations issued or arising as described in paragraph D of the
Introductory Statements hereto.
"Servicer Termination Side Letter" means the letter from Financial
Security to the Trust Collateral Agent, the Transferor and NAFI dated as of July
23, 1997, with regard to the renewal
term of the Servicer.
"S&P" means Standard & Poor's Ratings Group, division of McGraw Hill,
Inc., and any successor thereto, and, if such entity shall for any reason no
longer perform the functions of a securities rating agency, "S&P" shall be
deemed to refer to any other nationally recognized rating agency designated by
Financial Security.
"Special Event" means the occurrence of any one of the
following: (a) an Event of Default under this Insurance
Agreement has occurred and is continuing, (b) a Trigger Event has
Appendix I
7
<PAGE>
occurred and is continuing, (c) any legal proceeding or binding arbitration is
instituted with respect to the Transaction or (d) any governmental or
administrative investigation, action or proceeding is instituted that would, if
adversely decided, result in a Material Adverse Change in respect of the Trust,
NAFI, the Transferor or the Receivables.
"Spread Account Agreement" means the Master Spread Account Agreement,
dated as of July 23, 1997 among the Transferor, the Collateral Agent named
therein and Financial Security, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent or (b) that is, at the time any
determination is being made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Term of this Agreement" shall be determined as provided in Section 4.01
of this Insurance Agreement.
"Term of the Policy" has the meaning provided in the Policy
for the term "Term of this Policy".
"Transaction" means this transactions contemplated by the Transaction
Documents, including the transactions described in the Offering Document.
"Transaction Documents" means the Securities, the Certificates, this
Insurance Agreement, the Lockbox Agreement, the Custodian Agreement, the
Indemnification Agreement, the Sale and Servicing Agreement, the Indenture, the
Premium Letter, any Sub-Servicing Agreement, the Inducement Letter, the Purchase
and Contribution Agreement, the Sale Agreement, the Assignment Agreement, the
Servicer Termination Side Letter, each Subsequent Transfer Agreement, each
Conveyance, the Underwriting Agreement, the Spread Account Agreement, the
certificate of trust of the Trust and the Trust Agreement.
"Transferor" means National Financial Auto Funding Trust, a business trust
formed by NAFI under the laws of the State of Delaware.
Appendix I
8
<PAGE>
"Trust" means the trust created under the Trust Agreement.
"Trust Accounts" means the Collection Account, the
Distribution Account, the Note Distribution Account, the Pre-
Funding Account, the Pre-Funding Period Reserve Account and the
Lockbox Account.
"Trust Agreement" means the Trust Agreement, dated as of July 21, 1997,
between the Transferor and the Owner Trustee with respect to the Trust, as the
same may be amended, amended and restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Trust Collateral Agent" means Harris Trust and Savings Bank, an Illinois
banking corporation, as trust collateral agent under the Indenture and as trust
collateral agent under the Sale and Servicing Agreement, as applicable, and any
successor thereto as trust collateral agent under the Indenture or trust
collateral agent the Sale and Servicing Agreement, as the case may be.
"Trust Indenture Act" means the Trust Indenture Act of 1939, including,
unless the context otherwise requires, the rules and regulations thereunder, as
amended from time to time.
"Underfunded Plan" means any Plan that has an Underfunding.
"Underfunding" means, with respect to any Plan, the excess, if any, of (a)
the present value of all benefits under the Plan (based on the assumptions used
to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"Underwriter" means First Union Capital Markets Corp.
"Underwriting Agreement" means the Underwriting Agreement dated as of July
17, 1997, by and among the Transferor and the Underwriter, with respect to the
offer and sale of the Securities, as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
Appendix I
9
<PAGE>
APPENDIX II
TO INSURANCE AND INDEMNITY AGREEMENT
CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY
(a) Payment of Initial Premium and Expenses; Premium Letter. Financial
Security shall have been paid, by or on behalf of NAFI, a nonrefundable Premium
and shall have been reimbursed, by or on behalf of NAFI, for other fees and
expenses identified in Section 3.02 of this Insurance Agreement as payable at
closing and Financial Security shall have received a fully executed copy of the
Premium Letter.
(b) Transaction Documents. Financial Security shall have received a copy
of each of the Transaction Documents, in form and substance satisfactory to
Financial Security, duly authorized, executed and delivered by each party
thereto. Without limiting the foregoing, the provisions of the Sale and
Servicing Agreement relating to the payment to Financial Security of the Premium
due on the Policy and the reimbursement to Financial Security of amounts paid
under the Policy shall be in form and substance acceptable to Financial Security
in its sole discretion.
(c) Certified Documents and Resolutions. Financial Security shall have
received a copy of (i) the certificate of trust and the trust agreement for each
of the Trust, the Transferor and Funding Trust II, (ii) the certificate of
incorporation and by-laws of NAFI, (iii) the consent, if necessary, of the
co-trustees and/or holders of beneficial interests of each of the Transferor and
Funding Trust II, and (iv) the resolutions of the Board of Directors of NAFI, in
each case authorizing the issuance of the Securities and the Certificates, and
the execution, delivery and performance by the Trust, the Transferor, Funding
Trust II and NAFI, as applicable, of the Transaction Documents and the
transactions contemplated thereby, certified by a Secretary or Assistant
Secretary of the Trust, the Transferor, Funding Trust II and NAFI, as applicable
(which certificate shall state that such certificate of trust and trust
agreement or certificate of incorporation and by-laws, as the case may be, are
in full force and effect without modification on the Date of Issuance).
(d) Incumbency Certificate. Financial Security shall have received a
certificate of a Secretary or Assistant Secretary of each of the Transferor, the
Owner Trustee, the Trust Collateral Agent, the Indenture Trustee and NAFI,
respectively, certifying the name and signatures of the officers of the
Transferor, the Owner Trustee, the Trust Collateral Agent, the Indenture Trustee
and NAFI, as the case may be, authorized to execute and deliver
Appendix II
1
<PAGE>
the Transaction Documents and that all consents necessary to execute and deliver
such documents have been obtained.
(e) Representations and Warranties; Certificate. The representations and
warranties of the Trust, the Transferor and NAFI in this Insurance Agreement
shall be true and correct as of the Date of Issuance with respect to such Person
as if made on the Date of Issuance and Financial Security shall have received a
certificate of an appropriate officer of the Owner Trustee, the Transferor and
NAFI, as the case may be, to that effect.
(f) Opinions of Counsel. Financial Security shall have received opinions
of counsel addressed to Financial Security, Moody's and S&P in respect of the
Trust, the Owner Trustee, the Indenture Trustee, the Transferor, NAFI, Funding
Trust II, the other parties to the Transaction Documents and the Transaction in
form and substance satisfactory to Financial Security, addressing such matters
as Financial Security may reasonably request, including without limitation, the
items set forth in Appendix A hereto, and the counsel providing each such
opinion shall have been instructed by its client to deliver such opinion to the
addressees thereof.
(g) Approvals, Etc. Financial Security shall have received true and
correct copies of all approvals, licenses and consents, if any, including,
without limitation, the approval of the co-trustees of each of the Transferor
and Funding Trust II, the holders of beneficial ownership interests in each of
the Transferor and Funding Trust II and the board of directors of NAFI, required
in connection with the Transaction.
(h) No Litigation, Etc. No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents or the consummation of the
Transaction.
(i) Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents, illegal or otherwise prevent the consummation
thereof.
(j) Satisfaction of Conditions of the Underwriting Agreement. All
conditions in the Underwriting Agreement to the Underwriter's obligation to
purchase the Securities (other than the issuance of the Policy) shall have been
satisfied.
Appendix II
2
<PAGE>
(k) Issuance of Ratings. Financial Security shall have received
confirmation that the risk secured by the Policy constitutes an investment grade
risk by S&P and an insurable risk by Moody's and that the Securities, when
issued, will be rated "AAA" by S&P and "Aaa" by Moody's.
(l) Maintenance of Receivable Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the
Receivable Files are being maintained by and held in the custody of the
Custodian pursuant to the Sale and Servicing Agreement and the Custodian
Agreement; (ii) all filings necessary to perfect the interest of the Trust
Collateral Agent in the Collateral have been made; and (iii) all taxes, fees and
other changes payable in connection with such filings shall have been paid.
(m) No Default. No Default or Event of Default shall have occurred.
(n) Absence of Liens. Financial Security shall have received evidence
satisfactory to it in its sole discretion that all Liens of Funding Trust II and
the Master Trust and Restrictions on Transferability relating to the Initial
Receivables transferred by the Master Trust to Funding Trust II and by Funding
Trust II to the Transferor have been released or removed on or prior to the Date
of Issuance.
(o) Additional Items. Financial Security shall have received such other
documents, instruments, approvals or opinions requested by Financial Security as
may be reasonably necessary to effect the Transaction, including but not limited
to evidence satisfactory to Financial Security that all conditions precedent, if
any, in the Transaction Documents have been satisfied.
Appendix II
3
<PAGE>
ANNEX I
TO
INSURANCE AND INDEMNITY AGREEMENT
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
<PAGE>
APPENDIX A
OPINIONS OF COUNSEL
There shall be delivered to Financial Security, Moody's and S&P opinions
of counsel satisfactory in form and substance to Financial Security and its
counsel, including, without limitation, opinions as follows:
(i) opinions to the effect that the Securities and the Certificates have
been duly issued, and the Transaction Documents have been duly executed and
delivered, and each constitutes legal, valid and binding obligations,
enforceable in accordance with its respective terms;
(ii) opinions as to compliance with applicable securities laws, including,
but not limited to, opinions to the effect that:
(A) no filing or registration with or notice to or consent,
approval, authorization or order of any court or governmental authority or
agency is required for the consummation of the Transaction, except such as
may be required and have been obtained under the Securities Act and state
securities or "blue sky" laws;
(B) the Registration Statement is effective under the Securities Act
and, to the best of counsel's knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been issued
under the Securities Act or proceedings therefor initiated or threatened
by the Commission;
(C) none of the Transferor, NAFI, the Trust or the Trust Estate is
required to be registered under the Investment Company Act; and
(D) none of the Indenture, the Trust Agreement or the Sale and
Servicing Agreement is required to be qualified under the Trust Indenture
Act;
(iii) an opinion to the effect that (A) the Trust Collateral Agent has a
first priority perfected security interest in the Collateral and the proceeds
thereof (covering perfection by possession and by filing UCC-1 financing
statements) under the applicable Uniform Commercial Code; (B) the Receivables
and the Other Trust Property would not be included as part of the estate of NAFI
or Funding Trust II in the event of any receivership or insolvency proceedings
in respect thereof; (C) the contribution of certain of the Receivables and other
property related thereto
Appendix A
1
<PAGE>
by NAFI to the Transferor pursuant to the Purchase and Contribution Agreement
would be characterized by a court of competent jurisdiction as a contribution of
such Receivables and such other property related thereto and not as a borrowing
by the Transferor or a relationship of joint ownership, partnership, joint
venture or similar arrangement; and (D) the transfer of the Receivables and the
Other Trust Property would be characterized by a court of competent jurisdiction
as a sale of such Receivables and Other Trust Property by NAFI or Funding Trust
II to the Transferor, as applicable, and not as a borrowing by NAFI or Funding
Trust II, as applicable, or a relationship of joint ownership, partnership,
joint venture or similar arrangement; and (E) the assets and liabilities of each
of the Trust and the Transferor would not be substantively consolidated with
those of NAFI in the event of any receivership or insolvency proceeding in
respect of NAFI;
(iv) the Collateral Agent under the Spread Account Agreement has a valid,
perfected first priority perfected security interest in the collateral held
thereunder for the benefit of secured parties thereunder;
(v) a title and perfection opinion with respect to the Financed Vehicles
from Florida, Georgia and North Carolina;
(vi) opinions with respect to United States federal tax law
and ERISA;
(vii) general corporate and enforceability opinions with respect to NAFI,
the Master Trust, Funding Trust II, the Transferor, the Trust, the Collateral
Agent, the Owner Trustee, the Trust Collateral Agent and the Indenture Trustee;
(viii) an opinion to the effect that the forms of Receivables used comply
with the disclosure requirements of the Federal Truth-in-Lending Act and
Regulations Z and B of the Federal Reserve Board; and
(ix) such other opinions as Financial Security shall request.
Appendix A
2
EXECUTION COPY
MASTER SPREAD ACCOUNT AGREEMENT,
dated as of July 23, 1997
among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
FINANCIAL SECURITY ASSURANCE INC.
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee and as Collateral Agent
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01. Definitions................................................3
Section 1.02. Rules of Interpretation...................................16
ARTICLE II
REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. Reversionary Holders......................................17
Section 2.02. Series Supplements........................................17
Section 2.03. Creation and Grant of Security
Interest by the Transferor..........................18
Section 2.04. Priority..................................................19
Section 2.05. Transferor Remains Liable.................................19
Section 2.06. Maintenance of Collateral.................................20
Section 2.07. Termination and Release of Rights.........................20
Section 2.08. Non-Recourse Obligations of
Transferor and the Reversionary
Holders.............................................22
ARTICLE III
SPREAD ACCOUNTS
Section 3.01. Establishment of Spread Accounts;
Initial Deposits into Spread Accounts...............22
Section 3.02. Investments...............................................23
Section 3.03. Distributions; Priority of Payments.......................24
Section 3.04. General Provisions Regarding Spread
Accounts..............................................27
Section 3.05. Reports by the Collateral Agent...........................28
ARTICLE IV
THE COLLATERAL AGENT
Section 4.01. Appointment and Powers....................................29
Section 4.02. Performance of Duties.....................................29
Section 4.03. Limitation on Liability...................................30
Section 4.04. Reliance upon Documents...................................30
Section 4.05. Successor Collateral Agent................................31
Section 4.06. Indemnification...........................................33
Section 4.07. Compensation and Reimbursement............................33
Section 4.08. Representations and Warranties of
the Collateral Agent..................................34
Section 4.09. Waiver of Setoffs.........................................34
Section 4.10. Control by the Controlling Party..........................35
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<PAGE>
ARTICLE V
COVENANTS OF THE TRANSFEROR
Section 5.01. Preservation of Collateral................................35
Section 5.02. Opinions as to Collateral.................................35
Section 5.03. Notices...................................................36
Section 5.04. Waiver of Stay or Extension Laws; Marshalling
of Assets...........................................36
Section 5.05. Noninterference, etc......................................37
Section 5.06. Transferor Changes........................................37
ARTICLE VI
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. Appointment of Controlling Party..........................38
Section 6.02. Controlling Party's Authority.............................38
Section 6.03. Rights of Secured Parties.................................39
Section 6.04. Degree of Care............................................39
ARTICLE VII
REMEDIES UPON DEFAULT
Section 7.01. Remedies upon a Default...................................40
Section 7.02. Waiver of Default.........................................40
Section 7.03. Restoration of Rights and Remedies........................40
Section 7.04. No Remedy Exclusive.......................................41
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Further Assurances........................................41
Section 8.02. Waiver....................................................41
Section 8.03. Amendments, Waivers.......................................42
Section 8.04. Severability..............................................42
Section 8.05. Nonpetition Covenant......................................42
Section 8.06. Notices...................................................43
Section 8.07. Term of this Agreement....................................45
Section 8.08. Assignments, Third-Party Rights;
Reinsurance.........................................45
Section 8.09. Consent of Controlling Party..............................46
Section 8.10. Trial by Jury Waived......................................46
Section 8.11. Governing Law.............................................46
Section 8.12. Consents to Jurisdiction..................................47
Section 8.13. Limitation of Liability...................................47
Section 8.14. Determination of Adverse Effect...........................48
Section 8.15. Counterparts..............................................48
Section 8.16. Headings..................................................48
-ii-
<PAGE>
MASTER SPREAD ACCOUNT AGREEMENT
MASTER SPREAD ACCOUNT AGREEMENT, dated as of July 23, 1997 (the
"Agreement"), by and among NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware
business trust (the "Transferor"), FINANCIAL SECURITY ASSURANCE INC., a New York
stock insurance company ("Financial Security"), and HARRIS TRUST AND SAVINGS
BANK, an Illinois banking corporation, in its capacities as Trustee under each
Securitization Agreement referred to below, in such capacity as agent for the
Securityholders and Financial Security with respect to the related Series (the
"Trustee") and as Collateral Agent (as defined below).
RECITALS
National Auto Finance 1997-1 Trust (the "Series 1997-1 Trust"), a
Delaware business trust, was formed pursuant to a Trust Agreement dated as of
June 29, 1997 (as such agreement may be amended, amended and restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, the "Series 1997-1 Trust Agreement"), between the Transferor and
Wilmington Trust Company, a Delaware banking corporation, as Owner Trustee (the
"Owner Trustee").
Pursuant to a Sale and Servicing Agreement dated as of June 29, 1997 (as
such agreement may be amended, amended and restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof, the "Series
1997-1 Sale and Servicing Agreement") by and among the Series 1997-1 Trust, the
Transferor, National Auto Finance Company, Inc., a Delaware corporation
("NAFI"), in its capacity as Servicer (the "Servicer") and Harris Trust and
Savings Bank, an Illinois banking corporation, as Trust Collateral Agent (the
"Trust Collateral Agent") and Backup Servicer (the "Backup Servicer"), the
Transferor will, on the Closing Date and from time to time thereafter, sell all
of its right, title and interest in and to the Receivables and certain other
property of the Series 1997-1 Trust Estate to the Series 1997-1 Trust, and
pursuant to the Indenture dated as of June 29, 1997 (as such agreement may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof, the "Series 1997-1 Indenture", and
together with the Series 1997-1 Trust Agreement and the Series 1997-1 Sale and
Servicing Agreement, the "Series 1997-1 Securitization Agreements"), between the
Series 1997-1 Trust and Harris Trust and Savings Bank, as Indenture Trustee and
as Trust Collateral Agent, the Series 1997-1 Trust has assigned the Receivables
and certain other property of the Series 1997-1 Trust Estate to the Trust
Collateral Agent for the benefit of the Noteholders and Financial Security. Also
pursuant to the Series 1997-1 Indenture, the
<PAGE>
Series 1997-1 Trust will issue $66,891,200 aggregate principal amount of 6.35%
Automobile Receivables-Backed Notes (the "Series 1997-1 Notes" or "Series
1997-1").
Financial Security has been asked to issue the Series 1997-1 Note Policy
to the Trust Collateral Agent to guarantee payment of the Scheduled Payments (as
defined in the Series 1997-1 Note Policy) on each Distribution Date in respect
of the Series 1997-1 Notes.
In partial consideration of the issuance of the Series 1997-1 Note
Policy, the Transferor has agreed that Financial Security shall have certain
rights as Controlling Party, to the extent set forth herein.
In order to secure the performance of the Secured Obligations, the
Transferor, in its capacity as the agent of the Reversionary Holders, has agreed
to pledge the Collateral to the Collateral Agent for the benefit of Financial
Security and for the benefit of the Trustees on behalf of the Securityholders,
upon the terms and conditions set forth herein.
It is contemplated that NAFI and/or the Transferor and/or any other
Affiliate of NAFI may in the future enter into one or more additional
Securitization Agreements pursuant to which the Transferor and/or NAFI and/or
such other Affiliate of NAFI will sell or pledge all or a portion of its right,
title and interest in and to pools of contracts and/or other financial assets or
property to a Trust or other Person and in connection therewith Financial
Security in its discretion may in the future issue additional Policies with
respect to certain guaranteed distributions or scheduled payments with respect
to the corresponding additional Series. In connection with any such issuance of
additional Policies, it is contemplated that Financial Security will obtain
certain Controlling Party rights with respect to the related Series, and that,
in connection with each such additional Series, the parties hereto will enter
into a Series Supplement hereto pursuant to which NAFI and/or the Transferor
and/or any other Affiliate of NAFI will assign, or cause to be assigned,
additional Collateral pursuant to the terms hereof.
AGREEMENTS
In consideration of the premises, and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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<PAGE>
ARTICLE
DEFINITIONS
Section Definitions. Unless defined in this Agreement, capitalized terms
used in this Agreement shall have the meaning given such terms in the applicable
Securitization Agreement or Series Supplement, as identifiable from the context
in which such term is used. The following terms shall have the following
respective meanings:
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities Act
of 1933, as amended.
"Agreement" means this Master Spread Account Agreement, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms hereof.
"Authorized Officer" means, (i) with respect to Financial Security, the
Chairman of the Board, the President, the Executive Vice President or any
Managing Director of Financial Security, (ii) with respect to the Trustees or
the Collateral Agent, any Vice President or Trust Officer thereof, and (iii)
with respect to the Transferor, any Co-Trustee thereof.
"Collateral" means the Series 1997-1 Collateral, and with respect to any
other Series, all collateral delivered hereunder with respect to each of such
Series, as specified in the related Series Supplement.
"Collateral Agent" means, initially, Harris Trust and Savings Bank, in its
capacity as collateral agent on behalf of the Secured Parties, including its
successors in interest, until a successor Person shall have become the
Collateral Agent pursuant to Section 4.05 hereof, and thereafter "Collateral
Agent" shall mean such successor Person.
"Collateral Agent Fee" means, with respect to the Series 1997-1 Notes, the
annual fee payable to the Collateral Agent for services rendered as the
Collateral Agent, which Collateral Agent Fee is included in the fees paid to
Harris Trust and Savings Bank pursuant to the applicable Series 1997-1
Securitization Agreement.
"Collection Account" means the Collection Account applicable to any
Series, as specified in the related Securitization Agreement.
-3-
<PAGE>
"Controlling Party" means, with respect to a Series, at any time, the
Person designated as the Controlling Party at such time pursuant to Section 6.01
hereof.
"Cumulative Loss Rate" means, as of any Reporting Date, a fraction,
expressed as a percentage, the numerator of which is an amount equal to the
excess of (i) the sum of (a) the aggregate of the Principal Balances of all
Receivables that have become Liquidated Receivables (each such Principal Balance
calculated as of the last day of the Due Period during which such Receivable
became a Liquidated Receivable), (b) accrued and unpaid interest on such
Principal Balances through the last day of the Due Period during which such
Receivable became a Liquidated Receivable and (c) the amount of all Bankruptcy
Losses with respect to the Receivables over (ii) the Net Liquidation Proceeds
received by the Trust with respect to all Liquidated Receivables, and the
denominator of which is an amount equal to the sum of the Series 1997-1 Initial
Balance and the aggregate Principal Balances of Subsequent Receivables sold to
the Trust through the last day of the related Due Period (which Aggregate
Principal balances shall be as of the respective dates on which such Subsequent
Receivables were sold to the Trust).
"Deemed Cured" means, as of a Reporting Date, with respect to a Trigger
Event that has occurred with respect to a Series, that no Trigger Event with
respect to such Series shall have occurred as of such Reporting Date or as of
any of the two consecutively preceding Reporting Dates.
"Default" means with respect to any Series, at any time, (i) if Financial
Security is then the Controlling Party with respect to such Series, any
Insurance Agreement Event of Default with respect to such Series, and (ii) if
the Trustee is then the Controlling Party with respect to such Series, any
Servicer Termination Event with respect to such Series.
"Deficiency Claim Date" means, with respect to any Distribution Date, the
fourth Business Day preceding such Distribution Date.
"Delivery" means with respect to the Collateral:
(1) the perfection and priority of a security interest in which is
governed by the law of a jurisdiction which has adopted the 1978
Revision to Article 8 of the UCC:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(l)(i) of the UCC (other
than certificated securities) and are susceptible of physical delivery,
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transfer thereof to the Collateral Agent by physical delivery to the
Collateral Agent, indorsed to, or registered in the name of, the
Collateral Agent or its nominee or indorsed in blank and such additional
or alternative procedures as may hereafter become appropriate to effect
the complete transfer of ownership of any such Collateral to the
Collateral Agent free and clear of any adverse claims, consistent with
changes in applicable law or regulations or the interpretation thereof;
(b) with respect to a "certificated security" (as defined in Section
8-102(1)(a) of the UCC), transfer thereof:
(i) by physical delivery of such certificated security to the
Collateral Agent, provided that if the certificated security is in
registered form, it shall be indorsed to, or registered in the name
of, the Collateral Agent or indorsed in blank;
(ii) by physical delivery of such certificated security to a
"financial intermediary" (as defined in Section 8-313(4) of the UCC)
of the Collateral Agent specially indorsed to or issued in the name
of the Collateral Agent;
(iii) by the sending by a financial intermediary, not a
"clearing corporation" (as defined in Section 8-102(3) of the UCC),
of a confirmation of the purchase and the making by such financial
intermediary of entries on its books and records identifying as
belonging to the Collateral Agent of (A) a specific certificated
security in the financial intermediary's possession, (B) a quantity
of securities that constitute or are part of a fungible bulk of
certificated securities in the financial intermediary's possession,
or (C) a quantity of securities that constitute or are part of a
fungible bulk of securities shown on the account of the financial
intermediary on the books of another financial intermediary; or
(iv) by the making by a clearing corporation of appropriate
entries on its books reducing the appropriate securities account of
the transferor and increasing the appropriate securities account of
the Collateral Agent or a Person designated by the Collateral Agent
by the amount of such certificated security, provided that in each
case: (A) the clearing corporation identifies such certificated
security for the sole and exclusive account of the Collateral Agent
or the Person designated by the Collateral Agent, (B)
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such certificated security shall be subject to the clearing
corporation's exclusive control, (C) such certificated security is
in bearer form or indorsed in blank or registered in the name of the
clearing corporation or custodian bank or a nominee or either of
them, (D) custody of such certificated security shall be maintained
by such clearing corporation or a "custodian bank" (as defined in
Section 8-102(4) of the UCC) or the nominee of either subject to the
control of the clearing corporation and (E) such certificated
security is shown on the account of the transferor thereof on the
books of the clearing corporation prior to the making of such
entries; and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of
ownership of any such Collateral to the Collateral Agent free and
clear of any adverse claims, consistent with changes in applicable
law or regulations or the interpretation thereof;
(c) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book entry regulations, the following
procedures, all in accordance with applicable law, including applicable
Federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such property to an appropriate book-entry account
maintained with a Federal Reserve Bank by a financial intermediary which
is also a "depositary" pursuant to applicable Federal regulations and
issuance by such financial intermediary of a deposit advice or other
written confirmation of such book-entry registration to the Collateral
Agent of the purchase by the financial intermediary on behalf of the
Collateral Agent of such book-entry security; the making by such financial
intermediary of entries in its books and records identifying such
book-entry security held through the Federal Reserve System pursuant to
Federal book-entry regulations as belonging to the Collateral Agent and
indicating that such financial intermediary holds such book-entry security
solely an agent for the Collateral Agent; and such additional or
alternative procedures as may hereafter become appropriate to effect
complete transfer of ownership of any such Collateral to the Collateral
Agent free of any adverse claims, consistent with changes in applicable
law or regulations or the interpretation thereof;
(d) with respect to any item of Collateral that is an
"uncertificated security" (as defined in Section 8-102(1)(b)
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of the UCC) and that is not governed by clause (c) above,
transfer thereof:
(i) by registration of the transfer thereof to
the Collateral Agent, on the books and records of
the issuer thereof;
(ii) by the sending of a confirmation by a financial
intermediary of the purchase, and the making by such financial
intermediary of entries on its books and records identifying
as belonging to the Collateral Agent (A) a quantity of
securities which constitute or are part of a fungible bulk of
uncertificated securities registered in the name of the
financial intermediary or (B) a quantity of securities which
constitute or are part of a fungible bulk of securities shown
on the account of the financial intermediary on the books of
another financial intermediary; or
(iii) by the making by a clearing corporation of appropriate
entries on its books reducing the appropriate account of the
transferor and increasing the account of the Collateral Agent
or a person designated by the Collateral Agent by the amount
of such uncertificated security, provided that in each case:
(A) the clearing corporation identifies such uncertificated
security for the sole and exclusive use of the Collateral
Agent or the Person designated by the Collateral Agent, (B)
such uncertificated security is registered in the name of the
clearing corporation or a custodian bank or a nominee of
either, and (C) such uncertificated security is shown on the
account of the transferor on the books of the clearing
corporation prior to the making of such entries; and
(e) in each case of delivery contemplated herein, the Collateral
Agent shall make appropriate notations on its records, and shall cause
same to be made of the records of its nominees, indicating that such
securities are held in trust pursuant to and as provided in this
Agreement.
(2) the perfection and priority of a security interest in which is
governed by the law of a jurisdiction which has adopted the 1994 Revision to
Article 8 of the UCC:
(a) with respect to bankers' acceptances,
commercial paper, negotiable certificates of deposit
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and other obligations that constitute "instruments" within the
meaning of Section 9-105(1)(i) of the UCC (other than certificated
securities) and are susceptible of physical delivery, transfer
thereof to the Collateral Agent by physical delivery to the
Collateral Agent, indorsed to, or registered in the name of, the
Collateral Agent or its nominee or indorsed in blank and such
additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such
Collateral to the Collateral Agent free and clear of any adverse
claims, consistent with changes in applicable law or regulations or
the interpretation thereof;
(b) with respect to a "certificated security" (as defined in
Section 8-102(a)(4) of the UCC), transfer thereof:
(i) by physical delivery of such certificated security
to the Collateral Agent, provided that if the certificated
security is in registered form, it shall be indorsed to, or
registered in the name of, the Collateral Agent or indorsed in
blank;
(ii) by physical delivery of such certificated security
in registered form to a "securities intermediary" (as defined
in Section 8-102(a)(14) of the UCC) acting on behalf of the
Collateral Agent if the certificated security has been
specially endorsed to the Collateral Agent by an effective
endorsement.
(c) with respect to any security issued by the U.S. Treasury,
the Federal Home Loan Mortgage Corporation or by the Federal
National Mortgage Association that is a book-entry security held
through the Federal Reserve System pursuant to Federal book entry
regulations, the following procedures, all in accordance with
applicable law, including applicable federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such
property to an appropriate book-entry account maintained with a
Federal Reserve Bank by a securities intermediary which is also a
"depositary" pursuant to applicable federal regulations and issuance
by such securities intermediary of a deposit advice or other written
confirmation of such book-entry registration to the Collateral Agent
of the purchase by the securities intermediary on behalf of the
Collateral Agent of such
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book-entry security; the making by such securities intermediary of
entries in its books and records identifying such book-entry
security held through the Federal Reserve System pursuant to Federal
book-entry regulations as belonging to the Collateral Agent and
indicating that such securities intermediary holds such book-entry
security solely as agent for the Collateral Agent; and such
additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such
Collateral to the Collateral Agent free of any adverse claims,
consistent with changes in applicable law or regulations or the
interpretation thereof;
(d) with respect to any item of Collateral that is an
"uncertificated security" (as defined in Section 8-102(a)(18) of the
UCC) and that is not governed by clause (c) above, transfer thereof:
(i) (A) by registration to the Collateral Agent as the
registered owner thereof, on the books and records of the
issuer thereof.
(B) by another Person (not a securities intermediary)
either becomes the registered owner of the uncertificated
security on behalf of the Collateral Agent, or having become
the registered owner acknowledges that it holds for the
Collateral Agent.
(ii) the issuer thereof has agreed that it will comply with
instructions originated by the Collateral Agent without further
consent of the registered owner thereof.
(e) in each case of delivery contemplated herein, the
Collateral Agent shall make appropriate notations on its records,
and shall cause same to be made of the records of its nominees,
indicating that securities are held in trust pursuant to and as
provided in this Agreement.
(f) with respect to a "security entitlement" (as defined in
Section 8-102(a)(17) of the UCC)
(i) if a securities intermediary (A) indicates by book
entry that a "financial asset" (as defined in Section
8-102(a)(9) of the UCC) has been credited to be the Collateral
Agent's "securities account" (as defined in Section 8- 501(a)
of the UCC), (B) receives a financial asset
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(as so defined) from the Collateral Agent or acquires a
financial asset for the Collateral Agent, and in either case,
accepts it for credit to the Collateral Agent's securities
account (as so defined), (C) becomes obligated under other
law, regulation or rule to credit a financial asset to the
Collateral Agent's securities account, or (D) has agreed that
it will comply with "entitlement orders" (as defined in
Section 8-102(a)(8) of the UCC) originated by the Collateral
Agent without further consent by the "entitlement holder" (as
defined in Section 8- 102(a)(7) of the UCC), of a confirmation
of the purchase and the making by such securities intermediary
of entries on its books and records identifying as belonging
to the Collateral Agent of (I) a specific certificated
security in the securities intermediary's possession, (II) a
quantity of securities that constitute or are part of a
fungible bulk of certificated securities in the securities
intermediary's possession, or (III) a quantity of securities
that constitute or are part of a fungible bulk of securities
shown on the account of the securities intermediary on the
books of another securities intermediary.
"Final Termination Date" means, with respect to a Series, the date that is
the later of (i) the Insurer Termination Date with respect to such Series and
(ii) the Trustee Termination Date with respect to such Series.
"Financial Security Default" means, with respect to any Series, any one of
the following events shall have occurred and be continuing:
(a) Financial Security shall have failed to make a payment required
under the related Policy;
(b) Financial Security shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization,
(ii) made a general assignment for the benefit of its creditors, or (iii)
had an order for relief entered against it under the United States
Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization
which is final and nonappealable; or
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<PAGE>
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for Financial Security or for all or
any material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of Financial
Security (or the taking of possession of all or any material portion of
the property of Financial Security).
"GAC Receivable" means any Receivable (i) originated by
General Acceptance Corp. or any Affiliate thereof and/or (ii)
transferred, assigned, set-over, sold or otherwise conveyed by
General Acceptance Corp. or any Affiliate thereof to NAFI or any
Affiliate thereof.
"Guaranteed Distributions" shall have the meaning set forth
in the related Policy.
"Harris Trust and Savings Bank" means Harris Trust and Savings Bank, an
Illinois banking corporation.
"Initial Spread Account Deposit" means, with respect to the Series 1997-1
Notes, an amount equal to $1,764,163.51.
"Insurance Agreement" means, with respect to any Series, the Insurance and
Indemnity Agreement among Financial Security and/or NAFI and/or the Transferor
and such other parties as may be named therein, pursuant to which Financial
Security issued a Policy to
the Trustee.
"Insurer Secured Obligations" means, with respect to a Series, all amounts
and obligations which may at any time be owed to or on behalf of Financial
Security (or any agents, accountants or attorneys for Financial Security) under
the Insurance Agreement related to such Series or under any Transaction Document
in respect of such Series, regardless of whether such amounts are owed now or in
the future, whether liquidated or unliquidated, contingent or noncontingent.
"Insurer Termination Date" means, with respect to any Series, the date
which is the latest of (i) the date of the expiration of all Policies issued in
respect of such Series, (ii) the date on which Financial Security shall have
received payment and performance in full of all Insurer Secured Obligations with
respect to such Series and (iii) the latest date any payment referred to above
could be avoided as a preference or otherwise under the United States Bankruptcy
Code or any other similar Federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization, as specified in an
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Opinion of Counsel delivered to the Collateral Agent and the Trustee.
"Lien" means any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and any
liens that attach by operation of the law.
"Monthly Period" means, with respect to a Reporting Date or a Distribution
Date, the calendar month immediately preceding the month in which such Reporting
Date or Distribution Date occurs (such calendar month being referred to as the
"related" Monthly Period with respect to such Reporting Date or Distribution
Date).
"NAFI" means National Auto Finance Company, Inc., a Delaware
corporation.
"Non-Controlling Party" means with respect to a Series at any time, the
Secured Party that is not the Controlling Party at such time.
"Opinion of Counsel" means a written opinion of counsel acceptable, as to
form, substance and issuing counsel, to the Controlling Party.
"Policy" means the Series 1997-1 Note Policy and any insurance policy
subsequently issued by Financial Security with respect to a Series.
"Requisite Amount" means, with respect to Series 1997-1, as of any
Reporting Date after giving effect to any distributions of principal on the
Series 1997-1 Notes to be made on the related Distribution Date, the greater of
(a) the lesser of (i) (A) if such Reporting Date occurs before the July 1998
Distribution Date, $2,205,204.40, or (B) if such Reporting Date occurs after the
July 1998 Distribution Date and (1) the Cumulative Loss Rate as of the Reporting
Date relating to the July 1998 Distribution Date is less than 4.0%,
$1,470,136.26 or (2) the Cumulative Loss Rate as of the Reporting Date relating
to the July 1998 Distribution Date is equal to or greater than 4.0%,
$2,205,204.40 and (ii) the greater of (A) the outstanding principal amount of
the Series 1997-1 Notes as of such Reporting Date after giving effect to any
distributions of principal to be made thereon on the related Distribution Date
and (B) $100,000, and (b) (i) if a Trigger Event shall have occurred as of such
Reporting Date (and until such Trigger Event is Deemed Cured) and no Insurance
Agreement Event of Default shall have occurred as of such Reporting Date, 7% of
the Series 1997-1 Balance as of such Reporting Date, or (ii) if an Insurance
Agreement Event of Default shall have occurred as of such Reporting Date, an
unlimited amount; provided, however, if the aggregate Principal
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Balance of GAC Receivables that are a part of the Trust Property as of such
Reporting Date is an amount equal to or greater than 20% of the aggregate
Principal Balance of GAC Receivables as of the Initial Cut-off Date that were a
part of the Trust Property as of the Closing Date, the Requisite Amount with
respect to such Reporting Date as determined pursuant to clause (a) above shall
be increased by an amount equal to $294,027.25; provided further, however, if
the aggregate Principal Balance of GAC Receivables that are a part of the Trust
Property as of such Reporting Date is an amount greater than zero, the Requisite
Amount with respect to such Reporting Date as determined pursuant to clause
(b)(i) above shall be increased by an amount equal to $294,027.25
"Reversionary Holders" has the meaning specified in Section
2.01 hereof.
"Scheduled Payments" shall have the meaning set forth in the
related Policy.
"Secured Obligations" means, with respect to each Series the Insurer
Secured Obligations with respect to such Series and the Trustee Secured
Obligations with respect to such Series.
"Secured Parties" means Financial Security and the Trustee.
"Securities" means the "notes", "certificates" or other obligations issued
or arising under a Securitization Agreement.
"Securitization Agreement" means, with respect to the Series 1997-1 Notes,
the Series 1997-1 Securitization Agreements and, for each other Series created
pursuant to a Securitization Agreement, the "Trust Agreement", the "Sale and
Servicing Agreement", the "Indenture", the "Pooling and Servicing Agreement",
"Sale and Servicing Agreement", "Indenture", "Purchase and Contribution
Agreement" or any other financing document related to such Series.
"Securityholders" means the holders of the Securities of a Series as more
particularly described in the Securitization Agreement with respect to such
Series.
"Security Interests" means, with respect to the Series 1997-1 Notes, the
security interests and Liens in the Series 1997-1 Collateral granted pursuant to
Section 2.03 hereof, and, with respect to any other Series, the security
interests and Liens in the related Collateral granted pursuant to the related
Series Supplement.
"Series 1997-1 Balance" means with respect to any Reporting
Date, the sum of the Pool Balance as of the last day of the
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related Due Period and the amount on deposit in the Pre-Funding Account, if any,
on such date.
"Series 1997-1 Collateral" has the meaning specified in
Section 2.03(a) hereof.
"Series 1997-1 Indenture" has the meaning provided in the
second recital to this Agreement.
"Series 1997-1 Initial Balance" means $66,156,163.54.
"Series 1997-1 Insurance Agreement" means the Insurance Agreement related
to the Series 1997-1 Notes.
"Series 1997-1 Insurer Secured Obligations" means the Insurer Secured
Obligations with respect to the Series 1997-1 Notes.
"Series 1997-1 Note Policy" means the Policy issued with respect to the
Series 1997-1 Notes.
"Series 1997-1 Notes" has the meaning set forth in the
second recital to this Agreement.
"Series 1997-1 Reversionary Holders" has the meaning
specified in Section 2.01 hereof.
"Series 1997-1 Secured Obligations" means the Secured Obligations related
to the Series 1997-1 Notes.
"Series 1997-1 Securitization Agreements" has the meaning set forth in the
second recital to this Agreement.
"Series 1997-1 Spread Account" has the meaning specified in
Section 3.01(a) hereof.
"Series 1997-1 Trust" has the meaning provided in the first
recital to this Agreement.
"Series 1997-1 Trust Agreement" has the meaning provided in the first
recital to this Agreement.
"Series 1997-1 Trust Estate" means the Trust Estate with respect to the
Series 1997-1 Notes, as described in the Series 1997-1 Sale and Servicing
Agreement and the Series 1997-1 Indenture.
"Series of Securities" or "Series" means the Series 1997-1 Notes or, as
the context may require, any other series of Securities issued or arising as
described in Section 2.02 hereof, or collectively, all such series.
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"Series Supplement" means a supplement hereto executed by the parties
hereto in accordance with Section 2.02 hereof.
"Servicer Termination Side Letter" shall have the meaning set forth in the
Insurance Agreement.
"Spread Account" has the meaning specified in Section
3.01(a) hereof.
"Spread Account Eligible Investments" means Eligible Investments held by
the Collateral Agent in a Spread Account and with respect to which the
Collateral Agent has taken Delivery.
"Spread Account Shortfall" means, with respect to any Series and any
Reporting Date with respect to which (x) a Trigger Event has occurred and has
not been Deemed Cured or (y) an Insurance Agreement Event of Default has
occurred, the excess, if any, of the Requisite Amount with respect to such
Reporting Date over the amount on deposit in the related Spread Account after
making any withdrawals therefrom required by priorities FIRST, SECOND, and THIRD
of Section 3.03(b) hereof.
"Transaction Documents" means, with respect to a Series, this Agreement,
each of the applicable Securitization Agreements, the Servicer Termination Side
Letter, the Insurance Agreement, the Indemnification Agreement, the Purchase
Agreement, the Inducement Letter, the Premium Letter, the Assignment Agreement,
if any, the Custodian Agreement, the Lockbox Agreement, any Conveyance related
to such Series, any Subsequent Transfer Agreement related to such Series and any
other financing document related to such Series.
"Trigger Event" means, with respect to Series 1997-1, that as of any
Reporting Date with respect to Series 1997-1 that any one of the following
events shall have occurred and shall not have been Deemed Cured: (a) the Average
Delinquency Ratio as of such Reporting Date is equal to or greater than 8.25%;
or (b) the Average Default Rate as of such Reporting Date (i) occurring before
the July 1999 Distribution Date is equal to or greater than 18% and (ii)
occurring subsequent to the July 1999 Distribution Date is equal to or greater
than 14%; or (c) the Average Net Loss Rate as of such Reporting Date (i)
occurring before the July 1999 Distribution Date is equal to or greater than 8%
and (ii) occurring subsequent to the July 1999 Distribution Date is equal to or
greater than 6%.
"Trust" means a trust formed pursuant to a Securitization
Agreement.
"Trust Estate" with respect to any Series means the property
assigned to the Trustee or other Person or held in the estate of
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the Trust, in each case pursuant to the related Securitization Agreement.
"Trustee" means with respect to any Series, the Trustee or Trust
Collateral Agent, as applicable, named in the related Securitization Agreement.
"Trustee Secured Obligations" means, with respect to a Series, all amounts
and obligations which NAFI, the Transferor or the Trust may at any time owe to
or on behalf of the Trustee for the benefit of the Securityholders under the
Securitization Agreement with respect to such Series.
"Trustee Termination Date" means, with respect to any Series, the date
which is the latest of (i) the date on which the Trustee shall have received, as
Trustee for the holders of the Securities of such Series, payment and
performance in full of all Trustee Secured Obligations arising out of or
relating to such Series, (ii) the date on which all payments in respect of the
Securities of such Series shall have been made and the related Trust shall have
been terminated pursuant to the terms of the related Securitization Agreement
and (iii) the latest date any payment referred to above could be avoided as a
preference or otherwise under the United States Bankruptcy Code or any other
similar Federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, as specified in an Opinion of Counsel delivered
to the Collateral Agent and the Trustee.
"Uniform Commercial Code" or "UCC" means the Uniform Commercial Code in
effect in the relevant jurisdiction, as the same may be amended from time to
time.
"Unreimbursed Amounts" has the meaning specified in Section
3.03(b) hereof.
Section Rules of Interpretation. The terms "hereof," "herein" or
"hereunder," unless otherwise modified by more specific reference, shall refer
to this Agreement in its entirety. Unless otherwise indicated in context, the
terms "Article," "Section," "Appendix," "Exhibit" or "Annex" shall refer to an
Article or Section of, or Appendix, Exhibit or Annex to, this Agreement. The
definition of a term shall include the singular, the plural, the past, the
present, the future, the active and the passive forms of such term. A term
defined herein and used herein preceded by a Series designation, shall mean such
term as it relates to the Series designated.
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ARTICLE
REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL
Section Reversionary Holders. It is anticipated that each Securitization
Agreement will require that certain amounts be deposited into a Spread Account.
With respect to any Series, the Person or Persons who will ultimately be
entitled to receive distributions of amounts released from the related Spread
Account are the "Reversionary Holders" with respect to such Spread Account and
Series and may be classified into different classes of Reversionary Holders
pursuant to the applicable Securitization Agreement and Section 3.03 hereof.
With respect to Series 1997-1, the Reversionary Holders (the "Series 1997-1
Reversionary Holders") shall be the holders of the Trust Certificates.
It is intended by the parties hereto that the Collateral shall constitute
property held in trust by the Collateral Agent, to provide for the payment of
the Secured Obligations, and that such Collateral and any property rights
appurtenant thereto shall vest in the related Reversionary Holders only when
such Collateral is released to such Reversionary Holders in accordance with
Section 3.03(b) hereof.
Notwithstanding the foregoing, each Reversionary Holder may treat the
deposit of the related Collateral into the related Spread Account as the receipt
by such Reversionary Holder of such Collateral for Federal and state income
taxes, as may be required by law.
Each Securitization Agreement in which the Transferor is not itself the
sole Reversionary Holder shall provide that the Transferor shall be deemed to be
the agent of the related Reversionary Holders for the purpose of perfecting the
Collateral Agent's Security Interest in the related Collateral. Each
Securitization Agreement shall additionally provide that the Reversionary
Holders agree to execute and deliver such instruments of conveyance, assignment,
grant, confirmation, etc., as well as any financing statements, in each case, as
the Controlling Party shall consider reasonably necessary in order to perfect
the Collateral Agent's Security Interest in the related Collateral.
Section Series Supplements. The parties hereto agree that the Transferor
will have the option to enter into a Series Supplement hereto with respect to
each Series, the Secured Obligations with respect to which are to be secured by
Collateral held pursuant to the provisions of this Agreement. The parties will
enter into a Series Supplement only if the following conditions shall have been
satisfied:
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(i) The Transferor shall have sold or pledged all or a portion of
its right, title and interest in and to a pool of Receivables and/or other
financial assets or property to a Trust or other Person pursuant to a
Securitization Agreement;
(ii) Financial Security shall have issued a Policy in respect of the
Guaranteed Distributions or Scheduled Payments, as the case may be, with
respect to the Series issued or arising pursuant to such Securitization
Agreement; and
(iii) Pursuant to the related Series Supplement the related
Collateral specified herein shall be administered by the Collateral Agent
substantially on the terms set forth in Section 2.03 hereof.
Section Creation and Grant of Security Interest by
the Transferor.
To secure the performance of the Series 1997-1 Secured Obligations and
the Secured Obligations with respect to each other Series to the extent provided
herein, the Transferor, including in its capacity as agent on behalf of the
Reversionary Holders, hereby pledges, assigns, grants, transfers and conveys to
the Collateral Agent, on behalf of and for the benefit of the Secured Parties, a
lien on and security interest in (which lien and security interest is intended
to be prior to all other Liens), all of its right, title and interest in and to
the following (all being collectively referred to herein as the "Series 1997-1
Collateral" and constituting Collateral hereunder):
the amounts distributed to the Series 1997-1 Spread Account
pursuant to Section 5.7(b)(v) of the Series 1997-1 Sale and Servicing
Agreement and Section 5.6(a) of the Series 1997-1 Indenture and all rights
and remedies that the Series 1997-1 Reversionary Holders may have to
enforce such distributions, whether under the Series 1997-1 Securitization
Agreements or otherwise;
the Series 1997-1 Spread Account established pursuant to Section
3.01 hereof, and each other account established by the Transferor and
maintained by the Collateral Agent (including, without limitation, the
Initial Spread Account Deposit related thereto and all additional monies,
checks, securities, investments and other documents from time to time held
in or evidencing any such accounts);
all of the Transferor's right, title and
interest in its capacity as agent for the Series 1997-1
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Reversionary Holders, in and to investments made with proceeds of the
property described in clauses (i) and (ii) above, or made with amounts on
deposit in the Series 1997-1 Spread Account; and
all distributions, revenues, products,
substitutions, benefits, profits and proceeds, in whatever
form, of any of the foregoing.
To effectuate the provisions and purposes of this Agreement, including
for the purpose of perfecting the security interests granted hereunder, the
Transferor represents and warrants that it has executed and filed on or prior to
the Closing Date an appropriate Uniform Commercial Code financing statement in
the State of Illinois sufficient to assure that the Collateral Agent, as agent
for the Secured Parties, has a first priority perfected security interest in all
Series 1997-1 Collateral which can be perfected by the filing of a financing
statement.
Section Priority. The Transferor intends the security interests in favor
of the Collateral Agent, for the benefit of the Secured Parties, to be prior to
all other Liens in respect of the Collateral, and the Transferor shall take all
actions necessary to obtain and maintain, in favor of the Collateral Agent, for
the benefit of the Secured Parties, a first lien on and a first priority
perfected security interest in the Collateral. Subject to the provisions hereof
specifying the rights and powers of the Controlling Party from time to time to
control certain specified matters relating to the Collateral, each Secured Party
shall have all of the rights, remedies and recourse with respect to the
Collateral afforded a secured party under the Uniform Commercial Code, and all
other applicable law in addition to, and not in limitation of, the other rights,
remedies and recourse granted to such Secured Parties by this Agreement or any
other law relating to the creation and perfection of liens on, and security
interests in, the Collateral.
Section Transferor Remains Liable. The Security Interests are granted as
security only and shall not (i) transfer or in any way affect or modify, or
relieve the Transferor from, any obligation to perform or satisfy, any term,
covenant, condition or agreement to be performed or satisfied by the Transferor
under or in connection with this Agreement, the Insurance Agreement or any other
Transaction Document to which it is a party or (ii) impose any obligation on any
of the Secured Parties or the Collateral Agent to perform or observe any such
term, covenant, condition or agreement or impose any liability on any of the
Secured Parties or the Collateral Agent for any act or omission on its part
relative thereto or for any breach of any
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representation or warranty on its part contained therein or made in connection
therewith, except, in each case, to the extent provided herein and in the other
Transaction Documents.
Section Maintenance of Collateral.
Safekeeping. The Collateral Agent agrees to (i) maintain the Collateral
(other than Spread Account Eligible Investments) received by it and all records
and documents relating thereto at the office of the Collateral Agent specified
in Section 8.06 hereof or such other address within the State of Illinois
(unless all filings have been made to continue the perfection of the security
interest in the Collateral to the extent such security interest can be perfected
by filing a financing statement, as evidenced by an Opinion of Counsel delivered
by the Transferor to the Controlling Party), as may be approved by the
Controlling Party and (ii) take Delivery of and maintain the Spread Account
Eligible Investments and all records and documents relating thereto at its
offices within the State of New York. The Collateral Agent shall keep all
Collateral and related documentation in its possession separate and apart from
all other property that it is holding in its possession and from its own general
assets and shall maintain accurate records pertaining to the Spread Account
Eligible Investments and Spread Accounts included in the Collateral in such a
manner as shall enable the Collateral Agent and the Secured Parties to verify
the accuracy of such record-keeping. The Collateral Agent's books and records
shall at all times show that the Collateral is held by the Collateral Agent as
agent of the Secured Parties and is not the property of the Collateral Agent.
The Collateral Agent will promptly report to each Secured Party and the
Transferor any failure on its part to hold the Collateral as provided in this
Section 2.06(a) and will promptly take appropriate action to remedy any such
failure.
Access. The Collateral Agent shall permit each of the Secured Parties,
the Reversionary Holders or their respective duly authorized representatives,
attorneys, auditors or designees, to inspect the Collateral in the possession of
or otherwise under the control of the Collateral Agent pursuant hereto at such
reasonable times during normal business hours as any such Secured Party or
Reversionary Holders may reasonably request upon not less than two Business
Days' prior written notice. The costs and expenses associated with any such
inspection will be paid by the party making such inspection.
Section Termination and Release of Rights.
On the Insurer Termination Date relating to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon Financial
Security pursuant to this Agreement in
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respect of the Collateral related to such Series (and, to the extent provided
herein, in respect of Collateral related to other Series) shall terminate and be
of no further force and effect and all rights, remedies, powers, duties,
authority and obligations of Financial Security with respect to such Collateral
shall be automatically released; provided that any indemnity provided to or by
Financial Security herein shall survive such Insurer Termination Date. If
Financial Security is acting as Controlling Party with respect to a Series on
the related Insurer Termination Date, Financial Security agrees, at the expense
of the Transferor, to execute and deliver such instruments as the successor
Controlling Party may reasonably request to effect such release, and any such
instruments so executed and delivered shall be fully binding on Financial
Security and any Person claiming by, through or under Financial Security.
On the Trustee Termination Date related to a Series, the rights,
remedies, powers, duties, authority and obligations, if any, conferred upon the
Trustee pursuant to this Agreement in respect of the Collateral related to such
Series (and, to the extent provided herein, in respect of the Collateral related
to other Series) shall terminate and be of no further force and effect and all
such rights, remedies, powers, duties, authority and obligations of the Trustee
with respect to such Collateral shall be automatically released; provided that
any indemnity provided to or by the Trustee herein shall survive such Trustee
Termination Date. If the Trustee is acting as Controlling Party with respect to
a Series on the related Trustee Termination Date, the Trustee agrees, at the
expense of the Transferor, to execute and deliver such instruments as the
Transferor may reasonably request to effectuate such release, and any such
instruments so executed and delivered shall be fully binding on the Trustee.
On the Final Termination Date with respect to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon the
Collateral Agent and each Secured Party pursuant to this Agreement shall
terminate and be of no further force and effect and all rights, remedies,
powers, duties, authority and obligations of the Collateral Agent and each
Secured Party with respect to the Collateral related to such Series (and, to the
extent provided herein, in respect of Collateral related to other Series) shall
be automatically released, subject to the application of such amounts for
indemnity payments and all other amounts due and payable hereunder. On the Final
Termination Date with respect to a Series, the Collateral Agent agrees, and each
Secured Party agrees, at the expense of the Transferor, to execute such
instruments of release, in recordable form if necessary, in favor of the
Transferor as the Transferor may reasonably request, to deliver any Collateral
related to such Series in its possession to the Transferor or as otherwise
provided in the related
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Securitization Agreement, and to otherwise release the lien of this Agreement
and release and deliver to the Transferor or as otherwise provided in the
related Securitization Agreement the Collateral related to such Series.
Section Non-Recourse Obligations of Transferor and the Reversionary
Holders. Notwithstanding anything herein or in the other Transaction Documents
to the contrary, the parties hereto agree that the obligations of the Transferor
and the Reversionary Holders hereunder shall be recourse only to the extent of
amounts deposited in the Spread Accounts. The Transferor agrees that it shall
not declare or make payment of (i) any dividend or other distribution on or in
respect of any beneficial interests in the Transferor or (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (x) any
beneficial interest in the Transferor or (y) any option, warrant or other right
to acquire any beneficial interest in the Transferor or (z) any payment of any
loan made by NAFI or any Affiliate of NAFI to the Transferor, unless (in each
case) at the time of such declaration or payment (and after giving effect
thereto) no amount payable by the Transferor or any Reversionary Holders under
any Transaction Document is then due and owing but unpaid.
ARTICLE
SPREAD ACCOUNTS
Section Establishment of Spread Accounts; Initial
Deposits into Spread Accounts.
On or prior to the Closing Date relating to Series 1997-1, the
Collateral Agent shall establish with respect to such Series, at its office or
at another depository institution or trust company an Eligible Deposit Account,
designated, "Spread Account - National Auto Finance Series 1997-1 Trust - Harris
Trust and Savings Bank, as Collateral Agent for Financial Security Assurance
Inc. and another Secured Party" (the "Spread Account", and, with respect to the
Series 1997-1 Notes, the "Series 1997-1 Spread Account"). All Spread Accounts
established under this Agreement from time to time shall be maintained at the
same depository institution (which depository institution may be changed from
time to time in accordance with this Agreement). If any Spread Account
maintained or established with respect to a Series ceases to be an Eligible
Deposit Account, the Collateral Agent shall, within five Business Days,
establish a new Eligible Deposit Account for such Series.
No withdrawals may be made of funds in any Spread Account except as
provided in Section 3.03 of this Agreement.
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Except as specifically provided in this Agreement, funds in a Spread Account
established with respect to a Series shall not be commingled with funds in a
Spread Account established with respect to another Series or with any other
moneys. All moneys deposited from time to time in such Spread Account and all
investments made with such moneys shall be held by the Collateral Agent as part
of the Collateral with respect to such Series.
On the Closing Date with respect to a Series, the Collateral Agent shall
deposit the Initial Spread Account Deposit with respect to such Series, if any,
received from the Transferor
into the related Spread Account.
Each Spread Account shall be separate from each Trust, and amounts on
deposit therein will not constitute a part of the Trust Estate of any Trust.
Each Spread Account shall be maintained by the Collateral Agent at all times
separate and apart from any other account of the Transferor, the Servicer or the
Trust. All income or loss on investments of funds in any Spread Account shall be
reported by the applicable Reversionary Holders as taxable income or loss of
such Reversionary Holders.
Section Investments.
Funds which may at any time be held in the Spread Account established
with respect to a Series shall be invested and reinvested by the Collateral
Agent, at the written direction (including, subject to the provisions hereof,
general standing instructions) of the Transferor (unless a Default actually
known to an Authorized Officer of the Collateral Agent shall have occurred and
be continuing, in which case at the written direction of the Controlling Party)
or its designee received by the Collateral Agent by 1:00 P.M. New York City time
on the Business Day prior to the date on which such investment shall be made, in
one or more Spread Account Eligible Investments in the manner specified in
Section 3.02(c) hereof. If no written direction with respect to any portion of
such Spread Account is received by the Collateral Agent, the Collateral Agent
shall invest such funds overnight in such Eligible Investments as the Collateral
Agent may select, provided that the Collateral Agent shall not be liable for any
loss or absence of income resulting from such investments or for investments
made pursuant to written instructions received in accordance with this Section
3.02(a).
Each investment made pursuant to this Section 3.02 on any date shall
mature not later than the Business Day immediately preceding the Distribution
Date next succeeding the day such investment is made, except that any investment
made on the day preceding a Distribution Date shall mature on such Distribution
Date; provided that any investment of funds in any Spread Account maintained
with the Collateral Agent (which shall be qualified as
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a Spread Account Eligible Investment) in any investment as to which the
Collateral Agent is the obligor, if otherwise qualified as an Eligible
Investment (including any repurchase agreement on which the Collateral Agent in
its commercial capacity is liable as principal) may mature on the Distribution
Date next succeeding the date of such investment.
Subject to the other provisions hereof, the Collateral Agent shall have
sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall be
delivered directly to the Collateral Agent or its agent, together with each
document of transfer, if any, necessary to transfer title to such investment to
the Collateral Agent in a manner complying with Section 2.06 hereof and the
requirements of the definition of "Spread Account Eligible Investments."
If amounts on deposit in any Spread Account are at any time invested in
a Spread Account Eligible Investment payable on demand, the Collateral Agent
shall (i) consistent with any notice required to be given thereunder, demand
that payment thereon be made on the last day such Spread Account Eligible
Investment is permitted to mature under the provisions hereof and (ii) demand
payment of all amounts due thereunder promptly upon receipt of written notice
from the Controlling Party to the effect that such investment does not
constitute a Spread Account Eligible Investment.
All moneys on deposit in a Spread Account together with any deposits or
securities in which such moneys may be invested or reinvested, and any gains
from such investments, shall constitute Collateral hereunder with respect to the
related Series subject to the Security Interests of the Secured Parties.
Subject to Section 4.03 hereof, the Collateral Agent shall not be liable
by reason of any insufficiency in any Spread Account resulting from any loss on
any Eligible Investment included therein except for losses attributable to the
Collateral Agent's failure to make payments on Eligible Investments as to which
the Collateral Agent, in its commercial capacity, is obligated to make.
Section Distributions; Priority of Payments.
On or before each Deficiency Claim Date with respect to any Series, the
Collateral Agent will make the following calculations on the basis of
information (including, without limitation, the amount of any Deficiency Claim
Amount with respect to any Series) received pursuant to Section 4.11 of the
applicable Securitization Agreement (or other section referenced in the related
Series Supplement), with respect to each such
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Series from the Servicer thereunder; provided, however, that if the Collateral
Agent receives notice from Financial Security of the occurrence of an Insurance
Agreement Event of Default with respect to any Series, such notice shall be
determinative for the purposes of determining the Requisite Amount for such
Series:
FIRST, determine the amounts to be on deposit in the respective
Spread Accounts (taking into account amounts to be deposited into the
related Spread Accounts) on the next succeeding Distribution Date which
will be available to satisfy any Deficiency Claim Amount.
SECOND, determine (i) the amounts, if any, to be distributed from
each Spread Account related to each Series with respect to which there
exists a Deficiency Claim Amount, and (ii) whether, following distribution
from the related Spread Accounts to the respective Trustees for deposit
into the respective Collection Account with respect to which there exists
a Deficiency Claim Amount, a Deficiency Claim Amount will continue to
exist with respect to one or more Series.
THIRD, if a Deficiency Claim Amount will continue to exist with
respect to one or more Series other than the Series 1997-1 Notes following
the distributions from the related Spread Accounts contemplated by
paragraph SECOND above, determine the amount, if any, to be distributed to
the Trustee with respect to each Series from unrelated Spread Accounts
other than the Series 1997-1 Spread Account in respect of such Deficiency
Claim Amount(s). This determination shall be made in accordance with the
distribution priority scheme set forth in Section 3.03(b) below.
On such Deficiency Claim Date related to a Series, the Collateral Agent
shall deliver a certificate to each Trustee in respect of which the Collateral
Agent has received a Deficiency Notice stating the amount, if any, to be
distributed to such Trustee on the next Distribution Date in respect of such
Deficiency Claim Amount.
On each Distribution Date, following the deposit into the respective
Spread Accounts of the amounts required to be deposited therein pursuant to the
respective Securitization Agreements and if the Trustee has received a
Deficiency Notice with respect to one or more such Series, or with respect to
priority SIXTH below to the extent the amount referred to therein is due and
owing, the Collateral Agent shall make the following distributions in the
following order of priority:
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FIRST, if with respect to any Series there exists a Deficiency Claim
Amount, from the Spread Account related to such Series, to the Trustee for
deposit in the related Collection Account the amount of such Deficiency
Claim Amount.
SECOND, if with respect to any Series other than the Series 1997-1
Notes there continues to exist a Deficiency Claim Amount after deposit
into the Collection Account of amounts distributed pursuant to priority
FIRST of this Section 3.03(b), from amounts, if any, on deposit in each
unrelated Spread Account other than the Series 1997-1 Spread Account in
excess of the related Requisite Amount, an amount in the aggregate up to
the aggregate of the Deficiency Claim Amounts for all Series other than
the Series 1997-1 Notes, for deposit in the respective Collection Accounts
pro rata in accordance with the respective Deficiency Claim Amounts.
THIRD, if with respect to any Series other than the Series 1997-1
Notes there continues to exist a Deficiency Claim Amount after deposit
into the Collection Account of amounts distributed pursuant to priority
FIRST and SECOND of this Section 3.03(b), from each unrelated Spread
Account other than the Series 1997-1 Spread Account pro rata in accordance
with amounts on deposit therein, an amount up to the aggregate of the
remaining Deficiency Claim Amounts for all Series other than the Series
1997-1 Notes, to the respective Trustees for deposit in the respective
Collection Accounts pro rata in accordance with the respective Deficiency
Claim Amounts.
FOURTH, if with respect to one or more Series other than the Series
1997-1 Notes there exists a Spread Account Shortfall, from amounts, if
any, (1) on deposit in each Spread Account other than the Series 1997-1
Spread Account in excess of the related Requisite Amount or (2) on deposit
in any Spread Account other than the Series 1997-1 Spread Account with
respect to which the Final Termination Date shall have occurred on such
Distribution Date or a prior Distribution Date, an amount in the aggregate
up to the aggregate of the Spread Account Shortfalls for all Series other
than the Series 1997-1 Notes for deposit into each Spread Account other
than the Series 1997-1 Spread Account pro rata in accordance with the
respective Spread Account Shortfalls.
FIFTH, if with respect to one or more Series, amounts have been
withdrawn from the related Spread Account pursuant to priority THIRD of
this Section 3.03(b) on such Distribution Date and/or prior Distribution
Dates and such amounts have not been redeposited in full into such Spread
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Account pursuant to this priority FIFTH (such amounts in the aggregate for
a Series "Unreimbursed Amounts"), from amounts, if any, (1) on deposit in
each Spread Account other than the Series 1997-1 Spread Account in excess
of the related Requisite Amount; or (2) on deposit in any Spread Account
other than the Series 1997-1 Spread Account with respect to which the
Final Termination Date shall have occurred on such Distribution Date or a
prior Distribution Date, an amount up to the aggregate of the Unreimbursed
Amounts for all such Series for deposit into each Spread Account other
than the Series 1997-1 Spread Account with respect to which there exist
Unreimbursed Amounts pro rata in accordance with the respective
Unreimbursed Amounts.
SIXTH, if any amounts are owed to the Trustee, the Collateral Agent
or Backup Servicer for reasonable out-of-pocket expenses in connection
with the administration of the Trust, including the expenses incurred in
the transition to a successor Servicer and such amounts have not been
paid, then from amounts (if any) on deposit in the related Spread Account,
an amount up to the amount so owed, to be paid to the Trustee, the
Collateral Agent and the Backup Servicer.
SEVENTH, any funds in a Spread Account in excess of the applicable
Requisite Amount and any funds in a Spread Account with respect to a
Series for which the Final Termination Date shall have occurred after
distribution pursuant to priorities FIRST through SIXTH will be released
to the Reversionary Holders as provided in the related Securitization
Agreement (or, if the related Securitization Agreement does not so
provide, to the Transferor), in each case, free and clear of the Lien
established hereunder.
Section General Provisions Regarding Spread Accounts.
Promptly upon the establishment (initially or upon any relocation) of a
Spread Account hereunder, the Collateral Agent shall advise the Transferor and
each Secured Party in writing of the name and address of the depository
institution or trust company where such Spread Account has been established (if
not Harris Trust and Savings Bank or any successor Collateral Agent in its
commercial banking capacity), the name of the officer of the depository
institution responsible for overseeing such Spread Account, the account number
and the individuals whose names appear on the signature cards for such Spread
Account. The Transferor shall cause each such depository institution or trust
company to execute a written agreement, in form and substance satisfactory to
the Controlling Party, waiving, and the Collateral Agent by its execution of
this Agreement hereby waives (except to the extent expressly provided herein),
in each case to the extent permitted under applicable law, (i) any banker's or
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other statutory or similar Lien, and (ii) any right of set-off or other similar
right under applicable law with respect to such Spread Account, and any other
Spread Account, and agreeing, and the Collateral Agent by its execution of this
Agreement hereby agrees, to notify the Transferor, the Collateral Agent, and
each Secured Party of any charge or claim against or with respect to such Spread
Account. The Collateral Agent shall give the Transferor and each Secured Party
at least ten (10) Business Days' prior written notice of any change in the
location of such Spread Account or in any related account information. If the
Collateral Agent changes the location of any Spread Account, it shall change the
location of the other Spread Accounts, so that all Spread Accounts shall at all
times be located at the same depository institution. Anything herein to the
contrary notwithstanding, unless otherwise consented to by the Controlling Party
in writing, the Collateral Agent shall have no right to change the location of
any Spread Account.
Upon the written request of the Controlling Party, the Transferor, or
any Reversionary Holder, the Collateral Agent shall cause, at the expense of the
Transferor, the depository institution at which any Spread Account is located to
forward to the requesting party copies of all monthly account statements for
such Spread Account.
If at any time any Spread Account ceases to be an Eligible Deposit
Account, the Collateral Agent shall notify the Controlling Party of such fact
and shall establish within five (5) Business Days of such determination in
accordance with paragraph (a) of this Section, a successor Spread Account
thereto, which shall be an Eligible Deposit Account, at another depository
institution or trust company acceptable to the Controlling Party and shall
establish successor Spread Accounts with respect to all other Spread Accounts,
each of which shall be an Eligible Deposit Account, at the same depository
institution. The Transferor shall cause such depository institution to execute a
written agreement under terms provided for in paragraph (a) of this Section.
No passbook, certificate of deposit or other similar instrument
evidencing a Spread Account shall be issued, and all contracts, receipts and
other papers, if any, governing or evidencing a Spread Account shall be held by
the Collateral Agent.
Section Reports by the Collateral Agent. The Collateral Agent shall report
to the Transferor, Financial Security, the Trustee and the Servicer on a monthly
basis no later than each Distribution Date with respect to the amount on deposit
in each Spread Account and the identity of the investments included therein as
of the last day of the related
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Monthly Period, and shall provide accountings of deposits into and withdrawals
from the Spread Accounts, and of the investments made therein, upon the request
of the Transferor, Financial Security or the Servicer.
ARTICLE
THE COLLATERAL AGENT
Section Appointment and Powers. Subject to the terms and conditions
hereof, each of the Secured Parties hereby appoints Harris Trust and Savings
Bank as the Collateral Agent with respect to the Series 1997-1 Collateral and
the related Collateral subsequently specified in a Series Supplement, and Harris
Trust and Savings Bank hereby accepts such appointment and agrees to act as
Collateral Agent with respect to the Series 1997-1 Collateral, and upon
execution of any Series Supplement, shall be deemed to accept such appointment,
and agree to act as Collateral Agent with respect to such Collateral, in each
case, for the Secured Parties, to maintain custody and possession of such
Collateral (except as otherwise provided hereunder) and to perform the other
duties of the Collateral Agent in accordance with the provisions of this
Agreement. Each Secured Party hereby authorizes the Collateral Agent to take
such action on its behalf, and to exercise such rights, remedies, powers and
privileges hereunder, as the Controlling Party may direct and as are
specifically authorized to be exercised by the Collateral Agent by the terms
hereof, together with such actions, rights, remedies, powers and privileges as
are reasonably incidental thereto. The Collateral Agent shall act upon and in
compliance with the written instructions of the Controlling Party delivered
pursuant to this Agreement promptly following receipt of such written
instructions; provided, however, that the Collateral Agent shall not act in
accordance with any instructions (i) which are not authorized by, or in
violation of the provisions of, this Agreement, (ii) which are in violation of
any applicable law, rule or regulation or (iii) for which the Collateral Agent
has not received reasonable indemnity. Receipt of such instructions shall not be
a condition to the exercise by the Collateral Agent of its express duties
hereunder, except where this Agreement provides that the Collateral Agent is
permitted to act only following and in accordance with such instructions.
Section Performance of Duties. The Collateral Agent shall have no duties
or responsibilities except those expressly set forth in this Agreement and the
other Transaction Documents to which the Collateral Agent is a party as
Collateral Agent or as directed by the Controlling Party in accordance with this
Agreement. The Collateral Agent shall not be required to take
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any discretionary actions hereunder except at the written direction and with the
indemnification of the Controlling Party.
Section Limitation on Liability. Neither the Collateral Agent nor any of
its directors, officers or employees, shall be liable for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith, except
that the Collateral Agent shall be liable for its gross negligence, bad faith or
willful misconduct; nor shall the Collateral Agent be responsible for the
validity, effectiveness, value, sufficiency or enforceability against the
Transferor of this Agreement or any of the Collateral (or any part thereof).
Notwithstanding any term or provision of this Agreement, the Collateral Agent
shall incur no liability to the Transferor or the Secured Parties for any action
taken or omitted by the Collateral Agent in connection with the Collateral,
except for the negligence, bad faith or willful misconduct on the part of the
Collateral Agent, and, further, shall incur no liability to the Secured Parties
except for negligence, bad faith or willful misconduct in carrying out its
duties to the Secured Parties. Subject to Section 4.04 hereof, the Collateral
Agent shall be protected and shall incur no liability to any such party in
relying upon the accuracy, acting in reliance upon the contents, and assuming
the genuineness of any notice, demand, certificate, signature, instrument or
other document reasonably believed by the Collateral Agent to be genuine and to
have been duly executed by the appropriate signatory, and (absent actual
knowledge to the contrary) the Collateral Agent shall not be required to make
any independent investigation with respect thereto. The Collateral Agent shall
at all times be free independently to establish to its reasonable satisfaction,
but shall have no duty to independently verify, the existence or nonexistence of
facts that are a condition to the exercise or enforcement of any right or remedy
hereunder or under any of the Transaction Documents. The Collateral Agent may
consult with counsel, and shall not be liable for any action taken or omitted to
be taken by it hereunder in good faith and in accordance with the written advice
of such counsel. The Collateral Agent shall not be under any obligation to
exercise any of the remedial rights or powers vested in it by this Agreement or
to follow any direction from the Controlling Party unless it shall have received
reasonable security or indemnity satisfactory to the Collateral Agent against
the costs, expenses and liabilities which might be incurred by it in the
exercise thereof.
Section Reliance upon Documents. In the absence of negligence, bad faith
or willful misconduct on its part, the Collateral Agent shall be entitled to
conclusively rely on any communication, instrument, paper or other document
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons and shall have no
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liability in acting, or omitting to act, where such action or omission to act is
in reliance upon any statement or opinion contained in any such document or
instrument.
Section Successor Collateral Agent.
Merger. Any Person into which the Collateral Agent may be converted or
merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Collateral Agent hereunder) be and become a
successor Collateral Agent hereunder and be vested with all of the title to and
interest in the Collateral and all of the trusts, powers, discretions,
immunities, privileges and other matters as was its predecessor without the
execution or filing of any instrument or any further act, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding, except to the extent, if any, that any such action is necessary
to perfect, or continue the perfection of, the security interest of the Secured
Parties in the Collateral.
Resignation. The Collateral Agent and any successor Collateral Agent may
resign only (i) upon a determination that by reason of a change in legal
requirements, the performance of its duties under this Agreement would cause it
to be in violation of such legal requirements in a manner which would result in
a material adverse effect on the Collateral Agent, and the Controlling Party
does not elect to waive the Collateral Agent's obligation to perform those
duties which render it legally unable to act or elect to delegate those duties
to another Person, or (ii) with the prior written consent of the Controlling
Party. The Collateral Agent shall give not less than 60 days' prior written
notice of any such permitted resignation by registered or certified mail to the
other Secured Party and the Transferor; provided, that such resignation shall
take effect only upon the date which is the latest of (i) the effective date of
the appointment of a successor Collateral Agent and the acceptance in writing by
such successor Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the provisions hereof, (ii)
delivery of the Collateral to such successor to be held in accordance with the
procedures specified in Article II hereof, and (iii) receipt by the Controlling
Party of an Opinion of Counsel to the effect described in Section 5.02 hereof.
Notwithstanding the preceding sentence, if, by the contemplated date of
resignation specified in the written notice of resignation delivered as
described above, no successor Collateral Agent or temporary successor Collateral
Agent has been appointed Collateral Agent or becomes
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the Collateral Agent pursuant to subsection (d) hereof, the resigning Collateral
Agent may petition a court of competent jurisdiction in New York, New York for
the appointment of a successor.
Removal. The Collateral Agent may be removed by the Controlling Party at
any time, with or without cause, by an instrument or concurrent instruments in
writing delivered to the Collateral Agent, the other Secured Party and the
Transferor. A temporary successor may be removed at any time to allow a
successor Collateral Agent to be appointed pursuant to subsection (d) below. Any
removal pursuant to the provisions of this subsection (c) shall take effect only
upon the date which is the latest of (i) the effective date of the appointment
of a successor Collateral Agent and the acceptance in writing by such successor
Collateral Agent of such appointment and of its obligation to perform its duties
hereunder in accordance with the provisions hereof, (ii) delivery of the
Collateral to such successor to be held in accordance with the procedures
specified in Article II hereof and (iii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 5.02 hereof.
Acceptance by Successor. The Controlling Party shall have the sole right
to appoint each successor Collateral Agent. Every temporary or permanent
successor Collateral Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor and to each Secured Party and the Transferor an
instrument in writing accepting such appointment hereunder and the relevant
predecessor shall execute, acknowledge and deliver such other documents and
instruments as will effectuate the delivery of all Collateral to the successor
Collateral Agent to be held in accordance with the procedures specified in
Article II hereof, whereupon such successor, without any further act, deed or
conveyance, shall become fully vested with all the estates, properties, rights,
powers, duties and obligations of its predecessor. Such predecessor shall,
nevertheless, on the written request of either Secured Party or the Transferor,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor hereunder. In the
event that any instrument in writing from the Transferor or a Secured Party is
reasonably required by a successor Collateral Agent to more fully and certainly
vest in such successor the estates, properties, rights, powers, duties and
obligations vested or intended to be vested hereunder in the Collateral Agent,
any and all such written instruments shall, at the request of the temporary or
permanent successor Collateral Agent, be forthwith executed, acknowledged and
delivered by the Transferor. The designation of any successor Collateral Agent
and the instrument or instruments removing any Collateral Agent and appointing a
successor
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hereunder, together with all other instruments provided for herein, shall be
maintained with the records relating to the Collateral and, to the extent
required by applicable law, filed or recorded by the successor Collateral Agent
in each place where such filing or recording is necessary to effect the transfer
of the Collateral to the successor Collateral Agent or to protect or continue
the perfection of the security interests granted hereunder.
Any resignation or removal of a Collateral Agent and appointment of a
successor Collateral Agent shall be effected with respect to this Agreement and
all Series Supplements simultaneously, so that at no time is there more than one
Collateral Agent acting hereunder and under all Series Supplements.
Section Indemnification. The Transferor shall indemnify the Collateral
Agent, its directors, officers, employees and agents for, and hold the
Collateral Agent, its directors, officers, employees and agents harmless
against, any loss, liability or expense (including the costs and expenses of
defending against any claim of liability) arising out of or in connection with
the Collateral Agent's acting as Collateral Agent hereunder, except such loss,
liability or expense as shall result from the negligence, bad faith or willful
misconduct of the Collateral Agent or its officers or agents. The obligation of
the Transferor under this Section shall survive the termination of this
Agreement and the resignation or removal of the Collateral Agent. The Collateral
Agent covenants and agrees that the obligations of the Transferor hereunder and
under Section 4.07 hereof shall be limited to the extent provided in Section
2.08 hereof, and further covenants not to take any action to enforce its rights
to indemnification hereunder with respect to the Transferor and to payment under
Section 4.07 hereof except in accordance with the provisions of Section 8.05
hereof, or otherwise to assert any Lien or take any other action in respect of
the Collateral or the Trust Estate of a Series until the applicable Final
Termination Date.
Section Compensation and Reimbursement. The Transferor agrees for the
benefit of the Secured Parties and as part of the Secured Obligations (a) to pay
to the Collateral Agent, on each Distribution Date, the Collateral Agent Fee for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a collateral trustee);
and (b) to reimburse the Collateral Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Collateral Agent in
accordance with any provision of, or carrying out its duties and obligations
under, this Agreement (including the reasonable compensation and fees and the
expenses and
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disbursements of its agents, any independent certified public accountants and
independent counsel), except any expense, disbursement or advances as may be
attributable to negligence, bad faith or willful misconduct on the part of the
Collateral Agent.
Section Representations and Warranties of the Collateral Agent. The
Collateral Agent represents and warrants to the Transferor and to each Secured
Party as follows:
Due Organization. The Collateral Agent is an Illinois banking
corporation, duly organized, validly existing and in good standing under
the laws of the State of Illinois, and is duly authorized and licensed
under applicable law to conduct its business as presently conducted.
Corporate Power. The Collateral Agent has all requisite right,
power and authority to execute and deliver this Agreement and to perform
all of its duties as Collateral Agent hereunder.
Due Authorization. The execution and delivery by the Collateral
Agent of this Agreement and the other Transaction Documents to which it is
a party, and the performance by the Collateral Agent of its duties
hereunder and thereunder, have been duly authorized by all necessary
corporate proceedings and no further approvals or filings, including any
governmental approvals, are required for the valid execution and delivery
by the Collateral Agent, or the performance by the Collateral Agent, of
this Agreement and such other Transaction Documents.
Valid and Binding Agreement. The Collateral Agent has duly
executed and delivered this Agreement and each other Transaction Document
to which it is a party, and each of this Agreement and each such other
Transaction Document constitutes the legal, valid and binding obligation
of the Collateral Agent, enforceable against the Collateral Agent in
accordance with its terms, except as (i) such enforceability may be
limited by bankruptcy, insolvency, reorganization and similar laws
relating to or affecting the enforcement of the rights of creditors of
federally insured depository institutions, rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles
of general applicability.
Section Waiver of Setoffs. The Collateral Agent hereby expressly waives
any and all rights of setoff that the Collateral Agent may otherwise at any time
have under applicable law with respect to any Spread Account and agrees that
amounts in
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the Spread Accounts shall at all times be held and applied solely in accordance
with the provisions hereof.
Section Control by the Controlling Party. The Collateral Agent shall
comply with notices and instructions given by the Transferor only if accompanied
by the written consent of the Controlling Party, except that if any Default
shall have occurred and be continuing, the Collateral Agent shall act upon and
comply with notices and instructions given by the Controlling Party alone in the
place and stead of the Transferor.
ARTICLE
COVENANTS OF THE TRANSFEROR
Section Preservation of Collateral. Subject to the rights, powers and
authorities granted to the Collateral Agent and the Controlling Party in this
Agreement, the Transferor, on behalf of itself and as the agent of the
Reversionary Holders, shall take such action as is necessary and proper with
respect to the Collateral in order to preserve and maintain such Collateral. The
Transferor will do, execute, acknowledge and deliver, or cause to be done by the
Reversionary Holders, or others, executed, acknowledged and delivered, such
instruments of transfer or take such other steps or actions as may be necessary,
or required by the Controlling Party, to perfect the Security Interests granted
hereunder in the Collateral, to ensure that such Security Interests rank prior
to all other Liens and to preserve the priority of such Security Interests and
the validity and enforceability thereof. Upon any delivery or substitution of
Collateral, the Transferor, on behalf of itself and as the agent of the
Reversionary Holders, shall be obligated to execute such documents and perform
such actions (or cause the Reversionary Holders to so execute and perform) as
are necessary to create in the Collateral Agent for the benefit of the Secured
Parties a valid first priority Lien on, and valid and perfected, first priority
security interest in, the Collateral so delivered and to deliver such Collateral
to the Collateral Agent, free and clear of any other Lien, together with
satisfactory assurances thereof, and to pay any reasonable costs incurred by any
of the Secured Parties or the Collateral Agent (including its agents) or
otherwise in connection with such delivery.
Section Opinions as to Collateral. Not more than 90 days nor less than 30
days prior to (i) each anniversary of the date hereof during the term of this
Agreement and (ii) each date on which the Transferor proposes to take any action
contemplated by Section 5.06 hereof, the Transferor shall, at its own cost and
expense, furnish to each Secured Party and the Collateral Agent an Opinion of
Counsel with respect to each Series either
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(a) stating that, in the opinion of such counsel, such action has been taken
with respect to the execution and filing of any financing statements and
continuation statements and other actions as are necessary to perfect, maintain
and protect the lien and security interest of the Collateral Agent (and the
priority thereof), on behalf of the Secured Parties, with respect to such
Collateral against all creditors of, and purchasers from, the Transferor and the
Reversionary Holders and reciting the details of such action, or (b) stating
that, in the opinion of such counsel, no such action is necessary to maintain
such perfected lien and security interest. Such Opinion of Counsel shall further
describe each execution and filing of any financing statements and continuation
statements and such other actions as will, in the opinion of such counsel, be
required to perfect, maintain and protect the lien and security interest of the
Collateral Agent, on behalf of the Secured Parties, with respect to such
Collateral against all creditors of, and purchasers from, the Transferor and the
Reversionary Holders for a period, specified in such Opinion, continuing until a
date not earlier than eighteen months from the date of such Opinion.
Section Notices. In the event that the Transferor acquires knowledge of
the occurrence and continuance of any Insurance Agreement Event of Default or
Servicer Termination Event or of any event of default or like event, howsoever
described or called, under any of the Transaction Documents, the Transferor
shall immediately give notice thereof to the Collateral Agent and each Secured
Party.
Section Waiver of Stay or Extension Laws; Marshalling of Assets. The
Transferor, on behalf of itself and as agent for the Reversionary Holders,
covenants, to the fullest extent permitted by applicable law, that neither it
nor any Reversionary Holder will at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension or redemption law wherever enacted, now or at any
time hereafter in force, in order to prevent or hinder the enforcement of this
Agreement or any absolute sale of the Collateral or any part thereof, or the
possession thereof by any purchaser at any sale under Article VII of this
Agreement; and the Transferor, on behalf of itself and as agent for the
Reversionary Holders, to the fullest extent permitted by applicable law, for
itself, each Reversionary Holder, and all who may claim under it or them, hereby
waives the benefit of all such laws, and covenants that neither it nor any
Reversionary Holder will hinder, delay or impede the execution of any power
herein granted to the Collateral Agent, but will suffer and permit the execution
of every such power as though no such law had been enacted. The Transferor, for
itself, each Reversionary Holders, and all who may claim under it or them,
waives, to the fullest extent permitted by applicable law, all
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right to have the Collateral marshalled upon any foreclosure or
other disposition thereof.
Section Noninterference, etc. The Transferor, on behalf of itself and as
agent for the Reversionary Holders, agrees that neither the Transferor nor any
Reversionary Holder shall (i) waive or alter any of its rights under the
Collateral (or any agreement or instrument relating thereto) without the prior
written consent of the Controlling Party; or (ii) fail to pay any tax,
assessment, charge or fee levied or assessed against the Collateral, or to
defend any action, if such failure to pay or defend may adversely affect the
priority or enforceability of the Transferor's or any Reversionary Holder's
right, title or interest in and to the Collateral or the Collateral Agent's lien
on, and security interest in, the Collateral for the benefit of the Secured
Parties; or (iii) take any action, or fail to take any action, if such action or
failure to take action would interfere with the enforcement of any rights under
the Transaction Documents.
Section Transferor Changes.
Change in Name, Structure, etc. The Transferor shall not change its
name, identity or corporate structure unless it shall have given each Secured
Party and the Collateral Agent at least 60 days' prior written notice thereof,
shall have effected any necessary or appropriate assignments or amendments
thereto and filings of financing statements or amendments thereto, and shall
have delivered to the Collateral Agent and each Secured Party an Opinion of
Counsel of the type described in Section 5.02 hereof.
Relocation of the Transferor. Neither NAFI nor the Transferor shall
change its principal executive office unless it gives each Secured Party and the
Collateral Agent at least 90 days' prior written notice of any relocation of its
principal executive office. If the Transferor relocates its principal executive
office or principal place of business from Florida, the Transferor shall give
prior notice thereof to the Controlling Party and the Collateral Agent and shall
effect such appropriate recordations and filings as are necessary and shall
provide an Opinion of Counsel to the Controlling Party and the Collateral Agent,
to the effect that, upon the recording of any necessary assignments or
amendments to previously-recorded assignments and filing of any necessary
amendments to the previously filed financing or continuation statements or upon
the filing of one or more specified new financing statements, and the taking of
such other actions as may be specified in such opinion, the security interests
in the Collateral shall remain, after such relocation, valid and perfected and
first in priority.
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ARTICLE
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section Appointment of Controlling Party. From and after the Closing Date
of a Series until the Insurer Termination Date related to such Series, Financial
Security shall be the Controlling Party with respect to such Series and shall be
entitled to exercise all the rights given the Controlling Party hereunder with
respect to such Series. From and after the Insurer Termination Date related to
such Series until the Trustee Termination Date related to such Series, the
Trustee shall be the Controlling Party with respect to such Series.
Notwithstanding the foregoing, in the event that a Financial Security Default
shall have occurred and be continuing, the Trustee shall be the Controlling
Party with respect to such Series until the applicable Trustee Termination Date.
If prior to an Insurer Termination Date, the Trustee shall have become the
Controlling Party with respect to a Series as a result of the occurrence of a
Financial Security Default and either such Financial Security Default is cured
or for any other reason ceases to exist or the Trustee Termination Date with
respect to a Series occurs, then upon such cure or other cessation or on such
Trustee Termination Date, as the case may be, Financial Security shall, upon
notice thereof being duly given to the Collateral Agent, again be the
Controlling Party with respect to such Series.
Section Controlling Party's Authority.
The Transferor hereby irrevocably appoints the Controlling Party, and
any successor to the Controlling Party appointed pursuant to Section 6.01
hereof, its true and lawful attorney, with full power of substitution, in the
name of the Transferor, the Secured Parties or otherwise, at the expense of the
Transferor, to the extent permitted by law to exercise, at any time and from
time to time while any Insurance Agreement Event of Default has occurred and is
continuing, any or all of the following powers with respect to all or any of the
Collateral related to the relevant Series: (i) to demand, sue for, collect,
receive and give acquittance for any and all monies due or to become due upon or
by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto, (iii) to direct the Collateral Agent
to sell, transfer, assign or otherwise deal with the same or the proceeds
thereof as fully and effectively as if the Collateral Agent were the absolute
owner thereof, and (iv) to extend the time of payment of any or all thereof and
to make any allowance or other adjustments with respect thereto.
With respect to each Series and the related Collateral, each Secured
Party hereby irrevocably and unconditionally
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constitutes and appoints the Controlling Party with respect to such Series, and
any successor to such Controlling Party appointed pursuant to Section 6.01
hereof from time to time, as the true and lawful attorney-in-fact of such
Secured Party for so long as such Secured Party is the Non-Controlling Party,
with full power of substitution, to execute, acknowledge and deliver any notice,
document, certificate, paper, pleading or instrument and to do in the name of
the Controlling Party as well as in the name, place and stead of such Secured
Party such acts, things and deeds for and on behalf of and in the name of such
Secured Party under this Agreement with respect to such Series which such
Secured Party could or might do or which may be necessary, desirable or
convenient in such Controlling Party's sole discretion to effect the purposes
contemplated hereunder and, without limitation, exercise full right, power and
authority to take, or defer from taking, any and all acts with respect to the
administration of the Collateral related to such Series, and the enforcement of
the rights of the Secured Parties hereunder with respect to such Series, on
behalf of and for the benefit of such Controlling Party and such Non-Controlling
Party, as their interests may appear.
Section Rights of Secured Parties. With respect to each Series and the
related Collateral, the Non-Controlling Party at any time expressly agrees that
it shall not assert any rights that it may otherwise have, as a Secured Party
with respect to the Collateral, to direct the maintenance, sale or other
disposition of the Collateral or any portion thereof, notwithstanding the
occurrence and continuance of any Insurance Agreement Event of Default or
Servicer Termination Event with respect to such Series or any non-performance by
the Transferor or any Reversionary Holders of any obligation owed to such
Secured Party hereunder or under any other Transaction Document, and each party
hereto agrees that the Controlling Party shall be the only Person entitled to
assert and exercise such rights.
Section Degree of Care.
Controlling Party. Notwithstanding any term or provision of this
Agreement, the Controlling Party shall incur no liability to the Transferor or
any Reversionary Holder for any action taken or omitted by the Controlling Party
in connection with the Collateral, except for any gross negligence, bad faith or
willful misconduct on the part of the Controlling Party and, further, shall
incur no liability to the Non-Controlling Party except for a breach of the terms
of this Agreement or for gross negligence, bad faith or willful misconduct in
carrying out its duties, if any, to the Non-Controlling Party. The Controlling
Party shall be protected and shall incur no liability to any such party in
relying upon the accuracy, acting in reliance upon the contents and assuming the
genuineness of any notice, demand,
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certificate, signature, instrument or other document believed by the Controlling
Party to be genuine and to have been duly executed by the appropriate signatory,
and (absent manifest error or actual knowledge to the contrary) the Controlling
Party shall not be required to make any independent investigation with respect
thereto. The Controlling Party shall, at all times, be free independently to
establish to its reasonable satisfaction the existence or nonexistence, as the
case may be, of any fact the existence or nonexistence of which shall be a
condition to the exercise or enforcement of any right or remedy under this
Agreement or any of the Transaction Documents.
The Non-Controlling Party. The Non-Controlling Party shall not be liable
to the Transferor or any Reversionary Holder for any action or failure to act by
the Controlling Party or the Collateral Agent in exercising, or failing to
exercise, any rights or remedies hereunder.
ARTICLE
REMEDIES UPON DEFAULT
Section Remedies upon a Default. If a Default with respect to a Series has
occurred and is continuing, the Collateral Agent shall, at the written direction
of the Controlling Party, take whatever action at law or in equity as may appear
necessary or desirable in the judgment of the Controlling Party to collect and
satisfy all Secured Obligations, including, but not limited to, foreclosure upon
the Collateral and all other rights available to secured parties under
applicable law or to enforce performance and observance of any obligation,
agreement or covenant under any of the Transaction Documents related to such
Series.
Section Waiver of Default. The Controlling Party shall have the sole
right, to be exercised in its complete discretion, to waive any Default by a
writing setting forth the terms, conditions and extent of such waiver signed by
the Controlling Party and delivered to the Collateral Agent, the other Secured
Party and the Transferor. Any such waiver shall be binding upon the
Non-Controlling Party and the Collateral Agent. Unless such writing expressly
provides to the contrary, any waiver so granted shall extend only to the
specific event or occurrence which gave rise to the Default so waived and not to
any other similar event or occurrence occurring subsequent to the date of such
waiver.
Section Restoration of Rights and Remedies. If the
Collateral Agent has instituted any proceeding to enforce any
right or remedy under this Agreement, and such proceeding has
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been discontinued or abandoned for any reason, or has been determined adversely
to such Collateral Agent, then and in every such case the Transferor, the
Collateral Agent and each of the Secured Parties and each Reversionary Holder
shall, subject to any determination in such proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Secured Parties shall continue as though no such proceeding
had been instituted.
Section No Remedy Exclusive. No right or remedy herein conferred upon or
reserved to the Collateral Agent, the Controlling Party or either of the Secured
Parties is intended to be exclusive of any other right or remedy, and every
right or remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law, in equity or otherwise (but, in each case, shall be subject to
the provisions of this Agreement limiting such remedies), and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time and as often and in such order as may be
deemed expedient by the Controlling Party, and the exercise of or the beginning
of the exercise of any right or power or remedy shall not be construed to be a
waiver of the right to exercise at the same time or thereafter any other right,
power or remedy.
ARTICLE
MISCELLANEOUS
Section Further Assurances. Each party hereto shall take such action and
deliver such instruments to any other party hereto, in addition to the actions
and instruments specifically provided for herein, as may be reasonably requested
or required to effectuate the purpose or provisions of this Agreement or to
confirm or perfect any transaction described or contemplated herein.
Section Waiver. Any waiver by any party of any provision of this Agreement
or any right, remedy or option hereunder shall only prevent and estop such party
from thereafter enforcing such provision, right, remedy or option if such waiver
is given in writing and only as to the specific instance and for the specific
purpose for which such waiver was given. The failure or refusal of any party
hereto to insist in any one or more instances, or in a course of dealing, upon
the strict performance of any of the terms or provisions of this Agreement by
any party hereto or the partial exercise of any right, remedy or option
hereunder shall not be construed as a waiver or
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relinquishment of any such term or provision, but the same shall continue in
full force and effect.
Section Amendments, Waivers. No amendment, modification, waiver or
supplement to this Agreement or any provision of this Agreement shall in any
event be effective unless the same shall have been made or consented to in
writing by each of the parties hereto and each Rating Agency shall have
confirmed in writing that such amendment will not cause a reduction or
withdrawal of a rating on any Series; provided, however, that, for so long as
Financial Security shall be the Controlling Party with respect to a Series,
amendments, modifications, waivers or supplements hereto relating to such
Series, the related Collateral or Spread Account or any requirement hereunder to
deposit or retain any amounts in such Spread Account or to distribute any
amounts therein as provided in Section 3.03 hereof shall be effective if made or
consented to in writing by Financial Security, the Transferor and the Collateral
Agent (the consent of which shall not be withheld or delayed with respect to any
amendment that does not adversely affect the Collateral Agent) but shall in no
circumstances require the consent of the Trustee or the Securityholders related
to such Series or any other Series or any Reversionary Holder.
Section Severability. In the event that any provision of this Agreement or
the application thereof to any party hereto or to any circumstance or in any
jurisdiction governing this Agreement shall, to any extent, be invalid or
unenforceable under any applicable statute, regulation or rule of law, then such
provision shall be deemed inoperative to the extent that it is invalid or
unenforceable, and the remainder of this Agreement, and the application of any
such invalid or unenforceable provision to the parties, jurisdictions or
circumstances other than to whom or to which it is held invalid or
unenforceable, shall not be affected thereby nor shall the same affect the
validity or enforceability of any other provision of this Agreement. The parties
hereto further agree that the holding by any court of competent jurisdiction
that any remedy pursued by the Collateral Agent, or any of the Secured Parties,
hereunder is unavailable or unenforceable shall not affect in any way the
ability of the Collateral Agent or any of the Secured Parties to pursue any
other remedy available to it or them (subject, however, to the provisions of
this Agreement limiting such remedies).
Section Nonpetition Covenant. Notwithstanding any prior termination of
this Agreement, each of the parties hereto agrees that it shall not, prior to
one year and one day after the Final Scheduled Distribution Date with respect to
each Series, acquiesce, petition or otherwise invoke or cause the Transferor or
the Trust to invoke the process of the United States of
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America, any State or other political subdivision thereof or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government for the purpose of commencing or
sustaining a case by or against the Transferor or the Trust under a Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Transferor or the Trust or all or any part of their respective properties
or assets or ordering the winding up or liquidation of the affairs of the
Transferor or the Trust. The parties agree that damages will be an inadequate
remedy for breach of this covenant and that this covenant may be specifically
enforced.
Section Notices. All notices, demands, certificates, requests and
communications hereunder ("notices") shall be in writing and shall be effective
(a) upon receipt when sent through the U.S. mails, registered or certified mail,
return receipt requested, postage prepaid, with such receipt to be effective the
date of delivery indicated on the return receipt, or (b) one Business Day after
delivery to an overnight courier, or (c) on the date personally delivered to an
Authorized Officer of the party to which sent, or (d) on the date transmitted by
legible telecopier transmission with a confirmation of receipt, in all cases
addressed to the recipient as follows:
(i) If to the Transferor:
National Financial Auto Funding Trust
c/o Chase Manhattan Bank Delaware
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopier No.: (302) 575-5467
Confirmation No.: (302) 575-5099
with a copy to:
Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust Administration
Telecopier No.: (718) 242-3529
Confirmation No.: (718) 242-7283
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(ii) If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: National Auto Finance 1997-1 Trust
6.35% Asset Backed Notes
Telecopier No.: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100 (in each case in which notice or
other communication to Financial Security refers to a Default
or a claim on the Policy or in which failure on the part of
Financial Security to respond shall be deemed to constitute
consent or acceptance, then with a copy to the attention of
the Senior Vice President Surveillance)
(iii) If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation No.: (312) 461-4662
(iv) If to the Collateral Agent:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation No.: (312) 461-4662
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(v) If to Moody's:
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Telecopier No.: (212) 553-0344
(vi) If to Standard & Poor's:
Standard & Poor's Ratings Group
26 Broadway
New York, New York 10004
Telecopier No.: (212) 208-1582
A copy of each notice given hereunder to any party hereto shall also be given to
(without duplication) Financial Security, the Transferor, the Trustee and the
Collateral Agent. Each party hereto may, by notice given in accordance herewith
to each of the other parties hereto, designate any further or different address
to which subsequent notices shall be sent.
Section Term of this Agreement. This Agreement shall take effect on the
Closing Date of the Series 1997-1 Notes and shall continue in effect until the
last Final Termination Date to occur with respect to each Series. On such Final
Termination Date, this Agreement shall terminate, all obligations of the parties
hereunder shall cease and terminate and the Collateral, if any, held hereunder
and not to be used or applied in discharge of any obligations of the Transferor
or NAFI in respect of the Secured Obligations or otherwise under this Agreement,
shall be released to and in favor of the related Reversionary Holders, or, if
not otherwise identified, to the Transferor, provided that the provisions of
Sections 4.06, 4.07 and 8.05 hereof shall survive any termination of this
Agreement and the release of any Collateral upon such termination.
Section Assignments, Third-Party Rights; Reinsurance.
This Agreement shall be a continuing obligation of the parties hereto
and shall (i) be binding upon the parties and their respective successors and
assigns, and (ii) inure to the benefit of and be enforceable by each Secured
Party and the Collateral Agent, and by their respective successors, transferees
and assigns. The Transferor shall not assign this Agreement, or delegate any of
its duties hereunder, without the prior written consent of the Controlling
Party.
Financial Security shall have the right (unless a Financial Security
Default shall have occurred and be continuing)
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<PAGE>
to give participations in its rights under this Agreement and to enter into
contracts of reinsurance with respect to any Policy issued in connection with a
Series and each such participant or reinsurer shall be entitled to the benefit
of any representation, warranty, covenant and obligation of each party (other
than Financial Security) hereunder as if such participant or reinsurer was a
party hereto and, subject only to such agreement regarding such reinsurance or
participation, shall have the right to enforce the obligations of each such
other party directly hereunder; provided, however, that no such reinsurance or
participation agreement or arrangement shall relieve Financial Security of its
obligations hereunder, under the Transaction Documents to which it is a party or
under any such Policy, or shall change the status of Financial Security as a
"Controlling Party". In addition, nothing contained herein shall restrict
Financial Security from assigning to any Person pursuant to any liquidity
facility or credit facility any rights of Financial Security under this
Agreement or with respect to any real or personal property or other interests
pledged to Financial Security, or in which Financial Security has a security
interest, in connection with the transactions contemplated hereby. The terms of
any such assignment or participation shall contain an express acknowledgment by
such Person of the condition of this Section and the limitations of the rights
of Financial Security hereunder.
Section Consent of Controlling Party. In the event that the Controlling
Party's consent is required under the terms hereof or under the terms of any
Transaction Document, it is understood and agreed that, except as otherwise
provided expressly herein, the determination whether to grant or withhold such
consent shall be made solely by the Controlling Party in its sole discretion.
Section Trial by Jury Waived. Each of the parties hereto waives, to the
fullest extent permitted by law, any right it may have to a trial by jury in
respect of any litigation arising directly or indirectly out of, under or in
connection with this Agreement, any of the other Transaction Documents or any of
the transactions contemplated hereunder or thereunder. Each of the parties
hereto (a) certifies that no representative, agent or attorney of any other
party has represented, expressly or otherwise, that such other party would not,
in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it has been induced to enter into this Agreement and the other
Transaction Documents to which it is a party, by among other things, this
waiver.
Section Governing Law. This Agreement shall be
governed by and construed, and the obligations, rights and
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<PAGE>
remedies of the parties hereunder shall be determined, in accordance with the
laws of the State of New York.
Section Consents to Jurisdiction. Each of the parties hereto irrevocably
submits to the jurisdiction of the United States District Court for the Southern
District of New York, any court in the state of New York located in the city and
county of New York, and any appellate court from any thereof, in any action,
suit or proceeding brought against it and related to or in connection with this
Agreement, the other Transaction Documents or the transactions contemplated
hereunder or thereunder or for recognition or enforcement of any judgment and
each of the parties hereto irrevocably and unconditionally agrees that all
claims in respect of any such suit or action or proceeding may be heard or
determined in such New York State court or, to the extent permitted by law, in
such federal court. Each of the parties hereto agrees that a final judgment in
any such action, suit 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. To the extent permitted by applicable law, each of the parties hereby
waives and agrees not to assert by way of motion, as a defense or otherwise in
any such suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such courts, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or any of the other Transaction
Documents or the subject matter hereof or thereof may not be litigated in or by
such courts. The Transferor hereby irrevocably appoints and designates Harris
Trust and Savings Bank as its true and lawful attorney and duly authorized agent
for acceptance of service of legal process. The Transferor agrees that service
of such process upon such Person shall constitute personal service of such
process upon it. Subject to Section 8.05 hereof, nothing contained in this
Agreement shall limit or affect the rights of any party hereto to serve process
in any other manner permitted by law or to start legal proceedings relating to
any of the Transaction Documents against NAFI or the Transferor or their
respective property in the courts of any jurisdiction.
Section Limitation of Liability. It is expressly understood and agreed by
the parties hereto that (a) Harris Trust and Savings Bank is executing this
Agreement not in its individual capacity but solely in its capacities as
Collateral Agent and trustee of the Trusts pursuant to the Securitization
Agreements and (b) in no case whatsoever shall Harris Trust and Savings Bank be
personally or corporately liable on, or for any loss in respect of, any of the
statements, representations, warranties, covenants, agreements or obligations of
the Trusts hereunder, all such liability, if any, being expressly waived by the
parties hereto.
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<PAGE>
Section Determination of Adverse Effect. Any determination of an adverse
effect on the interest of the Secured Parties or the Securityholders shall be
made without consideration of the availability of funds under the Policies.
Section Counterparts. This Agreement may be executed in two or more
counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section Headings. The headings of sections and paragraphs and the Table of
Contents contained in this Agreement are provided for convenience only. They
form no part of this Agreement and shall not affect its construction or
interpretation.
[Remainder of Page Intentionally Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth on the first page hereof.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By
Name:
Title: of
Chase Manhattan Bank Delaware,
not in its individual capacity,
but solely in its capacity as
trustee for National Financial
Auto Funding Trust
FINANCIAL SECURITY ASSURANCE INC.
By
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
as Collateral Agent
By
Name:
Title:
CUSTODIAL AGREEMENT
-------------------
NATIONAL AUTO FINANCE COMPANY, INC.
Company
and
OMNI FINANCIAL SERVICES OF AMERICA
Custodian
-------------------------------
Dated as of July 23, 1997
<PAGE>
CUSTODIAL AGREEMENT
THIS CUSTODIAL AGREEMENT ("Agreement"), dated as of July 23, 1997, is
entered into by and between OMNI FINANCIAL SERVICES OF AMERICA, INC. as
custodian ("Custodian" or "OFSA"), and NATIONAL AUTO FINANCE COMPANY, INC.
as servicer (the "Company" or "NAFI").
RECITALS
--------
A. National Financial Auto Funding Trust ("National Financial"), a Delaware
business trust, intends to transfer, set over, assign and otherwise convey the
accounts designated in Schedule 1 to the Servicing Agreement (as defined below)
(the "Assigned Accounts") to National Auto Finance 1997-1 Trust (the "Trust")
pursuant to the Sale and Servicing Agreement, dated as of June 29, 1997 (the
"Sale and Servicing Agreement"), by and among the Trust, National Financial,
NAFI and Harris Trust and Savings Bank, as trust collateral agent (the "Trust
Collateral Agent").
B. NAFI and OFSA have agreed pursuant to the Amended and Restated Servicing
Agreement (the "Servicing Agreement") dated as of December 5, 1994, as amended
and supplemented, that OFSA shall provide certain accounting and collection
services with respect to the Assigned Accounts following assignment of the
Assigned Accounts by National Financial to the Trust. C. NAFI desires to have
OFSA take possession of the Receivable Files as custodian and bailee of the
Trust Collateral Agent and NAFI and the Trust Collateral Agent, as assignee of
NAFI in accordance with the terms and conditions hereof. D. Capitalized terms
used but not defined herein shall have the same meanings ascribed thereto in the
Sale and Servicing Agreement.
STATEMENT OF AGREEMENT
----------------------
A. The Custodian shall maintain custody and possession of the Receivable
Files as custodian for the benefit of, and bailee for, NAFI and the Trust
Collateral Agent, as assignee of NAFI.
B. The Custodian shall maintain possession of the related Receivable Files
at its offices in Memphis, Tennessee or at such other offices of the Custodian
as shall from time to time be identified to NAFI by written notice; provided
that, if such other offices are outside of Tennessee, the Custodian must get
NAFI's prior written consent. The Custodian 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. It is intended that by the Custodian's agreements
pursuant to this agreement that the Trust Collateral Agent will be deemed to
have possession of the Receivable Files for purposes of Section 9-305 of the UCC
as in effect in the state in which the Receivable Files are located.
<PAGE>
C. As custodian and bailee, the Custodian shall have and perform the
following powers and duties:
(i) hold the Receivable Files on behalf of NAFI and the Trust Collateral
Agent, as assignee of NAFI maintain accurate records pertaining to each
Receivable to enable it to comply with the terms and conditions of this
custodial agreement and maintain a current inventory thereof (by
computer records or otherwise);
(ii) implement policies and procedures with respect to the reasonable and
customary handling and custody of the Receivable Files; (iii) attend to
details in maintaining custody of the Receivable Files on behalf of
NAFI; and (iv) at all times maintain the original of each fully executed
Receivable and store such original Receivable in a secure place. D. The
Custodian shall:
(i) act with reasonable care, using that degree of skill and care that
it exercises with respect to similar contracts owned and/or serviced by
it;
(ii) promptly report to NAFI any material failure by it to hold the
Receivable Files as herein provided; (iii) promptly take appropriate
action to remedy any such failure; and
(iv) in acting as custodian and bailee of the Receivable Files, not
assert, and shall cause a related subservicer not to assert, any
beneficial ownership interests in the Receivables or the Receivable
Files.
E. The Custodian agrees to indemnify the Company and the Trust Collateral
Agent, its respective officers, directors, employees and agents for any and all
liabilities, obligations, losses, damages, payments, costs or expenses of any
kind whatsoever which may be imposed on or incurred by the Company and the Trust
Collateral Agent arising from the gross negligence or willful misconduct of the
Custodian in maintaining custody of the Receivable Files pursuant to this
Agreement; provided, however, that the Custodian will not be liable to the
extent that any such amount resulted from the gross negligence or willful
misconduct of the Company and provided further that the Custodian will not be
liable for any such liability, obligation, loss, damage, payment, cost or
expense that resulted from any act or omission to act by it done in conformity
with the written instructions of the Company.
F. If at any time the Company notifies the Custodian that other custodial
arrangements have been made for the holding of the Receivable Files, such
<PAGE>
Custodian shall cooperate with the Company in such new custodial arrangement at
the expense of the Company. Such Custodian shall cooperate with the Company to
assure that the various documents contained in such Receivable Files are made
available to the Company, as necessary for the performance of the Company's
duties under the other custodial agreements.
G. The Custodian shall not without the prior written consent of the Company
and the Trust Collateral Agent, deliver or release to any Person any Receivables
or related Title Documents (or any security interest in the related Financed
Vehicle) except (i) in the ordinary course of its business in connection with
the release of collateral securing such Receivable after satisfaction of the
related indebtedness thereunder or in connection with correcting vehicle
lienholder or similar information on a Receivable or title document or (ii) upon
written notice from the Seller or NAFI that such contract has been retransferred
to the Seller in accordance with the Sale and Servicing Agreement.
H. The Custodian shall retain possession of the Receivable File for each
Assigned Account until written notice from NAFI that the related account has
been determined to be a contract with respect to which any of the following has
occurred during the due period: (i) 91 days have elapsed since repossession of
the related financed vehicle, (ii) NAFI has in good faith determined that all
amounts that it expects to recover under such contract have been received, or
(iii) 90% of any scheduled payment on such contract is 120 days or more (or, if
the related Obligor is a debtor under Chapter 13 of the U.S. Bankruptcy Code,
180 days or more) delinquent as of the end of such due period; provided that
OFSA shall not be required to continue collection efforts beyond its standard
collection practices (as provided in the Servicing Agreement) except at NAFI's
expense. A.
MISCELLANEOUS PROVISIONS
------------------------
A. Effect of Invalidity of Provisions. In case any one or more of the
----------------------------------
provisions contained in this Agreement should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall in no way be affected,
prejudiced or disturbed thereby.
B. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to conflict of
laws rules.
C. Termination. It is agreed that NAFI may terminate this Agreement at
-----------
anytime without cause. In addition, this Agreement will terminate if and to the
extent that the Supplement dated July 23, 1997 to the Servicing Agreement
terminates. The custodian will deliver the Receivable files to the Trust
Collateral Agent or at the direction of the Trust Collateral Agent upon such
termination.
<PAGE>
D. Assignment. This Agreement may be assigned only with the prior written
----------
consent of the other party hereto and the Trust Collateral Agent; provided that,
the Company may assign all its rights under this Agreement to the Trust
Collateral Agent, to which the Custodian hereby expressly consents. The Trust
Collateral Agent as assignee of the Company can enforce the rights under this
Agreement directly against the Custodian.
<PAGE>
IN WITNESS WHEREOF, the Company and Custodian have caused this
Agreement to be duly executed as of the date and year first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
OMNI FINANCIAL SERVICES OF AMERICA, INC.
By:
Name:
Title:
PROMISSORY NOTE
$1,500,000.00 August 25, 1997
National Auto Finance Company, Inc.
621 N.W. 53rd Street
Boca Raton, Florida 33487
(Individually and collectively "Borrower")
First Union National Bank
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of One Million Five Hundred Thousand and no/100 Dollars
($1,500,000,00) or such sum as may be advanced and outstanding from time to time
with interest on the unpaid principal balance at the rate and on the terms
provided in this Promissory Note including all renewals, extensions or
modifications hereof, this "Note".
SECURITY. Borrower has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, personal
property collateral described in that certain Security Agreement of even date
herewith.
INTEREST RATE DEFINITIONS.
LIBOR. 1-month LIBOR plus 2.5% ("LIBOR-Based Rate"). "LIBOR" is the rate for
U.S. dollar deposits of that many months maturity as reported on Telerate page
3750 as of 11:00 a.m., London time, on the second London business day before the
relevant Interest Period begins (or if not so reported, then as determined by
Bank from another recognized source of interbank quotation).
INTEREST RATE TO BE APPLIED.
INTEREST RATE. Subject to the provisions hereof, the unpaid principal balance of
each Advance (defined herein) under this Note shall bear interest from the date
such Advance is
<PAGE>
made available to the Borrower at the LIBOR-Based Rate, as determined by Bank
prior to the commencement of each consecutive interest period of 1 month (each
an "Interest Period") during the term of the Note. Upon determination by Bank of
the LIBOR-Based Rate for any Interest Period applicable to a particular Advance,
such LIBOR-Based Rate shall remain in affect for that Advance, subject to the
provisions hereof, for the entire Interest Period until redetermined as provided
above for the next successive Interest Period.
INDEMNIFICATION. Borrower indemnifies Bank against Bank's loss or expense in
employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under this Note, or (b) any payment, prepayment or conversion
of any loan on a date other than the last day of the Interest Period
("Indemnified Loss or Expense"). The amount of such Indemnified Loss or Expense
shall be determined by Bank-based upon the assumption that Bank funded 100% of
that portion of the loan in the London interbank market.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the LIBOR-Based Rate plus 3%
("Default Rate"). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INTEREST AND FEE(S) COMPUTATION. (Actual/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Actual/360 Computation
determines the annual effective yield by taking the stated (nominal) rate for a
year's period and then dividing said rate by 350 to determine the daily periodic
rate to be applied for each day in the applicable period. Application of the
Actual/360 Computation produces an annualized effective rate exceeding that of
the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on September 15, 1997, and on the
same day of each month thereafter until March 1, 1998; when the outstanding
balance shall be converted to a 36 month term loan with equal monthly payments
of principal, plus interest due and payable until fully paid. In any event, all
principal and accrued interest shall be due and payable on March 1, 2001.
MATERIAL ADVERSE CHANGE. Notwithstanding the preceding, if during the term of
this Note there occurs a material adverse change in the business, condition
(financial or otherwise), operations, or properties of the Borrower or its
Subsidiaries or Affiliates, as determined by the Bank in its sole discretion,
the Bank's obligation to make any further advances under this Note shall
immediately cease, and thereupon the outstanding principal
2
<PAGE>
balance shall be payable in 36 equal monthly installments beginning the first
day of the month immediately following the material adverse change. Nothing in
this covenant shall prevent the Bank from seeking any other remedies which may
be available to it under law or under equity if the Borrower defaults under this
or any officer Contract or obligation.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal. If a Default occurs, monies may be applied to
the Obligations in any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, and may include, without limitation,
a commitment letter that survives closing, a loan agreement, this Note, guaranty
agreements, security agreements, security instruments, financing statements,
mortgage instruments, letters of credit and any renewals or modifications,
whenever any of the foregoing are executed, but does not include swap agreements
(as defined in 11 U.S.C. ss. 101).
The term "Obligations" used in this Note refers to any and all Indebtedness and
other obligations under this Note, all other obligations under any other Loan
Document(s), and all obligations under any swap agreements as defined in 11
U.S.C. ss. 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note and the late charge shall be the highest
3
<PAGE>
amount allowable under such laws. If no amount is stated thereunder, the late
charge shall be 5% of each payment past due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of
Bank's reasonable expenses incurred to enforce or collect any of the
Obligations, including, without limitation, reasonable arbitration, paralegals',
attorneys' and experts' fees and expenses, whether incurred without the
commencement of a suit, in any trial, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. False Warranty. A warranty or representation made or deemed made in
the Loan Documents or furnished Bank in connection with the loan evidenced by
this Note proves materially false, or if of a continuing nature, becomes
materially false. Cross Default. At Bank's option, any default in payment or
performance of any obligation under any other loans, contracts or agreements of
Borrower, or any Subsidiary or Affiliate of Borrower ("Affiliate" shall have the
meaning as defined in 11 U.S.C. ss. 101, except that the term "debtor" therein
shall be substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock is
owned directly or indirectly by Borrower, except that, for purposes of this
Promissory Note, the Term "Subsidiary" shall not include any special purpose
entity established in connection with any securitization transaction; including,
without limitation, a wholly-owned subsidiary of the Borrower or a trust,
Cessation; Bankruptcy. The death of, appointment of guardian for, dissolution
of, termination of existence of, loss of good standing status by, appointment of
a receiver for, assignment for the benefit of creditors of, or commencement of
any bankruptcy or insolvency proceeding by or against the Borrower, its
Subsidiaries or Affiliates, if any, or any party to the Loan Documents, with the
exception of any securitized trust that the Borrower or any of its Subsidiaries
or Affiliates have or may have an interest in, Material Capital Structure or
Business Alteration. Without prior written consent of Bank, (i) a material
alteration in the
4
<PAGE>
kind or type of Borrower's business or that of Borrower's Subsidiaries or
Affiliates, if any; (ii) the sale of substantially all of the business or assets
of Borrower, any of Borrower's Subsidiaries or Affiliates or guarantor or a
material portion (10% or more) of such business or assets if such a sale is
outside the ordinary course of business of Borrower, or any of Borrower's
Subsidiaries or Affiliates or any guarantor or more than 50% of the outstanding
stock or voting power of or in any such entity in a single transaction or a
series of transactions; (iii) should any Borrower, or any of Borrower's
Subsidiaries or Affiliates or guarantor enter into any merger or consolidation
unless any entity into which Borrower or any Guarantor is merged or consolidated
expressly assumes all of Borrower's or such Guarantor's Obligations under the
Loan Documents.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: Bank
Lien. Foreclose its security interest or lien against Borrower's accounts
without notice. Acceleration Upon Default. Accelerate the maturity of this Note
and all other Obligations, and all of the Obligations shall be immediately due
and payable. Cumulative. Exercise any rights and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity,
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
NON-REVOLVING LINE OF CREDIT ADVANCES. Borrower may borrow, and Bank may advance
under this Note respectively from time to time until March 1, 1998 (each an
"Advance" and together the "Advances"), so long as the total indebtedness
outstanding at any one time does not exceed the principal amount stated on the
face of this Note. Bank's obligation to make Advances under this Note shall
terminate if Borrower is in Default, or a representation in any of the Loan
Documents is false or has become false, or there occurs a material adverse
change as herein provided. As of the date of each proposed Advance, Borrower
shall be deemed to represent that each representation made in the Loan Documents
is true as of such date.
LOAN AGREEMENT. This Note is subject to the provisions of that certain Loan
Agreement between Bank and Borrower dated August 26, 1997, as modified from time
to time,
5
<PAGE>
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
other person liable under this Note or other Loan Documents, all without notice
to or consent of each Borrower or each person who may be liable under this Note
or other Loan Documents and without affecting the liability of Borrower or any
person who may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successor and assigns. Bank's interests
in and rights under this Note and other Loan Documents are freely assignable, in
whole or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents shall prohibit Bank from pledging or assigning this Note or any of the
Loan Document or any interest therein to any Federal Reserve Bank. Borrower
shall not assign its rights and interest hereunder without the prior written
consent of Bank, and any attempt by Borrower to assign without Bank's prior
written consent is null and void. Any assignment shall not release Borrower from
the Obligations. Applicable Law, Conflict Between Documents. This Note and other
Loan Documents shall be governed by and construed under the laws of the state
named in the address of the Bank first shown above without regard to that
state's conflict of laws principles. If the terms of this Note should conflict
with the terms of the loan agreement or any commitment letter that survives
closing, the terms of this Note shall control, Borrower's Accounts. Except as
prohibited by law, Borrower grants Bank a security interest in all of Borrower's
accounts with Bank under any of its affiliates. Jurisdiction. Borrower
irrevocably agrees to non-exclusive personal jurisdiction in the state in which
the office of Bank first shown above is located. Severability. If any provision
of this Note or of the other Loan Documents shall be prohibited or invalid under
applicable law, such provision shall be ineffective but only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
6
<PAGE>
provision or the remaining provisions of this Note or other such document.
Notices. Any notices to Borrower shall be sufficiently given, if in writing and
mailed or delivered to the Borrower's address shown above or such other address
as provided hereunder, and to Bank, if in writing and mailed or delivered to
Bank's office address shown above or such other address as Bank may specify in
writing from time to time. In the event that Borrower changes Borrower's address
at any time prior to the date the Obligations are paid in full, Borrower agrees
to promptly give written notice of said change of address by registered or
certified mail, return receipt requested, all charges prepaid. Plural; Captions.
All references in the Loan Documents to Borrower, guarantor, person, document or
other nouns of reference mean both the singular and plural form, as the case may
be, and the term "person" shall mean any individual, person or entity. The
captions contained in the Loan Documents are inserted for convenience only and
shall not affect the meaning or interpretation of the Loan Documents. Binding
Contract. Borrower by execution of and Bank by acceptance of this Note agree
that each party is bound to all terms and provisions of this Note. Advances.
Bank in its sole discretion may make other Advances under this Note pursuant
hereto. Posting of Payments. All payments received during normal banking hours
after 2:00 p.m. local time at the office of Bank first shown above shall be
deemed received at the opening of the next banking day. Joint and Several
Obligations. Each Borrower is jointly and severally obligated under this Note.
Fees and Taxes. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at closing
or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Disputes") between or among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims arising out
of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq., of the
Arbitration Rules shall be applicable, to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all
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<PAGE>
arbitrators are selected shall be comprised of licensed attorneys. The single
arbitrator selected for expedited procedure shall be a retired judge from the
highest court of general jurisdiction, state or federal, of the state where the
hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale, (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially,
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
National Auto Finance Company, Inc.
Taxpayer Identification Number: 55-0688619
By:
Keith B. Stein, Vice Chairman
8
DAFS03...:\97\64897\0001\2058\NOT4148V.400
SECURITY AGREEMENT
August 25, 1997
National Auto Finance Company, Inc.
621 N.W. 53rd Street
Boca Raton, Florida 33487
(individually and collectively "Debtor")
First Union National Bank
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
For value received and to secure the payment and performance of the Promissory
Note executed by the Debtor dated August 25, 1997, in the original principal
amount of $1,500,000.00, payable to Bank, and any extensions, renewals,
modifications or novations thereof (the "Note"), this Security Agreement and the
other Loan Documents, including swap agreements (as defined in 11 U.S.C. ss.
101), future advances, and all costs and expenses incurred by Bank to obtain,
preserve, perfect and enforce the security interest granted herein and to
maintain, preserve and collect the property subject to the security interest
(collectively, "Obligations"), Debtor hereby grants to Bank a continuing
security interest in and lien upon the following described property, now owned
or hereafter acquired, any additions, accessions, or substitutions thereof and
thereto (including but not limited to investment property and security
entitlements), and all cash and non-cash proceeds and products thereof
(collectively, "Collateral"):
Specific equipment and furniture as more specifically described in Schedule "A"
attached hereto and made a part hereof by reference.
Debtor hereby represents and agrees that:
OWNERSHIP. Debtor owns the Collateral or Debtor will purchase and acquire rights
in the Collateral within ten days of the date advances are made under the Loan
Documents, if Collateral is being acquired with the proceeds of an advance under
the Loan Documents, Debtor authorizes Bank to disburse proceeds directly to the
seller of the Collateral. The Collateral is free and clear of security
interests, and claims except those previously reported
<PAGE>
in writing to Bank, and Debtor will keep the Collateral free and clear from all
liens, security interests and claims, other than those granted to Bank.
NAME AND OFFICES. There has been no change in the name of Debtor, or the name
under, which Debtor conducts business, within the 5 years preceding the date of
execution of this Security Agreement and Debtor has not moved its executive
offices or residence within the 5 years preceding the date of execution of this
Security Agreement except as previously reported in writing to Bank. The
taxpayer identification number of Debtor as provided herein is correct.
TITLE TAXES. Debtor has good and marketable title to Collateral and will warrant
and defend same against all claims. Debtor will not transfer, sell, or lease
Collateral (except in the ordinary course of business). Debtor agrees to pay
promptly all taxes and assessments upon or for the use of Collateral and on this
Security Agreement. At its option, Bank may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on Collateral.
Debtor agrees to reimburse Bank, on demand, for any such payment made by Bank.
Any amounts so paid shall be added to the Obligations.
WAIVERS. Debtor waives presentment, demand, protest, notice of dishonor, notice
of default, demand for payment, notice of intention to accelerate, and notice of
acceleration of maturity Debtor further agrees not to assert against Bank as a
defense (legal or equitable), as a set-off, as a counterclaim, or otherwise, any
claims Debtor may have against any seller or lessor that provided personal
property or services relating to any part of the Collateral. Debtor waives all
exemptions and homestead rights with regard to the Collateral. Debtor waives any
and all rights to notice or to hearing prior to Bank's taking immediate
possession or control of any Collateral, and to any bond or security which might
be required by applicable law prior to the exercise of any of Bank's remedies
against any Collateral.
EXTENSIONS, RELEASES. Debtor agrees that Bank may extend, renew or modify any of
the Obligations and grant any releases, compromises or indulgences with respect
to any security for the Obligations, or with respect to any party liable for the
Obligations, all without notice to or consent of Debtor and without affecting
the liability of Debtor or the enforceability of this Security Agreement.
NOTIFICATIONS OF CHANGE. Debtor will notify Bank in writing at least 30 days
prior to any change in: (1) Debtor's chief place of business and/or residence;
(ii) Debtor's name or identity; or (iii) Debtor's corporate/organizational
structure. Debtor will keep Collateral at the location(s) previously provided to
Bank until such time as Bank provides written advance
2
<PAGE>
consent to a change of location. Debtor will bear the cost of preparing and
filing any documents necessary to protect Bank's liens.
COLLATERAL CONDITION AND LAWFUL USE. Debtor represents that Collateral is in
good repair and condition and that Debtor shall use reasonable care to prevent
Collateral from being damaged or depreciating. Debtor shall immediately notify
Bank of any material loss or damage to Collateral. Debtor shall not permit any
item of equipment to become a fixture to real estate or an accession to other
personal property. Debtor represents it is in compliance in all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, Collateral, operations, business, and finances, including, without
limitation, any federal or state laws relating to liquor (including 18 U.S.C.
ss. 3617, et seq. or narcotics (including 21 U.S.C. ss. 801, et seq.) and all
applicable federal, state and local laws, and regulations intended to protect
the environment.
RISK OF LOSS AND INSURANCE. Debtor shall bear all risk of loss with respect to
the Collateral. The injury to or loss of Collateral, either partial or total,
shall not release Debtor from payment or other performances hereof. Debtor
agrees to obtain and keep in force casualty and hazard insurance on Collateral
naming Bank as loss payee. Such insurance is to be in form and amounts
satisfactory to Bank. All such policies shall provide to Bank a minimum of 30
days written notice of cancellation. Debtor shall furnish to Bank such policies,
or other evidence of such policies satisfactory to Bank. Bank is authorized, but
not obligated, to purchase any or all insurance or "Single Interest Insurance"
protecting such interest as Bank dooms appropriate against such risks and for
such coverage and for such amounts, including either the loan amount or value of
the Collateral, all at its discretion, and at Debtor's expense. In such event,
Debtor agrees to reimburse Bank for the cost of such Insurance and Bank may add
such cost to the Obligations. Debtor shall bear the risk of loss to the extent
of any deficiency in the effective insurance coverage with respect to loss or
damage to any of the Collateral. Debtor hereby assigns to Bank the proceeds of
all such insurance and directs any insurer to make payments directly to Bank.
Debtor hereby appoints Bank its attorney-in-fact, which appointment shall be
irrevocable and coupled with an interest for so long as the Obligations are
unpaid, to file proof of loss and/or any other forms required to collect from
any insurer any amount due from any damage or destruction of Collateral, to
agree to and bind Debtor as to the amount of said recovery, to designate
payee(s) of such recovery, to grant releases to insurer, to grant subrogation
rights to any insurer, and to endorse any settlement check or draft. Debtor
agrees not to exercise any of the foregoing powers granted to Bank without the
Bank's prior written consent.
ADDITIONAL COLLATERAL. If at any time Collateral is unsatisfactory the Bank,
then on demand of Bank, Debtor shall immediately furnish such additional
Collateral satisfactory
3
<PAGE>
to Bank to be held by Bank as if originally pledged hereunder and shall execute
such additional security agreements and financing statements as requested by
Bank.
FINANCING STATEMENTS. No financing statement (other than any filed by Bank or
disclosed above) covering any of Collateral or proceeds thereof is on file in
any public filing office. This Security Agreement, or a copy thereof, or any
financing statement executed hereunder may be recorded. On request of Bank,
Debtor will execute one or more financing statements in form satisfactory to
Bank and will pay all costs and expenses of filing the some or of filing this
Security Agreement in all public filing offices, where filing is deemed by Bank
to be desirable. Bank is authorized to file financing statements relating to
Collateral without Debtor's signature where authorized by law. Debtor appoints
Bank as its attorney-in-fact to execute such documents necessary to accomplish
perfection of Bank's security interest. The appointment is coupled with an
interest and shall be irrevocable as long as any Obligations remain outstanding.
Debtor further agrees to take such other actions as might be requested for the
perfection, continuation and assignment, in whole or in part, of the security
interests granted herein, if certificates are issued or outstanding as to any of
the Collateral, Debtor will cause the security interests of Bank to be properly
protected, including perfection of notation thereon.
LANDLORD/MORTGAGEE WAIVERS. Debtor shall cause each mortgagee of real property
owned by Debtor and each landlord of real property leased by Debtor to execute
and deliver instruments satisfactory in form and substance to Bank by which such
mortgagee or landlord waives its rights, if any, in the Collateral.
STOCK, DIVIDENDS. If, with respect to any security pledged hereunder, a stock
dividend is declared, any stock split made or right to subscribe is issued, all
the certificates for the shares representing such stock dividend, stock split or
right to subscribe will be immediately delivered, duly endorsed, to the Bank as
additional collateral, and any cash or non-cash proceeds and products thereof,
including investment property and security entitlements will be immediately
delivered to Bank, if Debtor has granted to Bank a security interest in
securities, Debtor acknowledges that such grant includes all investment property
and security entitlements, now existing or hereafter arising, relating to such
securities. In addition. Debtor agrees to execute such notices and instructions
to securities intermediaries as Bank may reasonably request.
CONTRACTS, CHATTEL PAPER, ACCOUNTS, GENERAL INTANGIBLES. Debtor
warrants that Collateral consisting of contract rights, chattel paper, accounts,
or general intangibles is (i) genuine and enforceable in accordance with its
terms except as limited by law; (ii) not subject to any defense, set-off, claim
or counterclaim of a material nature
4
<PAGE>
against Debtor except as to, which Debtor has notified Bank in writing; and
(iii) not subject to any other circumstances that would impair the validity,
enforceability, value, or amount of such Collateral except as to which Debtor
has notified Bank in writing. Debtor shall not amend, modify or supplement any
lease, contract or agreement contained in Collateral or waive any provision
therein, without prior written consent of Bank.
ACCOUNT INFORMATION. From time to time, at the Bank's request, Debtor shall
provide Bank with schedules describing all accounts and contracts, including
customers' addresses, credited or acquired by Debtor and at the Bank's request
shall execute and deliver written assignments of contracts and other documents
evidencing such accounts and contracts to Bank. Together with each schedule,
Debtor shall, if requested by Bank, furnish Bank with copies of Debtor's sales
journals, invoices, customer purchase orders or the equivalent, and original
shipping or delivery receipts for all goods sold, and Debtor warrants the
genuineness thereof.
ACCOUNT AND CONTRACT DEBTORS. After a Default occurs, Bank shall have the right
to notify the account and contract debtors obligated on any or all of the
Collateral to make payment thereof directly to Bank and Bank may take control of
all proceeds of any such Collateral, which rights Bank may exercise at any time.
The cost of such collection and enforcement, including attorneys, fees and
expenses, shall be borne solely by Debtor whether the same is incurred by Bank
or Debtor. After a Default occurs, upon demand of Bank, Debtor will, upon
receipt of all checks, drafts, cash and other remittances in payment on
Collateral, deposit the same in a special bank account maintained with Bank,
over which Bank also has the power of withdrawal.
If a Default occurs, no discount, credit, or allowance shall be granted by
Debtor to any account or contract debtor and no return of merchandise shall be
accepted by Debtor without Bank's consent. Bank may, after Default, settle or
adjust disputes and claims directly with account contract debtors for amounts
and upon terms that Bank considers advisable, and in such cases, Bank will
credit the Obligations with the net amounts received by Bank, after deducting
all of the expenses incurred by Bank. Debtor agrees to indemnify and defend Bank
and hold it harmless with respect to any claim or proceeding arising out of any
matter related to collection of Collateral.
GOVERNMENT CONTRACTS. If any Collateral covered hereby arises from obligations
due to Debtor from any governmental unit or organization, Debtor shall
immediately notify Bank in writing and execute all documents and take all
actions demanded by Bank to ensure recognition by such governmental unit or
organization of the rights of Bank in the Collateral.
5
<PAGE>
INVENTORY. So long as no Default has occurred, Debtor shall have the right in
the regular course of business, to process and sell Debtor's inventory, unless
Bank shall hereafter otherwise direct in writing. Upon demand of Bank, Debtor
will, upon receipt of all checks, drafts, cash and other, remittances, in
payment of Collateral sold, deposit the same in a special bank account
maintained with Bank, over which Bank also has the power of withdrawal. Debtor
shall comply with all federal, state, and local laws, regulations, rulings, and
orders applicable to Debtor or its assets or business, in all respects. Without
limiting the generality of the previous sentence, Debtor shall comply with all
requirements of the federal Fair Labor Standards Act in the conduct of its
business and the production of inventory. Debtor shall notify Bank immediately
of any violation by Debtor of the Fair Labor Standards Act, and a failure of
Debtor to so notify Bank shall constitute a continuing representation that all
inventory then existing has been produced in compliance with the Fair Labor
Standards Act.
INSTRUMENTS, CHATTEL PAPER. Any Collateral that is instruments, chattel paper
and negotiable documents will be properly assigned to, deposited with and held
by Bank, unless Bank shall hereafter otherwise direct or consent in writing.
Bank may, without notice, before or after maturity of the Obligations, exercise
any or all rights of collection, conversion, or exchange and other similar
rights, privileges and options pertaining to Collateral, but shall have no duty
to do so.
COLLATERAL DUTIES. Bank shall have no custodial or ministerial duties to perform
with respect to Collateral pledged except as set forth herein; and by way of
explanation and not by way of limitation, Bank shall incur no liability for any
of the following: (i) loss or depreciation of Collateral (unless caused by its
willful misconduct), (ii) its failure to present any paper for payment or
protest, to protest or give notice of nonpayment, or any other notice with
respect to any paper or Collateral, or (iii) its failure to present or surrender
for redemption, conversion or exchange any bond, stock, paper or other security
whether in connection with any merger, consolidation, recapitalization, or
reorganization, arising out of the refunding of the original security, or for
any other reason, or its failure to notify any party hereto that Collateral
should be so presented or surrendered.
TRANSFER OF COLLATERAL. The Bank may assign its rights in the Collateral or any
part thereof to any assignee who shall thereupon become vested with all the
powers and rights herein given to the Bank with respect to the property so
transferred and delivered, and this Bank shall thereafter be forever relieved
and fully discharged from any liability with respect to such property so
transferred, but with respect to any property not so transferred the Bank shall
retain all rights and powers hereby given.
6
<PAGE>
SUBSTITUTE COLLATERAL. With prior written consent of Bank, other Collateral may
be substituted for the original Collateral herein in which event all rights,
duties, obligations, remedies and security interests provided for, created or
granted shall apply fully to such substitute Collateral.
INSPECTION, BOOKS AND RECORDS. Debtor will at all times keep accurate and
complete records covering each item of Collateral, including the proceeds
therefrom. Bank, or any of its agents, shall have the right, at intervals to be
determined by Bank and without hindrance or delay, to inspect, audit, and
examine the Collateral and to make extracts from the books, records, journals,
orders, receipts, correspondence and other data relating to Collateral, Debtor's
business or any other transaction between the parties hereto. Debtor will at its
expense furnish Bank copies thereof upon request.
CROSS COLLATERALIZATION LIMITATION. As to any other existing or future consumer
purpose loan made by Bank to Debtor, within the meaning of the Federal ConSumer
Credit Protection Act. Bank expressly waives any security interest granted
herein in Collateral that Debtor uses as a principal dwelling and household
goods.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Debtor shall pay all of Bank's
reasonable expenses incurred in enforcing this Agreement and in preserving and
liquidating Collateral, including but not limited to, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether incurred without
the commencement of a suit, in any trial, arbitration, or administrative
proceeding, or in any appellate or bankruptcy proceeding.
DEFAULT. If any of the following occurs, a default ("Default") under this
Security Agreement shall exist: (i) The failure of timely payment or performance
of any of the Obligations or a default under any Loan Document; (ii) Any breach
of any representation or agreement contained or referred to in this Security
Agreement or other Loan Document; (iii) Any loss, theft, substantial damage, or
destruction of Collateral not fully covered by insurance, or as to which
insurance proceeds or payment in the equal amount from Borrower are not remitted
to Bank within 30 days of the loss; any sale (except the sale of inventory in
the ordinary course of business), lease, or encumbrance of any of Collateral
without prior written consent of Bank, or the making of any levy, seizure, or
attachment on or of Collateral which is not removed within 10 days, or (iv) the
death of, appointment of guardian for, dissolution of, termination of existence
of, loss of good standing status by, appointment of a receiver for, assignment
for the benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against Debtor, its Subsidiaries or Affiliates ("Affiliate"
shall have the meaning as defined in 11 U.S.C. ss. 101; and "Subsidiary" shall
7
<PAGE>
mean any corporation of which more than 60% of the issued and outstanding voting
stock is owned directly or indirectly by Debtor), if any, or any general partner
of or the holder's) of the majority ownership interests in Debtor or any party
to the Loan Documents.
REMEDIES ON DEFAULT (INCLUDING POWER OF SALE). If a Default occurs, all of the
Obligations shall be immediately due and payable, without notice and Bank shall
have all the rights and remedies of a secured party under the Uniform Commercial
Code. Without limitation thereto, Bank shall have the following rights and
remedies: (i) to take immediate possession of Collateral, without notice or
resort to legal process, and for such purpose, to enter upon any premises on
which Collateral or any part thereof may be situated and to remove the some
therefrom, or, at its option, to render the Collateral unusable or dispose of
said Collateral on Debtor's promises; (ii) to require Debtor to assemble the
Collateral and make it available to Bank at a place to be designated by Bank;
(iii) to exercise its right of set-off or bank lien as to any monies of Debtor
deposited in demand, checking, time, savings, certificate of deposit or other
accounts of any mature maintained by Debtor with Bank or Affiliates of Bank,
without advance notice, regardless of whether such accounts are general or
special; (iv) to dispose of Collateral, as a unit or in parcels, separately or
with any real property interests also securing the Obligations, in any county or
place to be selected by Bank, at either private or public sale (at which public
sale bank may be the purchaser) with or without having the Collateral physically
present at said sale. Any notice of sale, disposition or other action by Bank
required by law and sent to Debtor at Debtor's address shown above, or at such
other address of Debtor as may from time to time be shown on the records of
Bank, at least 5 days prior to such action, shelf constitute reasonable notice
to Debtor. Notice shall be deemed given or sent when mailed postage prepaid to
Debtor's address as provided herein. Bank shall be entitled to apply the
proceeds of any sale or other disposition of the Collateral, and the payments
received by Bank with respect to any of the Collateral, to the Obligations in
such order and manner as Bank may determine. Collateral that is subject to rapid
declines in value and is customarily sold in recognized markets may be disposed
of by Bank in a recognized market for such collateral without providing notice
of sale.
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power or remedy hereunder Preclude any other of further exercise thereof or the
exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
8
<PAGE>
MISCELLANEOUS. (i) Amendments and Waivers. No waiver, amendment or
modification of any provision of this Security Agreement shall be valid unless
in writing and signed by an officer of Bank. No waiver by Bank of any Default
shall operate as a waiver of any other Default or of the same Default on a
future occasion. Neither the failure of, nor any delay by, Bank in exercising
any right, power or privilege granted pursuant to this Security Agreement shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any other right, power or privilege.
(ii) Assignment. All rights of Bank hereunder are freely assignable, in whole or
in part, and shall inure to the benefit of and be enforceable by Bank, its
Successors, assigns and affiliates. Debtor shall not assign its rights and
interest hereunder without the prior written consent of Bank, and any attempt by
Debtor to assign without Bank's prior written consent is null and void. Any
assignment shall not release Debtor from the Obligations. This Security
Agreement shall be binding upon Debtor, and the heirs, personal representatives,
successors, and assigns of Debtor. (iii) Applicable Law; Conflict Between
Documents. This Security Agreement shall be governed by and construed under the
law of the state named in the address of the Bank first shown above without
regard to that state's conflict of laws principles, if any terms of this
Security Agreement conflict with the terms of any commitment letter or loan
proposal, the terms of this Security Agreement shall control. (iv) Jurisdiction.
Debtor irrevocably agrees to non-exclusive personal jurisdiction in the state in
which the office of Bank as stated above is located. (v) Severability. If any
provision of this Security Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective but only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Security Agreement. (vi) Notices.
Any notices to Debtor shall be sufficiently given, if in writing and mailed or
delivered to the address of Debtor shown above or such other address as provided
hereunder; and to Bank, if in writing and mailed or delivered to Bank's office
address shown above or such other address as Bank may specify in writing from
time to time, in the event that the Debtor changes Debtor's mailing address at
any time prior to the date the Obligations are paid in full, Debtor agrees to
promptly give written notice of said change of address by registered or
certified mail, return receipt requested, all charges prepaid. (vii) Captions.
The captions contained herein are inserted for convenience only and shall not
affect the meaning or interpretation of this Security Agreement or any provision
hereof. The use of the plural shall also mean the singular, and vice versa.
(viii) Loan Documents. The term "Loan Documents" refers to all documents,
whether now or hereafter existing, executed in connection with the Obligations
and may include, without limitation and whether executed by Borrower, Debtor or
others, commitment letters, loan agreements, guaranty agreements, other security
agreements, letters of credit, instruments, financing statements, mortgages,
deeds of trust, deeds to secure debt, and any amendments or supplements
(excluding swap agreements as defined in 11 U.S.C. ss. 101). (ix) Joint and
Several Liability. If more than
9
<PAGE>
one person has signed this Security Agreement, such parties are jointly and
severally obligated hereunder. (x) Binding Contract. Debtor by execution and
Bank by acceptance of this Security Agreement, agree that each party is bound by
all terms and provisions of this Security Agreement.
IN WITNESS WHEREOF, Debtor, on the day and year first written above, has caused
this Security Agreement to be executed under seal.
National Auto Finance Company, Inc.
Taxpayer Identification Number: 65-0493629
By:
Keith B. Stein, Vice Chairman
10
DAFS03...:\97\64897\0001\2058\AGR4148V.410
LOAN AGREEMENT
First Union National Bank
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
National Auto Finance Company, Inc,
1521 N.W. 53rd Street
Boca Raton, Florida 33487
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into August 26, 1997, by and
between Bank and Borrower, a Corporation (For profit) organized under the laws
of Delaware.
Borrower has applied to Bank for a loan or loans (Individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Non-Revolving Line of Credit to be termed out in the principal amount of
$1,500,000.00 is evidenced by the Promissory Note dated August 25, 1997. The
Loan proceeds are to be used by Borrower solely for financing computer equipment
and furniture for their new Jacksonville facility or as otherwise agreed to, in
writing, by Bank.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. ss. 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations Accurate Information. All
information now and
<PAGE>
hereafter furnished to Bank is and will be true, correct and complete. Any such
information relating to Borrower's financial condition will accurately reflect
Borrower's financial condition as of the date(s) thereof, (including all
contingent liabilities of every type), and Borrower further represents that its
financial condition has not changed materially or adversely since the date(s) of
such documents. Authorization; Non-Contravention. The execution, delivery and
performance by Borrower and any guarantor, as applicable, of this Agreement and
other Loan Documents to which it is a party are within its power, have been duly
authorized by all necessary action taken by the duly authorized officers of
Borrower and any guarantors and, if necessary, by making appropriate filings;
with any governmental agency or unit and are the legal, binding, valid and
enforceable obligations of Borrower and any guarantors; and do not (i)
contravene, or constitute (with or without the giving of notice or lapse of time
or both) a violation of any provision of applicable law, a violation of the
organizational documents of Borrower or any guarantor, or a default under any
agreement, judgment, injunction, order, decree or other instrument binding upon
or affecting Borrower or any guarantor, (ii) result in the creation or
imposition of any lien (other than the lien(s) created by the Loan Documents) on
any of Borrower's or guarantor's assets, or (iii) give cause for the
acceleration of any obligations of Borrower or any guarantor to any other
creditor. Asset Ownership. Borrower has good and marketable title to all of the
properties and assets reflected on the balance sheets and financial statements
supplied Bank by Borrower, and all such properties and assets are free and clear
of mortgages, security deeds, pledges, liens, charges, and all other
encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower
has duly filed, paid and/or discharged all taxes or other claims which may
become a lien on any of its property or assets, except to the extent that such
items ate being appropriately contested in good faith and an adequate reserve
for the payment thereof is being maintained. Sufficiency of Capital. Borrower is
not, and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the Loan,
will not be, insolvent within the meaning of 11 U.S.C. ss. 101(32). Compliance
with Laws. Borrower is in compliance in all material respects with all federal,
state and local laws, rules and regulations applicable to its properties,
operations, business, and finances, including, without limitation, any federal
or state laws relating to liquor (including 18 U.S.C. ss. 3517, et seq.) or
narcotics (including 21 U.S.C. ss. 801, et seq.) and/or any commercial crimes;
all applicable federal, state and local laws and regulations intended to protect
the environment; and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), if applicable. Organization and Authority. Each corporate or
limited liability company Borrower and any guarantor, as applicable, is duly
created, validly existing and in good standing under the laws of the state of
its organization, and has all powers,
2
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governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted, where failure to be properly organized or
authorized, in the aggregate could have a material adverse effect on the
business, financial position, results of operations, properties or prospects of
Borrower or any such guarantor. Each corporate or limited liability company
Borrower and any guarantor, if any, is duly qualified, licensed and in good
standing in each jurisdiction where qualification or licensing is required by
the nature of its business or the character and location of its property,
business or customers, and in which the failure to so qualify or be licensed, as
the case may be, in the aggregate, could have a material adverse effect on the
business, financial position, results of operations, properties or prospects of
Borrower or any such guarantor. No Litigation. There are no material pending or,
to the Borrower's knowledge threatened suits, claims or demands against Borrower
or any guarantor that have not been disclosed to Bank by Borrower in writing.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: Business Continuity. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. Maintain Properties. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
agreement. Access to Books & Records. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. Insurance. Maintain adequate insurance coverage with respect
to its properties and business against loss or damage of the kinds and in the
amounts customarily insured against by companies of established reputation
engaged in the same or similar businesses including, without limitation,
commercial general liability insurance, workers compensation insurance, and
business interruption insurance: all acquired in such amounts and from such
companies as Bank may reasonably require. Notice of Default and Other Notices.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto, (b) Other Notices. Promptly notify Bank in writing
of (i) any material adverse change in its financial condition or its business;
(ii) any default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any indebtedness owing by Borrower; (iii) any
material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
material litigation with any third party or any proceeding before any
3
<PAGE>
governmental agency or unit affecting Borrower; and (v) at least 30 days prior
thereto, any change in Borrower's name or address as shown above, and/or any
change in Borrower's structure. Compliance with Other Agreements. Comply with
all terms and conditions contained in this Agreement, and any other Loan
Documents, and swap agreements, if applicable, as defined in the Note. Payment
of Debts. Pay and discharge when due, and before subject to penalty or further
charge, and otherwise satisfy before maturity or delinquency, all obligations,
debts, taxes, and liabilities of whatever nature or amount, except those which
Borrower in good faith disputes. Reports and Proxies. Deliver to Bank, promptly,
a copy of all financial statements, reports, notices, and proxy statements, sent
by Borrower to stockholders, and all regular or periodic reports required to be
filed by Borrower with any governmental agency or authority. Other Financial
Information. Deliver promptly such other information regarding the operation,
business affairs, and financial condition of Borrower which Bank may reasonably
request. Non-Default Certificate From Borrower. Deliver to Bank, with the
Financial Statements required herein, a certificate signed by Borrower, if
Borrower is an Individual, or by a principal financial officer of Borrower
warranting that no "Default" as specified in the Loan Documents nor any event
which, upon the giving of notice or lapse of time or both, would constitute such
a Default, has occurred. Estoppel Certificate. Furnish, within 15 days after
request by Bank, a written statement duly acknowledged of the amount due under
the Loan and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: Default on Other Contracts or
Obligations. Default an any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed in an amount in excess of $10,000.00. Judgment
Entered. Permit the entry of any monetary judgment or the assessment against,
the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Borrower in an amount in
excess of $10,000.00 and that is not discharged or execution is not stayed
within thirty (30) days of entry. Government Intervention. Permit the assertion
or making of any seizure, vesting or intervention by or under authority of any
government by which the management of Borrower or any guarantor is displaced of
its authority in the conduct of its respective business or such business is
curtailed or materially impaired. Change of Control. Make or suffer a change of
ownership that effectively changes control of Borrower. Change in Fiscal Year.
Borrower or guarantor shall not change its fiscal year without the consent of
Bank. Encumbrances. Create, assume, or permit to exist any mortgage, security
deed, deed of trust, pledge, lien, charge or other encumbrance on any of the
Collateral as set forth in the Security Agreements.
4
<PAGE>
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date
hereof until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing: Deposit Relationship. Borrower shall maintain its
primary depository account and cash management account with Bank. Debt Service
Coverage Ratio. Borrower shall annually exhibit a Debt Service Coverage ratio of
not less than 1.50.1. "Debt Service Coverage" shall mean the sum of net profit
before extraordinary taxes, depreciation, amortization and interest expense,
minus all dividend and withdrawals, divided by the sum of all current maturities
of long term debt, capital leases and interest expense. This covenant shall be
tested annually based on fiscal year and financial statements.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, compiled financial statements reflecting
its operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. All such
statements shall be compiled by an independent certified public accountant
acceptable to Bank. Such statements shall be certified as to their correctness
by a principal financial officer of Borrower.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
National Auto Finance Company, Inc.
Taxpayer Identification Number: 65-0493629
By:
Keith B. Stein, Vice Chairman
5
<PAGE>
First Union National Bank
By:
Philip Zeman, Vice President
6
VOTING AGREEMENT
Voting Agreement, dated as of December 22, 1997, by and among The
1818 Mezzanine Fund, L.P., a Delaware limited partnership (the "Fund"), PC
Investment Company, a Delaware corporation ("PCI"), Progressive Investment
Company, Inc., a Delaware corporation ("Progressive," and together with PCI, the
"Progressive Entities"), and National Auto Finance Company, L.P., a Delaware
limited partnership "(NAFC"). Capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the Purchase Agreement (as
defined below).
WHEREAS, National Auto Finance Company, Inc., a Delaware corporation
(the "Company"), has entered into that certain Securities Purchase Agreement,
dated as of the date hereof (the "Purchase Agreement"), with the Fund, PCI,
Progressive and Manufacturers Life Insurance Company (U.S.A.), a Michigan
corporation;
WHEREAS, NAFC is a significant stockholder of the Company; and
WHEREAS, the Fund, the Progressive Entities and NAFC have agreed,
inter alia, to make certain provisions for the governance of the Company and to
take certain actions to effectuate the transactions contemplated in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
herein and the execution by the Fund and the Progressive Entities of the
Purchase Agreement, the parties hereto hereby agree as follows:
1. Representations and Warranties of NAFC. NAFC hereby represents
and warrants to the Fund and the Progressive Entities as follows:
(a) Title. As of the date hereof, NAFC beneficially owns
(exclusive of options) 4,230,000 shares (the "NAFC Shares") of common stock, par
value $.01 per share (the "Common Stock"), of the Company.
(b) Right to Vote. NAFC has full legal power, authority and
right to vote all NAFC Shares for the election of persons nominated by the Fund
and the Progressive Entities to the Company's Board of Directors. Without
limiting the generality of the foregoing, except for this Agreement, NAFC is not
a party to any voting agreement with any person or entity with respect to any of
the NAFC Shares, has not granted any person or entity any proxy (revocable or
irrevocable) or power of attorney with respect to any of the
DAFS03...:\97\64897\0001\2058\AGR4178P.510
<PAGE>
NAFC Shares, has not deposited any of the NAFC Shares in a voting trust and has
not entered into any arrangement or agreement with any person or entity limiting
or affecting NAFC's legal power, authority or right to vote the NAFC Shares for
the election of persons nominated by the Fund and the Progressive Entities to
the Company's Board of Directors. From and after the date hereof, NAFC will not
commit any act that could restrict or otherwise affect such legal power,
authority and right to vote all NAFC Shares for the election of persons
nominated by the Fund and the Progressive Entities to the Company's Board of
Directors. Without limiting the generality of the foregoing, from and after the
date hereof NAFC will not enter into any voting agreement with any person or
entity with respect to any of the NAFC Shares, grant any person or entity any
proxy (revocable or irrevocable) or power of attorney with respect to any of the
NAFC Shares, deposit any of the NAFC Shares into a voting trust or otherwise
enter into any agreement or arrangement limiting or affecting NAFC's legal
power, authority or right to vote the NAFC Shares for the election of persons
nominated by the Fund and the Progressive Entities to the Company's Board of
Directors (other than this Agreement).
(c) Authority. NAFC has full legal power, authority and right
to execute and deliver, and to perform the obligations under, this Agreement.
This Agreement has been duly executed and delivered by NAFC and constitutes a
valid and binding agreement of NAFC enforceable against NAFC in accordance with
its terms, subject to (i) bankruptcy, insolvency, moratorium and other similar
laws now or hereinafter in effect relating to or affecting creditors, rights
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
(d) Conflicting Instruments; No Transfer. Neither the
execution and delivery of this Agreement nor the performance by NAFC of the
agreements and obligations hereunder will result in any breach, violation of,
conflict with, or default under any term of any agreement, judgment, injunction,
order, decree, law, regulation or arrangement to which NAFC is a party or by
which NAFC (or any assets of NAFC) is bound, except for any such breach,
violation, conflict or default which, individually or in the aggregate, would
not impair or affect NAFC's ability to cast all votes represented by the NAFC
Shares for the election of persons nominated by the Fund and the Progressive
Entities to the Company's Board of Directors.
2. Agreement to Vote of NAFC. NAFC hereby irrevocably and
unconditionally agrees to vote or to cause to be voted all NAFC Shares in favor
of the election of the nominees designated by each of the Fund and the
Progressive Entities pursuant to and in accordance with Section 9.10 of the
Purchase Agreement to the Board of
2
<PAGE>
Directors of the Company at each annual or special meeting of stockholders where
such nominee is included in the slate of candidates for election as a director
of the Company.
3. Invalid Provisions. If any provision of this Agreement shall be
invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such invalidity or unenforceability only, without
it affecting the remaining provisions of this Agreement.
4. Executed in Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original with the same effect as of the
signatures hereto and thereto were upon the same instrument.
5. Specific Performance. The parties hereto agree that if for any
reason NAFC fails to perform any of its agreements or obligations under this
Agreement irreparable harm or injury to the Fund or the Progressive Entities
would be caused for which money damages would not be an adequate remedy.
Accordingly, NAFC agrees that in seeking to enforce this Agreement against NAFC,
the Fund and the Progressive Entities shall be entitled to specific performance
and injunctive and other equitable relief; provided that with respect to NAFC's
agreements and obligations under this Agreement, the provisions of this Section
5 are without prejudice to any other rights or remedies, whether at law or in
equity, that the Fund and the Progressive Entities may have against NAFC for any
failure to perform any of its agreements or obligations under this Agreement.
6. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the principles of conflicts of laws thereof.
7. Amendments: Termination. (a) This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
(b) The respective obligations of NAFC to the Fund and the
Progressive Entities under this Agreement shall terminate upon the termination
of the Fund's and the Progressive Entities' respective rights to nominate
persons to the Company's Board of Directors pursuant to Section 9.10 of the
Purchase Agreement.
8. Additional Shares. If, after the date hereof, NAFC acquires the
right to vote any additional shares of Common Stock (any such shares are called
"Additional Shares"), including, without limitation, upon exercise of any
option, warrant or right to
3
<PAGE>
acquire shares of Common Stock or through any stock dividend or stock split, the
provisions of this Agreement (other than those set forth in Section 1)
applicable to the NAFC Shares shall be applicable to such Additional Shares as
if such Additional Shares had been NAFC Shares as of the date hereof. The
provisions of the immediately preceding sentence shall be effective with respect
to Additional Shares without action by any person or entity immediately upon the
acquisition by NAFC of beneficial ownership of such Additional Shares.
9. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successors (including, in the case of any individual, any executors,
administrators, estates, legal representatives and heirs of such individual) and
assigns (which, for purposes of this Agreement, shall include the partners of
NAFC to the extent such partners receive NAFC Shares upon any distribution by,
or liquidation of, NAFC).
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of this 22nd day of December, 1997.
NATIONAL AUTO FINANCE COMPANY, L.P.
By: National Auto Finance Corporation,
its General Partner
By:
Name:
Title:
THE 1818 MEZZANINE FUND, L.P.
By: Brown Bothers Harriman & Co.,
its General Partner
By:
Name:
PC INVESTMENT COMPANY
By: /s/ David W. Young
----------------------------------------
Name: David W. Young
Title: Chief Investment Officer
THE PROGRESSIVE INVESTMENT COMPANY, INC.
By: /s/ David W. Young
----------------------------------------
Name: David W Young
Title: Chief Investment Officer
5
RESTATED REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 27, 1998, by and among National Auto Finance Company, Inc., a Delaware
corporation (the "Company"), and the Persons set forth on Schedule I attached
hereto (the "Investors"). Capitalized terms used herein not otherwise defined
shall have the meanings set forth in Section 9 of this Agreement.
WHEREAS, the Company, Morgan Guaranty Trust Company of New York, as
trustee of the Commingled Pension Trust Fund (Multi-Market Special Investment
Fund II) and the Multi-Market Special Investment Trust Fund, and as investment
manager and agent for The Alfred P. Sloan Foundation (Multi-Market Account)
(collectively, the "Morgan Trusts"), FSA Portfolio Management, Inc. ("FSA"),
IronBrand Capital LLC, The 1818 Mezzanine Fund, L.P., PC Investment Company,
Progressive Investment Company, Inc., and Manufacturer's Life Insurance Company
(U.S.A.) (together the "1818/Progressive/ML Group") are parties to that certain
Registration Rights Agreement dated December 22, 1997 (the "Existing
Registration Rights Agreement");
WHEREAS, the Company has entered into a Securities Purchase Agreement
dated March 27, 1998 (the "Prudential Purchase Agreement") with The Structured
Finance High Yield Fund, LLC (the "Prudential Fund"), which contemplates that
the Company will grant the Prudential Fund certain registration rights;
WHEREAS, the Company has also agreed to provide certain registration
rights to National Auto Finance Company, L.P. (including its limited partners to
whom Registrable Securities are distributed) (the "Partners"); and
WHEREAS, the foregoing parties desire to set forth their agreement as
to the relative registration rights of such parties from this day forward and,
by so doing, to supersede and replace all prior registration rights agreements
between the Company and the other parties hereto;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration the receipt and sufficiency of which hereby are
acknowledged, agree as follows:
1. REGISTRATION STATEMENTS.
(a) Demand Registration. (i) Upon each notice to the Company by
the Morgan Holders, IronBrand, the Prudential Holders or the 1818/Progressive/ML
Holders requesting
<PAGE>
the registration of a specified number of their Registrable Securities, the
Company shall, as promptly as practicable and in any event not later than 90
days after the Company's receipt of such notice, prepare and file with the
Commission under the Securities Act a Registration Statement (including by means
of a shelf registration pursuant to Rule 415 under the Securities Act (a "Shelf
Registration Statement") if so requested in such notice (but, in the case of a
shelf registration, only if the Company is then eligible to use such a shelf
registration and if Form S-2 or Form S-3 (or any successor forms) is then
available to the Company) with respect to the Registrable Securities to which
such notice relates, and shall use its reasonable best efforts to cause such
Registration Statement to be declared effective at the earliest practicable date
and to prepare and make available a Prospectus meeting the requirements of
Section 10(a) of the Securities Act and providing for the method of disposition
determined pursuant to Section 1(a)(ii) for such period as may be required by
the Securities Act, but in no event beyond the period specified in Section
1(a)(iii); provided, that the Company will not be required to effect any such
registration within the period beginning on the effective date of a Registration
Statement filed by the Company on its behalf or for the account of any other
Person covering a firm commitment Underwritten Offering and ending on the later
of (A) 90 days after such effective date and (B) the expiration of any lock-up
period required by the underwriters, if any, in connection therewith. Subject to
Section 1(a)(iii) below, each of the Morgan Holders, the 1818/Progressive/ML
Holders, the Prudential Holders and IronBrand may make two requests for
registration pursuant to this Section 1(a)(i); provided that the number of such
permissible requests shall be increased as set forth in Sections 1(c)(ii)(A) and
1(c)(iv) and provided no such holders shall be entitled to make such a request
while any other Registration Statement (other than a Shelf Registration
Statement) with the Commission is on file prior to its becoming effective or
within 90 days after such a Registration Statement has been declared effective
or in the case of a Shelf Registration Statement while such registration is on
file prior to being declared effective until 90 days after such Registration
Statement ceases to be effective.
(ii) If a request for registration is made
pursuant to Section 1(a)(i), the Company shall promptly give written notice of
such request to all Demand Holders who did not participate in such request; and
each Demand Holders Group shall have the right, subject to Section 1(a)(iii), by
giving written notice to the Company promptly (and in any event within 30 days
after such notice is given by the Company), to join in such request and to have
included in the Registration Statement to be filed by the Company pursuant to
such request such number of Registrable Securities as such holders shall specify
in such notice; and the method of distribution of the Registrable Securities to
be included in such Registration Statement under Section 1(a)(i) shall be
selected by the holders of a majority of the Registrable Securities with respect
to which the request for registration was made under Section 1(a)(i).
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<PAGE>
(iii) any Demand Holder Group which shall have given the
Company a notice pursuant to Section 1(a)(i) above and all of whose shares
requested to be included shall have been included in the Registration Statement
at the time it is declared effective shall not be deemed to have used one of its
requests for registration (A) unless the Registration Statement with respect
thereto has become effective and remained effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement until such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such Registration Statement; provided, that, such period need not exceed 180
days, (B) if after it has become effective, such registration is interfered with
by any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to the Demand
Holders and has not thereafter become effective, or (C) if the conditions to
closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived, other than by
reason of a failure on the part of the Demand Holders.
(iv) The Company may delay the filing of a
Registration Statement requested pursuant to this Section 1(a) if, in its
reasonable judgment, (A) the filing of such Registration Statement at such time
would adversely affect or require the Company to disclose in the Registration
Statement a proposed financing, reorganization or recapitalization, or pending
negotiations relating to a merger, consolidation, acquisition or similar
transaction, or otherwise adversely affect the Company; or (B) financial
statements meeting the requirements of Regulation S-X are not available at such
time because of any such pending proposal or negotiations; provided, however,
that the right of the Company pursuant to clauses (A) and (B) of this subsection
(iv) to delay the filing of a Registration Statement shall not extend for more
than 90 days from the date that notice is given pursuant to Section 1(a)(i)
requesting registration. The Company shall promptly give the holders of
Registrable Securities requesting registration thereof pursuant to Sections
1(a)(1) or 1(a)(ii) written notice of such determination, containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay. If the Company shall so postpone the filing of a Registration
Statement, any Demand Holder Group requesting registration thereof pursuant to
Section 1(a)(i) shall have the right to withdraw the request for registration by
giving written notice to the Company within 15 days after receipt of the notice
of postponement and, in the event of such withdrawal, such request shall not be
counted for purposes of the requests for registration to which holders of
Registrable Securities are entitled pursuant to Section 1(a) hereof.
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<PAGE>
(b) Incidental Registration. (i) In addition to, and independent of the
rights afforded by Section 1(a), prior to filing with the Commission any
Registration Statement (other than a Registration Statement on Form S-4 or S-8
or any successor forms to such Forms) with respect to (A) any public offering by
and for the account of the Company of its equity securities or any securities
convertible into or exchangeable or exercisable for such equity securities or
(B) any public offering by the Company for the account of any holders of equity
securities of the Company, of the Company's equity securities or any securities
convertible into or exchangeable or exercisable for such equity securities, the
Company shall notify each holder of the Registrable Securities of such proposed
filing, specifying whether such offering is to be an Underwritten Offering. Any
such holder wishing to have any of such holder's Registrable Securities included
in such Registration Statement shall promptly (and in any event within 30 days
after such notice is given by the Company) give written notice to the Company
requesting registration of such holder's Registrable Securities, specifying the
number of Registrable Securities requested to be registered and describing the
proposed method of disposition thereof, and if the proposed offering is to be an
Underwritten Offering and such holder wishes to participate therein, specifying
the number of Registrable Securities which such holder wishes to dispose of
pursuant to such Underwritten Offering.
(ii) If the proposed public offering as to which
notice is given by the Company pursuant to Section 1(b)(i) is other than an
Underwritten Offering, the Company shall use its reasonable best efforts to
register the Registrable Securities requested to be included in its Registration
Statement and, in connection therewith, to prepare and make available a
Prospectus meeting the requirements of Section 10(a) of the Securities Act for
such period as may be required by the Securities Act.
(iii) At any time prior to the time that a Registration
Statement as to which notice has been given by the Company pursuant to Section
1(b) has been filed by the Company or, if filed, has been declared effective,
the Company may determine not to file, or may withdraw, such Registration
Statement, in either of which events the Company shall have no obligation
pursuant to this Section 1(b) to register any Registrable Securities in
connection with such proposed Registration Statement.
(c) Underwritten Offerings. If the proposed method of disposition of
Registrable Securities as to which notice is given by the holders of Registrable
Securities under Sections 1(a)(i) and 1(a)(ii), collectively, or the proposed
public offering as to which notice is given by the Company pursuant to Section
1(b)(i) is to be an Underwritten Offering:
(i) the Company shall request the underwriter(s)
participating in such offering to purchase and sell all Registrable Securities
the disposition of which pursuant to
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such Underwritten Offering shall have been requested by the holders thereof in
notices given pursuant to Section 1(a)(i), 1(a)(ii) or 1(b)(i), as the case may
be;
(ii) (A) each holder of Registrable Securities giving a
notice pursuant to Section 1(a)(i) or 1(a)(ii), as the case may be, agrees that,
by the giving of such notice, if the underwriter(s) desire(s) to purchase any of
the Registrable Securities requested by such holder to be purchased, such holder
shall sell such Registrable Securities to such underwriter(s) pursuant to an
underwriting agreement to be entered into by and among the Company, the
underwriter(s), such holder and any other holders of securities of the Company
participating in such Underwritten Offering, unless, upon written notice to the
Company and the managing underwriter given at least five Business Days prior to
the date that the Registration Statement with respect to such offering is
proposed to become effective (or any later proposed effective date), such holder
withdraws its Registrable Securities from such Underwritten Offering; provided,
that, if the Morgan Holders, IronBrand, the Prudential Holders or the
1818/Progressive/ML Holders (with respect to a registration requested under
Section 1(a)(i)) withdraw the Registrable Securities requested by such holders
pursuant to Section 1(a)(i) to be included in such Underwritten Offering because
the underwriter(s) have advised the Company in writing that the number of
Registrable Securities requested to be included in such registration exceeds the
number of such securities that can be sold in such offering within a price range
acceptable to such holders, then such request for registration shall be
withdrawn as to all holders of Registrable Securities of the type held by the
holders requesting such withdrawal and the number of requests for registration
that may be made by such Demand Holder Group pursuant to 1(a)(i) should be
increased by one, and notwithstanding anything to the contrary in this
Agreement, all of the costs incurred by such holders in connection with such
registration shall be paid by the Company; and, provided, further, if any holder
of Registrable Securities requesting registration of such securities pursuant to
Section 1(a)(i) or 1(a)(ii) withdraws its request for registration for any
reason that is not based on such advice from the underwriter(s), then,
notwithstanding anything to the contrary in this Agreement, any expenses
incident to the Company's preparation in accordance with this Agreement for the
registration of such Registrable Securities so withdrawn shall be borne entirely
by the holders of such Registrable Securities, pro rata among such holders
requesting such withdrawal, in the proportion that the number of Registrable
Securities requested by each such holder to be included in such Underwritten
Offering and so withdrawn bears to the total number of Registrable Securities
requested to be included in such Underwritten Offering and so withdrawn.
(B) each holder of Registrable Securities giving
a notice pursuant to Section 1(b)(i) agrees that, by the giving of such notice,
if the underwriter(s) desire(s) to purchase any of the Registrable Securities
requested by such holder to be purchased, such
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<PAGE>
holder shall sell such Registrable Securities to such underwriter(s) pursuant to
an underwriting agreement to be entered into by and among the Company, the
underwriter(s), such holder and any other holders of securities of the Company
participating in such Underwritten Offering, unless, upon written notice to the
Company and the managing underwriter given at least five Business Days prior to
the date that the Registration Statement with respect to such offering is
proposed to become effective (or any later proposed effective date), such holder
withdraws its Registrable Securities from such Underwritten Offering.
(iii) if the underwriter(s) elect(s) to purchase
less than all securities (including Registrable Securities) which it is
requested to purchase in connection with such offering (or if, in the judgment
of the Company, on the written advice of such underwriter(s), the inclusion of
all such securities in such Underwritten Offering would adversely affect the
proposed public offering by and for the account of the Company), the Company
shall use its reasonable best efforts to cause purchases, if any, by such
underwriter(s), (A) if such Underwritten Offering is the result of a request for
registration pursuant to Section 1(a)(i) or 1(b)(i)(B), first, of securities to
be offered for the account of the Demand Holders requesting inclusion pursuant
to Sections 1(a)(i) and 1(a)(ii), to be made pro rata according to the number of
securities requested by each such holder to be included in the Underwritten
Offering, second, of securities to be offered for the account of the Company,
third, of securities to be offered for the account of FSA and the Partners, to
be made pro rata according to the number of securities requested by each such
holder to be included in the Underwritten Offering, and fourth, of securities to
be offered for the account of Persons other than (1) the Company, (2) the Demand
Holders who requested inclusion pursuant to Sections 1(a)(i) and 1(a)(ii) and
(3) FSA and the Partners, to be made pro rata according to the number of
securities requested by such other Persons to be included in the Underwritten
Offering, and (B) if such Underwritten Offering is the result of a request for
registration pursuant to Section 1(b)(i)(A), first, of securities to be offered
for the account of the Company, second, of securities to be offered for the
account of Demand Holders to be made pro rata according to the number of
securities requested by each such holder to be included in the Underwritten
Offering, third, of securities to be offered for the account of FSA and the
Partners to be made pro rata according to the number of securities requested by
such holders to be included in the Underwritten Offering, and fourth, of
securities to be offered for the account of Persons other than (1) the Company,
(2) the Demand Holders and (3) FSA and the Partners, to be made pro rata
according to the number of securities requested by such other Persons to be
included in the Underwritten Offering.
(iv) if (A) pursuant to Section 1(c)(iii), any of
the Registrable Securities requested by any Demand Holder Group to be disposed
of pursuant to any Underwritten Offering shall not have been purchased by the
underwriter(s) thereunder and (B) the
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Underwritten Offering is the result of a request for registration pursuant to
Section 1(a)(i), then the number of permissible requests for registration that
may be made pursuant to such Section 1(a)(i) by such Demand Holder Group shall
be increased by one.
(d) Restrictions on Public Sale by Holder. Each holder whose
Registrable Securities are covered by a Registration Statement filed pursuant to
this Section 1 agrees, upon the request of the underwriter(s) in any
Underwritten Offering permitted pursuant to Section 8, not to effect any public
sale or distribution of securities of the Company of the same class as the
securities, or any security convertible into or exchangeable or exercisable for
such securities, included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
registration), during the 10-day period prior to, and during the 90-day period
(or such longer period, not exceeding 180 days, as is required by the
underwriter(s)) beginning on, the closing date of any such Underwritten Offering
made pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such underwriter(s); provided, that all other Persons
selling securities in such Underwritten Offering and all officers and directors
of the Company shall enter into agreements providing for the same restriction on
a public sale as described herein.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute, regulation or
preexisting contractual or fiduciary duty from entering into any such agreement.
(e) Restrictions on Sale of Securities by the Company. The Company
agrees not to effect any public or private offer, sale or distribution of its
equity securities or any security convertible into or exchangeable or
exercisable for such equity security, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
90-day period (or such longer period, not exceeding 180 days, as is required by
the underwriter(s)) beginning on, the closing date of each Underwritten Offering
permitted pursuant to Section 8, to the extent timely and reasonably so
requested in writing by the underwriter(s) (except as part of such registration,
if permitted, or pursuant to registrations on Form S-4 or S-8 or any successor
forms to such Forms or pursuant to an issuance of equity securities of the
Company where such equity securities are exempted from the Securities Act
pursuant to Section 3(a)(10) thereof).
(f) Amendments. Upon the occurrence of any event that would cause any
Registration Statement (i) to contain a material misstatement or omission or
(ii) not to be effective and usable for resale of Registrable Securities during
the period that such Registration Statement is required to be effective and
usable, the Company shall promptly file an amendment to the Registration
Statement, in the case of clause (i), correcting any
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<PAGE>
such misstatement or omission, and in the case of either clause (i) or (ii),
using its reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement to become usable as soon as
practicable thereafter.
2. REGISTRATION PROCEDURES.
In connection with any Registration Statement and subject to the
provisions of Section 1, the Company shall use its reasonable best efforts to
effect such registration to permit the sale of the Registrable Securities being
sold in accordance with the intended method or methods of distribution thereof,
and pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Registrable Securities being
sold in accordance with the intended method or methods of distribution thereof
and shall include all financial statements required by the Commission to be
filed therewith (including, if required by the Securities Act or any regulation
thereunder, financial statements of any Subsidiary of the Company which shall
have guaranteed any indebtedness of the Company), cooperate and assist in any
filings required to be made with the NASD and use its reasonable best efforts to
cause such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the selling
holders to consummate the disposition of such Registrable Securities; provided,
that before filing a Registration Statement or any Prospectus, or any amendments
or supplements thereto, the Company shall (i) furnish to the holders of the
Registrable Securities and the underwriter(s), if any, copies of all such
documents proposed to be filed, which documents shall be subject to the review
of such holders and (ii) make the Company's representative available for
discussion of such documents; and provided, further, that in connection with any
registration of Registrable Securities pursuant to Section 1(a), the Company
shall not file any Registration Statement or amendment thereto or any Prospectus
or any supplement thereto to which the holders of a majority of Registrable
Securities covered by such Registration Statement or the underwriter(s), if any,
shall reasonably object within 10 Business Days after the receipt thereof, and
provided, further, that in connection with any registration pursuant to Section
1 (b)(i), if the holders of a majority of Registrable Securities covered by a
Registration Statement in connection therewith reasonably object within 10
Business Days after the receipt of such Registration Statement or amendment
thereto or any Prospectus or any supplement thereto, the Company shall provide
written notice not more than five Business Days after the end of the 10
Business-Day period referred to above to such holders as to whether or not the
Company plans on filing such document, notwithstanding such objection (which
such notice
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<PAGE>
shall bind the Company), and if the Company notifies such holders that it plans
on filing such document, any holder of Registrable Securities to be registered
under such Registration Statement may withdraw its Registrable Securities from
such Registration Statement and the offering in connection therewith and, if
such holder makes such a withdrawal, it shall have no further obligations in
connection with such Registration Statement or offering. For purposes of the
preceding provisos, an objection made by a holder of the Registrable Securities
or an underwriter, if any, shall be deemed to be reasonable if, including
without limitation, the Registration Statement, amendment, Prospectus or
supplement, as applicable, as filed or proposed to be filed, contains, in the
reasonable judgment of the holder of Registrable Securities or underwriter, a
material misstatement or omission;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 1, or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold;
(c) if requested by the holders of a majority of the Registrable
Securities being sold in an Underwritten Offering permitted by Section 7 or the
underwriter(s) thereof, promptly incorporate in a Prospectus, Prospectus
supplement or post-effective amendment such information as such underwriter(s)
and the holders of a majority of the Registrable Securities being sold agree
should be included therein relating to the plan of distribution of the
Registrable Securities, including, without limitation, information with respect
to the number of Registrable Securities being sold to such underwriter(s), the
purchase price being paid therefor and with respect to any other terms of the
offering of the Registrable Securities to be sold in such offering; and make any
required filings of such Prospectus, Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters to
be incorporated in such Prospectus, Prospectus supplement or post-effective
amendment;
(d) advise the underwriter(s), if any, and holders of the Registrable
Securities promptly and, if requested by such Persons, confirm such advice in
writing:
(i) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment thereto, when the same
has become effective;
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<PAGE>
(ii) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to the
Prospectus or for additional information relating thereto;
(iii) if at any time the representations and
warranties of the Company contemplated by clause (l)(i) below cease to be true
and correct;
(iv) if the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document incorporated by
reference therein contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading; and
(v) of the issuance by the Commission of any
stop order or other order suspending the effectiveness of the Registration
Statement, or any order issued by any state securities commission or other
regulatory authority suspending the qualification or exemption from
qualification of such Registrable Securities under state securities or "blue
sky" laws. If at any time the Company shall receive any such stop order
suspending the effectiveness of the Registration Statement, or any such order
from a state securities commission or other regulatory authority, the Company
shall use its reasonable best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.
(e) furnish to each holder of the Registrable Securities and each of
the underwriter(s), if any, without charge, at least one complete conformed copy
of the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(f) deliver to each holder of the Registrable Securities and each of
the underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each of the holders of the
Registrable Securities and each of the underwriter(s), if any, in connection
with the offering and the sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, cooperate
with the holders of the Registrable Securities, the underwriter(s), if any, and
their respective counsel in connection with the registration and qualification
of the Registrable Securities under the
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<PAGE>
securities or "blue sky" laws of such jurisdictions as the holders of the
Registrable Securities or underwriter(s) may reasonably request and do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statement, except that the Company shall not for any such purpose be required to
(i) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not, but for the requirements of this clause (g),
be obligated to so qualify or to consent to any general service of process in
any such jurisdiction or (ii) subject itself to taxation in respect of doing
business in any jurisdiction in which it would not otherwise be so subject;
(h) cooperate with the holders of the Registrable Securities and the
underwriter(s), if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold without bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as such holders or the
underwriter(s), if any, may request;
(i) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Registrable Securities;
(j) if any fact or event contemplated by clause (d)(iv) above shall
exist or have occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, the Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
(k) provide a transfer agent and registrar (which may include the
Company) and CUSIP number for all Registrable Securities not later than the
effective date of the Registration Statement;
(l) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith as may be reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities pursuant to the Registration Statement, and in connection with any
such underwriting agreement entered into by the Company:
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<PAGE>
(i) make such representations and warranties to
the underwriter(s), in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings;
(ii) obtain opinions of counsel to the Company
and updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the underwriter(s)) and the holders of the
Registrable Securities, addressed to the underwriter(s) and the holders of the
Registrable Securities covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may reasonably be
requested by such holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants, addressed to the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by underwriters in connection
with primary underwritten offerings and, subject to the policies of the
Commission, the Company's certified public accountants and the U.S. accounting
profession, use its reasonable best efforts to have such letters and updates
addressed to FSA Portfolio Management;
(iv) set forth in full or incorporate by reference in
the underwriting agreement the indemnification provisions and procedures of
Section 4 with respect to all parties to be indemnified pursuant to said
Section; and
(v) deliver such documents and certificates as may be
reasonably requested by the holders of the Registrable Securities being sold or
the underwriter(s) of such Underwritten Offering to evidence compliance with
subclause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company pursuant
to this clause (1).
The above shall be done at each closing under such
underwriting or similar agreement, as and to the extent required thereunder;
(m) make available for inspection by a representative of the selling
holders of the Registrable Securities, any underwriter participating in any
disposition pursuant to the Registration Statement, and any attorney, accountant
or other professional retained by such holders or any of the underwriters,
subject to reasonable notice and during regular business hours, all financial
and other records, pertinent corporate documents and properties of the Company,
provided, that all expenses incurred by any party requesting such access shall
be paid by such party, and cause the Company's officers, directors and employees
to supply all
12
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information reasonably requested by any such holder, underwriter, attorney,
accountant or other professional in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness, except that the
aforementioned advisors may be required to sign a reasonably acceptable
confidentiality agreement;
(n) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to the holders of the Registrable Securities, as soon as practicable, a
consolidated earnings statement (which need not be audited) for the 12-month
period (A) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts Underwritten
Offering or (B) if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement; provided, however, that such
reporting obligations shall be in addition to and not in place of the
obligations imposed on the Company by Section 5 of the Morgan Purchase
Agreements, Section 9.1 of the 1818/Progressive/ML Purchase Agreement and
Section 9.1 of the Prudential Purchase Agreement;
(o) use its reasonable best efforts to cause all Registrable Securities
to be listed on each securities exchange, if any, on which equity securities
issued by the Company are then listed; and
(p) use its reasonable best efforts to take all other steps necessary
to effect the registration of the Registrable Securities contemplated hereby.
The Company may require each holder of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as is required by applicable
laws and regulations.
Each holder of the Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company
pursuant to Section 2(d)(iv), or notice of a stop order or suspension described
in Section 2(d)(v), such holder shall forthwith discontinue disposition of
Registrable Securities and cease to use the Prospectus in use under such
Registration Statement. Each holder of Registrable Securities also agrees that
if in an Underwritten Offering effected pursuant to this Agreement it is
required to deliver a signed opinion of counsel to the underwriter(s) under the
underwriting agreement, it will cause its counsel to address and deliver a copy
of such opinion to the Company. The Company shall, as promptly as practicable,
provide each holder with copies of the supplemented or amended Prospectus
contemplated by Section 2(j), or advise the holders in writing that the use of
the
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<PAGE>
Prospectus may be resumed, and provide each holder with copies of any additional
or supplemental filings which are incorporated by reference in the Prospectus.
If so directed by the Company, each such holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
3. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement shall be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation:
(i) all registration and filing fees and expenses
(including filings made with the NASD);
(ii) fees and expenses of compliance with federal
securities and state "blue sky" or securities laws;
(iii) expenses of printing (including printing
certificates for the Registrable Securities and Prospectuses), messenger and
delivery services and telephone;
(iv) fees and disbursements of counsel for the Company
and one counsel, and one local counsel for each local jurisdiction where it is
reasonably necessary, for the holders of the Registrable Securities selling such
securities pursuant to a Registration Statement (subject to the provisions of
Section 3(b));
(v) all application and filing fees in connection with
listing the Registrable Securities on a national securities exchange or
automated quotation system pursuant to the requirements hereof;
(vi) all fees and disbursements of independent certified
public accountants of the Company (including the expenses of any special audit
and "cold comfort" letters required by or incident to such performance);
(vii) any reasonable out-of-pocket expenses of the
holders of the Registrable Securities (or the agents and fiduciaries who manage
their accounts); and
(viii) such other reasonable and customary expenses as may
be at such time (A) associated with underwritten offerings and (B) customarily
borne by the issuer, which
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<PAGE>
such reasonable and customary expenses shall not be deemed to include any
underwriter discounts, commissions or applicable transfer taxes attributable to
the sale of Registrable Securities.
The Company shall, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, rating
agency fees and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement, the Company shall
reimburse the holders of the Registrable Securities for the reasonable fees and
disbursements of not more than one counsel chosen by the holders of a majority
of the Registrable Securities covered by such Registration Statement and of all
local counsel that is reasonably necessary. Notwithstanding the provisions of
this Section 3, each holder shall pay registration expenses if and to the extent
required by applicable law.
4. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each holder of
the Registrable Securities and each Person, if any, who controls such holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including, without limiting the foregoing but subject to Section
4(c), the reasonable legal and other expenses incurred in connection with any
action, suit or proceeding or any claim asserted) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except to the extent that such
losses, claims, damages, liabilities or expenses are the result of an untrue
statement or omission contained in information relating to such holder,
furnished in writing to the Company by or on behalf of such holder expressly for
use therein. In connection with any Underwritten Offering permitted by Section
8, the Company shall also indemnify underwriters, if any, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
holders, if requested in connection with any Registration Statement.
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<PAGE>
(b) As a condition to the inclusion of its Registrable Securities in
any Registration Statement pursuant to this Agreement, each holder thereof shall
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus and each
such holder agrees to indemnify and hold harmless, severally and not jointly,
the Company and its directors, its officers who sign such Registration
Statement, and any Person controlling the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the indemnity from the Company to each holder and Persons controlling such
holder, but only with reference to information relating specifically to such
holder furnished in writing by or on behalf of such holder expressly for use in
such Registration Statement or the Prospectus or any preliminary prospectus
included therein, and of which none of the Company, its directors or officers
has actual knowledge independent of such holder; provided, however, that such
holder of Registrable Securities shall not be liable in any such case to the
extent that the holder has furnished in writing to the Company, reasonably in
advance of the filing of any such Registration Statement, Prospectus or
preliminary prospectus with the Commission, information expressly for use in
such Registration Statement, Prospectus or preliminary prospectus which
corrected or made not misleading information previously furnished to the
Company, and the Company failed to include such information therein. In case any
action shall be brought against the Company, any of its directors, any such
officer, or any such controlling Person based on the Registration Statement, the
Prospectus or any preliminary prospectus and in respect of which indemnity may
be sought against one or more of the holders, such holders shall have the rights
and duties given to the Company by Section 4(c) (except that if the Company as
provided in Section 4(c) shall have assumed the defense thereof such holders
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but all the fees and expenses of such counsel
shall be at such holder's expense and not at the expense of the Company) and the
Company and its directors, any such officers, and any such controlling Person
shall have the rights and duties given to the holders by Section 4(c). In no
event shall the liability of any selling holder hereunder be greater than the
net proceeds (i.e., proceeds net of underwriting discounts, fees, commissions
and any other expenses payable by such selling holder) received by such holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought against any current or
former holder of the Registrable Securities or any Person controlling such
holder, with respect to which indemnity may be sought against the Company
pursuant to Section 4(a), such holder or such Person controlling such holder
shall promptly notify the Company in writing and the Company shall
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assume the defense thereof, including the employment of counsel reasonably
satisfactory to such holder and payment of all fees and expenses relating
thereto. Such holder and such Persons controlling such holder shall have the
right to employ separate counsel in any such action or proceeding and
participate in the defense thereof, but all the fees and expenses of such
counsel shall be at such holder's expense and not at the expense of the Company
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company, which authorization shall not be unreasonably withheld,
(ii) the Company has not assumed the defense and employed counsel reasonably
satisfactory to such holder within 15 days after written notice of any such
action or proceeding, or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both such holder or any
Person controlling such holder and the Company and such holder or any Person
controlling such holder shall have been advised by such counsel that there may
be one or more legal defenses available to such holder or Person controlling
such holder that are different from or additional to those available to the
Company and, in the reasonable opinion of such counsel, could not be asserted by
the Company's counsel without creating a conflict of interest (in which case the
Company shall not have the right to assume the defense of such action or
proceeding on behalf of such holder or controlling Person, it being understood,
however, that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to all local counsel which is necessary, in the good faith opinion of
both counsel for the indemnifying party and counsel for the indemnified party in
order to adequately represent the indemnified parties) for all such holders and
controlling Persons, which firm shall be designated in writing by the holders of
a majority of the Registrable Securities currently or formerly held by such
holders and that all such reasonable fees and expenses shall be reimbursed as
they are incurred upon written request and presentation of invoices). The
Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which consent shall not be
unreasonably withheld), but if settled with the written consent of the Company
or if there is a final judgment for the plaintiff, the Company agrees to
indemnify and hold harmless such holder and any Persons controlling such holder
from and against any loss or liability by reason of such settlement or judgment.
The Company shall not, without the prior written consent of the holder, effect
any settlement of any pending or threatened proceeding in respect of which any
holder or any Person controlling such holder is a party and indemnity has been
sought hereunder by such holder or any Person controlling such holder unless
such settlement includes an unconditional release of such holder or such
controlling Person from all liability on claims that are the subject matter of
such proceeding.
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<PAGE>
(d) If the indemnification provided for in this Section 4 is
unavailable to an indemnified party under paragraphs (a), (b) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the holders of the Registrable Securities on the
other hand from the original sale by the Company of the Registrable Securities,
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and such holders on the other hand in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and such holders on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company on the one hand or
by such holders on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
(e) The Company and the holders of the Registrable Securities agree
that it would not be just and equitable if contribution pursuant to this Section
4 were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in
subsection (d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
subsection (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding any other provision of this Agreement, no
holder of the Registrable Securities shall be required to contribute an amount
greater than the net proceeds received by such holder with respect to the sale
of Registrable Securities giving rise to any indemnification or contribution
obligation under this Section 4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE>
5. RULE 144A. The Company hereby agrees with each holder of the
Registrable Securities for so long as any Registrable Securities remain
outstanding and during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act, to make available to any Purchaser or
beneficial owner of Registrable Securities in connection with any sale thereof
and any prospective purchaser of Registrable Securities from such Purchaser or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act.
6. RULE 144. The Company agrees with each holder of Registrable
Securities to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time it has become subject to such
reporting requirements); and
(c) furnish to any holder of Registrable Securities upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
7. PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of the
Registrable Securities may participate in any Underwritten Offering hereunder
unless such holder (a) agrees to sell such holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided, that no holder of Registrable Securities included in any
Underwritten Offering shall be required to make any representations or
warranties to the Company or the underwriter(s) other than representations and
warranties regarding such holder and such holder's intended method of
distribution; provided, however, in no event shall Prudential Fund or any of its
affiliates be required to execute any power of attorney.
8. SELECTION OF UNDERWRITERS.
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(a) Demand Registration. In any Underwritten Offering of Registrable
Securities covered by a Registration Statement under Section 1(a)(i), the
investment banker(s) and manager(s) that will administer the offering shall be
selected by the holders of a majority of the Registrable Securities with respect
to which the request for registration was made under Sections 1(a)(i),
collectively; provided, that such investment banker(s) and manager(s) must be of
national stature and reasonably acceptable to the Company.
(b) Incidental Registration. In any Underwritten Offering of
Registrable Securities covered by a Registration Statement under Section 1(b),
the investment banker(s) and manager(s) that will administer the offering shall
be selected by the Company.
9. INTERPRETATION OF AGREEMENT; DEFINITIONS.
(a) Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined.
"Agreement" means this Registration Rights Agreement and all Schedules
hereto.
"Business Day" means a day other than a Saturday, a Sunday or other day
which commercial banks located in Florida or New York are authorized or
obligated to be closed.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Exchange Act, then the Person performing
such duties at such time.
"Company" has the meaning assigned in the first paragraph of this
Agreement.
"Demand Holder Group" means each of the Morgan Holders, IronBrand, the
Prudential Holders and the 1818/Progressive/ML Holders, as the case may be.
"Demand Holders" means the holders of the Morgan Registrable
Securities, the 1818/Progressive/ML Registrable Securities, the Prudential
Registrable Securities and the Registrable Securities of IronBrand.
"1818/Progressive/ML Equity Interests" means (i) the shares of Common
Stock for which the warrants issued to the 1818/Progressive/ML Group pursuant to
the
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<PAGE>
1818/Progressive/ML Purchase Agreement are exercisable, plus (ii) the shares of
Common Stock purchased by the 1818/Progressive/ML Group pursuant to
the1818/Progressive/ML Purchase Agreement and (iii) Related Registrable
Securities.
"1818/Progressive/ML Holders" means the holders of the
1818/Progressive/ML Registrable Securities then constituting at least of a
majority of the 1818/Progressive/ML Registrable Securities.
"1818/Progressive/ML Purchase Agreement" shall mean the Securities
Purchase Agreement dated December 19, 1997 by and among the Company and The 1818
Mezzanine Fund, L.P., PC Investment Company, Progressive Investment Company,
Inc., and Manufacturer's Life Insurance Company (U.S.A.).
"1818/Progressive/ML Registrable Securities" means the
1818/Progressive/ML Equity Interests that constitute Registrable Securities.
"Equity Interest" means any partnership interests, shares of stock,
limited liability company interests or membership interests or other equity
interests directly in the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FSA Equity Interest" means the 100,000 shares of the Common Stock
purchased by FSA pursuant to the Investment Agreement dated October 1, 1997
between the Company and FSA.
"FSA Registrable Securities" means the FSA Registrable Equity Interests
that constitute Registrable Securities.
"IronBrand" means IronBrand Capital, LLC, a North Carolina limited
liability company, and any successors or permitted assignees of any of its
rights under the Second Amended and Restated Partnership Agreement of National
Auto Finance Company, L.P. and, at any time the Registrable Securities of
IronBrand are held by more than one Person, means the holders of such securities
then constituting at least a majority of such securities.
"Morgan Equity Interests" means units of Equity Interests issued in
exchange for the Deferred Additional Interest Notes (as defined in the Morgan
Note Purchase Agreement) in accordance with the terms of the Morgan Note
Purchase Agreement.
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"Morgan Holders" means the holders of the Morgan Registrable Securities
then constituting at least a majority of the Morgan Registrable Securities.
"Morgan Note Purchase Agreement" means the agreements, dated as of
August 9, 1996, between the Company and the Morgan Trusts.
"Morgan Registrable Securities" means the Morgan Equity Interests that
constitute Registrable Securities.
"NASD" means National Association of Securities Dealers, Inc.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in a Registration Statement,
as amended or supplemented by any prospectus supplement and by all other
amendments thereto, including posteffective amendments, and all material
incorporated by reference into such Prospectus.
"Prudential Equity Interests" means (i) the shares of Common Stock for
which the warrants issued to the Prudential Fund pursuant to the Prudential
Purchase Agreement are exercisable, plus (ii) Related Registrable Securities.
"Prudential Holders" means the holders of the Prudential Registrable
Securities then constituting at least of a majority of the Prudential
Registrable Securities.
"Prudential Registrable Securities" means the Prudential Equity
Interests that constitute Registrable Securities.
"Public Offering" means a public offering of the Company's equity
securities pursuant to an effective Registration Statement filed by the Company
with the Commission.
"Registrable Securities" means, collectively, each Morgan Equity
Interests, Prudential Equity Interests, 1818/Progressive/ML Equity Interest,
Equity Interest of IronBrand, FSA Equity Interest and Equity Interests of the
Partners until each such security has been (i) transferred in a public offering
registered under the Securities Act or (ii) transferred in a sale made through a
broker, dealer or market-maker pursuant to Rule 144 or Rule 144A under the
Securities Act.
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"Registration Statement" means a registration statement of the Company,
filed with the Commission on an appropriate form, including any registration
statement filed pursuant to the provisions of this Agreement, including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Related Registrable Securities" means with respect to shares of Common
Stock issuable upon exercise of the Warrants issued to the 1818/Progressive/ML
Holders or Prudential Holders, any securities of the Company issued or issuable
with respect to such shares of Common Stock by way of a dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation, partnership, joint venture,
association, company, business trust or other entity in which the Company
directly or indirectly (i) beneficially owns or controls, directly or
indirectly, a majority of the outstanding voting securities having by the terms
thereof ordinary voting power to elect a majority of the board of directors (or
other body fulfilling a substantially similar function) of such entity (other
than by reason of the happening of any contingency) or (ii) in the case of an
entity which does not have a board of directors (or other body fulfilling a
substantially similar function) has the authority to control the policies of
such entity (including any partnership or joint venture of or in which the
Company or a Subsidiary is a general partner or joint venture participant or
owns or has the fight to obtain a majority of limited partnership interests).
"Underwritten Offering" means a Public Offering in which securities of
the Company are sold to an underwriter for reoffering to the public.
(b) Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with the
generally accepted accounting principles in effect from time to time, to the
extent applicable, except where such principles are inconsistent with the
express requirements of this Agreement including without limitation the
definitions set out in Section 9.
(c) Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision
23
<PAGE>
shall be applicable whether the action in question is taken directly or
indirectly by such Person.
10. MISCELLANEOUS.
(a) Remedies. Each holder of the Registrable Securities, in addition to
being entitled to exercise all rights provided herein, and granted by law,
including recovery of damages, shall be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company shall not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to such holders of the Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any other agreements.
(c) Comparable Agreements. The Company hereby represents and warrants
that it has not entered into or agreed to any side letter or similar arrangement
or other agreement with any other holder or prospective holder of any securities
of the Company providing for registration rights with respect to the securities
of the Company that confers rights or benefits more favorable than the rights
and benefits conferred upon the holders of the Registrable Securities hereunder
(such a letter, arrangement or agreement, whether or not it confers such more
favorable rights or benefits, a "Side Arrangement"). The Company shall not enter
into or amend any Side Arrangement unless, in each case, each of the holders of
the Registrable Securities have been notified in writing and been provided with
a copy of such proposed Side Arrangement or amendment at least 20 Business Days
prior to the effective date of such Side Arrangement or amendment and have been
given the opportunity to receive the rights and benefits in such Side
Arrangement or amendment as of the date of such Side Arrangement or amendment.
(d) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of the Company and each of the other parties
hereto.
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<PAGE>
(e) Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery. Such notices, demands and other communications will be sent to any
Investor at the address indicated on Schedule I hereto, to any other holder of
Registrable Securities at such holder's address of record appearing on the
Company's books and to the Company at the address indicated below:
National Auto Finance Company, Inc.
1325 Avenue of the Americas
Suite 1200
New York, New York 10019
Attention: Keith B. Stein
Telecopier: (212) 399-9199
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
such notices, demands and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; upon receipt, if
mailed postage prepaid; when answered back, if telexed; when receipt is
acknowledged, if telecopied; or at the time delivered, if delivered by an air
courier guaranteeing overnight delivery.
(f) Successors and Assign. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties.
In addition, whether or not any express assignment has been made, the provisions
of this Agreement which are for the benefit of purchasers or holders of
Registrable Securities are also for the benefit of, and enforceable by, any
subsequent holder of Registrable Securities.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Governing Law. THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL
ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND ITS SECURITY HOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW
25
<PAGE>
YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF, EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW.
(i) Severability. Should any part of this Agreement for any reason be
declared invalid, such decision shaft not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated and it
is hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
such part, parts, or portion which may, for any reason, be hereafter declared
invalid.
(j) Submission to Jurisdiction. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK WITH RESPECT TO ALL ACTIONS OR PROCEEDINGS RELATING TO
THIS AGREEMENT, AND THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON
IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY
SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED
TO IT AT THE ADDRESS OF THE COMPANY SET FORTH IN SECTION 10 ABOVE, AND THAT
SERVICE SO MADE, SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT AND FIVE BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE
COMPANY'S ADDRESS, AS THE CASE MAY BE, IN ACCORDANCE HEREWITH. THE COMPANY
AGREES 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
(IF SUCH A PROCEDURE IS AVAILABLE UNDER APPLICABLE LAW) OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY
INVESTOR TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING
ANY ACTION OR PROCEEDING IN THE COURTS OF ANY JURISDICTION AGAINST THE COMPANY
OR TO ENFORCE A JUDGMENT OBTAINED IN THE COURTS OF ANY OTHER JURISDICTION.
(k) Captions. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
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<PAGE>
(l) Waiver of Jury Trial. EACH OF THE COMPANY AND THE INVESTORS WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
(m) Amendment of Existing Rights. Each of the Morgan Trusts, FSA and
IronBrand and each member of the 1818/Progressive/ML Group agrees with the
Company that this agreement amends and restates the Existing Registration Rights
Agreement, and that the Company shall have no further obligations thereunder.
(n) Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
(o) Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares of Registrable
Securities outstanding at the time such calculation is made, assuming the
conversion of all Warrants issued to the 1818/Progressive/ML Holders or the
Prudential Holders into shares of Common Stock.
(p) Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF.
27
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be duly executed on its behalf, as of the
date first written above.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
IRONBRAND CAPITAL LLC
By:
Name:
Title:
FSA PORTFOLIO MANAGEMENT INC.
By:
Name:
Title:
THE STRUCTURED FINANCE HIGH YIELD
FUND LLC
By:
Name:
Title:
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<PAGE>
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By:
Name:
Partner
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By:
Name:
Title:
PROGRESSIVE INVESTMENT COMPANY, INC.
By:
Name:
Title:
PC INVESTMENT COMPANY
By:
Name:
Title:
29
<PAGE>
Morgan Guaranty Trust Company of New
York, as trustee of the Commingled
Pension Trust Fund (Multi-Market Special
Investment Fund II) of Morgan Guaranty
Trust Company of New York
By:
Name:
Title:
Morgan Guaranty Trust Company of New
York, as trustee of the Multi-Market
Special Investment Trust Fund, of Morgan
Guaranty Trust Company of New York
By:
Name:
Title:
Morgan Guaranty Trust Company of New
York, as investment manager and agent
for The Alfred P. Sloan Foundation
(Multi-Market Account)
By:
Name:
Title:
30
<PAGE>
Schedule I
IRONBRAND CAPITAL LLC
FSA PORTFOLIO MANAGEMENT INC.
THE 1818 MEZZANINE FUND, L.P.
MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
PROGRESSIVE INVESTMENT COMPANY, INC.
PC INVESTMENT COMPANY
Morgan Guaranty Trust Company of New York, as trustee of the Commingled Pension
Trust Fund (Multi-Market Special Investment Fund II) of Morgan Guaranty Trust
Company of New York
Morgan Guaranty Trust Company of New York, as trustee of the Multi-Market
Special Investment Trust Fund, of Morgan Guaranty Trust Company of New York
Morgan Guaranty Trust Company of New York, as investment manager and agent for
The Alfred P. Sloan Foundation (Multi-Market Account)
The Structured Finance High Yield Fund, LLC
31
DAFS03...:\97\64897\0015\1306\AGR3168C.47A
JUNIOR SUBORDINATION AGREEMENT
JUNIOR SUBORDINATION AGREEMENT (this "Agreement"), dated as of March
27, 1998 among (a) BANKBOSTON, N.A., a national banking association, having its
head office at 100 Federal Street, Boston, MA 02110, in its capacity as agent
(the "Agent") for the Banks (as hereinafter defined), (b) The 1818 Mezzanine
Fund, L.P., a Delaware limited partnership, PC Investment Company, a Delaware
corporation, Manufacturers Life Insurance Company (U.S.A.), a Michigan
corporation (collectively, the "Senior Subordinated Creditors"), The Structured
Finance High Yield Fund, LLC, a Delaware limited liability company ("SFHY," and
together with the Senior Subordinated Creditors, the Agent and Banks, the
"Senior Creditors") (c) each of the Persons listed on Schedule 1 hereto and
having an address set forth opposite such Person's name on Schedule 1 (each a
"Subordinating Creditor" and together the "Subordinating Creditors") and (d)
NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation, having its head
office at 621 N.W. 53rd Street, Suite 200, Boca Raton, FL 33487 (the
"Borrower").
WHEREAS, pursuant to a Revolving Credit Agreement dated as of
September 29, 1997 (as amended and in effect from time to time, including any
replacement agreement therefor, the "Credit Agreement"), among the financial
institutions party thereto (the "Banks"), the Agent and the Borrower, the Banks
have agreed, upon the terms and subject to the conditions contained therein, to
make loans and otherwise to extend credit to the Borrower; and
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of
December 19, 1997 (as amended and in effect from time to time, including any
replacement agreement therefor, the "Note Purchase Agreement"), between the
Borrower, Progressive Investment Company, Inc. and the Senior Subordinated
Creditors, the Senior Subordinated Creditors have extended credit to the
Borrower; and
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of
March 27, 1998 (as amended and in effect from time to time, including any
replacement agreement therefor, the "Securities Purchase Agreement"), between
the Borrower and SFHY, SFHY has extended credit to the Borrower; and
WHEREAS, each Subordinating Creditor has extended credit to the
Borrower evidenced by certain promissory notes described on Exhibit A hereto (as
amended with the consent of the Agent as provided herein and in effect from time
to time, the "Junior Subordinated Notes"), issued by the Borrower to each of the
Subordinating Creditors; and
WHEREAS, it is a condition precedent to the Banks' willingness to
continue to make loans and otherwise to extend credit to the Borrower pursuant
to the
Doc#:DS4:339764.1 2521
<PAGE>
Credit Agreement, the Senior Subordinated Creditors' willingness to continue to
extend credit to the Borrower pursuant to the Note Purchase Agreement and SFHY's
willingness to extend credit to the Borrower pursuant to the Securities Purchase
Agreement that the Borrower and the Subordinating Creditors enter into this
Agreement with the Agent, the Senior Subordinated Creditors and SFHY; and
WHEREAS, in order to induce the Banks to continue to make loans and
otherwise extend credit to the Borrower pursuant to the Credit Agreement, to
induce the Senior Subordinated Creditors to continue to extend credit to the
Borrower pursuant to the Note Purchase Agreement, and to induce SFHY to extend
credit to the Borrower pursuant to the Securities Purchase Agreement, the
Borrower and the Subordinating Creditors have agreed to enter into this
Agreement with the Agent, the Senior Subordinated Creditors and SFHY;
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements herein contained and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions. Terms not otherwise defined herein have the same
respective meanings given to them in the Credit Agreement. In addition, the
following terms shall have the following meanings:
Senior Debt. All principal, interest, fees, costs, enforcement
expenses (including legal fees and disbursements), collateral protection
expenses and other reimbursement or indemnity obligations created or evidenced
by the Credit Agreement, any of the other Loan Documents, the Note Purchase
Agreement, the Securities Purchase Agreement or any of the Senior Subordinated
Notes (as defined in each of the Note Purchase Agreement and the Securities
Purchase Agreement) or any prior, concurrent, or subsequent notes, instruments
or agreements of indebtedness, liabilities or obligations of any type or form
whatsoever relating thereto in favor of any Senior Creditor. Senior Debt shall
expressly include any and all interest accruing or out of pocket costs or
expenses incurred after the date of any filing by or against the Borrower of any
petition under the federal Bankruptcy Code or any other bankruptcy, insolvency
or reorganization act regardless of whether any Senior Creditor's claim therefor
is allowed or allowable in the case or proceeding relating thereto.
Subordinated Debt. All principal, interest, fees, costs, enforcement
expenses (including legal fees and disbursements), collateral protection
expenses and other reimbursement and indemnity obligations created or evidenced
by the Junior Subordinated Notes or any prior, concurrent or subsequent notes,
instruments or agreements of indebtedness, liabilities or obligations of any
type or form whatsoever relating thereto in favor of any Subordinating Creditor.
<PAGE>
Subordinated Documents. Collectively, the Junior Subordinated Notes,
any promissory notes executed in connection therewith and any and all guaranties
and security interests, mortgages and other liens directly or indirectly
guarantying or securing any of the Subordinated Debt, and any and all other
documents or instruments evidencing or further guarantying or securing directly
or indirectly any of the Subordinated Debt, whether now existing or hereafter
created.
2. General. Notwithstanding anything to the contrary in the Credit
Agreement, the Note Purchase Agreement or the Securities Purchase Agreement, the
Subordinated Debt and any and all Subordinated Documents shall be and hereby are
subordinated and the payment thereof is deferred until the full and final
payment in cash or cash equivalents of the Senior Debt, whether now or hereafter
incurred or owed by the Borrower. Notwithstanding the immediately preceding
sentence, the Borrower shall be permitted to pay, and the Subordinating
Creditors shall be permitted to receive, any regularly scheduled payment of
interest on the Subordinated Debt so long as at the time of such payment, or
after giving effect thereto, no Default or Event of Default has occurred and is
continuing under the Credit Agreement, the Note Purchase Agreement or the
Securities Purchase Agreement or would occur after giving effect thereto; and
provided, further, that the Borrower shall be permitted to pay, and the
Subordinating Creditors shall be permitted to receive, payment of the principal
amount on the Subordinated Debt upon the scheduled maturity thereof on January
31, 2002 so long as at the time of such payment, or after giving effect thereto,
no Default or Event of Default has occurred and is continuing under the Credit
Agreement, the Note Purchase Agreement or the Securities Purchase Agreement or
would occur after giving effect thereto. Notwithstanding any provision contained
herein to the contrary, so long as no Default or Event of Default has occurred
and is continuing under the Credit Agreement, the Note Purchase Agreement or the
Securities Purchase Agreement or would occur after giving effect thereto, the
Subordinating Creditors shall be permitted, subject to the Note Purchase
Agreement and the Securities Purchase Agreement, to convert the Subordinated
Debt to equity interests in the Borrower.
3. Enforcement. The Subordinating Creditors will not take or omit to
take any action or assert any claim with respect to the Subordinated Debt or
otherwise which is inconsistent with the provisions of this Agreement. Without
limiting the foregoing, none of the Subordinating Creditors will assert, collect
or enforce the Subordinated Debt or any part thereof or take any action to
foreclose or realize upon the Subordinated Debt or any part thereof or enforce
any of the Subordinated Documents except to the extent (but only to such extent)
that the commencement of a legal action may be required to toll the running of
any applicable statute of limitation. Until the Senior Debt has been finally
paid in full in cash, the Subordinating Creditor shall not have any right of
subrogation, reimbursement, restitution, contribution or indemnity whatsoever
from any assets of the Borrower or any guarantor of or provider of collateral
security for the Senior Debt. Each Subordinating Creditor further waives any and
all rights with respect to marshalling.
<PAGE>
4. Payments Held in Trust. Each Subordinating Creditor will hold in
trust and immediately pay over (a) to the Agent for the account of the Banks and
the Agent, or (b), in the event that the Senior Debt with respect to the Banks
and the Agent has been indefeasibly paid in full in cash or cash equivalents, to
the Senior Subordinated Creditors and SFHY in the same form of payment received,
with appropriate endorsements, for application to the Senior Debt any cash
amount that the Borrower pays to such Subordinating Creditor with respect to the
Subordinated Debt, or as collateral for the Senior Debt any other assets of the
Borrower that such Subordinating Creditor may receive with respect to the
Subordinated Debt, in each case except with respect to payments expressly
permitted pursuant to ss. 2.
5. Defense to Enforcement. If any Subordinating Creditor, in
contravention of the terms of this Agreement, shall commence, prosecute or
participate in any suit, action or proceeding against the Borrower, then the
Borrower may interpose as a defense or plea the making of this Agreement, and
any Senior Creditor may intervene and interpose such defense or plea in its name
or in the name of the Borrower. If any Subordinating Creditor, in contravention
of the terms of this Agreement, shall attempt to collect any of the Subordinated
Debt or enforce any of the Subordinated Documents, then any Senior Creditor or
the Borrower may, by virtue of this Agreement, restrain the enforcement thereof
in the name of such Senior Creditor or in the name of the Borrower. If any
Subordinating Creditor, in contravention of the terms of this Agreement, obtains
any cash or other assets of the Borrower as a result of any administrative,
legal or equitable actions, or otherwise, such Subordinating Creditor agrees
forthwith to pay, deliver and assign to the Agent, for the account of the Banks
and the Agent, or, in the event that the Senior Debt with respect to the Banks
and the Agent has been indefeasibly paid in full in cash or cash equivalents, to
the Senior Subordinated Creditors and SFHY in each case with appropriate
endorsements, any such cash for application to the Senior Debt and any such
other assets as collateral for the Senior Debt.
6. Bankruptcy, etc.
6.1 Payments relating to Subordinated Debt. At any meeting of
creditors of the Borrower or in the event of any case or proceeding, voluntary
or involuntary, for the distribution, division or application of all or part of
the assets of the Borrower or the proceeds thereof, whether such case or
proceeding be for the liquidation, dissolution or winding up of the Borrower or
its business, a receivership, insolvency or bankruptcy case or proceeding, an
assignment for the benefit of creditors or a proceeding by or against the
Borrower for relief under the federal Bankruptcy Code or any other bankruptcy,
reorganization or insolvency law or any other law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangement, composition
or extension or marshalling of assets or otherwise, the Agent or, in the event
that the Senior Debt with respect to the Banks and the Agent has been
indefeasibly paid in full in cash or cash equivalents, the Senior Subordinated
Creditors and SFHY are hereby irrevocably authorized at any
<PAGE>
such meeting or in any such proceeding to receive or collect for the benefit of
the Banks and the Agent or the Senior Subordinated Creditors or SFHY, as the
case may be, any cash or other assets of the Borrower distributed, divided or
applied by way of dividend or payment, or any securities issued on account of
any Subordinated Debt, and apply such cash to or to hold such other assets or
securities as collateral for the Senior Debt, and to apply to the Senior Debt
any cash proceeds of any realization upon such other assets or securities that
the Agent or, in the event that the Senior Debt with respect to the Banks and
the Agent has been indefeasibly paid in full in cash or cash equivalents, the
Senior Subordinated Creditors and SFHY in their discretion elect to effect,
until all of the Senior Debt shall have been paid in full in cash, rendering to
the Subordinating Creditors any surplus to which the Subordinating Creditors are
then entitled.
6.2 Securities by Plan of Reorganization or Readjustment.
Notwithstanding the foregoing provisions of ss. 6.1, the Subordinating Creditors
shall be entitled to receive and retain any securities of the Borrower or any
other corporation or other entity provided for by a plan of reorganization or
readjustment (i) the payment of which securities is subordinate, at least to the
extent provided in this Agreement with respect to Subordinated Debt, to the
payment of all Senior Debt under any such plan of reorganization or readjustment
and (ii) all other terms of which are acceptable to the Senior Creditors.
6.3 Subordinated Debt Voting Rights. At any such meeting of
creditors or in the event of any such case or proceeding, the Subordinating
Creditors shall retain the right to vote and otherwise act with respect to the
Subordinated Debt (including, without limitation, the right to vote to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension), provided that the Subordinating Creditors shall not
vote with respect to any such plan or take any other action in any way so as to
contest (i) the validity of any Senior Debt or any collateral therefor or
guaranties thereof, (ii) the relative rights and duties of any holders of any
Senior Debt established in any instruments or agreements creating or evidencing
any of the Senior Debt with respect to any of such collateral or guaranties or
(iii) the Subordinating Creditors' obligations and agreements set forth in this
Agreement.
7. Lien Subordination. Each Subordinating Creditor acknowledges and
agrees that the Subordinated Debt is unsecured.
<PAGE>
8. Further Agreements of Subordinating Creditor.
8.1 Further Assurances. Each Subordinating Creditor hereby
agrees, upon request of the Agent, the Senior Subordinated Creditors or SFHY at
any time and from time to time, to execute such other documents or instruments
as may be requested by the Agent, the Senior Subordinated Creditors or SFHY
further to evidence of public record or otherwise the senior priority of the
Senior Debt as contemplated hereby.
8.2 Books and Records. Each Subordinating Creditor further
agrees to maintain on its books and records such notations as the Agent or the
Senior Subordinated Creditors may reasonably request to reflect the
subordination contemplated hereby and to perfect or preserve the rights of the
Agent hereunder. A copy of this Agreement may be filed as a financing statement
in any Uniform Commercial Code recording office.
9. Freedom of Dealing. Each Subordinating Creditor agrees, with
respect to the Senior Debt and any and all collateral therefor or guaranties
thereof, that the Borrower and the Banks or the Borrower and the Senior
Subordinated Creditors or the Borrower and SFHY, as the case may be, may agree
to increase the amount of the Senior Debt or otherwise modify the terms of any
of the Senior Debt, and the Banks, the Senior Subordinated Creditors or SFHY may
grant extensions of the time of payment or performance to and make compromises,
including releases of collateral or guaranties, and settlements with the
Borrower and all other persons, in each case without the consent of the
Subordinating Creditors or the Borrower and without affecting the agreements of
the Subordinating Creditors or the Borrower contained in this Agreement;
provided, however, that nothing contained in this ss. 9 shall constitute a
waiver of the right of the Borrower itself to agree or consent to a settlement
or compromise of a claim which any Senior Creditor may have against the
Borrower.
10. Modification or Sale of the Subordinated Debt. None of the
Subordinating Creditors will, at any time while this Agreement is in effect,
modify any of the terms of any of the Subordinated Debt or any of the
Subordinated Documents; nor will any Subordinating Creditor sell, transfer,
pledge, assign, hypothecate or otherwise dispose of any or all of the
Subordinated Debt to any person other than a person who agrees in a writing,
satisfactory in form and substance to the Agent and a majority of the Senior
Subordinated Creditors and SFHY, to become a party hereto and to succeed to the
rights and to be bound by all of the obligations of the Subordinating Creditor
hereunder. In the case of any such disposition by any Subordinating Creditor,
such Subordinating Creditor will notify the Agent and the Senior Subordinated
Creditors at least 10 days prior to the date of any of such intended
disposition.
<PAGE>
11. Borrower's Obligations Absolute. Nothing contained in this
Agreement shall impair, as between the Borrower and the Subordinating Creditors,
the obligation of the Borrower to pay to the Subordinating Creditors all amounts
payable in respect of the Subordinated Debt as and when the same shall become
due and payable in accordance with the terms thereof, or prevent the
Subordinating Creditors (except as expressly otherwise provided in ss. 3 or ss.
6) from exercising all rights, powers and remedies otherwise permitted by
Subordinated Documents and by applicable law upon a default in the payment of
the Subordinated Debt or under any Subordinated Document, all, however, subject
to the rights of the Senior Creditors as set forth in this Agreement. The
Borrower hereby represents that as of the date hereof the Subordinating
Creditors are the only holders of "Junior Subordinated Indebtedness" as such
term is defined in the Note Purchase Agreement and the Securities Purchase
Agreement.
12. Termination of Subordination. This Agreement shall continue in
full force and effect, and the obligations and agreements of the Subordinating
Creditors and the Borrower hereunder shall continue to be fully operative, until
all of the Senior Debt shall have been paid and satisfied in full in cash or
cash equivalents and such full payment and satisfaction shall be final and not
avoidable. To the extent that the Borrower or any guarantor of or provider of
collateral for the Senior Debt makes any payment on the Senior Debt that is
subsequently invalidated, declared to be fraudulent or preferential or set aside
or is required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or reorganization act, state or federal law, common law
or equitable cause (such payment being hereinafter referred to as a "Voided
Payment"), then to the extent of such Voided Payment, that portion of the Senior
Debt that had been previously satisfied by such Voided Payment shall be revived
and continue in full force and effect as if such Voided Payment had never been
made. In the event that a Voided Payment is recovered from any Senior Creditor,
an Event of Default shall be deemed to have existed and to be continuing under
the Credit Agreement or the Note Purchase Agreement or the Securities Purchase
Agreement, as the case may be, from the date of such Senior Creditor's initial
receipt of such Voided Payment until the full amount of such Voided Payment is
restored to such Senior Creditor. During any continuance of any such Event of
Default, this Agreement shall be in full force and effect with respect to the
Subordinated Debt. To the extent that any Subordinating Creditor has received
any payments with respect to the Subordinated Debt subsequent to the date of any
Senior Creditor's initial receipt of such Voided Payment and such payments have
not been invalidated, declared to be fraudulent or preferential or set aside or
are required to be repaid to a trustee, receiver, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, such
Subordinating Creditor shall be obligated and hereby agrees that any such
payment so made or received shall be deemed to have been received in trust for
the benefit of the Agent or such Bank or the Senior Subordinated Creditors or
SFHY, as applicable, and each Subordinating Creditor hereby agrees to pay to
either (i) the Agent for the benefit of the Agent or (as the case may be) such
Bank or (ii) the Senior Subordinated Creditors, as
<PAGE>
applicable, upon demand, the full amount so received by such Subordinating
Creditor during such period of time to the extent necessary fully to restore to
the Agent, such Bank or the Senior Subordinated Creditors or SFHY the amount of
such Voided Payment. Upon the payment and satisfaction in full in cash or cash
equivalent of all of the Senior Debt, which payment shall be final and not
avoidable, this Agreement will automatically terminate without any additional
action by any party hereto.
13. Notices. All notices and other communications which are required
and may be given pursuant to the terms of this Agreement shall be in writing and
shall be sufficient and effective in all respects if given in writing or
telecopied, delivered or mailed by registered or certified mail, postage
prepaid, as follows:
If to the Ag100 Federal Street
Boston, MA 02110
Attention: Timothy G. Clifford, Vice President
with a copy Linda J. Groves, Esq.
Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110
If to The 1818 Mezzanine Fund, L.P.:
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Joseph P. Donlan
Telecopier No.: (212) 493-8429
with a copy Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
If to PC Investment Company, Inc.:
401 Theodore Fremd Avenue
Rye, New York 10580
Attention: David W. Young
Telecopier No.: (914) 921-6716
<PAGE>
with a copy Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Attention: Gerardo C. Orlando, Esq.
Telecopier No.: (216) 696-0740
If to Manufacturers Life Insurance Company (U.S.A.):
c/o ManuLife Financial
72 Tremont Street, Suite 1300
Boston, Massachusetts 02106-3915
Attention: Raymond L. Britt, Jr.
Telecopier No.: (617) 854-4403
with a copy Manufacturers Life Insurance Company
Corporate Law Department
200 Floor Street East
Toronto, Ontario M4W1ES, Canada
Attention: William Dawson, Esq.
Telecopier No: (416) 926-5657
If to SFHY: The Structured Finance High Yield Fund, LLC
c/o Prudential Investments -- Structured Finance
Group
One Gateway Center
Newark, New Jersey 07102-5311
Attention: Managing Director
If to any Subordinating Creditor, at the address set forth opposite
such Person's name on Schedule 1 hereto.
If to the Borrower621 N.W. 53rd Street
Suite 200
Boca Raton, FL 33487
Attention: Kevin G. Adams
with copies Keith B. Stein
National Financial Companies LLC
1325 Avenue of the Americas
Suite 1200
<PAGE>
New York, NY 10019
Gary L. Shapiro
National Financial Companies LLC
Via Mizner Financial Plaza, Suite 200
700 South Federal Highway
Boca Raton, FL 33432
or such other address or addresses as any party hereto shall have designated by
written notice to the other parties hereto. Notices shall be deemed given and
effective upon the earlier to occur of (i) the third day following deposit
thereof in the U.S. mail or (ii) receipt by the party to whom such notice is
directed.
14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MASSACHUSETTS AND SHALL
BE A SEALED INSTRUMENT UNDER SUCH LAWS.
15. Waiver of Jury Trial. EACH OF THE SUBORDINATING CREDITORS AND
THE BORROWER EACH HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH OF THE SUBORDINATING CREDITORS
AND THE BORROWER HEREBY WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. EACH OF THE SUBORDINATING CREDITORS AND THE BORROWER (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY SENIOR CREDITOR HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY SENIOR CREDITOR WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES
THAT EACH OF THE AGENT AND THE SENIOR SUBORDINATED CREDITORS HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
CONTAINED HEREIN.
16. Miscellaneous. This Agreement may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Agreement, it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against which enforcement is sought. The Agent, acting upon the instructions of
the requisite
<PAGE>
Banks, and a majority in interest of the Senior Subordinated Creditors and SFHY
(collectively) may, in their sole and absolute discretion, waive any provisions
of this Agreement benefiting such Persons; provided, however, that such waiver
shall be effective only if in writing and signed by the Agent or a majority in
interest of the Senior Subordinated Creditors and SFHY (collectively), as
applicable, and shall be limited to the specific provision or provisions
expressly so waived. This Agreement shall be binding upon the successors and
assigns of the Subordinating Creditors and the Borrower and shall inure to the
benefit of the Senior Creditors and the Senior Creditors' respective successors
and assigns, any lender or lenders refunding or refinancing any of the Senior
Debt and their respective successors and assigns, but shall not otherwise create
any rights or benefits for any third party. In the event that any lender or
lenders refund or refinance any of the Senior Debt, the terms "Credit
Agreement", "Loan Documents", "Event of Default", "Note Purchase Agreement",
"Securities Purchase Agreement", "Senior Subordinated Notes" and the like shall
refer mutatis mutandis to the agreements and instruments in favor of such lender
or lenders and to the related definitions contained therein. This Agreement
supercedes and replaces in its entirety the Junior Subordinated Agreement dated
as of December 22, 1997 among the Agent, the Senior Subordinated Creditors, the
Borrower and the Subordinating Creditors.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
SENIOR CREDITORS: BANKBOSTON, N.A., As Agent
By: _______________________________
Title:
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By: _______________________________
Name:
Partner
PC INVESTMENT COMPANY
By: _______________________________
Name:
Title:
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A)
By: _______________________________
Name:
Title:
<PAGE>
THE STRUCTURED FINANCE
HIGH YIELD FUND, LLC
By: _______________________________
Name:
Title:
SUBORDINATING
CREDITORS: NOVA FINANCIAL CORPORATION
By: _______________________________
Title:
NOVA CORPORATION
By: _______________________________
Title:
-----------------------------------
Stephen L. Gurba
-----------------------------------
Edgar Otto
-----------------------------------
Gary L. Shapiro
BORROWER: NATIONAL AUTO FINANCE COMPANY,
INC.
By: _______________________________
Title:
<PAGE>
COMMONWEALTH or STATE OF ___________________
_______________, ss _________, 19__
Then personally appeared the above-named _________________, and
acknowledged the foregoing instrument to be ______ free act and deed and the
free act and deed of ____________,
Before me,
---------------------------
Notary Public
My Commission expires:
COMMONWEALTH or STATE OF ___________________
_______________, ss _________, 19__
Then personally appeared the above-named _________________, and
acknowledged the foregoing instrument to be ______ free act and deed and the
free act and deed of ____________,
Before me,
---------------------------
Notary Public
My Commission expires:
<PAGE>
COMMONWEALTH or STATE OF ___________________
_______________, ss _________, 19__
Then personally appeared the above-named _________________, and
acknowledged the foregoing instrument to be ______ free act and deed and the
free act and deed of ____________,
Before me,
---------------------------
Notary Public
My Commission expires:
COMMONWEALTH or STATE OF ___________________
_______________, ss _________, 19__
Then personally appeared the above-named _________________, and
acknowledged the foregoing instrument to be ______ free act and deed and the
free act and deed of ____________,
Before me,
---------------------------
Notary Public
My Commission expires:
<PAGE>
COMMONWEALTH or STATE OF ___________________
_______________, ss _________, 19__
Then personally appeared the above-named _________________, and
acknowledged the foregoing instrument to be ______ free act and deed and the
free act and deed of ____________,
Before me,
---------------------------
Notary Public
My Commission expires:
COMMONWEALTH or STATE OF ___________________
_______________, ss _________, 19__
Then personally appeared the above-named _________________, and
acknowledged the foregoing instrument to be ______ free act and deed and the
free act and deed of ____________,
Before me,
---------------------------
Notary Public
My Commission expires:
<PAGE>
Schedule 1
Subordinating Creditors
Subordinating Creditor Address
Stephen Gurba Bullova Technologies
101 North Queen Street
P.O. Box 4787
Lancaster, PA 17604-4787
Edgar Otto National Healthnet Services
1900 Corporate Boulevard
Suite 400 North
Boca Raton, FL 33431
Gary L. Shapiro National Financial Companies LLC
Via Mizner Financial Plaza, Suite 200
700 South Federal Highway
Boca Raton, Florida 33432
<PAGE>
Exhibit A
================================================================================
NATIONAL AUTO FINANCE 1998-1 TRUST
5.88% AUTOMOBILE RECEIVABLES-BACKED NOTES
- --------------------------------------------------------------------------------
INDENTURE
DATED AS OF DECEMBER 15, 1997
- --------------------------------------------------------------------------------
HARRIS TRUST AND SAVINGS BANK
INDENTURE TRUSTEE AND TRUST COLLATERAL AGENT
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions...............................................2
SECTION 1.2 Incorporation by Reference of the Trust Indenture Act.....9
SECTION 1.3 Rules of Construction.....................................9
SECTION 1.4 Action by or Consent of Noteholders......................10
SECTION 1.5 Material Adverse Effect..................................10
SECTION 1.6 Conflict with TIA........................................10
ARTICLE II
THE NOTES
SECTION 2.1 Form.....................................................10
SECTION 2.2 Execution, Authentication and Delivery...................11
SECTION 2.3 Temporary Notes..........................................11
SECTION 2.4 Registration; Registration of Transfer and Exchange......12
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes...............13
SECTION 2.6 Persons Deemed Owner.....................................14
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest....14
SECTION 2.8 Cancellation.............................................15
SECTION 2.9 Release of Collateral....................................16
SECTION 2.10 Book-Entry Notes.........................................16
SECTION 2.11 Notices to Clearing Agency...............................17
SECTION 2.12 Definitive Notes.........................................17
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest........................18
SECTION 3.2 Maintenance of Office or Agency..........................18
SECTION 3.3 Money for Payments to be Held in Trust...................18
SECTION 3.4 Existence................................................20
SECTION 3.5 Protection of Trust Property.............................20
SECTION 3.6 Opinions as to Trust Property............................21
SECTION 3.7 Performance of Obligations; Servicing of Receivables.....21
SECTION 3.8 Negative Covenants.......................................22
SECTION 3.9 Annual Statement as to Compliance........................23
SECTION 3.10 Trust May Consolidate, Etc. Only on Certain Terms........23
SECTION 3.11 [Reserved]...............................................23
SECTION 3.12 No Other Business........................................23
SECTION 3.13 No Borrowing.............................................24
SECTION 3.14 Servicer's Obligations...................................24
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities........24
SECTION 3.16 Capital Expenditures.....................................24
SECTION 3.17 Compliance with Laws.....................................24
SECTION 3.18 Restricted Payments......................................24
SECTION 3.19 Notice of Events of Default..............................25
SECTION 3.20 Further Instruments and Acts.............................25
SECTION 3.21 Amendments of Sale and Servicing Agreement and Trust
Agreement..............................................25
SECTION 3.22 Income Tax Characterization..............................25
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture..................25
SECTION 4.2 Application of Trust Money...............................26
SECTION 4.3 Repayment of Monies Held by Note Paying Agent............27
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default........................................27
SECTION 5.2 Rights Upon Event of Default.............................29
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee..................................30
SECTION 5.4 Remedies.................................................33
SECTION 5.5 Optional Preservation of the Receivables.................34
SECTION 5.6 Priorities...............................................35
SECTION 5.7 Limitation of Suits......................................36
SECTION 5.8 Unconditional Rights of Noteholders To Receive Principal
and Interest..........................................36
SECTION 5.9 Restoration of Rights and Remedies.......................37
SECTION 5.10 Rights and Remedies Cumulative...........................37
SECTION 5.11 Delay or Omission Not a Waiver...........................37
SECTION 5.12 Control by Noteholders...................................37
SECTION 5.13 Waiver of Past Defaults..................................38
SECTION 5.14 Undertaking for Costs....................................38
SECTION 5.15 Waiver of Stay or Extension Laws.........................38
SECTION 5.16 Action on Notes..........................................39
SECTION 5.17 Performance and Enforcement of Certain Obligations.......39
SECTION 5.18 Subrogation..............................................39
SECTION 5.19 Preference Claims........................................40
ARTICLE VI
THE INDENTURE TRUSTEE AND THE TRUST COLLATERAL AGENT
SECTION 6.1 Duties of Indenture Trustee..............................41
SECTION 6.2 Rights of Indenture Trustee and the Trust Collateral
Agent.................................................43
SECTION 6.3 Individual Rights of Indenture Trustee...................44
SECTION 6.4 Indenture Trustee's Disclaimer...........................44
SECTION 6.5 Notice of Defaults.......................................45
SECTION 6.6 Reports by Indenture Trustee to Holders..................45
SECTION 6.7 Compensation and Indemnity...............................45
SECTION 6.8 Replacement of Indenture Trustee.........................46
SECTION 6.9 Successor Indenture Trustee by Merger....................47
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee...............................................48
SECTION 6.11 Eligibility: Disqualification............................49
SECTION 6.12 Preferential Collection of Claims Against Trust..........49
SECTION 6.13 Appointment and Powers...................................49
SECTION 6.14 Performance of Duties....................................50
SECTION 6.15 Limitation on Liability..................................50
SECTION 6.16 Reliance Upon Documents..................................51
SECTION 6.17 Successor Trust Collateral Agent.........................51
SECTION 6.18 Compensation.............................................52
SECTION 6.19 Representations and Warranties of the Indenture Trustee
and the Trust Collateral Agent........................52
SECTION 6.20 Waiver of Setoffs........................................53
SECTION 6.21 Control by the Controlling Party.........................51
SECTION 6.22 Compensation.............................................52
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Trust To Furnish To Indenture Trustee Names and Addresses of
Noteholders............................................54
SECTION 7.2 Preservation of Information; Communications to Noteholders54
SECTION 7.3 Reports by Trust..........................................54
SECTION 7.4 Reports by Indenture Trustee..............................55
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money......................................55
SECTION 8.2 Release of Collateral....................................56
SECTION 8.3 Opinion of Counsel.......................................56
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders...56
SECTION 9.2 Supplemental Indentures With Consent of Noteholders......58
SECTION 9.3 Execution of Supplemental Indentures.....................59
SECTION 9.4 Effect of Supplemental Indenture.........................59
SECTION 9.5 Conformity With Trust Indenture Act......................60
SECTION 9.6 Reference in Notes to Supplemental Indentures............60
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption...............................................60
SECTION 10.2 Form of Redemption Notice................................61
SECTION 10.3 Notes Payable on Redemption Date.........................61
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc................62
SECTION 11.2 Form of Documents Delivered to Indenture Trustee.........64
SECTION 11.3 Acts of Noteholders......................................64
SECTION 11.4 Notices, etc. to Indenture Trustee, Trust and
Rating Agencies........................................65
SECTION 11.5 Notices to Noteholders; Waiver...........................66
SECTION 11.6 Alternate Payment and Notice Provisions..................67
SECTION 11.7 Conflict with Trust Indenture Act........................67
SECTION 11.8 Effect of Headings and Table of Contents.................67
SECTION 11.9 Successors and Assigns...................................67
SECTION 11.10 Separability.............................................67
SECTION 11.11 Benefits of Indenture....................................67
SECTION 11.12 Legal Holidays...........................................68
SECTION 11.13 Governing Law............................................68
SECTION 11.14 Counterparts.............................................68
SECTION 11.15 Recording of Indenture...................................68
SECTION 11.16 Trust Obligation.........................................68
SECTION 11.17 No Petition..............................................69
SECTION 11.18 Inspection...............................................69
SECTION 11.19 Limitation of Liability..................................69
EXHIBIT
Exhibit A -- Form of Note
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INDENTURE dated as of December 15, 1997, between NATIONAL AUTO FINANCE
1998-1 TRUST, a Delaware business trust (the "Trust"), and HARRIS TRUST AND
SAVINGS BANK, an Illinois banking corporation, as indenture trustee (the
"Indenture Trustee") and Trust Collateral Agent.
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Trust's 5.88% Automobile
Receivables-Backed Notes (the "Notes"):
As security for the payment and performance by the Trust of its
obligations under this Indenture and the Notes, the Trust has agreed to assign
the Collateral (as defined below) to the Trust Collateral Agent for the benefit
of the Indenture Trustee on behalf of the Noteholders.
Financial Security Assurance Inc. (the "Insurer") has issued and
delivered a financial guaranty insurance policy, dated the Closing Date (with
endorsements, the "Note Policy"), pursuant to which the Insurer guarantees
Scheduled Payments, as defined in the Note Policy (the "Scheduled Payments").
As an inducement to the Insurer to issue and deliver the Note Policy,
the Trust and the Insurer have executed and delivered the Insurance and
Indemnity Agreement, dated as of January 20, 1998 (as amended, supplemented,
restated or otherwise modified from time to time, the "Insurance Agreement"),
among the Insurer, the Trust, National Auto Finance Company, Inc. ("NAFI") and
National Financial Auto Funding Trust.
As an additional inducement to the Insurer to issue the Note Policy,
and as security for the performance by the Trust of the Insurer Trust Secured
Obligations and as security for the performance by the Trust of the Trustee
Trust Secured Obligations, the Trust has agreed to assign the Collateral (as
defined below) to the Trust Collateral Agent for the benefit of the Trust
Secured Parties, as their respective interests may appear.
GRANTING CLAUSE
The Trust hereby Grants to the Trust Collateral Agent at the Closing
Date, for the benefit of the Trust Secured Parties all of the Trust's right,
title and interest in and to (a) the Receivables and all monies received thereon
on or after the applicable Cut-off Date (including amounts due on or before the
applicable Cut-off Date but received by NAFI, the Seller or the Issuer on or
after the applicable Cut-off Date); (b) any proceeds and the right to receive
proceeds with respect to the Receivables from claims on any physical damage,
credit life or disability insurance policies or other insurance policies
covering Financed Vehicles or Obligors, including rebates of insurance premiums
relating to the Receivables and any proceeds from the liquidation of the
Receivables; (c) all rights against Dealers pursuant to Dealer Agreements or
against Originators pursuant to Originator Agreements; (d) the related
Receivables Files and any and all other documents that NAFI keeps on file in
<PAGE>
accordance with its customary procedures relating to the Receivables, the
Obligors or the Financed Vehicles; (e) property (including the right to receive
future Liquidation Proceeds) that secures a Receivable and that has been
acquired by or on behalf of the Trust pursuant to liquidation of such
Receivable; (f) all funds on deposit from time to time in the Trust Accounts
(less all investments and proceeds thereof), and all rights of the Issuer
therein; (g) the rights and benefits, but none of its obligations or burdens,
under the Conveyance Agreements, including the delivery requirements,
representations and warranties and the cure and repurchase obligations of NAFI
under the Purchase Agreement; and (h) the proceeds of any and all of the
foregoing.
The foregoing Grant is made in trust to the Trust Collateral Agent, for
the benefit first, of the Indenture Trustee on behalf of the Holders of the
Notes, and second, for the benefit of the Insurer. The Trust Collateral Agent
hereby acknowledges such Grant, accepts the trusts under this Indenture.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. Except as otherwise specified herein, the
following terms have the respective meanings set forth below for all purposes of
this Indenture. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Sale and Servicing Agreement.
Act: As defined in Section 11.3(a) hereof.
Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under 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. A Person shall not be
deemed to be an Affiliate of any person solely because such other Person has the
contractual right or obligation to manage such Person unless such other Person
controls such Person through equity ownership or otherwise.
Authorized Officer: With respect to the Trust and the Servicer, any
officer or agent acting pursuant to a power of attorney of the Owner Trustee or
the Servicer, as applicable, who is authorized to act for the Owner Trustee or
the Servicer, as applicable, in matters relating to the Trust and who is
identified on the list of Authorized Officers delivered by each of the Owner
Trustee and the Servicer to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter).
Book Entry Notes: A beneficial interest in the Notes, ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 2.10 hereof.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which commercial banks in Florida, Illinois, Delaware or the state of New
York are authorized or obligated by law, executive order or governmental decree
to be closed.
Certificate of Trust: The certificate of trust of the Trust
substantially in the form of Exhibit B to the Trust Agreement.
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Clearing Agency: An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
Clearing Agency Participant: A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
Closing Date: January 20, 1998.
Collateral: As defined in the Granting Clause hereof.
Controlling Party: The Insurer, so long as no Insurer Default shall
have occurred and be continuing, and the Indenture Trustee, for so long as an
Insurer Default shall have occurred and be continuing.
Conveyance Agreements: The Sale and Servicing Agreement, the Sale
Agreement, the Assignment Agreement and the Purchase and Contribution Agreement.
Corporate Trust Office: The principal office of the Indenture Trustee,
at which at any particular time its corporate trust business shall be
administered, which office at date of the execution of this Agreement is located
at 311 West Monroe Street, 12th Floor, Chicago, Illinois 60606, Attention:
Indenture Trust Division or at such other address as the Indenture Trustee may
designate from time to time by notice to the Noteholders, the Insurer, the
Servicer and the Trust, or the principal corporate trust office of any successor
Indenture Trustee (the address of which the successor Indenture Trustee will
notify the Noteholders and the Trust).
Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.
Definitive Notes: As defined in Section 2.10 hereof.
Event of Default: As defined in Section 5.1 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Final Scheduled Distribution Date: The Distribution Date occurring in
May, 2004.
Grant: Means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other monies payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
3
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Holder or Noteholder: The Person in whose name a Note is registered on
the Note Register.
Indebtedness: With respect to any Person at any time, (a) indebtedness
or liability of such Person for borrowed money whether or not evidenced by
bonds, debentures, notes or other instruments, or for the deferred purchase
price of property or services (including trade obligations); (b) obligations of
such Person as lessee under leases which should have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases; (c) current liabilities of such Person in respect of unfunded vested
benefits under plans covered by Title IV of ERISA; (d) obligations issued for or
liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities; (f) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (g) obligations of such Person
secured by any lien on property or assets of such Person, whether or not the
obligations have been assumed by such Person; or (h) obligations of such Person
under any interest rate or currency exchange agreement.
Indenture: This Indenture as amended and supplemented from time to
time.
Indenture Trustee: Harris Trust and Savings Bank, an Illinois banking
corporation, not in its individual capacity but as indenture trustee under this
Indenture, or any successor indenture trustee under this Indenture.
Independent: When used with respect to any specified Person, that the
person (a) is in fact independent of the Trust, any other obligor upon the
Notes, the Seller and any Affiliate of any of the foregoing persons, (b) does
not have any direct financial interest or any material in direct financial
interest in the Trust, any such other obligor, the Seller or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Trust, any such
other obligor, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions.
Independent Certificate: A certificate or opinion to be delivered to
the Trust Collateral Agent and the Indenture Trustee under the circumstances
described in, and otherwise complying with, the applicable requirements of
Section 11.1 hereof, prepared by an Independent appraiser or other expert
appointed pursuant to a Trust Order and approved by the Trust Collateral Agent
in the exercise of reasonable care, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Indenture and
that the signer is Independent within the meaning thereof.
Initial Cut-off Date: December 15, 1997.
Insurance Agreement Indenture Cross Default: As defined in the
Insurance Agreement.
4
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Insurer Trust Secured Obligations: All amounts and obligations which
the Trust may at any time owe to or on behalf of the Insurer under this
Indenture, the Insurance Agreement or any other Transaction Document.
Interest Rate: 5.88% per annum, computed on the basis of a 360-day year
consisting of twelve 30-day months.
Internal Revenue Code: The Internal Revenue Code of 1986, as amended
from time to time, and Treasury Regulations promulgated thereunder.
Note or Notes: The 5.88% Automobile Receivables-Backed Notes,
substantially in the form of Exhibit A.
Note Owner: With respect to a Book-Entry Note, the person who is the
owner of such Book-Entry Note, as reflected on the books of the Clearing Agency,
or on the books of a Person maintaining an account with such Clearing Agency
(directly as a Clearing Agency Participant or as an indirect participant, in
each case in accordance with the rules of such Clearing Agency).
Note Paying Agent: The Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Trust to make payments to and distributions from the
Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Trust.
Note Policy: The insurance policy issued by the Insurer with respect to
the Notes, including any endorsements thereto.
Note Prepayment Amount: As of the Distribution Date on or immediately
following the last day of the Pre-Funding Period, after giving effect to any
transfer of Additional Receivables on such date, an amount equal to the
remaining Pre-Funded Amount in the Pre-Funding Account on the Mandatory
Redemption Date.
Note Register and Note Registrar: As defined in Section 2.4 hereof.
Officer's Certificate: A certificate signed by any Authorized Officer
of the Trust, under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.1 and TIA ss.314, and delivered
to the Indenture Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Trust. Each certificate with respect to compliance
with a condition or covenant provided for in this Agreement shall include (1) a
statement that the Authorized Officer signing the certificate has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such
certificate are based; (3) a statement that in the opinion of such person, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
5
<PAGE>
Opinion of Counsel: One or more opinions of counsel who may, except as
otherwise expressly provided in this Indenture, be employees of or counsel to
the Trust and, if addressed to the Insurer, satisfactory to the Insurer, and
which shall comply with any applicable requirements of Section 11.1, and if
addressed to the Insurer, satisfactory to the Insurer.
Outstanding: As of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Note Paying Agent in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor, satisfactory to the Indenture Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser;
provided, however, that Notes which have been paid with proceeds of the Note
Policy shall continue to remain Outstanding for purposes of this Indenture until
the Insurer has been paid as subrogee hereunder or reimbursed pursuant to the
Insurance Agreement as evidenced by a written notice from the Insurer delivered
to the Indenture Trustee, and the Insurer shall be deemed to be the Holder
thereof to the extent of any payments thereon made by the Insurer; provided,
further, that in determining whether the Holders of the requisite Outstanding
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Transaction Document, Notes
owned by the Trust, any other obligor upon the Notes, the Seller or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Indenture Trustee shall
be protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that a Responsible Officer of the
Indenture Trustee either actually knows to be so owned or has received written
notice thereof shall be so disregarded. Notes so owned that have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Indenture Trustee the pledgees right so to act with respect
to such Notes and that the pledgee is not the Trust, any other obligor upon the
Notes, the Seller or any Affiliate of any of the foregoing Persons.
Outstanding Amount: The aggregate principal amount of all Notes
Outstanding at the date of determination.
Predecessor Note: With respect to any particular Note, every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purpose of this definition, any Note authenticated
6
<PAGE>
and delivered under Section 2.5 in lieu of a mutilated, lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
Preference Claim: As defined in Section 5.19(b) hereof.
Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.
Rating Agency: Each of Moody's and Standard & Poor's, so long as such
Persons maintain a rating on the Notes; and if either Moody's or Standard &
Poor's no longer maintains a rating on the Notes, such other nationally
recognized statistical rating organization selected by the Seller and, so long
as an Insurer Default shall not have occurred and be continuing, acceptable to
the Insurer.
Rating Agency Condition: With respect to any action, that each Rating
Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer, the Insurer, the
Indenture Trustee, the Owner Trustee and the Trust in writing that such action
will not result in a reduction or withdrawal of the then current rating of the
Notes.
Record Date: With respect to a Distribution Date or Redemption Date,
the close of business on the Business Day immediately preceding such
Distribution Date or Redemption Date.
Redemption Date: In the case of a redemption of the Notes pursuant to
Section 10.1(a) or a payment to Noteholders pursuant to Section 10.1(b), the
Distribution Date specified by the Servicer or the Trust pursuant to Section
10.1(a) or (b) as applicable.
Redemption Price: (a) In the case of a redemption of the Notes pursuant
to Section 10.1(a), an amount equal to the unpaid principal amount of the then
outstanding principal amount of each class of Notes being redeemed plus accrued
and unpaid interest thereon to but excluding the Redemption Date, or (b) in the
case of a payment made to Noteholders pursuant to Section 10.1(b), the amount on
deposit in the Note Distribution Account, but not in excess of the amount
specified in clause (a) above.
Responsible Officer: With respect to the Indenture Trustee, the Trust
Collateral Agent or the Owner Trustee (as defined in the Trust Agreement), any
officer within the Corporate Trust Office of the Indenture Trustee or the Owner
Trustee, as the case may be, including any Managing Director, Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary or any other
officer of the Indenture Trustee or the Owner Trustee, as the case may be,
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
Sale and Servicing Agreement: The Sale and Servicing Agreement dated as
of December 15, 1997, among National Financial Auto Funding Trust, as Seller,
National Auto Finance Company, Inc., as Servicer, the Trust and the Trust
Collateral Agent, as the same may be amended, supplemented, restated or
otherwise modified from time to time in accordance with the terms thereof.
7
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Scheduled Payments: As defined in the Note Policy.
Service Contract: With respect to a Financed Vehicle, the agreement, if
any, financed under the related Receivable that provides for the repair of such
Financed Vehicle.
State: Any one of the 50 states of the United States of America or the
District of Columbia.
Transaction Documents: As defined in the Insurance Agreement.
Termination Date: The latest of (i) the expiration of the Note Policy
and the return of the Note Policy to the Insurer for cancellation, (ii) the date
on which the Insurer shall have received payment and performance of all Insurer
Trust Secured obligations, and (iii) the date on which the Indenture Trustee
shall have received payment and performance of all Trustee Trust Secured
Obligations.
Trust: The party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
Trust Collateral Agent: Initially, Harris Trust and Savings Bank, in
its capacity as trust collateral agent on behalf of the Trust Secured Parties,
including its successors in interest, until and unless a successor Person shall
have become the Trust Collateral Agent pursuant to Section 6.17 hereof, and
thereafter "Trust Collateral Agent" shall mean such successor Person.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as amended
and as in force on the date hereof, unless otherwise specifically provided.
Trust Order and Trust Request: A written order or request signed in the
name of the Trust by any one of its Authorized Officers and delivered to the
Indenture Trustee.
Trust Property: All money, instruments, rights and other property that
are subject or intended to be subject to the lien and security interest of this
Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Trust Collateral Agent), including all proceeds
thereof, as more fully set forth in the Granting Clause hereof.
Trust Secured Obligations: The Insurer Trust Secured Obligations and
the Trustee Trust Secured Obligations.
Trust Secured Parties: Each of the Indenture Trustee in respect of the
Trustee Trust Secured Obligations and the Insurer in respect of the Insurer
Trust Secured Obligations.
8
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Trustee Trust Secured Obligations: All amounts and obligations which
the Trust may at any time owe to or on behalf of the Indenture Trustee for the
benefit of the Noteholders under this Indenture or the Notes.
UCC: The Uniform Commercial Code, as in effect in the relevant
jurisdiction, as amended from time to time.
SECTION 1.2 Incorporation by Reference of the Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Trust.
All other TIA terms used in this Indenture that are defined by the TIA,
or defined by Commission rule have the meaning assigned to them by such
definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
and
(v) words in the singular include the plural and words
in the plural include the singular.
SECTION 1.4 Action by or Consent of Noteholders. Whenever any provision
of this Agreement refers to action to be taken, or consented to, by Noteholders,
such provision shall be deemed to refer to the Noteholder of record as of the
Record Date immediately preceding the date on which such action is to be taken,
or consent given, by Noteholders. Solely for the purposes of any action to be
taken, or consented to, by Noteholders, any Note registered in the name of
9
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National Financial Auto Funding Trust or any Affiliate thereof shall be deemed
not to be outstanding; provided, however, that, solely for the purpose of
determining whether the Indenture Trustee or the Trust Collateral Agent is
entitled to rely upon any such action or consent, only Notes which the Owner
Trustee, the Indenture Trustee or the Trust Collateral Agent, respectively,
knows to be so owned shall be so disregarded.
SECTION 1.5 Matieral Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Noteholders (or any similar or analogous determination), such
determination shall be made without taking into account the funds available from
claims under the Policy.
SECTION 1.6 Conflict with TIA. If any provision hereof limits,
qualifies or conflicts with a provision of the TIA that is required under the
TIA to be part of and govern this Indenture, the latter provision shall control.
If any provision of this Indenture modifies or excludes any provision of the TIA
that may be so modified or excluded, the latter provisions shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Note set forth in Exhibit A are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Trust by any of its Authorized Officers. The signature
of any such Authorized Officer on the Notes may be original or facsimile.
Notes bearing the original or facsimile signature of individuals who
were at any time Authorized Officers of the Trust shall bind the Trust,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
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The Indenture Trustee shall upon receipt of the Note Policy and Trust
Order for authentication and delivery, authenticate and deliver the Notes for
original issue in an aggregate principal amount of $85,200,000. The Notes
outstanding at any time may not exceed such amount except as provided in Section
2.5.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $20,000 and
in integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears attached to such Note
a certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate attached to any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION 2.3. Temporary Notes. Pending the preparation of Definitive
Notes, the Trust may execute, and upon receipt of a Trust Order the Indenture
Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the Definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Trust will cause Definitive Notes to
be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Trust to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Trust shall
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of Definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as Definitive Notes.
SECTION 2.4. Registration; Registration of Transfer and Exchange. The
Trust shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Trust shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee shall be "Note Registrar" for the purpose of registering Notes
and transfers of Notes as herein provided. Upon any resignation of any Note
Registrar, the Trust shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Trust
as Note Registrar, the Trust will give the Indenture Trustee prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Indenture Trustee shall
have the right to inspect the Note Register at all reasonable times and to
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obtain copies thereof. The Indenture Trustee shall have the right to rely
conclusively upon a certificate executed on behalf of the Note Registrar by an
Authorized Officer thereof as to the names and addresses of the Holders of the
Notes and the principal amounts and number of such Notes.
Upon surrender for registration or transfer of any Note at the office
or agency of the Trust to be maintained as provided in Section 3.2, and if the
requirements of Section 8-401(1) of the UCC are met, the Trust shall execute or
cause the Indenture Trustee to authenticate one or more new Notes, in any
authorized denominations and for the same aggregate principal amount. A
Noteholder may also obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations and for the same aggregate principal amount. Such requirements
shall not be deemed to create a duty in the Indenture Trustee to monitor the
compliance by the Trust with Section 8-401 of the UCC.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations and for the same aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, and if the requirements of Section
8-401(1) of the UCC are met, the Trust shall execute and upon its request the
Indenture Trustee shall authenticate the Notes which the Noteholder making the
exchange is entitled to receive. Such requirements shall not be deemed to create
a duty in the Indenture Trustee to monitor the compliance by the Trust with
Section 8-401 of the UCC.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Trust, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be (i) duly endorsed by, or be accompanied by a written
instrument of transfer in the form attached to Exhibit A, duly executed by the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar which requirements include membership or
participation in Securities Transfer Agents Medallion Program ("Stamp") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, Stamp, all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Note Registrar
may require.
The Notes may not be transferred, directly or indirectly, to any Person
that is (i) an employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), which is subject
to the provisions of Title I of ERISA, (ii) a plan described in section 4975
(e)(1) of the Internal Revenue Code of 1986, as amended, or (iii) an entity
whose underlying assets are deemed to be assets of a plan described in (i) or
(ii) above by reason of such plan's investment in the entity (any such entity
described in clauses (i) through (iii) , a "Benefit Plan") unless the
acquisition and holding of the Notes by such Benefit Plan is covered by a
Department of Labor Prohibited Transactions Class Exemption ("PTCE"). By
accepting and holding a Note, the Holder thereof shall be deemed to have
represented and warranted that either it is not a Benefit Plan or its
acquisition and holding of the Note is covered by a PTCE.
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No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Note Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
Notwithstanding, the preceding provisions of this section, the Trust
shall not be required to make, and the Note Registrar shall not register,
transfers or exchanges of Notes selected for redemption for a period of 15 days
preceding the Distribution Date.
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee and the Insurer
(unless an Insurer Default shall have occurred and be continuing) such security
or indemnity as may be required by it to hold the Trust, the Indenture Trustee
and the Insurer harmless, then, in the absence of notice to the Trust, the Note
Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, and provided that the requirements of Section 8-405 of the UCC
are met, the Trust shall execute and upon its request the Indenture Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note (such requirement
shall not be deemed to create a duty in the Indenture Trustee to monitor the
compliance by the Trust with Section 8-405); provided, however, that if any such
destroyed, lost or stolen Note, but not a mutilated Note, shall have become or
within seven days shall be due and payable, or shall have been called for
redemption, the Trust may, instead of issuing a replacement Note, direct the
Indenture Trustee, in writing, to pay such destroyed, lost or stolen Note when
so due or payable or upon the Redemption Date without surrender thereof. If,
after the delivery of such replacement Note or payment of a destroyed, lost or
stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was issued
presents for payment such original Note, the Trust, the Indenture Trustee and
the Insurer shall be entitled to recover such replacement Note (or such payment)
from the Person to whom it was delivered or any Person taking such replacement
Note from such Person to whom such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Trust or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the Trust
may require the payment by the Holder of such Note of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other reasonable expenses (including the fees and expenses of the Indenture
Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Trust, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
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The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Trust, the Insurer, the Indenture
Trustee and any agent of the Trust or the Indenture Trustee may treat the Person
in whose name any Note is registered (as of the Record Date) as the owner of
such Note for the purpose of receiving payments of principal of and interest, if
any, on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and none of the Trust, the Insurer, the Indenture Trustee nor
any agent of the Trust or the Indenture Trustee shall be affected by notice to
the contrary.
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest. (a)
The Notes shall accrue interest as provided in the Form of Note set forth in
Exhibit A and such interest shall be payable on each Distribution Date as
specified therein. Any installment of interest or principal, if any, payable on
any Note which is punctually paid or duly provided for by the Trust on the
applicable Distribution Date shall be paid to the Person in whose name such Note
(or one or more Predecessor Notes) is registered on the Record Date, by check
mailed first-class, postage prepaid, to such Person's address as it appears on
the Note Register on such Record Date, except that, unless Definitive Notes have
been issued pursuant to Section 2.12, with respect to Notes registered on the
Record Date in the name of the nominee of the Clearing Agency (initially, such
nominee to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a
Distribution Date or on the Final Scheduled Distribution Date (and except for
the Redemption Price for any Note called for redemption pursuant to Section
10.1(a)) which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.3.
(b) The principal of the Notes shall be payable in installments on
each Distribution Date as provided in the Form of Note set forth in Exhibit A.
Notwithstanding the foregoing, and subject to Section 5.4, the entire unpaid
principal amount of the Notes shall be due and payable, if not previously paid,
on the date on which an Event of Default shall have occurred and be continuing
and an Insurer Default shall have occurred and be continuing, if the Indenture
Trustee or the Holders of the Notes representing not less than a majority of the
Outstanding Amount of the Notes have declared the Notes to be immediately due
and payable in the manner provided in Section 5.2. Upon written notice from the
Trust, the Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the
Distribution Date on which the Trust expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
or transmitted by facsimile prior to such final Distribution Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
10.2.
(c) If the Trust defaults in a payment of interest on the Notes, the
Trust shall pay defaulted interest (plus interest on such defaulted interest to
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the extent lawful) at the applicable Interest Rate to the extent lawful. The
Trust may pay such defaulted interest to the Persons who are Noteholders on a
subsequent special record date, which date shall be at least five Business Days
prior to the payment date. The Trust shall fix or cause to be fixed any such
special record date and payment date, and, at least 15 days before any such
special record date, the Trust shall mail to each Noteholder and the Indenture
Trustee a notice that states the special record date, the payment date and the
amount of defaulted interest to be paid.
(d) Promptly following the date on which all principal of and
interest on the Notes has been paid in full and the Notes have been surrendered
to the Indenture Trustee, the Indenture Trustee shall, upon written notice from
the Servicer of the amounts, if any, that the Insurer has paid in respect of the
Notes under the Note Policy or otherwise which has not been reimbursed to it,
deliver such surrendered Notes to the Insurer to the extent not previously
canceled or destroyed.
SECTION 2.8 Cancellation. Subject to Section 2.7(d), all Notes
surrendered for payment, registration of transfer, exchange or redemption shall,
if surrendered to any Person other than the Indenture Trustee, be delivered to
the Indenture Trustee and shall be promptly canceled by the Indenture Trustee.
Subject to Section 2.7(d), the Trust may at any time deliver to the Indenture
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Trust may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes
shall be authenticated in lieu of or in exchange for any Notes canceled as
provided in this Section, except as expressly permitted by this Indenture.
Subject to Section 2.7(d), all canceled Notes maybe held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time unless the Trust shall direct by a Trust Order that
they be destroyed or returned to it; provided that such Trust Order is timely
and the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.9 Release of Collateral. The Trust Collateral Agent shall, on
or after the Termination Date, release any remaining portion of the Trust
Property from the lien created by this Indenture and deposit in the Collection
Account any funds then on deposit in any other Trust Account. The Trust
Collateral Agent shall release property from the lien created by this Indenture
pursuant to this Section 2.9 only upon receipt of a Trust Request by it and the
Indenture Trustee accompanied by an Officer's Certificate, an Opinion of Counsel
and (if required by the TIA) Independent Certificates in accordance with TIA
ss.ss. 314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to the Indenture Trustee, as custodian for The Depository Trust
Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Notes
shall initially be registered on the Note Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency, and no Note Owner will receive a
Definitive Note representing such Note Owner's interest in such Note, except as
provided in Section 2.12. Unless and until definitive, fully registered Notes
(the "Definitive Notes") have been issued to Note Owners pursuant to Section
2.12:
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(i) the provisions of this Section shall be in full
force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Clearing Agency for all
purposes of this Indenture (including the payment of
principal of and interest on the Notes and the giving of
instructions or directions hereunder) as the sole Holder of
the Notes, and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the
provisions of this Section shall control;
(iv) the rights of Note Owners shall be exercised only
through the Clearing Agency and shall be limited to those
established by law and agreements between such Note Owners
and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency will
make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal
of and interest on the Notes to such Clearing Agency
Participants;
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders
of Notes evidencing a specified percentage of the
Outstanding Amount of the Notes, the Clearing Agency shall
be deemed to represent such percentage only to the extent
that it has received instructions to such effect from Note
Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the
beneficial interest in the Notes and has delivered such
instructions to the Indenture Trustee; and
(vi) Note Owners may receive copies of any reports sent
to Noteholders pursuant to this Indenture, upon written
request, together with a certification that they are Note
Owners and payment of reproduction and postage expenses
associated with the distribution of such reports, from the
Indenture Trustee at the Corporate Trust Office.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.12, the Indenture Trustee shall give all such notices and communications
specified herein to be given to Holders of the Notes to the Clearing Agency, and
shall have no obligation to the Note Owners.
SECTION 2.12 Definitive Notes. If (i) the Servicer advises the
Indenture Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the Notes, and
the Servicer is unable to locate a qualified successor, (ii) the Servicer at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency, or (iii) after the occurrence of
an Event of Default, Note Owners representing beneficial interests aggregating
at least a majority of the Outstanding Amount of the Notes advise the Indenture
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Trustee through the Clearing Agency in writing that the continuation of a book
entry system through the Clearing Agency is no longer in the best interests of
the Note Owners, then the Clearing Agency shall notify all Note Owners and the
Indenture Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Note Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Note or Notes representing the Book-Entry
Notes by the Clearing Agency, accompanied by registration instructions, the
Trust shall execute and the Indenture Trustee shall authenticate the Definitive
Notes in accordance with the instructions of the Clearing Agency. None of the
Trust, the Note Registrar or the Indenture Trustee shall be liable for any delay
in delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes, the Indenture Trustee shall recognize the Holders of the Definitive Notes
as Noteholders.
ARTICLE III
COVENANTS
Section 3.1 Payment of Principal and Interst. The Trust will duly and
punctually pay the principal of and interest on the Notes in accordance with the
terms of the Notes and this Indenture. Without limiting the foregoing, the Trust
will cause to be distributed all amounts on deposit in the Note Distribution
Account on a Distribution Date deposited therein pursuant to the Sale and
Servicing Agreement for the benefit of the Noteholders. Amounts properly
withheld under the Code by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the Trust
to such Noteholder for all purposes of this Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Trust will maintain in
New York, an office or agency where Notes may be surrendered for registration,
transfer or exchange of the Notes, and where notices and demands to or upon the
Trust in respect of the Notes and this Indenture may be served. The Trust hereby
initially appoints the Indenture Trustee to serve as its agent for the foregoing
purposes. The Trust will give prompt written notice to the Indenture Trustee of
the location, and of any change in the location, of any such office or agency.
If at any time the Trust shall fail to maintain any such office or agency or
shall fail to furnish the Indenture Trustee with the address thereof, such
surrenders, notices and demands may be made or served at the Corporate Trust
Office, and the Trust hereby appoints the Indenture Trustee as its agent to
receive all such surrenders, notices and demands.
SECTION 3.3 Money for Payments to be Held in Trust. On or before each
Distribution Date and Redemption Date, the Trust shall deposit or cause to be
deposited in the Note Distribution Account from the Collection Account an
aggregate sum sufficient to pay the amounts then becoming due under the Notes,
such sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Note Paying Agent is the Indenture Trustee) shall promptly notify
the Indenture Trustee of its action or failure so to act.
The Trust will cause each Note Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee and the Insurer an
instrument in which such Note Paying Agent shall agree with the Indenture
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Trustee (and if the Indenture Trustee acts as Note Paying Agent, it hereby so
agrees), subject to the provisions of this Section, that such Note Paying Agent
will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of
the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided
and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee written notice of any
default by the Trust of which it has actual knowledge (or
any other obligor upon the Notes) in the making of any
payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee,
forthwith pay to the Indenture Trustee all sums so held in
trust by such Note Paying Agent;
(iv) immediately resign as a Note Paying Agent and
forthwith pay to the Indenture Trustee all sums held by it
in trust for the payment of Notes if at any time it ceases
to meet the standards required to be met by a Note Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on
any Notes of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting
requirements in connection therewith.
The Trust may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Trust
Order direct any Note Paying Agent to pay to the Indenture Trustee all sums held
in trust by such Note Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such Note
Paying Agent; and upon such a payment by any Note Paying Agent to the Indenture
Trustee, such Note Paying Agent shall be released from all further liability
with respect to such money.
Subject to applicable laws with respect to the escheat of funds, any
money held by the Indenture Trustee or any Note Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Trust on Trust Request, with the consent of the
Insurer (unless an Insurer Default shall have occurred and be continuing) and
shall be deposited by the Indenture Trustee in the Collection Account; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Trust for payment thereof (but only to the extent of the amounts so
paid to the Trust), and all liability of the Indenture Trustee or such Note
Paying Agent with respect to such trust money shall thereupon cease; provided,
however, that if such money or any portion thereof had been previously deposited
by the Insurer or the Trust Collateral Agent with the Indenture Trustee for the
payment of principal or interest on the Notes, to the extent any amounts are
owing to the Insurer, such amounts shall be paid promptly to the Insurer upon
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receipt of a written request by the Insurer to such effect; and provided,
further, that the Indenture Trustee or such Note Paying Agent, before being
required to make any such repayment, shall at the expense of the Trust cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Trust.
The Indenture Trustee shall also adopt and employ, at the expense of the Trust,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Note Paying Agent, at the last
address of record for each such Holder).
SECTION 3.4 Existence. Except as otherwise permitted by the provisions
of Section 3.10, the Trust will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Trust hereunder is or becomes, organized under the
laws of any other state or of the United States of America, in which case the
Trust will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Trust Property.
SECTION 3.5 Protection of Trust Property. The Trust intends the
security interest Granted pursuant to this Indenture in favor of the Trust
Secured Parties to be prior to all other liens in respect of the Trust Property,
and the Trust shall take all actions necessary to obtain and maintain, in favor
of the Trust Collateral Agent, for the benefit of the Trust Secured Parties, a
first lien on and a first priority, perfected security interest in the Trust
Property. The Trust will from time to time prepare (or shall cause to be
prepared), execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) Grant more effectively all or any portion of the
Trust Property;
(ii) maintain or preserve the lien and security
interest (and the priority thereof) in favor of the Trust
Collateral Agent for the benefit of the Trust Secured
Parties created by this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the
validity of any Grant made or to be made by this Indenture;
(iv) enforce any of the Collateral;
(v) preserve and defend title to the Trust Property and
the rights of the Trust Collateral Agent in such Trust
Property against the claims of all persons and parties; and
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(vi) pay all taxes or assessments levied or assessed
upon the Trust Property when due.
The Trust hereby designates the Trust Collateral Agent as its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required by the Trust Collateral Agent pursuant to this
Section; provided that, such designation shall not be deemed to create a duty in
the Indenture Trustee or the Trust Collateral Agent to monitor the compliance of
the Trust with respect to its duties under this Section 3.5 or the adequacy of
any financing statement, continuation statement or other instrument prepared by
the Trust.
SECTION 3.6 Opinions as to Trust Property. (a) On the Closing Date,
the Trust shall furnish to the Indenture Trustee, the Trust Collateral Agent and
the Insurer an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the first priority lien and security interest in favor of the Trust
Collateral Agent, for the benefit of the Trust Secured Parties, created by this
Indenture and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
(b) Within 90 days after the beginning of each calendar year,
beginning with the first calendar year beginning more than six months after the
Closing Date, the Trust shall furnish to the Indenture Trustee, Trust Collateral
Agent and the Insurer, an Opinion of Counsel either stating that, in the opinion
of such counsel, such action has been taken with respect to the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and with respect to the execution and
filing of any financing statements and continuation statements as are necessary
to maintain the lien and security interest created by this Indenture and
reciting the details of such action or stating that in the opinion of such
counsel no such action is necessary to maintain such lien and security interest.
Such Opinion of Counsel shall also describe the recording, filing, re-recording
and refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and the execution and filing of any financing statements and
continuation statements that will, in the opinion of such counsel, be required
to maintain the lien and security interest of this Indenture.
SECTION 3.7 Performance of Obligations; Servicing of Receivables.
(a) The Trust will not take any action and will use its best efforts not to
permit any action to be taken by others that would release any Person from any
of such Person's material covenants or obligations under any instrument or
agreement included in the Trust Property or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
ordered by any bankruptcy or other court or as expressly provided in this
Indenture, the Transaction Documents or such other instrument or agreement.
(b) The Trust may contract with other Persons acceptable to the
Insurer (so long as no Insurer Default shall have occurred and be continuing) to
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assist it in performing its duties under this Indenture, and any performance of
such duties by a Person identified to the Indenture Trustee and the Insurer in
an Officer's Certificate of the Trust shall be deemed to be action taken by the
Trust. Initially, the Trust has contracted with the Servicer to assist the Trust
in performing its duties under this Indenture.
(c) The Trust will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Transaction
Documents and in the instruments and agreements included in the Trust Property,
including, but not limited, to preparing (or causing to prepared) and filing (or
causing to be filed) all UCC financing statements and continuation statements
required to be filed by the terms of this Indenture and the Sale and Servicing
Agreement in accordance with and within the time periods provided for herein and
therein. Except as otherwise expressly provided therein, the Trust shall not
waive, amend, modify, supplement or terminate any Transaction Document or any
provision thereof without the consent of the Indenture Trustee, the Insurer or
the Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If a Responsible Officer of the Owner Trustee shall have actual
knowledge of the occurrence of a Servicer Termination Event under the Sale and
Servicing Agreement, the Trust shall promptly notify the Indenture Trustee, the
Trust Collateral Agent, the Insurer and the Rating Agencies thereof in
accordance with Section 11.4, and shall specify in such notice, the action, if
any, the Trust is taking in respect of such default. If a Servicer Termination
Event shall arise from the failure of the Servicer to perform any of its duties
or obligations under the Sale and Servicing Agreement with respect to the
Receivables, the Trust shall take all reasonable steps available to it to remedy
such failure.
(e) The Trust agrees that it will not waive timely performance or
observance by the Servicer or the Seller of their respective duties under the
Transaction Documents (x) without the prior consent of the Insurer (unless an
Insurer Default shall have occurred and be controlling) or (y) if the effect
thereof would adversely affect the Holders of the Notes.
SECTION 3.8 Negative Convenants. So long as any Notes are Outstanding,
the Trust shall not:
(i) except as expressly permitted by this Indenture or
the Transaction Documents, sell, transfer, exchange or
otherwise dispose of any of the properties or assets of the
Trust, including those included in the Trust Property,
unless directed to do so by the Controlling Party;
(ii) claim any credit on, or make any deduction from
the principal or interest payable in respect of, the Notes
(other than amounts properly withheld from such payments
under the Code) or assert any claim against any present or
former Noteholder by reason of the payment of the taxes
levied or assessed upon any part of the Trust Property; or
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien in favor of the
Trust Collateral Agent created by this Indenture to be
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amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any
covenants or obligations with respect to the Notes under
this Indenture except as may be expressly permitted hereby,
(B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien
of this Indenture) to be created on or extend to or
otherwise arise upon or burden the Trust Property or any
part thereof or any interest therein or the proceeds thereof
(other than tax liens, mechanics' liens and other liens that
arise by operation of law, in each case on a Financed
Vehicle and arising solely as a result of an action or
omission of the related Obligor), (C) permit the lien of
this Indenture not to constitute a valid first priority
(other than with respect to any such tax, mechanics' or
other lien) security interest in the Trust Property or (D)
amend, modify or fail to comply with the provisions of the
Transaction Documents without the prior written consent of
the Controlling Party.
SECTION 3.9 Annual Statement as to Compliance. The Trust will deliver
to the Indenture Trustee and the Insurer, within 90 days after the end of each
fiscal year of the Trust (commencing with the fiscal year ended December 31,
1997), and otherwise in compliance with the requirements of TIA ss.314(a)(4) an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that
(i) a review of the activities of the Trust during such
year and of performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's
knowledge, based on such review, the Trust has complied with
all conditions and covenants under this Indenture throughout
such year, or, if there has been a default in the compliance
of any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and
status thereof.
SECTION 3.10 Trust May Consolidate, Etc. Only on Certain Terms.
(a) The Trust shall not consolidate or merge with or into any other Person.
(b) The Trust shall not convey or transfer all or substantially
all of its properties or assets, including those included in the Trust Property,
to any Person.
SECTION 3.11 [Reserved].
SECTION 3.12 No Other Business. The Trust shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Receivables in the manner contemplated by this Indenture and the Transaction
Documents and activities incidental thereto. After the Pre-Funding Period, the
Trust shall not fund the purchase of any Additional Receivables.
SECTION 3.13 No Borrowing. The Trust shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes, (ii) obligations owing from time to time
to the Insurer under the Insurance Agreement and (iii) any other Indebtedness
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permitted by or arising under the Transaction Documents. The proceeds of the
Notes shall be used exclusively to fund the Trust's purchase of the Receivables
and the other assets specified in the Sale and Servicing Agreement, to fund the
Pre-Funding Account and the Spread Account and to pay the Trust's
organizational, transactional and start-up expenses.
SECTION 3.14 Servicer's Obligations. The Trust shall cause the Servicer
to comply with Sections 4.11, 4.12 and 4.13 of the Sale and Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Sale and Servicing Agreement or this Indenture, the Trust
shall not make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing or otherwise),
endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Trust shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17. Compliance with Laws. The Trust shall comply with the
requirements of all applicable laws, the non-compliance with which would,
individually or in the aggregate, materially and adversely affect the ability of
the Trust to perform its obligations under the Notes, this Indenture or any
Transaction Document.
SECTION 3.18 Restricted Payments. The Trust shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the Trust
or otherwise with respect to any ownership or equity interest or security in or
of the Trust or to the Servicer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or (iii) set
aside or otherwise segregate any amounts for any such purpose; provided,
however, that the Trust may make, or cause to be made, distributions to the
Servicer, the Owner Trustee, the Indenture Trustee and the Certificateholders as
permitted by, and to the extent funds are available for such purpose under, the
Sale and Servicing Agreement or Trust Agreement. The Trust will not, directly or
indirectly, make payments to or distributions from the Collection Account except
in accordance with this Indenture and the Transaction Documents.
SECTION 3.19 Notice of Events of Default. Upon a Responsible Officer of
the Owner Trustee having actual knowledge thereof, the Trust agrees to give the
Indenture Trustee, the Insurer and the Rating Agencies prompt written notice of
each Event of Default hereunder and each default on the part of the Servicer or
the Seller of its obligations under the Sale and Servicing Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the
Indenture Trustee or the Insurer, the Trust will execute and deliver such
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further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
SECTION 3.21 Amendments of Sale and Servicing Agreement and Trust
Agreement. The Trust shall not agree to any amendment to Section 13.1 of the
Sale and Servicing Agreement or Section 13.1 of the Trust Agreement to eliminate
the requirements thereunder that the Indenture Trustee or the Holders of the
Notes consent to amendments thereto as provided therein.
SECTION 3.22 Income Tax Characterization. For purposes of federal
income, state and local income and franchise and any other income taxes, the
Trust will treat the Notes as indebtedness of the Trust and hereby instructs the
Indenture Trustee to treat the Notes as indebtedness of the Trust for federal
and state tax reporting purposes.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12, 3.13, 3.20, 3.21 and 3.22, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.7 and the obligations of the Indenture Trustee
under Section 4.2) and (vi) the rights of Noteholders as beneficiaries hereof
with respect to the property so deposited with the Indenture Trustee payable to
all or any of them, and the Indenture Trustee, on demand of and at the expense
of the Trust, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 2.5 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Trust and thereafter repaid to the Trust or discharged from such
trust, as provided in Section 3.3) have been delivered to the Indenture Trustee
for cancellation and the Note Policy has expired and been returned to the
Insurer for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable on the Final Scheduled
Distribution Date, or
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(iii) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of
notice of redemption by the Indenture Trustee in the name, and at the
expense, of the Trust, and the Trust, in the case of (i), (ii) or
(iii) above, has irrevocably deposited or caused to be irrevocably
deposited with the Trust Collateral Agent cash or direct obligations
of or obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust for
such purpose, in an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Indenture
Trustee for cancellation when due on the Final Scheduled Distribution
Date or Redemption Date (if Notes shall have been called for
redemption pursuant to Section 10.1(a)), as the case may be;
(B) the Trust has paid or caused to be paid all Insurer Trust
Secured Obligations and all Trustee Trust Secured Obligations; and
(C) the Trust has delivered to the Indenture Trustee, the Trust
Collateral Agent and the Insurer an Officer's Certificate, an Opinion of Counsel
and if required by the TIA, to the Indenture Trustee, the Trust Collateral Agent
or the Insurer (so long as an Insurer Default shall not have occurred and be
continuing) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.1(a) and
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with. Upon such
satisfaction and discharge, the Indenture Trustee shall give prompt written
notice thereof to each Rating Agency.
SECTION 4.2 Application of Trust Money. All monies deposited with the
Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Note Paying Agent, as
the Indenture Trustee may determine, to the Holders of the particular Notes for
the payment or redemption of which such monies have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or in the Sale and Servicing Agreement or required by
law.
SECTION 4.3 Repayment of Monies Held by Note Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all monies then held by any Note Paying Agent other than the
Indenture Trustee under the provisions of this Indenture with respect to such
Notes shall, upon demand of the Trust, be paid to the Indenture Trustee to be
held and applied according to Section 3.3 and thereupon such Note Paying Agent
shall be released from all further liability with respect to such monies.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
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Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note
when the same becomes due and payable, and such default
shall continue for a period of five days (solely for
purposes of this clause, a payment on the Notes funded by
the Insurer or the Collateral Agent pursuant to the Spread
Account Agreement shall be deemed to be a payment made by
the Trust); or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same
becomes due and payable and such default shall continue for
a period of five days (solely for purposes of this clause, a
payment on the Notes funded by the Insurer or the Collateral
Agent pursuant to the Spread Account Agreement, shall be
deemed to be a payment made by the Trust); or
(iii) so long as an Insurer Default shall not have
occurred and be continuing, an Insurance Agreement Indenture
Cross Default shall have occurred; provided, however, that
the occurrence of an Insurance Agreement Indenture Cross
Default may not form the basis of an Event of Default unless
the Insurer shall, upon prior written notice to the Rating
Agencies, have delivered to the Trust and the Indenture
Trustee, and not rescinded, a written notice specifying that
such Insurance Agreement Indenture Cross Default constitutes
an Event of Default under this Indenture; or
(iv) default in the observance or performance of any
covenant or agreement of the Trust made in this Indenture
(other than a covenant or agreement, a default in the
observance or performance of which is elsewhere in this
Section specifically dealt with) or in any certificate or
other writing delivered in connection herewith, or any
representation or warranty of the Trust made in this
Indenture or in any certificate or other writing delivered
pursuant hereto proving to have been incorrect in any
material respect as of the time when the same shall have
been made, and such default shall continue or not be cured,
or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days
after there shall have been given, by registered or
certified mail, to the Trust by the Insurer or the Indenture
Trustee or to the Trust, the Indenture Trustee and the
Insurer by the Holders of at least 25% of the Outstanding
Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is
a "Notice of Default" hereunder; provided, however, so long
as an Insurer Default shall not have occurred and be
continuing, the occurrence of any such event described in
this clause (iv) may not form the basis of an Event of
Default unless the Insurer shall, upon prior written notice
to the Rating Agencies, have delivered to the Trust and the
Indenture Trustee, and not rescinded, a written notice
specifying that any such event constitutes an Event of
Default under this Indenture; or
(v) the filing of a decree or order for relief by a
court having jurisdiction in the premises in respect of the
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Trust or any substantial part of the Collateral in an
involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter
in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the
Trust or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Trust's
affairs, and such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; provided,
however, so long as an Insurer Default shall not have
occurred and be continuing, the occurrence of any such event
described in this clause (v) may not form the basis of an
Event of Default unless the Insurer shall, upon prior
written notice to the Rating Agencies, have delivered to the
Trust and the Indenture Trustee, and not rescinded, a
written notice specifying that any such event constitutes an
Event of Default under this Indenture; or
(vi) the commencement by the Trust of a voluntary case
under any applicable Federal or state bankruptcy, insolvency
or other similar law now or hereafter in effect, or the
consent by the Trust to the entry of an order for relief in
an involuntary case under any such law, or the consent by
the Trust to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Trust or for any
substantial part of the Collateral, or the making by the
Trust of any general assignment for the benefit of
creditors, or the failure by the Trust generally to pay its
debts as such debts become due, or the taking of action by
the Trust in furtherance of any of the foregoing; provided,
however, so long as an Insurer Default shall not have
occurred and be continuing, the occurrence of any such event
described in this clause (vi) may not form the basis of an
Event of Default unless the Insurer shall, upon prior
written notice to the Rating Agencies, have delivered to the
Trust and the Indenture Trustee, and not rescinded, a
written notice specifying that any such event constitutes an
Event of Default under this Indenture.
The Trust shall deliver to the Indenture Trustee, the Owner Trustee,
the Insurer and each Rating Agency, within five days after the occurrence
thereof, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii), its status and what action the Trust is taking or
proposes to take with respect thereto.
SECTION 5.2 Rights Upon Event of Default. (a) If an Insurer Default
shall not have occurred and be continuing and an Event of Default shall have
occurred and be continuing, the Notes shall become immediately due and payable
at par, together with accrued interest thereon. If an Event of Default shall
have occurred and be continuing, the Controlling Party may exercise any of the
remedies specified in Section 5.4(a). In the event of any acceleration of any
Notes by operation of this Section 5.2, the Indenture Trustee shall continue to
be entitled to make claims under the Note Policy pursuant to the Sale and
Servicing Agreement for Scheduled Payments on the Notes. Payments under the Note
Policy following acceleration of any Notes shall be applied by the Indenture
Trustee:
FIRST: to Noteholders for amounts due and unpaid
on the Notes for interest, ratably, without preference or
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priority of any kind, according to the amounts due and
payable on the Notes for interest; and
SECOND: to Noteholders for amounts due and unpaid
on the Notes for principal, ratably, without preference or
priority of any kind, according to the amounts due and
payable on the Notes for principal.
(b) In the event any Notes are accelerated due to an Event of
Default, the Insurer shall have the right (in addition to its obligation to pay
Scheduled Payments on the Notes in accordance with the Note Policy), but not the
obligation, to make payments under the Note Policy or otherwise of interest and
principal due on such Notes, in whole or in part, on any date or dates following
such acceleration as the Insurer, in its sole discretion, shall elect.
(c) If an Insurer Default shall have occurred and be continuing and
an Event of Default shall have occurred and be continuing, the Indenture Trustee
in its discretion may, or if so requested in writing by Holders holding Notes
representing not less than a majority of the Outstanding Amount of the Notes,
shall, subject to Section 6.2(f), declare by written notice to the Trust that
the Notes shall become immediately due and payable at par, together with accrued
interest thereon.
(d) If an Insurer Default shall have occurred and be continuing,
then at any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Trust and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(i) the Trust has paid or deposited with the Indenture
Trustee a sum sufficient to pay
(A) all payments of principal of and interest on all
Notes and all other amounts that would then be due hereunder or upon such Notes
if the Event of Default giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Indenture Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment
of the principal of the Notes that has become due solely by
such acceleration, have been cured or waived as provided in
Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
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SECTION 5.3 Collection of Indebtness and Suits for Enforcement by
Indenture Trustee. (a) The Trust covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable
(solely for purposes of this clause, a payment on the Notes funded by the
Insurer pursuant to the Note Policy or the Collateral Agent pursuant to the
Spread Account shall be deemed to be payment made by the Trust), and such
default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable (solely for purposes of this clause, a payment
on the Notes funded by the Insurer pursuant to the Note Policy or the Collateral
Agent pursuant to the Spread Account shall be deemed to be payment made by the
Trust), and such default continues for a period of five days, the Trust will,
upon demand of the Indenture Trustee, pay to it, for the benefit of the Holders
of the Notes, the whole amount then due and payable on such Notes for principal
and interest, with interest upon the overdue principal, and, to the extent
payment at such rate of interest shall be legally enforceable, upon overdue
installments of interest, at the applicable Interest Rate and in addition
thereto such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its agents and counsel.
(b) Each Trust Secured Party hereby irrevocably and unconditionally
appoints the Controlling Party as the true and lawful attorney-in-fact of such
Trust Secured Party for so long as such Trust Secured Party is not the
Controlling Party, with full power of substitution, to execute, acknowledge and
deliver any notice, document, certificate, paper, pleading or instrument and to
do in the name of the Controlling Party as well as in the name, place and stead
of such Trust Secured Party such acts, things and deeds for or on behalf of and
in the name of such Trust Secured Party under this Indenture (including
specifically under Section 5.4) and under the Transaction Documents which such
Trust Secured Party could or might do or which may be necessary, desirable or
convenient in such Controlling Party's sole discretion to effect the purposes
contemplated hereunder and under the Transaction Documents and, without
limitation, following the occurrence of an Event of Default, exercise full
right, power and authority to take, or defer from taking, any and all acts with
respect to the administration, maintenance or disposition of the Trust Property.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may in its discretion but with the consent of the Controlling Party and
shall, at the direction of the Controlling Party (except as provided in Section
5.3(d) below), proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Indenture Trustee or the
Controlling Party shall deem most effective to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.
(d) Notwithstanding anything to the contrary contained in this
Indenture (including, without limitation, Sections 5.4(a), 5.12, 5.13 and 5.17)
and regardless of whether an Insurer Default shall have occurred and be
continuing, if the Trust fails to perform its obligations under Section 10.1(b)
hereof when and as due, the Indenture Trustee may in its discretion (and without
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the consent of the Controlling Party) proceed to protect and enforce its rights
and the rights of the Noteholders by such appropriate proceedings as the
Indenture Trustee shall deem most effective to protect and enforce any such
rights, whether for specific performance of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Indenture
Trustee by this Indenture or by law; provided that the Indenture Trustee shall
only be entitled to take any such actions without the consent of the Controlling
Party to the extent such actions (x) are taken only to enforce the Trust's
obligations to redeem the principal amount of Notes and (y) are taken only
against the portion of the Collateral, if any, consisting of the Pre-Funding
Account, any investments therein and any proceeds thereof.
(e) In case there shall be pending, relative to the Trust or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Property, proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Trust or its property or such other
obligor or Person, or in case of any other comparable judicial proceedings
relative to the Trust or other obligor upon the Notes, or to the creditors or
property of the Trust or such other obligor, the Indenture Trustee, irrespective
of whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Indenture Trustee shall have made any demand pursuant to the provisions of this
Section, shall be entitled and empowered, by intervention in such proceedings or
otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect
of the Notes and to file such other papers or documents as
may be necessary or advisable in order to have the claims of
the Indenture Trustee (including any claim for reasonable
compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys
and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the
Indenture Trustee and each predecessor Indenture Trustee,
except as a result of negligence, bad faith or willful
misconduct) and of the Noteholders allowed in such
proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in
any election of a trustee, a standby trustee or person
performing similar functions in any such proceedings;
(iii) to collect and receive any monies or other
property payable or deliverable on any such claims and to
distribute all amounts received with respect to the claims
of the Noteholders and of the Indenture Trustee on their
behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have
the claims of the Indenture Trustee or the Holders of Notes
allowed in any judicial proceedings relative to the Trust,
its creditors and its property;
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and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(f) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar person.
(g) All rights of action and of asserting claims under this
Indenture, the Spread Account Agreement or under any of the Notes, may be
enforced by the Indenture Trustee without the possession of any of the Notes or
the production thereof in any trial or other proceedings relative thereto, and
any such action or proceedings instituted by the Indenture Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and compensation
of the Indenture Trustee, each predecessor Indenture Trustee and their
respective agents and attorneys, shall be for the ratable benefit of the Holders
of the Notes.
(h) In any proceedings brought by the Indenture Trustee (and also
any proceedings involving the interpretation of any provision of this Indenture
or the Spread Account Agreement), the Indenture Trustee shall be held to
represent all the Holders of the Notes, and it shall not be necessary to make
any Noteholder a party to any such proceedings.
SECTION 5.4 Remedies. (a) If an Event of Default shall have occurred
and be continuing, the Controlling Party may do one or more of the following
(subject to Section 5.5):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all
amounts then payable on the Notes or under this Indenture
with respect thereto, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Trust
and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with
respect to the Trust Property;
(iii) exercise any remedies of a secured party under
the UCC and take any other appropriate action to protect and
enforce the rights and remedies of the Trust Secured
Parties; and
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(iv) direct the Trust Collateral Agent in writing to
sell the Trust Property or any portion thereof or rights or
interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that
(A) if the Insurer is the Controlling Party, the
Insurer may not sell or otherwise liquidate the Trust Property following an
Insurance Agreement Indenture Cross Default unless
(I) such Insurance Agreement Indenture Cross Default
arises from a claim being made on the Note Policy or from
the insolvency of the Trust or the Seller, or
(II) the proceeds of such sale or liquidation
distributable to the Noteholders are sufficient to discharge
in full all amounts then due and unpaid upon such Notes for
principal and interest; or
(B) if the Indenture Trustee is the Controlling Party,
the Indenture Trustee may not sell or otherwise liquidate the Trust Property
following an Event of Default unless
(I) such Event of Default is of the type described in
Section 5.1(i) or (ii), or
(II) either
(x) the Holders of 100% of the
Outstanding Amount of the Notes consent thereto,
(y) the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient
to discharge in full all amounts then due and unpaid upon
such Notes for principal and interest, or
(z) the Indenture Trustee determines
that the Trust Property will not continue to provide
sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the
Notes had not been declared due and payable, and the
Indenture Trustee provides prior written notice to the
Rating Agencies and obtains the consent of Holders of
66-2/3% of the Outstanding Amount of the Notes.
In determining such sufficiency or insufficiency with respect to clause
(y) and (z), the Indenture Trustee may, but need not, obtain and rely
conclusively upon an opinion of an Independent investment banking or accounting
firm of national reputation as to the feasibility of such proposed action and as
to the sufficiency of the Trust Property for such purpose.
SECTION 5.5 Optional Preservation of the Receivables. If the Indenture
Trustee is the Controlling Party and if the Notes have been declared to be due
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and payable under Section 5.2 following an Event of Default and such declaration
and its consequences have not been rescinded and annulled, the Indenture Trustee
may, but need not, elect to direct the Trust Collateral Agent to maintain
possession of the Trust Property. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to direct the Trust
Collateral Agent to maintain possession of the Trust Property. In determining
whether to direct the Trust Collateral Agent to maintain possession of the Trust
Property, the Indenture Trustee may, but need not, obtain and rely conclusively
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Property for such purpose which opinion shall be at the
expense of the Trust.
SECTION 5.6 Priorities
(a) Following (1) the acceleration of the Notes pursuant to Section
5.2 or (2) if an Insurer Default shall have occurred and be continuing, the
occurrence of an Event of Default pursuant to Section 5.1(i), 5.1(ii), 5.1(iii),
5.1(v) or 5.1(vi) of the Indenture or (3) the receipt of Insolvency Proceeds
pursuant to Section 11.1(b) of the Sale and Servicing Agreement, the
Distribution Amount, including any money or property collected pursuant to
Section 5.4 of the Indenture and any such Insolvency Proceeds, shall be applied
by the Trust Collateral Agent on the related Distribution Date in the following
order of priority:
FIRST: amounts due and owing and required to be distributed to
the Servicer, the Owner Trustee, the Indenture Trustee, the
Collateral Agent and the Trust Collateral Agent, respectively,
pursuant to priorities (i) and (ii) of Section 5.7(b) of the
Sale and Servicing Agreement and to the Indenture Trustee and
Trust Collateral Agent pursuant to Section 6.7 hereof, and not
previously distributed, in the order of such priorities and
without preference or priority of any kind within such
priorities;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes
for interest;
THIRD: to Noteholders for amounts due and unpaid on the Notes
for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes
for principal;
FOURTH: to the Insurer, to the extent of any amounts owing to
the Insurer under the Insurance Agreement and not paid; and
FIFTH: to the Collateral Agent to be applied as provided in
the Spread Account Agreement; and
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provided that any amounts collected from the Pre-Funding Account shall be paid,
first, for amounts due and unpaid on the Notes for principal and interest, if
any, for distribution to Noteholders in accordance with Section 10.1(b) and,
second, in accordance with priorities FIRST through FIFTH above.
(b) The Indenture Trustee may fix a record date and payment date for
any payment to Noteholders pursuant to this Section. At least 15 days before
such record date the Trust shall mail to each Noteholder and the Indenture
Trustee a notice that states the record date, the payment date and the amount to
be paid.
SECTION 5.7 Limitation of Suits. No Holder of any Note shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the
Outstanding Amount of the Notes have made written request to
the Indenture Trustee to institute such proceeding in
respect of such Event of Default in its own name as
Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the
Indenture Trustee indemnity reasonably satisfactory to it
against the costs, expenses (including legal fees and
expenses) and liabilities to be incurred in complying with
such request;
(iv) the Indenture Trustee for 60 days after its
receipt of such notice, request and offer of indemnity has
failed to institute such proceedings;
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day
period by the Holders of a majority of the Outstanding
Amount of the Notes; and
(vi) an Insurer Default shall have occurred and be
continuing;
it being understood and intended that no Holders of Notes shall have any right
in any manner whatsoever by virtue of, or by availing of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Holders of
Notes or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.8 Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
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after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
SECTION 5.9 Restoration of Rights and Remedies. If the Controlling
Party or any Noteholder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, then and in every such case the Trust, the Indenture
Trustee and the Noteholders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Indenture Trustee and
the Noteholders shall continue as though no such proceeding had been instituted.
SECTION 5.10 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Controlling Party or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11 Delay or Omission Not a Waiver. No delay or omission of
the Controlling Party or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 5.12 Control by Noteholders. If the Indenture Trustee is the
Controlling Party, the Holders of a majority of the Outstanding Amount of the
Notes shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Indenture Trustee with respect to
the Notes or exercising any trust or power conferred on the Indenture Trustee;
provided that
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Indenture Trustee to sell or liquidate the
Trust Property shall be by the Holders of Notes representing
not less than 100% of the Outstanding Amount of the Notes;
(iii) the Noteholders shall provide indemnity
satisfactory to the Indenture Trustee against any and all
loss, liability or expense incurred by it in connection with
its performance of its duties under this Section 5.12;
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(iv) if the conditions set forth in Section 5.5 have
been satisfied and the Indenture Trustee elects to retain
the Trust Property pursuant to such Section, then any
direction to the Indenture Trustee by Holders of Notes
representing less than 100% of the Outstanding Amount of the
Notes to sell or liquidate the Trust Property shall be of no
force and effect; and
(v) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not
inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
SECTION 5.13 Waiver of Past Defaults. If an Insurer Default shall have
occurred and be continuing, prior to the declaration of the acceleration of the
maturity of the Notes as provided in Section 5.4, the Holders of Notes of not
less than a majority of the Outstanding Amount of the Notes may waive any past
Default or Event of Default and its consequences except a Default (a) in payment
of principal of or interest on any of the Notes or (b) in respect of a covenant
or provision hereof which cannot be modified or amended without the consent of
the Holder of each Note. In the case of any such waiver, the Trust, the
Indenture Trustee and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.14 Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.15 Waiver of Stay or Extension Laws. The Trust covenants (to
the extent that it may lawfully do so) that it will not at anytime insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
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any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Trust (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.16 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Trust or by the levy of any
execution under such judgment upon any portion of the Trust Property or upon any
of the assets of the Trust.
SECTION 5.17 Performance and Enforcement of Certain Obligations. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Servicer's expense, the Trust agrees to take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and observance
by the Seller and the Servicer, as applicable, of each of their obligations to
the Trust under or in connection with the Sale and Servicing Agreement in
accordance with the terms thereof, and to exercise any and all rights, remedies,
powers and privileges lawfully available to the Trust under or in connection
with the Sale and Servicing Agreement to the extent and in the manner directed
by the Indenture Trustee, including the transmission of notices of default on
the part of the Seller or the Servicer thereunder and the institution of legal
or administrative actions or proceedings to compel or secure performance by the
Seller or the Servicer of each of their obligations under the Sale and Servicing
Agreement.
(b) If the Indenture Trustee is a Controlling Party and if an
Event of Default has occurred and is continuing, the Indenture Trustee may, and,
at the written direction of the Holders of 66-2/3% of the Outstanding Amount of
the Notes shall, exercise all rights, remedies, powers, privileges and claims of
the Trust against the Seller or the Servicer under or in connection with the
Sale and Servicing Agreement, including the right or power to take any action to
compel or secure performance or observance by the Seller or the Servicer of each
of their obligations to the Trust thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Sale and Servicing
Agreement, and any right of the Trust to take such action shall be suspended.
SECTION 5.18 Subrogation. The Trust Collateral Agent shall (i) receive
as attorney-in-fact of each Noteholder any Note Policy Claim Amount from the
Insurer and (ii) deposit the same in the Note Distribution Account for
distribution to Noteholders. Any and all Note Policy Claim Amounts disbursed by
the Indenture Trustee from claims made under the Note Policy shall not be
considered payment by the Trust or from the Spread Account with respect to such
Notes, and shall not discharge the obligations of the Trust with respect
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thereto. The Insurer shall, to the extent it makes any payment with respect to
the Notes, become subrogated to the rights of the recipient of such payments to
the extent of such payments. Subject to and conditioned upon any payment with
respect to the Notes by or on behalf of the Insurer, the Indenture Trustee shall
assign to the Insurer all rights to the payment of interest or principal with
respect to the Notes which are then due for payment to the extent of all
payments made by the Insurer, and the Insurer may exercise any option, vote
right, power or the like with respect to the Notes to the extent that it has
made payment pursuant to the Note Policy. To evidence such subrogation, the Note
Registrar shall note the Insurer's rights as subrogee upon the register of
Noteholders upon receipt from the Insurer of proof of payment by the Insurer of
any Noteholders' Interest Distributable Amount or Noteholders' Principal
Distributable Amount. The foregoing subrogation shall in all cases be subject to
the rights of the Noteholders to receive all Scheduled Payments in respect of
the Notes.
SECTION 5.19 Preference Claims
(a) In the event that the Indenture Trustee has received a certified
copy of an order of the appropriate court that any Scheduled Payment (as defined
in the Note Policy) paid on a Note has been avoided in whole or in part as a
preference payment under applicable bankruptcy law, the Indenture Trustee shall
so notify the Insurer, shall comply with the provisions of the Note Policy to
obtain payment by the Insurer of such avoided payment, and shall, at the time it
provides notice to the Insurer, notify Holders of the Notes by mail that, in the
event that any Noteholder's payment is so recoverable, such Noteholder will be
entitled to payment pursuant to the terms of the Note Policy. The Indenture
Trustee shall furnish to the Insurer at its written request, the requested
records it holds in its possession evidencing the payments of principal of and
interest on Notes, if any, which have been made by the Indenture Trustee and
subsequently recovered from Noteholders, and the dates on which such payments
were made. Pursuant to the terms of the Note Policy, the Insurer will make such
payment on behalf of the Noteholder to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order (as defined in
the Note Policy) and not to the Indenture Trustee or any Noteholder directly
(unless a Noteholder has previously paid such payment to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy, in which case the
Insurer will make such payment to the Indenture Trustee for distribution to such
Noteholder upon proof of such payment reasonably satisfactory to the Insurer).
(b) The Indenture Trustee shall promptly notify the Insurer of any
proceeding or the institution of any action (of which the Indenture Trustee has
actual knowledge) seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership, rehabilitation or similar law
(a "Preference Claim") of any distribution made with respect to the Notes. Each
Holder, by its purchase of Notes, and the Indenture Trustee hereby agree that so
long as an Insurer Default shall not have occurred and be continuing, the
Insurer may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim including,
without limitation, (i) the direction of any appeal of any order relating to any
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Preference Claim and (ii) the posting of any surety, supersede as or performance
bond pending any such appeal at the expense of the Insurer, but subject to
reimbursement as provided in the Insurance Agreement. In addition, and without
limitation of the foregoing, as set forth in Section 5.18, the Insurer shall be
subrogated to, and each Noteholder and the Indenture Trustee hereby delegate and
assign, to the fullest extent permitted by law, the rights of the Indenture
Trustee and each Noteholder in the conduct of any proceeding with respect to a
Preference Claim, including, without limitation, all rights of any party to an
adversary proceeding action with respect to any court order issued in connection
with any such Preference Claim.
ARTICLE VI
THE INDENTURE TRUSTEE AND THE TRUST COLLATERAL AGENT
SECTION 6.1 Duties of Indenture Trustee. (a) If an Event of Default
has occurred and is continuing, of which a Responsible Officer of the Indenture
Trustee and the Trust Collateral Agent, as the case may be, has actual
knowledge, then the Indenture Trustee or the Trust Collateral Agent, as the case
may be, shall exercise the rights and powers vested in it by this Indenture and
the Transaction Documents and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of an above-mentioned Event of
Default:
(i) each of the Indenture Trustee and the Trust
Collateral Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee and the Trust
Collateral Agent, respectively; and
(ii) in the absence of bad faith on its part, each of
the Indenture Trustee and the Trust Collateral Agent may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee
or the Trust Collateral Agent, as the case may be and
conforming to the requirements of this Indenture; however,
the Indenture Trustee and the Trust Collateral Agent shall
examine the certificates and opinions to determine whether
or not they conform on their face to the requirements of
this Indenture.
(c) Each of the Indenture Trustee and the Trust Collateral Agent may
not be relieved from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) each of the Indenture Trustee and the Trust
Collateral Agent shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless
it is proved that the Indenture Trustee or the Trust
Collateral Agent was negligent in ascertaining the pertinent
facts; and
(iii) each of the Indenture Trustee and the Trust
Collateral Agent shall not be liable with respect to any
action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 5.12.
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(d) The Indenture Trustee and the Trust Collateral Agent shall not
be liable for interest on any money received by it except as the Indenture
Trustee may agree in writing with the Trust.
(e) Money held in trust by the Indenture Trustee or the Trust
Collateral Agent need not be segregated from other funds except to the extent
required by law or the terms of this Indenture or the Sale and Servicing
Agreement.
(f) No provision of this Indenture shall require the Indenture
Trustee or the Trust Collateral Agent 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 it shall have
reasonable grounds to believe that repayment of such funds or indemnity
reasonably satisfactory to it against such risk or liability is not reasonably
assured to it.
(g) Every provision of this Indenture relating to the conductor
affecting the liability of or affording protection to the Indenture Trustee or
the Trust Collateral Agent shall be subject to the provisions of this Section
and to the provisions of the TIA.
(h) The Indenture Trustee or the Trust Collateral Agent shall, upon
two Business Days' prior written notice to the Indenture Trustee or the Trust
Collateral Agent, as the case may be, permit any representative of the Insurer,
during the Indenture Trustee's or the Trust Collateral Agent, as the case may
be, normal business hours, to examine all books of account, records, reports and
other papers of the Indenture Trustee or the Trust Collateral Agent, as the case
may be, relating to the Notes, to make copies and extracts therefrom and to
discuss the Indenture Trustee's or the Trust Collateral Agent's affairs and
actions, as such affairs and actions relate to the Indenture Trustee's or the
Trust Collateral Agent's duties with respect to the Notes, with the Indenture
Trustee's or the Trust Collateral Agent's officers and employees responsible for
carrying out the Indenture Trustee's or the Trust Collateral Agent's duties with
respect to the Notes at the sole cost and expense of the Trust.
(i) The Indenture Trustee shall, and hereby agrees that it will,
hold the Note Policy in trust, and will hold any proceeds of any claim on the
Note Policy in trust solely for the use and benefit of the Noteholders.
(j) Without limiting the generality of this Section 6.1, the
Indenture Trustee shall have no duty (i) to see to any recording, filing or
depositing of this Indenture or any agreement referred to herein or any
financing statement evidencing a security interest in 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 Trust, (iv) to confirm or
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verify the contents of any reports or certificates delivered to the Indenture
Trustee pursuant to this Indenture or the Sale and Servicing Agreement believed
by the Indenture Trustee 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 of observance of any of the
Trust's, the Seller's or the Servicer's representations, warranties or covenants
or the Servicer's duties and obligations as Servicer and as custodian of the
Receivable Files under the Sale and Servicing Agreement.
(k) In no event shall Harris Trust and Savings Bank, in any of its
capacities hereunder, be deemed to have assumed any duties of the Owner Trustee
under the Delaware Business Trust Statute, common law, or the Trust Agreement.
SECTION 6.2 Rights of Indenture Trustee and the Trust Collateral Agent.
(a) The Indenture Trustee and the Trust Collateral Agent may rely conclusively
on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee and the Trust Collateral
Agent need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee or the Trust Collateral Agent acts
or refrains from acting, it may require an Officer's Certificate or an Opinion
of Counsel. The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officer's Certificate or Opinion
of Counsel.
(c) The Indenture Trustee or the Trust Collateral Agent may execute
any of the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys or a custodian or nominee, and the
Indenture Trustee or the Trust Collateral Agent shall not be responsible for any
misconduct or negligence on the part of, or for the supervision of, NAFI,
including in its capacity as Servicer, or any other such agent, attorney,
custodian or nominee appointed with due care by it hereunder.
(d) The Indenture Trustee or the Trust Collateral Agent shall not be
liable for any action it takes or omits to take in good faith which it believes
to be authorized or within its rights or powers; provided, however, that the
Indenture Trustee's or the Trust Collateral Agent's conduct does not constitute
willful misconduct, negligence or bad faith.
(e) The Indenture Trustee and the Trust Collateral Agent may consult
with counsel, and the advice or opinion of counsel with respect to legal matters
relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(f) The Indenture Trustee and the Trust Collateral Agent shall be
under no obligation to institute, conduct, defend any litigation or take any
action under this Indenture or in relation to this Indenture, at the request,
order or direction of any of the Holders of Notes or the Controlling Party,
pursuant to the provisions of this Indenture, unless such Holders of Notes or
the Controlling Party shall have offered to the Indenture Trustee and the Trust
Collateral Agent reasonable security or indemnity against the costs, expenses
and liabilities that may be incurred therein or thereby; provided, however that
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the Indenture Trustee and the Trust Collateral Agent shall, upon the occurrence
of an Event of Default (that has not been cured), exercise the rights and powers
vested in it by this Indenture and the Transaction Documents and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
(g) The Indenture Trustee and the Trust Collateral Agent shall not
be bound to make any investigation into the facts or 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 to do so by the Insurer (so long as no Insurer Default
shall have occurred and be continuing) or (if an Insurer Default shall have
occurred and be continuing) by the Holders of Notes evidencing not less than 25%
of the Outstanding Amount thereof; provided, however, that if the payment within
a reasonable time to the Indenture Trustee and the Trust Collateral Agent of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Indenture Trustee or the Trust
Collateral Agent, not reasonably assured to the Indenture Trustee or the Trust
Collateral Agent by the security afforded to it by the terms of this Indenture
or the Sale and Servicing Agreement, the Indenture Trustee or the Trust
Collateral Agent may require indemnity reasonably satisfactory to it against
such cost, expense (including legal fees and expenses) or liability as a
condition to such proceeding; the reasonable expense of every such examination
shall be paid by the Person making such request, or, if paid by the Indenture
Trustee or the Trust Collateral Agent, shall be reimbursed by the Person making
such request upon demand.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Trust or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Note Paying Agent,
Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Indenture Trustee's Disclaimer. Each of the Indenture
Trustee and the Trust Collateral Agent shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Trust
Property or the Notes, it shall not be accountable for the Trust's use of the
proceeds from the Notes, and it shall not be responsible for any statement of
the Trust in the Indenture or in any document issued in connection with the sale
of the Notes or in the Notes other than the Indenture Trustee's certificate of
authentication.
SECTION 6.5 Notice of Defaults. If an Event of Default occurs and is
continuing and if it is either actually known by, or written notice of the
existence thereof has been delivered to, a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail to each Noteholder notice of the
Default within 90 days after such knowledge or notice occurs. Except in the case
of a Default in payment of principal of or interest on any Note (including
payments pursuant to the mandatory redemption provisions of such Note), the
Indenture Trustee may withhold the notice if and so long as a Responsible
Officer in good faith determines that withholding the notice is in the interests
of Noteholders.
SECTION 6.6 Reports by Indenture Trustee to Holders. Upon written
request, the Note Paying Agent or the Servicer shall on behalf of the Trust
deliver to each Noteholder such information as may be reasonably required to
enable such Holder to prepare its Federal and state income tax returns required
by law.
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SECTION 6.7 Compensation and Indemnity. (a) Pursuant to Section
5.7(b) of the Sale and Servicing Agreement and subject to Section 6.18 herein,
the Trust shall, or shall cause the Servicer to, pay to the Indenture Trustee
and the Trust Collateral Agent from time to time compensation for its services.
The Indenture Trustee's and the Trust Collateral Agent's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Trust shall or shall cause the Servicer to reimburse the Indenture Trustee and
the Trust Collateral Agent for all reasonable out-of-pocket expenses incurred or
made by it, including costs of collection, in addition to the compensation for
its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Indenture Trustee's and the Trust
Collateral Agent's agents, counsel, accountants and experts. The Trust shall or
shall cause the Servicer to indemnify the Indenture Trustee, the Trust
Collateral Agent and their respective officers, directors, employees and agents
against any and all loss, liability or expense (including attorneys' fees and
expenses) incurred by each of them in connection with the acceptance or the
administration of this trust and the performance of its duties hereunder. The
Indenture Trustee or the Trust Collateral Agent shall notify the Trust and the
Servicer promptly of any claim for which it may seek indemnity. Failure by the
Indenture Trustee or the Trust Collateral Agent to so notify the Trust and the
Servicer shall not relieve the Trust of its obligations hereunder or the
Servicer of its obligations under Article XII of the Sale and Servicing
Agreement. The Trust shall or shall cause the Servicer to defend the claim, the
Indenture Trustee or the Trust Collateral Agent may have separate counsel and
the Trust shall or shall cause the Servicer to pay the fees and expenses of such
counsel. Neither the Trust nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee or the Trust Collateral Agent through the Indenture Trustee's or the
Trust Collateral Agent's own willful misconduct, negligence or bad faith.
(b) The Trust's payment obligations to the Indenture Trustee
pursuant to this Section shall survive the discharge of this Indenture or the
earlier resignation or removal of the Indenture Trustee or the Trust Collateral
Agent. When the Indenture Trustee incurs expenses after the occurrence of a
Default specified in Section 5.1(iv) or (v) with respect to the Trust, the
expenses are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable Federal or state bankruptcy,
insolvency or similar law. Notwithstanding anything else set forth in this
Indenture or the Transaction Documents, the Indenture Trustee agrees that the
obligations of the Trust (but not the Servicer) to the Indenture Trustee
hereunder and under the Transaction Documents shall be recourse to the Trust
Property only and specifically shall not be recourse to the assets of the Trust
or any Securityholder. In addition, the Indenture Trustee agrees that its
recourse to the Trust, the Trust Property, the Seller and amounts held pursuant
of the Spread Account Agreement shall be limited to the right to receive the
distributions referred to in Section 5.7(b) of the Sale and Servicing Agreement
or Section 3.03 of the Spread Account Agreement.
SECTION 6.8 Replacement of Indenture Trustee. The Indenture Trustee
may resign at any time by so notifying the Trust and the Insurer. The Trust may
and, at the request of the Insurer (unless an Insurer Default shall have
occurred and be continuing) shall, remove the Indenture Trustee, if:
(i) the Indenture Trustee fails to comply with Section
6.11;
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(ii) a court having jurisdiction in the premises in
respect of the Indenture Trustee in an involuntary case or
proceeding under federal or state banking or bankruptcy
laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other
similar law, shall have entered a decree or order granting
relief or appointing a receiver, liquidator, assignee,
custodian, trustee, conservator, sequestrator (or similar
official) for the Indenture Trustee or for any substantial
part of the Indenture Trustee's property, or ordering the
winding-up or liquidation of the Indenture Trustee's
affairs;
(iii) an involuntary case under the federal bankruptcy
laws, as now or hereafter in effect, or another present or
future federal or state bankruptcy, insolvency or similar
law is commenced with respect to the Indenture Trustee and
such case is not dismissed within 60 days;
(iv) the Indenture Trustee commences a voluntary case
under any federal or state banking or bankruptcy laws, as
now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar
law, or consents to the appointment of or taking possession
by a receiver, liquidator, assignee, custodian, trustee,
conservator, sequestrator (or other similar official) for
the Indenture Trustee or for any substantial part of the
Indenture Trustee's property, or makes any assignment for
the benefit of creditors or fails generally to pay its debts
as such debts become due or takes any corporate action in
furtherance of any of the foregoing;
(v) the Indenture Trustee otherwise becomes incapable
of acting; or
(vi) the rating assigned to the long-term unsecured
debt obligations of the Indenture Trustee by the Rating
Agencies shall be lowered below the rating of "BBB", "Baa3"
or equivalent rating or be withdrawn by either of the Rating
Agencies.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Trust
shall promptly appoint a successor Indenture Trustee acceptable to the Insurer
(so long as an Insurer Default shall not have occurred and be continuing). If
the Trust fails to appoint such a successor Indenture Trustee, the Insurer may
appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Trust. Thereupon the
resignation or removal of the retiring Indenture Trustee the Insurer (provided
that no Insurer Default shall have occurred and be continuing) shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the retiring Indenture Trustee under this Indenture subject to
satisfaction of the Rating Agency Condition. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
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If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Trust or the Holders of a majority in Outstanding Amount
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee pursuant to any of the provisions of this Section
shall not become effective until acceptance of appointment by the successor
Indenture Trustee pursuant to Section 6.8 and payment of all fees and expenses
owed to the outgoing Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Trust's and the Servicer's obligations under Section 6.7 shall
continue for the benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate
Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture,
at any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Trust may at the time be located, the
Indenture Trustee with the consent of the Insurer (so long as an Insurer Default
shall not have occurred and be continuing) shall have the power and may execute
and deliver all instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Trust, or any part
hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trust as the Indenture Trustee may consider
necessary or desirable. No co-trustee or separate trustee hereunder shall be
required to meet the terms of eligibility as a successor trustee under Section
6.11 and no notice to Noteholders of the appointment of any co-trustee or
separate trustee shall be required under Section 6.8 hereof.
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(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Indenture Trustee shall be
conferred or imposed upon and exercised or performed by the
Indenture Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any
particular act or acts are to be performed the Indenture
Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or
any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee
hereunder, including acts or omissions of predecessor or
successor trustees; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, dissolve, become insolvent, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall invest in and be exercised by the Indenture Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
SECTION 6.11 Eligibility: Disqualification. The Indenture Trustee shall
at all times satisfy the requirements of TIA ss.310(a). The Indenture Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition and it shall have a long
term debt rating of Baa3 or better by the Rating Agencies. The Indenture Trustee
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shall provide copies of such reports to the Insurer upon request. The Indenture
Trustee shall comply with TIA ss.310(b), including the optional provision
permitted by the second sentence of TIA ss.310(b)(9); provided, however, that
there shall be excluded from the operation of TIA ss.310(b)(1) any indenture or
indentures under which other securities of the Trust are outstanding if the
requirements for such exclusion set forth in TIA ss.310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Trust. The
Indenture Trustee shall comply with TIA ss.311(a), excluding any creditor
relationship listed in TIA ss.311(b). A Indenture Trustee who has resigned or
been removed shall be subject to TIA ss.311(a) to the extent indicated.
SECTION 6.13 Appointment and Powers. Subject to the terms and
conditions hereof, each of the Trust Secured Parties hereby appoints Harris
Trust and Savings Bank as the Trust Collateral Agent with respect to the
Collateral, and Harris Trust and Savings Bank hereby accepts such appointment
and agrees to act as Trust Collateral Agent with respect to the Indenture
Collateral for the Trust Secured Parties, to maintain custody and possession of
such Indenture Collateral (except as otherwise provided hereunder) and to
perform the other duties of the Trust Collateral Agent in accordance with the
provisions of this Indenture and the other Transaction Documents. Each Trust
Secured Party hereby authorizes the Trust Collateral Agent to take such action
on its behalf, and to exercise such rights, remedies, powers and privileges
hereunder, as the Controlling Party may direct and as are specifically
authorized to be exercised by the Trust Collateral Agent by the terms hereof,
together with such actions, rights, remedies, powers and privileges as are
reasonably incidental thereto. The Trust Collateral Agent shall act upon and in
compliance with the written instructions of the Controlling Party delivered
pursuant to this Indenture promptly following receipt of such written
instructions; provided that the Trust Collateral Agent shall not act in
accordance with any instructions (i) which are not authorized by, or in
violation of the provisions of, this Indenture or (ii) for which the Trust
Collateral Agent has not received reasonable indemnity. Receipt of such
instructions shall not be a condition to the exercise by the Trust Collateral
Agent of its express duties hereunder, except where this Indenture provides that
the Trust Collateral Agent is permitted to act only following and in accordance
with such instructions.
SECTION 6.14 Performance Duties. The Trust Collateral Agent shall have
no duties or responsibilities except those expressly set forth in this Indenture
and the other Transaction Documents to which the Trust Collateral Agent is a
party or as directed by the Controlling Party in accordance with this Indenture.
The Trust Collateral Agent shall not be required to take any discretionary
actions hereunder except at the written direction and with indemnification from
the Controlling Party. The Trust Collateral Agent shall, and hereby agrees that
it will, perform all of the duties and obligations required of it under the Sale
and Servicing Agreement.
SECTION 6.15 Limitation on Liability. Neither the Trust Collateral
Agent nor any of its directors, officers, employees and agents shall be liable
for any action taken or omitted to be taken by it or them hereunder, or in
connection herewith, except that the Trust Collateral Agent shall be liable for
its negligence, bad faith or willful misconduct; nor shall the Trust Collateral
Agent be responsible for the validity, effectiveness, value, sufficiency or
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enforceability against the Trust of this Indenture or any of the Indenture
Collateral (or any part thereof). Notwithstanding any term or provision of this
Indenture, the Trust Collateral Agent shall incur no liability to the Trust or
the Trust Secured Parties for any action taken or omitted by the Trust
Collateral Agent in connection with the Indenture Collateral, except for the
negligence, bad faith or willful misconduct on the part of the Trust Collateral
Agent, and, further, shall incur no liability to the Trust Secured Parties
except for negligence, bad faith or willful misconduct in carrying out its
duties to the Trust Secured Parties. Subject to Section 6.16, the Trust
Collateral Agent shall be protected and shall incur no liability to any such
party in conclusively relying upon the accuracy, acting in reliance upon the
contents, and assuming the genuineness of any notice, demand, certificate,
signature, instrument or other document reasonably believed by the Trust
Collateral Agent to be genuine and to have been duly executed by the appropriate
signatory, and (absent actual knowledge to the contrary) the Trust Collateral
Agent shall not be required to make any independent investigation with respect
thereto. The Trust Collateral Agent shall at all times be free independently to
establish to its reasonable satisfaction, but shall have no duty to
independently verify, the existence or nonexistence of facts that are a
condition to the exercise or enforcement of any right or remedy hereunder or
under any of the Transaction Documents. The Trust Collateral Agent may consult
with counsel, and shall not be liable for any action taken or omitted to be
taken by it hereunder in good faith and in accordance with the advice of such
counsel. The Trust Collateral Agent shall not be under any obligation to
exercise any of the remedial rights, obligations or powers vested in it by this
Indenture or to follow any direction from the Controlling Party unless it shall
have received security or indemnity satisfactory to the Trust Collateral Agent
against the costs, expenses and liabilities which might be incurred by it.
SECTION 6.16 Reliance Upon Documents. In the absence of negligence, bad
faith or willful misconduct on its part, the Trust Collateral Agent shall be
entitled to rely conclusively on any communication, instrument, paper or other
document reasonably believed by it to be genuine and correct and to have been
signed or sent by the proper Person or Persons and shall have no liability in
acting, or omitting to act, where such action or omission to act is in
reasonable reliance upon any statement or opinion contained in any such document
or instrument.
SECTION 6.17 Successor Trust Collateral Agent
(a) Merger. Any Person into which the Trust Collateral Agent may be
converted or merged, or with which it may be consolidated, or to which it may
sell or transfer its trust business and assets as a whole or substantially as a
whole, or any Person resulting from any such conversion, merger, consolidation,
sale or transfer to which the Trust Collateral Agent is a party, shall (provided
it is otherwise qualified to serve as the Trust Collateral Agent hereunder) be
and become a successor Trust Collateral Agent hereunder and be vested with all
of the title to and interest in the Indenture Collateral and all of the trusts,
powers, discretions, immunities, privileges and other matters as was its
predecessor without the execution or filing of any instrument or any further
act, deed or conveyance on the part of any of the parties hereto, anything
herein to the contrary notwithstanding, except to the extent, if any, that any
such action is necessary to perfect, or continue the perfection of, the security
interest of the Trust Secured Parties in the Indenture Collateral; provided that
any such successor shall also be the successor Indenture Trustee under Section
6.9.
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(b) Resignation. The Trust Collateral Agent and any successor Trust
Collateral Agent may resign at any time by so notifying the Trust and the
Insurer; provided that the Trust Collateral Agent shall not so resign unless it
shall also resign as Indenture Trustee hereunder.
(c) Removal. The Trust Collateral Agent may be removed by the
Controlling Party at any time (and should be removed at any time that the
Indenture Trustee has been removed), with or without cause, by an instrument or
concurrent instruments in writing delivered to the Trust Collateral Agent, the
other Trust Secured Party and the Trust. A temporary successor may be removed at
any time to allow a successor Trust Collateral Agent to be appointed pursuant to
subsection (d) below. Any removal pursuant to the provisions of this subsection
(c) shall take effect only upon the date which is the latest of (i) the
effective date of the appointment of a successor Trust Collateral Agent and the
acceptance in writing by such successor Trust Collateral Agent of such
appointment and of its obligation to perform its duties hereunder in accordance
with the provisions hereof, and (ii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 3.6.
(d) Acceptance by Successor. The Controlling Party shall have the
sole right to appoint each successor Trust Collateral Agent. Every temporary or
permanent successor Trust Collateral Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and to the Indenture Trustee, each
Trust Secured Party and the Trust an instrument in writing accepting such
appointment hereunder and the relevant predecessor shall execute, acknowledge
and deliver such other documents and instruments as will effectuate the delivery
of all Indenture Collateral to the successor Trust Collateral Agent, whereupon
such successor, without any further act, deed or conveyance, shall become fully
vested with all the estates, properties, rights, powers, duties and obligations
of its predecessor. Such predecessor shall, nevertheless, on the written request
of either Trust Secured Party or the Trust, execute and deliver an instrument
transferring to such successor all the estates, properties, rights and powers of
such predecessor hereunder. In the event that any instrument in writing from the
Trust or a Trust Secured Party is reasonably required by a successor Trust
Collateral Agent to more fully and certainly vest in such successor the estates,
properties, rights, powers, duties and obligations vested or intended to be
vested hereunder in the Trust Collateral Agent, any and all such written
instruments shall, at the request of the temporary or permanent successor Trust
Collateral Agent, be forthwith executed, acknowledged and delivered by the
Indenture Trustee or the Trust, as the case may be. The designation of any
successor Trust Collateral Agent and the instrument or instruments removing any
Trust Collateral Agent and appointing a successor hereunder, together with all
other instruments provided for herein, shall be maintained with the records
relating to the Indenture Collateral and, to the extent required by applicable
law, filed or recorded by the successor Trust Collateral Agent in each place
where such filing or recording is necessary to effect the transfer of the
Indenture Collateral to the successor Trust Collateral Agent or to protect or
continue the perfection of the security interests granted hereunder.
SECTION 6.18 Compensation. The Trust Collateral Agent shall not be
entitled to any compensation for the performance of its duties hereunder other
than the compensation it is entitled to receive in its capacity as Indenture
Trustee. Upon termination of the Indenture Trustee, the Trust Collateral Agent's
duties hereunder shall also terminate.
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SECTION 6.19 Representations and Warranties of the Indenture Trustee
and the Trust Collateral Agent.Each of the Trust Collateral Agent and the
Indenture Trustee represents and warrants to the Trust and to each Trust Secured
Party as follows:
(a) Due Organization. The Indenture Trustee and the Trust Collateral
Agent is a New York banking corporation, duly organized, validly existing and in
good standing under the laws of New York and is duly authorized and licensed
under applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Indenture Trustee and the Trust Collateral
Agent has all requisite right, power and authority to execute and deliver this
Indenture and to perform all of its duties as the Indenture Trustee or Trust
Collateral Agent, as the case may be, hereunder.
(c) Due Authorization. The execution and delivery by the Trust
Collateral Agent and the Indenture Trustee of this Indenture and the other
Transaction Documents to which it is a party, and the performance by the Trust
Collateral Agent and the Indenture Trustee of its duties hereunder and
thereunder, have been duly authorized by all necessary corporate proceedings,
are required for the valid execution and delivery by the Trust Collateral Agent
or the Indenture Trustee, or the performance by the Trust Collateral Agent or
the Indenture Trustee, of this Indenture and such other Transaction Documents.
(d) Valid and Binding Indenture. Each of the Indenture Trustee and
the Trust Collateral Agent has duly executed and delivered this Indenture and
each other Transaction Document to which it is a party, and each of this
Indenture and each such other Transaction Document constitutes the legal, valid
and binding obligation of the Indenture Trustee and the Trust Collateral Agent,
enforceable against the Indenture Trustee and the Trust Collateral Agent in
accordance with its terms, except as (i) such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar laws relating to or affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
SECTION 6.20 Waiver of Setoffs. The Indenture Trustee and the Trust
Collateral Agent hereby expressly waives any and all rights of setoff that the
Indenture Trustee or the Trust Collateral Agent may otherwise at any time have
under applicable law with respect to any Account and agrees that amounts in the
Accounts shall at all times be held and applied solely in accordance with the
provisions hereof.
SECTION 6.21 Control by Controlling Party. The Indenture Trustee and
the Trust Collateral Agent shall comply with notices and instructions given by
the Trust only if accompanied by the written consent of the Controlling Party,
except that if any Event of Default shall have occurred and be continuing, the
Indenture Trustee and the Trust Collateral Agent shall act upon and comply with
notices and instructions given by the Controlling Party alone in the place and
stead of the Trust.
SECTION 6.22 Compensation. The Trust Collateral Agent shall not be
entitled to any compensation for the performance of its duties hereunder other
than the compensation it is
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entitled to receive in its capacity as Indenture Trustee. Upon termination of
the Indenture Trustee, the Trust Collateral Agent's duties hereunder shall also
terminate.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Trust To Furnish To Indenture Trustee Names and Addresses
of Noteholders. The Trust will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Holders as of such Record Date, (b) at such other times as the Indenture Trustee
may request in writing, within 30 days after receipt by the Trust of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; provided, however, that so long as the
Indenture Trustee is the Note Registrar, no such list shall be required to be
furnished. The Indenture Trustee or, if the Indenture Trustee is not the Note
Registrar, the Trust shall furnish to the Insurer in writing upon their written
request and at such other times as the Insurer may request a copy of the list.
SECTION 7.2 Preservation of Information; Communications to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders contained in the most recent
list furnished to the Indenture Trustee as provided in Section 7.1 and the names
and addresses of Holders received by the Indenture Trustee in its capacity as
Note Registrar. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss.312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Trust, the Indenture Trustee and the Note Registrar shall
have the protection of TIA ss.312(c).
SECTION 7.3 Reports by Trust. (a) The Trust shall:
(i) file with the Indenture Trustee, within 15 days
after the Trust is required to file the same with the
Commission, copies of the annual reports and copies of the
information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the
Trust may be required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission
in accordance with rules and regulations prescribed from
time to time by the Commission such additional information,
documents and reports with respect to compliance by the
Trust with the conditions and covenants of this Indenture as
may be required from time to time by such rules and
regulations; and
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(iii) supply to the Indenture Trustee (and the
Indenture Trustee shall transmit by mail to all Noteholders
described in TIA ss.313(c)) such summaries of any
information, documents and reports required to be filed by
the Trust pursuant to clauses (i) and (ii) of this Section
7.3(a) as may be required by rules and regulations
prescribed from time to time by the Commission.
(b) Unless the Trust otherwise determines, the fiscal year of the
Trust shall end on December 31 of each year.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA ss.313(a),
within 60 days after each August 31, beginning with August 31, 1998, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss.313(c) a
brief report dated as of such date that complies with TIA ss.313(a). The
Indenture Trustee also shall comply with TIA ss.313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Trust shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money . Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Trust Collateral Agent pursuant to this Indenture and the
Sale and Servicing Agreement. The Indenture Trustee shall apply all such money
received by it, or cause the Trust Collateral Agent to apply all money received
by it as provided in this Indenture and the Sale and Servicing Agreement. Except
as otherwise expressly provided in this Indenture or in the Sale and Servicing
Agreement, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Trust Property, the
Indenture Trustee may take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
SECTION 8.2 Release of Collateral. (a) Subject to the payment of its
fees and expenses pursuant to Section 6.7, the Trust Collateral Agent may, and
when required by the Trust and the provisions of this Indenture shall, execute
instruments to release property from the lien of this Indenture, in a manner and
under circumstances that are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Trust Collateral
Agent as provided in this Article VIII shall be bound to ascertain the Trust
Collateral Agent's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any monies.
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(b) The Trust Collateral Agent shall, at such time as there are no
Notes outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
have been paid, release any remaining portion of the Trust Property that secured
the Notes from the lien of this Indenture and release to the Trust or any other
Person entitled thereto any funds then on deposit in the Accounts. The Indenture
Trustee shall release property from the lien of this Indenture pursuant to this
Section 8.2(b) only upon receipt of a Trust Request accompanied by an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA) Independent
Certificates in accordance with TIA ss.ss. 314(c) and 314(d)(1) meeting the
applicable requirements of Section 11.1.
SECTION 8.3 Opinion of Counsel. The Trust Collateral Agent shall
receive at least seven days' notice when requested by the Trust to take any
action pursuant to Section 8.2(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require as a condition to such
action, an Opinion of Counsel in form and substance satisfactory to each of the
Insurer and the Indenture Trustee, stating the legal effect of any such action,
outlining the steps required to complete the same, and concluding that all
conditions precedent to the taking of such action have been complied with and
such action will not materially and adversely impair the security for the Notes
or the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Trust Property. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any certificate or other instrument delivered to the
Indenture Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders .
(a) Without the consent of the Holders of any Notes but with the consent of the
Insurer (unless an Insurer Default shall have occurred and be continuing), as
evidenced to the Indenture Trustee, the Trust and the Indenture Trustee, when
authorized by a Trust Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as in force at the date of the execution
thereof), in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture,
or better to assure, convey and confirm unto the Trust
Collateral Agent any property subject or required to be
subjected to the lien of this Indenture, or to subject to
the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the
Trust, and the assumption by any such successor of the
covenants of the Trust herein and in the Notes contained;
(iii) to add to the covenants of the Trust, for the
benefit of the Holders of the Notes, or to surrender any
right or power herein conferred upon the Trust;
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(iv) to convey, transfer, assign, mortgage or pledge
any property to or with the Trust Collateral Agent;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may
be inconsistent with any other provision herein or in any
supplemental indenture or to make any other provisions with
respect to matters or questions arising under this Indenture
or in any supplemental indenture; provided that such action
shall not adversely affect the interests of the Holders of
the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to
the Notes and to add to or change any of the provisions of
this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to
effect the qualification of this Indenture under the TIA or
under any similar federal statute hereafter enacted and to
add to this Indenture such other provisions as may be
expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Trust and the Indenture Trustee, when authorized by a Trust
Order, may, also without the consent of any of the Holders of the Notes but with
prior notice to the Rating Agencies by the Trust, as evidenced to the Indenture
Trustee, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Notes under this Indenture; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel, adversely affect
in any material respect the interests of any Noteholder.
SECTION 9.2 Supplemental Indentures With Consent of Noteholders. The
Trust and the Indenture Trustee, when authorized by a Trust Order, also may,
with prior notice to the Rating Agencies, with the consent of the Insurer
(unless an Insurer Default shall have occurred and be continuing) and with the
consent of the Holders of not less than a majority of the outstanding Amount of
the Notes, by Act of such Holders delivered to the Trust and the Indenture
Trustee, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Notes under this Indenture; provided, however,
that, subject to the express rights of the Insurer under the Transaction
Documents, no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Note affected thereby:
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(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the
principal amount thereof, the interest rate thereon or the
Redemption Price with respect thereto, change the provision
of this Indenture relating to the application of collections
on, or the proceeds of the sale of, the Trust Property to
payment of principal of or interest on the Notes, or change
any place of payment where, or the coin or currency in
which, any Note or the interest thereon is payable;
(ii) impair the right to institute suit for the
enforcement of the provisions of this Indenture requiring
the application of funds available therefor, as provided in
Article V, to the payment of any such amount due on the
Notes on or after the respective due dates thereof (or, in
the case of redemption, on or after the Redemption Date);
(iii) reduce the percentage of the Outstanding Amount
of the Notes, the consent of the Holders of which is
required for any such supplemental indenture, or the consent
of the Holders of which is required for any waiver of
compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided
for in this Indenture;
(iv) modify or alter the provisions of the proviso to
the definition of the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of
the Notes required to direct the Indenture Trustee to direct
the Trust to sell or liquidate the Trust Property pursuant
to Section 5.4;
(vi) modify any provision of this Section except to
increase any percentage specified herein or to provide that
certain additional provisions of this Indenture or the
Transaction Documents cannot be modified or waived without
the consent of the Holder of each Outstanding Note affected
thereby;
(vii) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of
any payment of interest or principal due on any Note on any
Distribution Date (including the calculation of any of the
individual components of such calculation) or to affect the
rights of the Holders of Notes to the benefit of any
provisions for the mandatory redemption of the Notes
contained herein; or
(viii) permit the creation of any lien ranking prior to
or on a parity with the lien of this Indenture with respect
to any part of the Trust Property or, except as otherwise
permitted or contemplated herein or in any of the
Transaction Documents, terminate the lien of this Indenture
on any property at any time subject hereto or deprive the
Holder of any Note of the security provided by the lien of
this Indenture.
The Indenture Trustee may determine whether or not any Notes would be
adversely affected by any supplemental indenture upon receipt of an Opinion of
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Counsel to that effect and any such determination shall be conclusive upon the
Holders of all Notes, whether theretofore or thereafter authenticated and
delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Trust and the Indenture Trustee of
any supplemental indenture pursuant to this Section, the Indenture Trustee shall
mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel (and, if requested, an Officer's Certificate) stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Indenture Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Indenture Trustee's own rights,
duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to the Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Trust and the Holders of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity With Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Trust or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Trust, to any such supplemental indenture may
be prepared and executed by the Trust and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption . (a) The Notes are subject to redemption in
whole, but not in part, at the direction of the Seller pursuant to Section
11.1(a) of the Sale and Servicing Agreement, on any Distribution Date on which
the Servicer or Seller exercises its option to purchase the Trust Property
pursuant to said Section 11.1(a), for a purchase price equal to the Redemption
Price. The Servicer or the Trust shall furnish the Insurer and each Rating
Agency notice of such redemption. If the Notes are to be redeemed pursuant to
this Section 10.1(a), the Servicer or the Trust shall furnish notice of such
election to the Indenture Trustee not later than 35 days prior to the Redemption
Date and the Trust shall deposit with the Indenture Trustee in the Note
Distribution Account the Redemption Price of the Notes within Five Business Days
prior to the Redemption Date whereupon all such Notes shall be due and payable
on the Redemption Date upon the furnishing of a notice complying with Section
10.2.
In the event that on the Distribution Date on which the
Pre-Funding Period ends (or on the Distribution Date immediately following the
last day of the Pre-Funding Period, if the Pre-Funding Period does not end on a
Distribution Date), any Pre-Funded Amount remains on deposit in the Pre-Funding
Account after giving effect to the purchase of all Additional Receivables,
including any such purchase on such Redemption Date, the Notes will be redeemed
in part and paid sequentially in an aggregate principal amount equal to the
Prepayment Amount.
(c) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(c), the Servicer or the
Trust shall, to the extent practicable, furnish written notice of such event to
the Indenture Trustee not later than 45 days prior to the Redemption Date
whereupon all such amounts shall be payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice. (a) Notice of redemption
supplied to the Indenture Trustee by the Servicer under Section 10.1(a) shall be
given by the Indenture Trustee by facsimile or by first-class mail, postage
prepaid, transmitted or mailed prior to the applicable Redemption Date to each
Holder of Notes or record, as of the close of business on the date which is 5
days prior to the applicable Redemption Date, at such Holder's address appearing
in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments shall be
made only upon presentation and surrender of such Notes and
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the place where such Notes are to be surrendered for payment
of the Redemption Price (which shall be the office or agency
of the Trust to be maintained as provided in Section 3.2);
and
(iv) that interest on the Notes shall cease to accrue
on the Redemption Date.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Trust. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.1(b) is not required
to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date. The Notes to be redeemed
shall, following notice of redemption as required by Section 10.2 (in the case
of redemption pursuant to Section 10.1(a) or (c)), on the Redemption Date become
due and payable at the Redemption Price and (unless the Trust shall default in
the payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certficates and Opinions, etc. (a) Upon any
application or request by the Trust to the Indenture Trustee or the Trust
Collateral Agent to take any action under any provision of this Indenture, the
Trust shall furnish to the Indenture Trustee or the Trust Collateral Agent, as
the case may be, and to the Insurer (i) an Officer's Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate
or opinion has read or has caused to be read such covenant
or condition and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
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(iii) a statement that, in the opinion of each such
signatory, such signatory has made such examination or
investigation as is necessary to enable such signatory to
express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each
such signatory such condition or covenant has been complied
with.
(b) (i) Prior to the deposit of any Collateral or other
property or securities with the Trust Collateral Agent that
is to be made the basis for the release of any property or
securities subject to the lien of this Indenture, the Trust
shall, in addition to any obligation imposed in Section
11.1(a) or elsewhere in this Indenture, furnish to the Trust
Collateral Agent and the Insurer an Officer's Certificate
certifying or stating the opinion of each person signing
such certificate as to the fair value (within 90 days of
such deposit) to the Trust of the Collateral or other
property or securities to be so deposited. Such certificate
or opinion of fair value shall satisfy the requirements of
Section 314 of the TIA, as amended.
(ii) Whenever the Trust is required to furnish to the
Trust Collateral Agent and the Insurer an Officer's
Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the
Trust shall also deliver to the Trust Collateral Agent and
the Insurer an Independent Certificate as to the same
matters, if the fair value to the Trust of the securities to
be so deposited and of all other such securities made the
basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Trust,
as set forth in the certificates delivered pursuant to
clause (i) above and this clause (ii), is 10% or more of the
Outstanding Amount of the Notes; provided, that such a
certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the
Trust as set forth in the related Officer's Certificate is
less than $25,000 or less than 1% percent of the Outstanding
Amount of the Notes.
(iii) Other than with respect to the release of any
Purchased Receivables or Liquidated Receivables, whenever
any property or securities are to be released from the lien
of this Indenture, the Trust shall also furnish to the Trust
Collateral Agent and the Insurer an Officer's Certificate
certifying or stating the opinion of each person signing
such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be
released and stating that in the opinion of such person the
proposed release will not impair the security under this
Indenture in contravention of the provisions hereof.
(iv) Whenever the Trust is required to furnish to the
Indenture Trustee and the Insurer an Officer's Certificate
certifying or stating the opinion of any signer thereof as
to the matters described in clause (iii) above, the Trust
shall also furnish to the Trust Collateral Agent and the
Insurer an Independent Certificate as to the same matters if
the fair value of the property or securities and of all
other property other than Purchased Receivables and
Defaulted Receivables, or securities released from the lien
of this Indenture since the commencement of the then current
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calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals 10% or more
of the Outstanding Amount of the Notes; provided, that such
certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set
forth in the related Officer's Certificate is less than
$25,000 or less than 1 percent of the then Outstanding
Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other provision
of this Section, the Trust may (A) collect, liquidate, sell
or otherwise dispose of Receivables as and to the extent
permitted or required by the Transaction Documents and (B)
make cash payments out of the Accounts as and to the extent
permitted or required by the Transaction Documents.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Trust may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any such certificate of an Authorized Officer or Opinion of
Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Servicer, the Seller or the Trust, stating that the information with respect to
such factual matters is in the possession of the Servicer, the Seller or the
Trust, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Trust
shall deliver any document as a condition of the granting of such application,
or as evidence of the Trust's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Trust to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to conclusively rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Article VI.
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SECTION 11.3 Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Trust. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.1) conclusive in favor of the Indenture Trustee and
the Trust, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any customary manner of the Indenture
Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Trust in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc. to Indenture Trustee, Trust and Rating
Agencies. Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other documents provided or permitted by this Indenture
to be made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder or by the Trust shall be
sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed first-class and shall be deemed to have been duly
given upon receipt to the Indenture Trustee at its Corporate Trust Office, or
(b) The Trust by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered, delivered by
facsimile or overnight courier or mailed first class, and shall deemed to have
been duly given upon receipt to the Trust addressed to: National Auto Finance
1998-1 Trust, in care of Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, DE 19890-0001 Attention: Corporate Trust
Administration, or at any other address previously furnished in writing to the
Indenture Trustee by Trust. The Trust shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee.
(c) The Insurer by the Trust or the Indenture Trustee shall be
sufficient for any purpose hereunder if in writing and mailed by first-class
mail personally delivered or telexed or telecopied to the recipient as follows:
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To the Insurer: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: National Auto Finance 1998-1 Trust, 5.88%
Automobile Receivables-Backed Notes
Telex No.: (212) 688-3101
Confirmation: (212) 826-3518
Telecopy Nos.: (212) 339-3518 or
(212) 339-3529
(In each case in which notice or other communication to the Insurer refers to an
Event of Default, a claim on the Note Policy or with respect to which failure on
the part of the Insurer to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication should also be
sent to the attention of the General Counsel and the Head--Financial Guaranty
Group "URGENT MATERIAL ENCLOSED.")
Notices required to be given to the Rating Agencies by the Trust, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered, delivered by overnight courier or first class or via facsimile to (i)
in the case of Moody's, at the following address: Moody's Investors Service,
Inc., Attn: ABS Monitoring Department, 99 Church Street, New York, New York
10004, Fax No: (212) 553-0355 and (ii) in the case of S&P, at the following
address: Standard & Poor's Ratings Group, 25 Broadway (15th Floor), New York,
New York 10004, Attention: Asset Backed Surveillance Department, Fax No: (212)
412-0224; or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholder; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
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given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Trust
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Note Paying Agent to such
Holder, that is different from the methods provided for in this Indenture for
such payments or notices, provided that such methods are reasonable and
consented to by the Indenture Trustee (which consent shall not be unreasonably
withheld). The Trust will furnish to the Indenture Trustee a copy of each such
agreement and the Indenture Trustee will cause payments to be made and notices
to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Trust shall bind its successors and assigns,
whether so expressed or not. All agreements of the Indenture Trustee in this
Indenture shall bind its successors. All agreements of the Trust Collateral
Agent in this Indenture shall bind its successors.
SECTION 11.10 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.11 Benefits of Indenture. The Insurer and its successors and
assigns shall be a third-party beneficiary to the provisions of this Indenture,
and shall be entitled to rely upon and directly to enforce such provisions of
this Indenture so long as no Insurer Default shall have occurred and be
continuing. Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other person with an Ownership interest in any part of the Trust Property, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
The Insurer may disclaim any of its rights
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and powers under this Indenture (in which case the Indenture Trustee may
exercise such right or power hereunder), but not its duties and obligations
under the Note Policy, upon delivery of a written notice to the Indenture
Trustee.
SECTION 11.12 Legal Holidays.case where the date on which any payment
is due shall not be a Business Day, then (notwithstanding any other provision of
the Notes or this Indenture) payment need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date an which nominally due, and no interest shall accrue for the
period from and after any such nominal date.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Trust and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Trust or any other counsel reasonably acceptable to
the Indenture Trustee and the Insurer) to the effect that such recording is
necessary either for the protection of the Noteholders or any other person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee or the Trust Collateral Agent under this Indenture or the
Collateral Agent under the Spread Account Agreement.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Trust, the Seller, the
Servicer, the Owner Trustee, the Trust Collateral Agent or the Indenture Trustee
on the Notes or under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) the Seller, the
Servicer, the Trust Collateral Agent, the Indenture Trustee or the Owner Trustee
in its individual capacity, (ii) any owner of a beneficial interest in the Trust
or (iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Seller, the Servicer, the Trust Collateral Agent, the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Trust, the Seller, the Trust Collateral Agent, the
Servicer, the Owner Trustee or the Indenture Trustee or of any successor or
assign of the Seller, the Servicer, the Trust Collateral Agent, the Indenture
Trustee or the Owner Trustee in its individual capacity, except as any such
Person may have expressly agreed (it being understood that the Indenture
Trustee, the Trust Collateral Agent and the Owner Trustee have no such
obligations in their individual capacity) and except that any such owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations
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of the Trust hereunder, the Owner Trustee shall be subject to, and entitled to
the benefits of, the terms and provisions of Articles VI, VII and VIII of the
Trust Agreement.
SECTION 11.7 No Petition. The Indenture Trustee and the Trust
Collateral Agent, by entering into this Indenture, and each Noteholder, by
accepting a Note, hereby covenant and agree that they will not at any time
institute against the Seller, or the Trust, or join in any institution the
Seller, or the Trust of, any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings, or other proceedings under any United States Federal
or state bankruptcy or similar law in connection with any obligations relating
to the Notes, this Indenture or any of the Transaction Documents.
SECTION 11.8 Inspection. The Trust agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or of the
Insurer, during the Trust's normal business hours, to examine all the books of
account, records, reports, and other papers of the Trust, to make copies and
extracts therefrom, to cause such books to be audited by independent certified
public accountants, and to discuss the Trust's affairs, finances and accounts
with the Trust's officers, employees, and independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its Obligations hereunder.
SECTION 11.19 Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and delivered
by Wilmington Trust Company, not individually or personally but solely as Owner
Trustee of the Trust under the Trust Agreement, in the exercise of the powers
and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Trust, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company individually or personally, to perform any
covenant either expressed or implied contained herein, all such liability, if
any, being expressly waived by the parties to this Agreement and by any person
claiming by, through or under them and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Trust or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaking by the
Trust under this Agreement or any related documents.
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IN WITNESS WHEREOF, the Trust, the Indenture Trustee and the Trust
Collateral Agent have caused this Indenture to be duly executed by their
respective officers, hereunto duly authorized, all as of the day and year first
above written.
NATIONAL AUTO FINANCE 1998-1 TRUST
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as
Owner Trustee,
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK, not in its
individual capacity but solely as
Indenture Trustee and Trust Collateral
Agent,
By:
Name:
Title:
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EXHIBIT A
FORM OF NOTE
REGISTERED $ [_________]
No. A-1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ____________
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANYTIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
NATIONAL AUTO FINANCE 1998-1 TRUST
5.88% AUTOMOBILE RECEIVABLES-BACKED NOTES, SERIES 1998-1
National Auto Finance 1998-1 Trust, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of EIGHTY FIVE MILLION TWO HUNDRED
THOUSAND DOLLARS ($ 85,200,000), such amount payable on each Distribution Date
in an amount equal to the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Notes pursuant to Section
3.1 of the Indenture; provided, however, that the entire unpaid principal amount
of this Note shall be due and payable on the May 21, 2004 Distribution Date (the
"Final Scheduled Distribution Date"). The Issuer will pay interest on this Note
at the rate per annum shown above on each Distribution Date until the principal
of this Note is paid or made available for payment, on the principal amount of
this Note outstanding on the preceding Distribution Date (after giving effect to
all payments of principal made on the preceding Distribution Date). Interest on
this Note will accrue for each Distribution Date from the most recent
Distribution Date on which interest has been paid, to, but excluding such
Distribution Date or, if no interest has yet been paid, from January 20, 1998.
1
<PAGE>
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Such principal of and interest on this Note shall be paid in the
manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by Financial Security Assurance Inc.
(the "Insurer"), pursuant to which the Insurer has unconditionally guaranteed
the Scheduled Payments (as defined in the Note Policy) with respect to the
Notes.
For purposes of federal income, state and local income and franchise
and any other income taxes, the Issuer will treat the Notes as indebtedness of
the Issuer and hereby instructs the Indenture Trustee to treat the Notes as
indebtedness of the Issuer for federal and state tax reporting purposes.
Each Noteholder or Note Owner, by acceptance of this Note or, in the
case of a Note Owner, a beneficial interest in a Note, covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Seller, the Servicer, the Indenture
Trustee, the Trust Collateral Agent or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
owner, beneficiary, agent, officer, director or employee of the Seller, the
Servicer, the Indenture Trustee, the Trust Collateral Agent or the Owner Trustee
in its individual capacity, any holder of a beneficial interest in the Issuer,
the Seller, the Servicer, the Trust Collateral Agent, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Seller, the Servicer, the
Indenture Trustee, the Trust Collateral Agent or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee, the Trust Collateral Agent and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such owner or beneficiary shall be fully liable, to the extent provided
by applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer as of the date set forth
below.
NATIONAL AUTO FINANCE 1998-1 TRUST
WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee under the Trust
Agreement
By
Name:
Title:
3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: HARRIS TRUST AND SAVINGS BANK, not in its individual
capacity but solely as Indenture Trustee,
By
Name:
Title:
<PAGE>
REVERSE OF NOTE
This Note is a duly authorized Note of the Issuer, designated as its
5.88% Automobile Receivables-Backed Notes, Series 1998-1 (herein called the
"Notes"), issued under an Indenture dated as of December 15, 1997 (such
indenture, as supplemented or amended, is herein called the "Indenture"),
between the Issuer and Harris Trust and Savings Bank, as trustee (the "Indenture
Trustee", which term includes any successor Indenture Trustee under the
Indenture, and the "Trust Collateral Agent", which term includes any successor
Trust Collateral Agent under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee, the Trust Collateral Agent and the Holders of the Notes. The Notes are
subject to all terms of the Indenture. All terms used in this Note that are
defined in the Indenture, as supplemented or amended, shall have the meanings
assigned to them in or pursuant to the Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the Trust
Property pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Distribution Date in an
amount described on the face hereof. "Distribution Date" means the twenty-first
day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing January 21, 1998.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Scheduled Distribution Date
and the Redemption Date, if any, pursuant to Section 10.1(a) or 10.1(c) of the
Indenture. As described above, a portion of the unpaid principal balance of this
Note shall be due and payable on the Redemption Date, if any, pursuant to
Section 10.1(b) of the Indenture. Notwithstanding the foregoing, the entire
unpaid principal amount of the Notes shall be due and payable (i) on the date on
which an Event of Default shall have occurred and be continuing so long as an
Insurer Default shall not have occurred and be continuing or (ii) if an Insurer
Default shall have occurred and be continuing, on the date on which an Event of
Default shall have occurred and be continuing and the Indenture Trustee or the
Holders of the Notes representing at least a majority of the Outstanding Amount
of the Notes have declared the Notes to be immediately due and payable in the
manner provided in Section 5.2 of the Indenture. All principal payments on the
Notes shall be made pro rata to the Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Holder of this Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on each Record Date, except that
with respect to Notes registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
<PAGE>
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Distribution
Date shall be binding upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Indenture
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Holder hereof as of the Record Date preceding such Distribution Date by
notice mailed prior to such Distribution Date and the amount then due and
payable shall be payable only upon presentation and surrender of this Note at
the Indenture Trustee's principal Corporate Trust Office or at the office of the
Indenture Trustee's agent appointed for such purposes located in The City of New
York.
The Issuer shall pay interest on overdue installments of interest at
the Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed (a) pursuant to
Section 10.1(a) of the Indenture, in whole, but not in part, at the option of
the Seller or the Servicer (with the consent of the Insurer under certain
circumstances), on any Distribution Date on or after the date on which the Pool
Balance is less than or equal to 10% of the Original Pool Balance, and (b)
pursuant to Section 10.1(b) of the Indenture, in part, on the Distribution Date
on or immediately following the last day of the Pre-Funding Period in the event
that any Pre-Funded Amount remains on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such Redemption Date.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar which requirements
include membership or participation in Securities Transfer Agents Medallion
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<PAGE>
Program ("Stamp") or such other "signature guarantee program" as maybe
determined by the Note Registrar in addition to, or in substitution for, Stamp,
all in accordance with the Exchange Act, and (ii) accompanied by such other
documents as the Indenture Trustee may require, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Note, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Seller, the Servicer, the Indenture Trustee or the
Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any owner, beneficiary, agent, officer, director
or employee of the Seller, the Servicer, the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Seller, the Servicer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Seller, the Servicer, the Indenture Trustee or
the Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed (it being understood that the Indenture Trustee and the Owner
Trustee have no such obligations in their individual capacity) and except that
any such owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Depositor, or the Issuer or join in any institution
against the Depositor, or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Transaction
Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and the Insurer and any agent of the Issuer,
the Indenture Trustee or the Insurer may treat the Person in whose name this
Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the owner hereof for all purposes,
whether or not this Note be overdue, and neither the Issuer, the Indenture
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Insurer and of the Holders of Notes
representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of the Notes,
on behalf of the Holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one of more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any
Notes issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note. The Indenture also permits the Indenture Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
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The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Transaction Documents, neither Wilmington Trust
Company in its individual capacity, any owner of a beneficial interest in the
Issuer, nor any of their respective beneficiaries, agents, officers, directors,
employees or successors or assigns shall be personally liable for, nor shall
recourse be had to any of them for, the payment of principal of or interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in this Note or the Indenture, it being expressly
understood that said covenants, obligations and indemnifications have been made
by the Issuer for the sole purposes of binding the interests of the Issuer in
the assets of the Issuer. The Holder of this Note by the acceptance hereof
agrees that except as expressly provided in the Indenture or the Transaction
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
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ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________________________ the within Note
and (name and address of assignee) all rights thereunder, and hereby irrevocably
constitutes and appoints, attorney, to transfer said Note on the books kept for
registration thereof, with full power of substitution in the premises.
Dated:______________ ____________________________*
Signature Guaranteed:
- --------
* NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
SALE AND SERVICING
AGREEMENT
among
NATIONAL AUTO FINANCE 1998-1 TRUST,
Issuer,
NATIONAL FINANCIAL AUTO FUNDING TRUST,
Seller,
NATIONAL AUTO FINANCE COMPANY, INC.,
Servicer
and
HARRIS TRUST AND SAVINGS BANK
Trust Collateral Agent and Backup Servicer
Dated as of December 15, 1997
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TABLE OF CONTENTS
ARTICLE I
Definitions
SECTION 1.1. Definitions...................................................1
SECTION 1.2. Other Definitional Provisions................................23
SECTION 1.3. Usage of Terms...............................................24
SECTION 1.4. Certain References...........................................24
SECTION 1.5. No Recourse..................................................24
SECTION 1.6. Action by or Consent of Noteholders..........................24
SECTION 1.7. Material Adverse Effect......................................25
SECTION 1.8. Calculations as to Principal and Interest
in Respect of Receivables....................................25
ARTICLE II
Conveyance of Receivables
SECTION 2.1. Conveyance of Initial Receivables............................25
SECTION 2.2. Conveyance of Subsequent Receivables.........................27
SECTION 2.3. Further Encumbrance of Trust Property........................30
SECTION 2.4. Books and Records; Payments on Receivables...................30
SECTION 2.5. Seller Repurchase of Receivables.............................31
ARTICLE III
The Receivables
SECTION 3.1. Representations and Warranties of Seller.....................32
SECTION 3.2. Repurchase upon Breach.......................................32
SECTION 3.3. Custody of Receivables Files.................................33
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1. Duties of the Servicer......................................33
SECTION 4.2. Sub-Servicing Agreements between Servicer
and the Sub-Servicers.......................................36
SECTION 4.3. Obligations of the Servicer.................................37
SECTION 4.4. No Contractual Relationship between a Sub-Servicer
and Trust Collateral Agent or Noteholders...................37
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SECTION 4.5. Assumption or Termination of Sub-Servicing
Agreement by Trust Collateral Agent.........................37
SECTION 4.6. Collection of Receivable Payments...........................38
SECTION 4.7. Maintenance of Insurance....................................40
SECTION 4.8. Realization upon Defaulted Receivables......................41
SECTION 4.9. Total Servicing Fee; Payment of Certain
Expenses by Servicer........................................41
SECTION 4.10. [Reserved]..................................................42
SECTION 4.11. Reports.....................................................42
SECTION 4.12. Annual Statement as to Compliance, Notice
of Servicer Termination Event...............................43
SECTION 4.13. Annual Independent Accountants' Report......................43
SECTION 4.14. Access to Certain Documentation and
Information Regarding Receivables...........................44
SECTION 4.15. Monthly Tape................................................44
SECTION 4.16. Retention and Termination of Servicer.......................44
SECTION 4.17. Custodial Arrangement.......................................44
ARTICLE V
Trust Accounts; Distributions; Statements to Noteholders
SECTION 5.1. Establishment of Trust Accounts.............................45
SECTION 5.2. Pre-Funding Period Reserve Account..........................49
SECTION 5.3. Certain Reimbursements to the Servicer......................50
SECTION 5.4. Application of Collections..................................50
SECTION 5.5. Withdrawals from Series 1998-1 Spread Account...............51
SECTION 5.6. Additional Deposits.........................................51
SECTION 5.7. Distributions...............................................51
SECTION 5.8. Note Distribution Account...................................54
SECTION 5.9. Pre-Funding Account.........................................55
SECTION 5.10. Statements to Noteholders...................................56
SECTION 5.11. Optional Deposits by the Insurer............................56
ARTICLE VI
The Note Policy
SECTION 6.1. Claims Under Note Policy....................................56
SECTION 6.2. Preference Claims...........................................57
SECTION 6.3. Surrender of Policy.........................................58
SECTION 6.4. Spread Account..............................................58
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ARTICLE VII
RESERVED
ARTICLE VIII
The Seller
SECTION 8.1. Representations, Warranties and Covenants of the Seller.....59
SECTION 8.2. Corporate Existence.........................................61
SECTION 8.3. Liability of Seller; Indemnities............................62
SECTION 8.4. Merger or Consolidation of, or Assumption of the
Obligations of, Seller......................................63
SECTION 8.5. Limitation on Liability of Seller and Others................63
SECTION 8.6. Seller May Own Notes........................................63
ARTICLE IX
The Servicer
SECTION 9.1. Representations, Warranties and Covenants
of the Servicer.............................................64
SECTION 9.2. Liability of Servicer; Indemnities..........................66
SECTION 9.3. Merger or Consolidation of, or Assumption of the
Obligations of the Servicer or the Trust
Collateral Agent............................................67
SECTION 9.4. Limitation on Liability of Servicer, Trust
Collateral Agent and Others.................................68
SECTION 9.5. Delegation of Duties........................................70
SECTION 9.6. Servicer Not to Resign......................................71
ARTICLE X
Default
SECTION 10.1. Servicer Termination Event.................................71
SECTION 10.2. Consequences of a Servicer Termination Event...............73
SECTION 10.3. Additional Consequences of a Servicer Termination
Event......................................................74
SECTION 10.4. Appointment of Successor...................................74
SECTION 10.5. [RESERVED].................................................72
SECTION 10.6. Notification to Noteholders and Rating Agencies............76
SECTION 10.7. Waiver of Past Defaults....................................76
SECTION 10.8. Termination of Trust Collateral Agent......................76
SECTION 10.9. Successor to Servicer......................................77
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ARTICLE XI
Termination
SECTION 11.1. Optional Purchase of All Receivables.......................78
ARTICLE XII
Administrative Duties of the Servicer
SECTION 12.1. Administrative Duties......................................79
SECTION 12.2. Records....................................................81
SECTION 12.3. Additional Information to be Furnished to the Issuer.......81
ARTICLE XIII
Miscellaneous Provisions
SECTION 13.1. Amendment..................................................81
SECTION 13.2. Protection of Title to Trust...............................83
SECTION 13.3. Notices....................................................85
SECTION 13.4. Assignment.................................................86
SECTION 13.5. Limitations on Rights of Others............................86
SECTION 13.6. Severability...............................................86
SECTION 13.7. Separate Counterparts......................................86
SECTION 13.8. Headings...................................................86
SECTION 13.9. Governing Law..............................................86
SECTION 13.10. Assignment to Trustee......................................87
SECTION 13.11. Nonpetition Covenants......................................87
SECTION 13.12. Limitation of Liability of Owner Trustee and Trustee.......87
SECTION 13.13. Independence of the Servicer...............................88
SECTION 13.14. No Joint Venture...........................................88
SECTION 13.14. Insurer as Controlling Party...............................84
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SALE AND SERVICING AGREEMENT dated as of December 15, 1997, among NATIONAL
AUTO FINANCE 1998-1 TRUST, a Delaware business trust (the "Issuer"), NATIONAL
FINANCIAL AUTO FUNDING TRUST, a Delaware business trust (the "Seller"), and
NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation (the "Servicer"),
and HARRIS TRUST AND SAVINGS BANK, an Illinois banking association, in its
capacity as Trust Collateral Agent and Backup Servicer.
WHEREAS the Issuer desires to purchase a portfolio of receivables arising
in connection with motor vehicle retail installment sale contracts acquired by
National Auto Finance Company, Inc. directly or indirectly through motor vehicle
dealers and motor vehicle finance companies;
WHEREAS the Seller has acquired such receivables from National Financial
Auto Funding Trust II and National Auto Finance Company, Inc. and is willing to
sell such receivables to the Issuer;
WHEREAS the Issuer desires to acquire additional receivables arising in
connection with motor vehicle retail installment sale contracts to be acquired
by National Auto Finance Company, Inc. directly or indirectly through motor
vehicle dealers;
WHEREAS the Seller has an agreement to purchase such additional receivables
from National Auto Finance Company, Inc. and is willing to sell such receivables
to the Issuer;
WHEREAS the Servicer is willing to service all such receivables;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Accountants' Report" means the report of a firm of nationally recognized
independent accountants described in Section 4.13.
"Actuarial Method" means the method of allocating a fixed level payment on
an obligation between principal and interest, pursuant to which the portion of
such payment that is allocated to interest is equal to the product of (a) 1/12,
(b) the fixed rate of interest on such obligation and (c) the outstanding
principal balance of such obligation.
"Addition Notice" means, with respect to any transfer of Subsequent
Receivables to the Trust pursuant to Section 2.2 of this Agreement, notice of
the Seller's election to transfer Subsequent Receivables to the Trust, such
notice to designate the related Subsequent Transfer Date and the aggregate
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Principal Balance of the Subsequent Receivables to be transferred on such
Subsequent Transfer Date.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
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.
"Aggregate Principal Balance" means, with respect to any date of
determination, the sum of the Principal Balances for all Receivables (other than
(i) any Receivable that became a Liquidated Receivable during the related Due
Period and (ii) any Receivable that became a Purchased Receivable during the
related Due Period) as of the date of determination.
"Agreement" means this Sale and Servicing Agreement, as the same may be
amended and supplemented from time to time in accordance with the terms hereof.
"Amount Financed" means, with respect to a Receivable, the original
principal balance of such Receivable reduced by the portion of each payment
received thereon before the applicable Cut-off Date that would represent
principal if such payments were allocated to the principal of and interest on
such Receivable based on the amortization method provided in such Receivable.
"Annual Percentage Rate" or "APR" of a Receivable means the annual
percentage rate of finance charges or service charges, as stated in the related
Contract.
"Assignment Agreement" means the agreement, dated as of December 15, 1997,
between Bankers Trust Company, not in its individual capacity but solely as
Trustee of the National Financial Auto Receivables Master Trust, and National
Financial Auto Funding Trust II, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Available Amount" means, with respect to any Distribution Date, an amount
equal to the sum of (i) the amount on deposit in the Distribution Account on the
preceding Distribution Date after giving effect to all withdrawals therefrom on
such preceding Distribution Date, (ii) the amount, if any, to be transferred by
the Trust Collateral Agent to the Distribution Account from the Pre-Funding
Period Reserve Account and/or the Pre-Funding Account, if any, as provided
herein, (iii) the amount to be transferred by the Trust Collateral Agent to the
Distribution Account from the Collection Account on such Distribution Date
pursuant to Section 5.1(c), and (iv) any amounts paid by the Insurer to the
Trust Collateral Agent pursuant to Section 5.11 hereof for distribution on such
Distribution Date.
"Average Default Rate" means, with respect to any Reporting Date, the
arithmetic average of the Default Rates for each of the three Due Periods
immediately preceding the Due Period in which such Reporting Date occurs.
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"Average Delinquency Ratio" means, with respect to any Reporting Date, the
arithmetic average of the Delinquency Ratios for each of the three Due Periods
immediately preceding the Due Period in which such Reporting Date occurs.
"Average Extension Ratio" has the meaning specified in Section 4.6(a).
"Average Net Loss Rate" means, with respect to any Reporting Date, the
arithmetic average of the Net Loss Rates for each of the three Due Periods
immediately preceding the Due Period in which such Reporting Date occurs.
"Backup Servicer" means, Harris Trust and Savings Bank, as the Backup
Servicer hereunder, including in its capacity as Servicer, in the event NAFI
resigns or is removed as Servicer.
"Bankruptcy Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
the scheduled payments to be made on a Receivable, an amount equal to the excess
of the principal balance of such Receivable immediately prior to such order over
the principal balance of such Receivable as so reduced or the net present value
(using as the discount rate the higher of the APR on such Receivable or the rate
of interest, if any, specified by the court in such order) of the scheduled
payments as so modified or restructured. A "Bankruptcy Loss" shall be deemed to
have occurred on the date of issuance of such order.
"Base Servicing Fee" means, with respect to any Due Period, the fee payable
to the Servicer for services rendered during such Due Period, which shall be
equal to one-twelfth of the Servicing Fee Rate multiplied by the Pool Balance as
of the close of business on the last day of the preceding Due Period.
"Business Day" means a day other than a Saturday, a Sunday or other day on
which commercial banks located in New York, Illinois, Delaware or Florida are
authorized or obligated to be closed.
"Certificateholder" or "Certificateholders" means a Person in whose name a
Trust Certificate is registered in the Certificate Register maintained pursuant
to the Trust Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"Closing Date" means January 20, 1998.
"Collateral Agent" means Harris Trust and Savings Bank, in its capacity as
Collateral Agent under the Spread Account Agreement.
"Collection Account" means the account designated as such, established and
maintained pursuant to Section 5.1.
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"Collection Records" means all manually prepared or computer generated
records relating to collection efforts or payment histories with respect to the
Receivables.
"Computer Tape" means the computer tapes or other electronic media
furnished by the Seller to the Issuer and its assigns describing certain
characteristics of the Initial Receivables as of the Initial Cut-off Date and of
the Subsequent Receivables as of the related Subsequent Cut-off Date.
"Contract" means a motor vehicle retail installment sale contract.
"Controlling Party" means the Insurer, so long as no Insurer Default shall
have occurred and be continuing, and, in the event the Insurer Default shall
have occurred and be continuing, the Trust Collateral Agent for the benefit of
the Noteholders.
"Conveyance Agreements" means the Purchase Agreement, the Sale Agreement
and the Assignment Agreement.
"Corporate Trust Office" means (i) with respect to the Owner Trustee, the
principal corporate trust office of the Owner Trustee, which at the time of
execution of this agreement is Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890- 0001, Attention: Corporate Trust Administration, and
(ii) with respect to the Trustee and the Trust Collateral Agent, the principal
corporate trust office of the Trustee, which at the time of execution of this
agreement is 311 West Monroe Street, 12th Floor, Chicago, IL 60606.
"Custodial Agreement" means any agreement from time to time in effect
between the Custodian named therein and the Trust Collateral Agent, as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, which Custodial Agreement and any amendments,
supplements or modifications thereto shall be acceptable to the Controlling
Party (the Custodial Agreement which is effective on the Closing Date is
acceptable to the Insurer).
"Custodian" means any Person named from time to time as custodian of the
Receivable Files in any Custodial Agreement and acting as agent for the Trust
Collateral Agent, which Person must be acceptable to the Controlling Party (the
Custodian as of the Closing Date is acceptable to the Insurer as of the Closing
Date).
"Cut-off Date" means the Initial Cut-off Date or any Subsequent Cut-off
Date, as applicable.
"Dealer" means a dealer who sold a Financed Vehicle and who originated and
assigned the respective Receivable to NAFI or an Originator under a Dealer
Agreement.
"Dealer Agreement" means any agreement between NAFI or an Originator and a
Dealer relating to the acquisition of Receivables from a Dealer by NAFI or an
Originator.
"Dealer Assignment" means, with respect to a Receivable, the executed
assignment executed by a Dealer conveying such Receivable to an Originator.
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"Dealer Underwriting Guide" means either, (i) the underwriting guidelines
used by or on behalf of NAFI in the origination and purchase of Receivables as
amended from time to time or (ii) the underwriting guidelines used in the
origination of Receivables as reviewed by NAFI prior to the purchase of
Receivables by NAFI.
"Default Rate" means, with respect to any Due Period, the product of (i)
twelve and (ii) the quotient, expressed as a percentage, obtained by dividing
(a) the sum of (x) the aggregate outstanding Principal Balance of all Defaulted
Receivables which became Defaulted Receivables during such Due Period and (y)
the aggregate outstanding Principal Balance of all Receivables that became
Purchased Receivables during such Due Period and were 30 days or more past due
as of the date such Receivables were retransferred hereunder by (b) the
arithmetic average of the Pool Balance as of the end of such Due Period and the
Pool Balance as of the end of the preceding Due Period.
"Defaulted Receivable" means, with respect to any Due Period, a Receivable
with respect to which any of the following has occurred during such Due Period:
(i) all or a part of any Scheduled Payment is 90 days or more delinquent as of
the end of such Due Period, (ii) such Receivable is in default and the Servicer
(or Sub-Servicer) has in good faith determined that payments thereunder are not
likely to be resumed, or (iii) the Financed Vehicle that secures the Receivable
has been repossessed without reinstatement of the Receivable on or before the
last day of such Due Period and any applicable redemption period has expired.
"Deficiency Claim Amount" shall have the meaning set forth in Section 5.5.
"Deficiency Claim Date" means, with respect to any Distribution Date, the
fourth Business Day immediately preceding such Distribution Date.
"Deficiency Notice" shall have the meaning set forth in Section 5.5.
"Delinquency Rate" means, with respect to any Due Period, the quotient,
expressed as a percentage, obtained by dividing (a) the aggregate Principal
Balance of all Receivables with respect to which a Scheduled Payment is 30 or
more days past due as of the end of such Due Period, by (b) the Pool Balance as
of the end of such Due Period.
"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof to the Trust Collateral Agent or its nominee
or custodian by physical delivery to the Trust Collateral Agent or its nominee
or custodian endorsed to, or registered in the name of, the Trust Collateral
Agent or its nominee or custodian or endorsed in blank and such additional or
alternative procedures as may hereafter become appropriate to effect the
complete transfer of ownership of any such Trust Account Property to the Trust
Collateral Agent free and clear of any adverse claims, consistent with changes
in applicable law or regulations or the interpretation thereof;
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(b) with respect to a certificated security (as defined in Section
8-102(a)(4) of the UCC) transfer thereof (i) by physical delivery of such
certificated security to the Trust Collateral Agent, provided that if the
certificated security is in registered form, it shall be endorsed to, or
registered in the name of, the Trust Collateral Agent or endorsed in blank, or
(ii) by physical delivery thereof to a "securities intermediary" (as defined in
Section 8-102(a)(14) of the UCC) acting on behalf of the Trust Collateral Agent
if the certificated security has been specially endorsed to the Trust Collateral
Agent by an effective endorsement; and such additional or alternative procedures
as may hereafter become appropriate to effect the complete transfer of ownership
of any such Trust Account Property to the Trust Collateral Agent or its nominee
or custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(c) with respect to any security issued by the U.S. Treasury, the Federal
Home Loan Mortgage Corporation or by the Federal National Mortgage Association
that is a book-entry security held through the Federal Reserve System pursuant
to Federal book-entry regulations, the following procedures, all in accordance
with applicable law, including applicable Federal regulations and Articles 8 and
9 of the UCC: book-entry registration of such Trust Account Property to an
appropriate book-entry account maintained with a Federal Reserve Bank by a
securities intermediary which is also a "depository" pursuant to applicable
Federal regulations and issuance by such securities intermediary of a deposit
advice or other written confirmation of such book-entry registration to the
Trust Collateral Agent of the purchase by the securities intermediary on behalf
of the Trust Collateral Agent of such book-entry securities; the making by such
securities intermediary of entries in its books and records identifying such
book-entry security held through the Federal Reserve System pursuant to Federal
book-entry regulations as belonging to the Trust Collateral Agent and indicating
that such securities intermediary holds such Trust Account Property solely as
agent for the Trust Collateral Agent; and such additional or alternative
procedures as may hereafter become appropriate to effect complete transfer of
ownership of any such Trust Account Property to the Trust Collateral Agent or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof; and
(d) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (c) above, (i) the Trust Collateral Agent or its agent (other than a
securities intermediary) becomes the registered owner of such uncertificated
security or the registered owner acknowledges that it holds for the Trust
Collateral Agent; or (ii) the issuer of such uncertificated security agrees that
it will comply with the instructions of the Trust Collateral Agent without
further consent of the registered owner thereof.
(e) in each case of delivery contemplated herein, the Trust Collateral
Agent shall make appropriate notations on its records, and shall cause the same
to be made on the records of its nominees, indicating that such securities are
held in trust pursuant to and as provided in this Agreement.
(f) with respect to a "security entitlement" (as defined in Section
8-102(a)(17) of the UCC (i) of a securities intermediary (A) indicates by book
entry that a "financial asset" (as defined in Section 8-102(a)(9) of the UCC)
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has been credited to the Trust Collateral Agent's "securities account" (as
defined in Section 8-501(a) of the UCC), (B) receives a financial asset (as so
defined) from the Trust Collateral Agent or acquires a financial asset for the
Trust Collateral Agent, and in either case, accepts it for credit to the Trust
Collateral Agent's securities account (as so defined), (C) becomes obligated
under other law, regulation or rule to credit a financial asset to the Trust
Collateral Agent's securities account, or (D) has agreed that it will comply
with "entitlement orders" (as defined in Section 8-102(a)(8) of the UCC)
originated by the Trust Collateral Agent without further consent by the
"entitlement holder" (as defined in Section 8-102(a)(7) of the UCC), of a
confirmation of the purchase and the making by such securities intermediary of
entries on its books and records identifying as belonging to the Trust
Collateral Agent of (I) a specified certificated security in the securities
intermediary's possession, (II) a quantity of securities that constitute or are
part of a fungible bulk of certificates securities in the securities
intermediary's possession, or (III) a quantity of securities that constitute or
are part of a fungible bulk of securities shown on the account of the securities
intermediary on the books of another securities intermediary.
"Depositor" shall mean the Seller in its capacity as Depositor under the
Trust Agreement.
"Determination Date" means, with respect to a Distribution Date, the last
day of the Due Period immediately preceding such Distribution Date.
"Distribution Account" means the account established pursuant to Section
5.1(a)(iv) hereof.
"Distribution Date" means, with respect to each Due Period, the twenty
first day of the following calendar month, or if such day is not a Business Day,
the immediately following Business Day, commencing January 21, 1998.
"Draw Date" means, with respect to any Distribution Date, the fourth
Business Day (as defined in the Note Policy) immediately preceding such
Distribution Date.
"Due Date" means, with respect to a Receivable, the date in each Due Period
on which a Scheduled Payment on such Receivable is due.
"Due Period" means, with respect to the first Distribution Date, the period
beginning on the close of business on the Initial Cut-off Date and ending on the
close of business on December 31, 1997. With respect to each subsequent
Distribution Date, the period from and including the first day of the calendar
month preceding the month in which such Distribution Date occurs to and
including the last day of the calendar month preceding the month of such
Distribution Date.
"Electronic Ledger" means the electronic master record of the retail
installment sales contracts or installment loans of the Servicer.
"Eligible Bank" means any depository institution (which shall initially be
the Trust Collateral Agent) acceptable to the Insurer (so long as an Insurer
Default shall not have occurred and be continuing), organized under the laws of
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the United States of America or any one of the states thereof or the District of
Columbia (or any United States branch or agency of a foreign bank), which is
subject to supervision and examination by federal or state banking authorities
and which at all times (a) has a net worth in excess of $50,000,000 and (b) has
either (i) a rating of P-1 from Moody's and A-1 from S&P with respect to
short-term deposit obligations, or (ii) if such institution has issued long-term
unsecured debt obligations, a rating of A2 or higher from Moody's and AA from
S&P with respect to long-term unsecured debt obligations. Such depository
institution (other than the Trust Collateral Agent) shall have been approved in
writing by the Controlling Party, operating in its discretion, by written notice
to the Trust Collateral Agent.
"Eligible Deposit Account" means (i) a segregated trust account that is
maintained with the corporate trust department of a depository institution or
trust company acceptable to the Insurer (unless a Insurer Default has occurred
and is continuing, in which case such institution shall be one subject to
regulations regarding fiduciary funds on deposit substantially similar to 12 CFR
Section 9.10(b)), or (ii) a segregated demand deposit account maintained with a
depository institution or trust company organized under the laws of the United
States of America, or any of the States thereof, or the District of Columbia,
having a certificate of deposit, short-term deposit or commercial paper rating
of at least "A-1+" from Standard & Poor's and "P-1" from Moody's and (unless a
Insurer Default has occurred and is continuing) acceptable to the Insurer.
"Eligible Investments" mean book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence:
(a) direct interest-bearing obligations of, and interest-bearing
obligations fully guaranteed as to timely payment of principal and interest by,
the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company organized under the laws of the United
States of America or any state thereof or the District of Columbia (or any
domestic branch of a foreign bank) and subject to supervision and examination by
Federal or state banking or depository institution authorities (including
depository receipts issued by any such institution or trust company as custodian
with respect to any obligation referred to in clause (a) above or portion of
such obligation for the benefit of the holders of such depository receipts);
provided, however, that at the time of the investment or contractual commitment
to invest therein (which shall be deemed to be made again each time funds are
reinvested following each Distribution Date), the commercial paper or other
short-term senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) of such depository institution or trust company
shall have a credit rating from Standard & Poor's of AAA and from Moody's of
Aaa;
(c) commercial paper and demand notes investing solely in commercial paper
that (i) is payable in United States dollars and (ii) has, at the time of the
investment or contractual commitment to invest therein, a rating from Standard &
Poor's of A-1+ and from Moody's of P-1;
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(d) investments in money market funds (including funds for which the Trust
Collateral Agent or the Owner Trustee in each of their individual capacities or
any of their respective Affiliates is investment manager or advisor) having a
rating from Standard & Poor's of AAA-m or AAAm-G and from Moody's of Aaa and
(other than funds for which the Trust Collateral Agent or the Owner Trustee in
each of their individual capacities or any of their respective Affiliates is
investment manager or advisor) having been approved in writing by the Insurer;
(e) bankers' acceptances issued by any depository institution or trust
company referred to in clause (b) above;
(f) repurchase obligations pursuant to a written agreement (i) with respect
to any obligation described in clause (a) above, where the Trustee has taken
actual or constructive delivery of such obligation, and (ii) entered into with
the corporate trust department of a depository institution or trust company
organized under the laws of the United States or any State thereof, the deposits
of which are insured by the Federal Deposit Insurance Corporation and the
short-term unsecured debt obligations of which are rated "A-1+" by Standard &
Poor's and "P-1" by Moody's (including, if applicable, the Trustee or any agent
of the Trustee acting in its respective commercial capacities);
(g) any other investment which is consistent with the ratings of the Notes
and acceptable to the Rating Agencies and which, so long as no Insurer Default
shall have occurred and be continuing, has been approved by the Insurer.
Any of the foregoing Eligible Investments may be purchased by or through
the Owner Trustee or the Trust Collateral Agent or any of their respective
Affiliates.
"Eligible Servicer" means the Servicer, the Backup Servicer or another
Person that, at the time of its appointment as Servicer, (i) is servicing a
portfolio of motor vehicle retail installment sales contracts and/or motor
vehicle installment loans, (ii) is legally qualified and has the capacity to
service the Receivables and (iii) has demonstrated the ability professionally
and competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables with
reasonable skill and care.
"Eligible Sub-Servicer" means any Person which at the time of its
appointment as Sub-Servicer, (i) is servicing a portfolio of motor vehicle
retail installment sales contracts and/or motor vehicle installment loans, (ii)
is legally qualified and has the capacity to service the Receivables, (iii) has
demonstrated the ability professionally and competently to service a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans similar to the Receivables with reasonable skill and care, and
(iv) is qualified and entitled to use, pursuant to a license or other written
agreement, and agrees to maintain the confidentiality of, the software which the
Servicer uses in connection with performing its duties and responsibilities
under this Agreement or otherwise has available software which is adequate to
perform its duties and responsibilities under this Agreement.
"Extension Ratio" has the meaning specified in Section 4.6(a).
<PAGE>
"Final Scheduled Distribution Date" means the Distribution Date occurring
in May, 2004.
"Financed Vehicle" means an automobile or light-duty truck, van or minivan,
together with all accessions thereto, securing an Obligor's indebtedness under
the respective Receivable.
"Funding Trust II" means National Auto Funding Trust II, a Delaware
business trust.
"Governmental Authority" means (a) any federal, state, county, municipal or
foreign government or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to the jurisdiction of which such Person has consented.
"Indenture" means the Indenture dated as of December 15, 1997, among the
Issuer and Harris Trust and Savings Bank, as Trust Collateral Agent and Trustee,
as the same may be amended and supplemented from time to time.
"Initial Cut-off Date" means December 15, 1997.
"Initial Receivables" means any Receivable conveyed to the Trust on the
Closing Date.
"Initial Spread Account Deposit" has the meaning set forth in the Spread
Account Agreement.
"Insurance Agreement" means the Insurance and Indemnity Agreement, dated as
of January 20, 1998, among the Insurer, the Trust, the Seller and NAFI, as such
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
"Insurance Agreement Event of Default" means an "Event of Default" as
defined in the Insurance Agreement.
"Insurance Policy" means, with respect to a Receivable, any insurance
policy (including the insurance policies described in Section 4.4 hereof)
benefiting the holder of the Receivable providing loss or physical damage,
credit life, credit disability, theft, mechanical breakdown or similar coverage
with respect to the Financed Vehicle or the Obligor.
"Insurer" means Financial Security Assurance Inc., a monoline insurance
company incorporated under the laws of the State of New York, or any successor
thereto, as issuer of the Note Policy.
"Insurer Default" means the occurrence and continuance of any of the
following events:
<PAGE>
(a) the Insurer shall have failed to make a payment required under the Note
Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (ii) made a general assignment
for the benefit of its creditors, or (iii) had an order for relief entered
against it under the United States Bankruptcy Code or any other similar federal
or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of Insurance
or other competent regulatory authority shall have entered a final and
nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Insurer or for all or any material portion of its
property or (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Insurer (or the taking of possession of all or any
material portion of the property of the Insurer).
"Insurer Optional Deposit" means, with respect to any Distribution Date, an
amount delivered by the Insurer pursuant to Section 5.11, at its sole option,
other than amounts in respect of a Note Policy Claim Amount to the Trust
Collateral Agent for deposit into the Collection Account for any of the
following purposes: (i) to provide funds in respect of the payment of fees or
expenses of any provider of services to the Trust with respect to such
Distribution Date; or (ii) to include such amount as part of the Available
Amount for such Distribution Date to the extent that without such amount a draw
would be required to be made on the Note Policy.
"Interest Rate" means 5.88% per annum (computed on the basis of a 360-day
year of twelve 30-day months).
"Investment Earnings" means, with respect to any Distribution Date and
Trust Account, the investment earnings on amounts on deposit in such Trust
Account on such Distribution Date.
"Issuer" means National Auto Finance 1998-1 Trust.
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind.
"Lien Certificate" means, with respect to a Financed Vehicle, an original
certificate of title, certificate of lien or other notification issued by the
Registrar of Titles of the applicable state to a secured party which indicates
that the lien of the secured party on the Financed Vehicle is recorded on the
original certificate of title. In any jurisdiction in which the original
certificate of title is required to be given to the Obligor, the term "Lien
Certificate" shall mean only a certificate or notification issued to a secured
party.
<PAGE>
"Liquidated Receivable" means, with respect to any Due Period, a Receivable
with respect to which any of the following has occurred during such Due Period:
(i) 90 days have elapsed since Repossession of the related Financed Vehicle,
(ii) the Servicer (or Sub-Servicer) has in good faith determined that all
amounts that it expects to recover under such Receivable have been received, or
(iii) 90% or more of any Scheduled Payment on such Receivable is 120 days or
more (or, if the related Obligor is a debtor under Chapter 13 of the U.S.
Bankruptcy Code, 180 days or more) delinquent as of the end of such Due Period.
"Liquidation Expenses" means, reasonable out-of-pocket expenses which are
incurred by the Servicer or any Sub-Servicer in connection with the liquidation
of any Defaulted Receivable. Such expenses shall include, without limitation,
legal fees and expenses, any unreimbursed amount expended by the Servicer or any
Sub-Servicer pursuant to Section 4.8 (to the extent such amount is reimbursable
under the terms of Section 4.8) respecting the related Receivable, and any
related and unreimbursed expenditures for property restoration or preservation.
"Liquidation Proceeds" means, with respect to a Liquidated Receivable, all
amounts realized with respect to such Receivable (other than amounts withdrawn
from the Series 1998-1 Spread Account and drawings under the Note Policy),
including any proceeds from any Insurance Policies, net of amounts that are
required to be refunded to the Obligor on such Receivable; provided, however,
that the Liquidation Proceeds with respect to any Receivable shall in no event
be less than zero.
"Lockbox Account" means any bank account maintained at a Lockbox Bank into
which collections under the Receivables are deposited in accordance with Section
4.6.
"Lockbox Agreement" means a letter agreement among a Lockbox Bank, the
Seller, the Trust Collateral Agent, the Servicer and, if applicable, any
Sub-Servicer, relating to one or more Lockbox Accounts, as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time in accordance with the terms thereof. So long as no Insurer Default shall
have occurred and be continuing, any Lockbox Agreement is also required to be
acceptable to the Insurer.
"Lockbox Bank" means any bank at which a Lockbox Account is maintained from
time to time and whose short-term debt securities are rated A-1+ by S&P and P-1
by Moody's. So long as no Insurer Default shall have occurred and be continuing,
any Lockbox Bank is also required to be acceptable to the Insurer.
"Lockbox Processor" means the Person appointed as lockbox processor
pursuant to the Lockbox Agreement and its successors thereunder.
"Mandatory Redemption Date" means the Distribution Date relating to the
Reporting Date next succeeding the last day of the Pre-Funding Period.
"Master Trust" means National Financial Auto Receivables Master Trust.
<PAGE>
"Monthly Pre-Funding Period Reserve Amount" means, with respect to any
Distribution Date occurring on or prior to the Distribution Date next succeeding
termination of the Pre-Funding Period, an amount equal to the excess, if any, of
(i) the product of (a) 1/12th, (b) the Interest Rate and (c) the average daily
balance of funds on deposit in the Pre-Funding Account from and including the
preceding Distribution Date (or, in the case of the first Distribution Date, the
Closing Date) to but not including the current Distribution Date, over (ii) the
amount of interest accrued on Eligible Investments on deposit in the Pre-Funding
Account from and including the preceding Distribution Date (or, in the case of
the first Distribution Date, the Closing Date) to but not including the current
Distribution Date.
"Monthly Records" means all records and data maintained by the Servicer
with respect to the Receivables, including the following with respect to each
Receivable: the account number; the originating Dealer; Obligor name; Obligor
address; Obligor home phone number; Obligor business phone number; original
Principal Balance; original term; Annual Percentage Rate; current Principal
Balance; current remaining term; origination date; first payment date; final
scheduled payment date; next payment due date; date of most recent payment;
new/used classification; collateral description; days currently delinquent;
number of contract extensions (months) to date; amount of Scheduled Payment;
current Insurance Policy expiration date; and past due late charges.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"NAFI" means National Auto Finance Company, Inc and its permitted
successors and assigns hereunder in accordance with the terms hereof.
"Net Liquidation Proceeds" means, with respect to a Liquidated Receivable,
all Liquidation Proceeds net of all Liquidation Expenses.
"Net Loss Rate" means, with respect to any Due Period, the product,
expressed as a percentage, of (i) twelve and (ii) a fraction, the numerator of
which equals the excess of (A) the sum of (1) the aggregate Principal Balance of
all Receivables that became Liquidated Receivables in such Due Period and (2)
accrued and unpaid interest on such Principal Balance through the end of such
Due Period and (3) the amount of any Bankruptcy Losses, over (B) the Net
Liquidation Proceeds received by the Trust during such Due Period with respect
to all Liquidated Receivables in the Trust (including Liquidated Receivables
that became Liquidated Receivables in a prior Due Period) and the denominator of
which equals the arithmetic average of the Pool Balance as of the end of such
Due Period and the Pool Balance as of the end of the preceding Due Period.
"Note" or "Notes" has the meaning assigned to such term in the Indenture.
"Note Balance" means initially, the aggregate principal amount of Notes
issued on the Closing Date and, thereafter, such principal amount reduced by all
amounts distributed to the Noteholders in respect of the Noteholders' Principal
Distributable Amount.
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 5.1.
<PAGE>
"Note Majority" means the holders of a majority by aggregate outstanding
principal balance of the Notes so long as the Notes are outstanding.
"Note Policy" means the financial guaranty insurance policy number 50661-N
issued by the Insurer to the Trust Collateral Agent, as agent for the Trustee,
for the benefit of the Noteholders, including any endorsements thereto.
"Note Policy Claim Amount" means, for any Distribution Date, shall equal
the lesser of (i) the sum of the Scheduled Payments (as defined in the Note
Policy) for such Distribution Date and (ii) the excess, if any, of (x) the
amount required to be distributed pursuant to clauses (i) through (iii) of
Section 5.7(b) hereof (other than any Note Prepayment Amount) over (y) the sum
of the Available Amount and Deficiency Claim Amount with respect to such
Distribution Date.
"Note Pool Factor" for the Notes as of the close of business on a
Distribution Date means a seven-digit decimal figure equal to the outstanding
principal amount of such Notes (after giving effect to any distributions
reducing the Note Balance of the Notes on such Distribution Date) divided by the
original outstanding principal amount of such Class of Notes on the Closing
Date.
"Note Prepayment Amount" means, as of the Distribution Date on or
immediately following the last day of the Pre-Funding Period, after giving
effect to any transfer of Subsequent Receivables on such date, an amount equal
to the remaining Pre-Funded Amount on deposit in the Pre-Funding Account.
"Noteholders" and "Holders" have the meaning assigned to the term
"Noteholders" in the Indenture.
"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Distribution Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding Distribution Date, over the
amount in respect of interest that was actually deposited in the Note
Distribution Account on such preceding Distribution Date.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of (i) thirty (30) days of interest (or, in the
case of the initial Distribution Date, the number of days from and including the
Closing Date to but not including such initial Distribution Date) at the
Interest Rate on the Note Balance on such Distribution Date (before reduction of
the Note Balance by any distributions made on such Distribution Date) and (ii)
<PAGE>
interest on the Noteholders' Interest Carryover Shortfall at the Interest Rate
from the preceding Distribution Date through the current Distribution Date, to
the extent permitted by law.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Principal Distributable Amount
and any outstanding Noteholders' Principal Carryover Shortfall from the
preceding Distribution Date over the amount in respect of principal that was
actually deposited in the Note Distribution Account on such Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to (i)
any Distribution Date prior to the Final Scheduled Distribution Date, the sum of
(a) [91%] of the Principal Distributable Amount, (b) amounts transferred from
the Pre-Funding Account to the Note Distribution Account on such Distribution
Date, if any, pursuant to Section 5.7(a)(ii), and (c) the Noteholders' Principal
Carryover Shortfall with respect to such Distribution Date, and (ii) the Final
Scheduled Distribution Date, the Note Balance (before giving effect to any
distribution on the Notes on such Final Scheduled Distribution Date).
"Notice of Claim" means the notice required to file a claim under the
Policy.
"Obligor" on a Receivable means the purchaser or co-purchasers of the
Financed Vehicle and any other Person who owes payments under the Receivable.
"Officers' Certificate" means a certificate signed by (i) a Co-Trustee of
the Seller or Funding Trust II, as the case may be, (ii) the Chairman of the
Board, President, Executive Vice President, Senior Vice President, Vice
President, or Assistant Vice President of the Custodian or NAFI, as the case may
be, or (iii) by a Servicing Official in the case of the Servicer, and in each
case delivered to the Trust Collateral Agent as required by this Agreement.
"Opinion of Counsel" means a written opinion in form reasonably
satisfactory to the Trust Collateral Agent (and the Insurer if such opinion is
addressed to the Insurer) of counsel reasonably satisfactory to the Trust
Collateral Agent (and the Insurer if such opinion is addressed to the Insurer).
Any such counsel may be counsel to the Seller.
"Original Pool Balance" means the sum, as of any date, of the Pool Balance
as of the Initial Cut-off Date.
"Originator" means consumer finance companies, depository institutions and
other financial institutions engaged in the financing of motor vehicle retail
installment sale contracts from whom NAFI acquired Receivables; provided,
however, that "Originators" shall not include Dealers.
"Originator Agreement" means an agreement pursuant to which NAFI acquired
Receivables from an Originator, as any of such agreements has been and may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.
"Other Conveyed Property" means all property conveyed by the Seller to the
Trust pursuant to Section 2.1(b) through (h) and Section 2.2(a)(ii) through
(viii) of this Agreement.
<PAGE>
"Owner Trust Estate" has the meaning assigned to such term in the Trust
Agreement.
"Owner Trustee" means Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, its successors
in interest or any successor Owner Trustee under the Trust Agreement.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof or any other entity.
"Physical Property" has the meaning assigned to such term in the definition
of "Delivery" above.
"Pool Balance" means, as of any date of determination, the Original Pool
Balance, plus the aggregate Principal Balance of the Subsequent Receivables, if
any, sold to the Trust, reduced by any principal amounts previously paid
(excluding Purchased Receivables and Liquidated Receivables).
"Post-Office Box" means the separate post-office box established and
maintained for the benefit of the Noteholders and the Insurer pursuant to
Section 4.6.
"Preference Claim" has the meaning set forth in Section 6.2 hereof.
"Pre-Funded Amount" means, with respect to any Distribution Date, the
amount on deposit in the Pre-Funding Account, (exclusive of Pre-Funding
Earnings) which initially shall be $16,490,982.64.
"Pre-Funding Account" has the meaning specified in Section 5.1.
"Pre-Funding Earnings" means any Investment Earnings on amounts on deposit
in the Pre-Funding Account.
"Pre-Funding Period" means the period beginning on and including the
Closing Date and ending on the first to occur of (a) the first date on which the
amount on deposit in the Pre-Funding Account (after giving effect to any
transfers therefrom in connection with the transfer of Subsequent Receivables to
the Issuer on such date) is less than $100,000, (b) the date on which an Event
of Default occurs under the Indenture or a Servicer Termination Event occurs and
(c) the close of business on April 30, 1998.
"Pre-Funding Period Reserve Account" means the account designated as such,
established and maintained pursuant to Section 5.2.
"Pre-Funding Period Reserve Account Initial Deposit" means $154,832.00
deposited on the Closing Date.
<PAGE>
"Principal Balance" means, with respect to any Receivable, as of any date,
the Amount Financed minus (i) the principal portion of each payment applied to
such Receivable on or after the applicable Cut-off Date in accordance with the
terms of such Receivable and processed by the Servicer or a Sub-Servicer on or
before such date and (ii) any Bankruptcy Loss in respect of such Receivable;
provided, however, that for any date following the Due Period in which the
remaining principal balance of such Receivable was included in the Principal
Distributable Amount as a Liquidated Receivable or was subject to a principal
prepayment in full (including a repurchase pursuant to Sections 2.2, 2.5, 3.2 or
4.1), the Principal Balance for such Receivable shall be zero.
"Principal Distributable Amount" means, with respect to any Distribution
Date (other than the Final Scheduled Distribution Date), the sum of (i) that
portion of all collections on the Receivables (other than Liquidated Receivables
and Purchased Receivables and, to the extent included in clause (iv) below, the
Principal Balance of all Purchased Default Receivables) allocable to principal,
including all full and partial principal prepayments, deposited into the
Collection Account during the related Due Period, (ii) the Principal Balance of
all Receivables that became Liquidated Receivables during the related Due Period
(other than Liquidated Receivables that became Purchased Receivables during such
Due Period and, to the extent included in clause (iv) below, the Principal
Balance of all Purchased Default Receivables), (iii) the portion of the Purchase
Amount allocable to principal of all Receivables that became Purchased
Receivables on or prior to the related Reporting Date and subsequent to the
preceding Reporting Date, (iv) in the sole discretion of the Insurer, the
Principal Balance as of the related Reporting Date of all or any part of the
Purchased Default Receivables, and (v) the aggregate amount of Bankruptcy Losses
that occurred during the related Due Period.
"Purchase Agreement" means the Purchase and Contribution Agreement between
the Seller and NAFI, dated as of December 15, 1997, as such Agreement may be
amended from time to time.
"Purchase Amount" means, with respect to any Receivable required to be
retransferred pursuant to Sections 2.2, 2.5, 3.2 or 4.1 (or as to which the
Seller has exercised the purchase option in Section 11.1(a)), an amount equal to
the sum of (i) 100% of the Principal Balance thereof on the date of retransfer
and (ii) unpaid accrued interest thereon from the date to which interest was
last paid by the Obligor to the due Date in the Due Period in which such
retransfer occurs. For purposes of determining the Purchase Amount of any
Receivable, the Principal Balance thereof on the date of retransfer shall not be
reduced to zero as a result of its classification as a Liquidated Receivable.
"Purchased Default Receivable" means any Receivable with respect to which
the Seller or the Servicer is required to deposit in the Collection Account the
related Purchase Amount pursuant to Sections 2.2, 2.5, 3.2 or 4.1 and has not so
deposited such amount on the Reporting Date on which it is required to
repurchase such Receivable following receipt of notice from the Trust Collateral
Agent that such Receivable is required to be retransferred.
<PAGE>
"Purchased Receivable" means a Receivable purchased as of the close of
business on the last day of a Due Period by the Servicer pursuant to Section
4.1(b) or repurchased by the Seller pursuant to Sections 2.2, 2.5, 3.2 or
11.1(a).
"Rating Agency" means Moody's and Standard & Poor's. If no such
organization or successor maintains a rating on the Notes, "Rating Agency" shall
be a nationally recognized statistical rating organization or other comparable
Person designated by the Insurer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer, the Insurer, the
Owner Trustee and the Trust Collateral Agent in writing that such action will
not result in a reduction or withdrawal of the then current rating of the Notes.
"Receivable" means each motor vehicle retail installment sale contract and
security agreement (including any and all rights to receive payments thereunder
on and after the applicable Cut-off Date and security interests in the Financed
Vehicle securing such contract or note) assigned and transferred to the Issuer
hereunder as of the Closing Date or a Subsequent Transfer Date and not
reassigned, retransferred or otherwise released in accordance herewith, each
such Receivable being identified in a Receivables Schedule attached to a
Subsequent Transfer Agreement.
"Receivable Documents" means, with respect to a Receivable, all papers and
documents (including those contained in the Receivable File) and all other
papers and records (including computerized data) of whatever kind or
description, whether developed or originated by NAFI, a Dealer, an Originator,
the Servicer or another Person, required to document the Receivable or to
service the Receivable.
"Receivable Files" means with respect to a Receivable, the fully executed
original of such Receivable; the assignment of such Receivable by a Dealer or
Originator to NAFI, the original Title Document or UCC financing statement
evidencing that the security interest in a Financed Vehicle granted to NAFI
under such Receivable has been perfected under applicable state law (except for
any Title Documents or UCC financing statements not returned from the applicable
public records office, in which case NAFI will deliver to the Seller, on the
Closing Date or the Subsequent Transfer Date, as the case may be, an Officer's
Certificate of NAFI indicating that the original of such Title Document has been
applied for at, or the original of such UCC financing statement was delivered
to, such public office and shows NAFI as the lienholder or secured party and
that NAFI will deliver the originals thereof when returned from such office);
the original of any assumption agreement or any modification, extension or
refinancing agreement; and the original application of the related Obligor to
obtain the financing extended by such Receivable.
"Receivable Rate" means the annual percentage rate (as such term is used
with respect to the federal Truth-in-Lending Act) of interest borne by, and
indicated on, a Contract.
<PAGE>
"Receivables Schedule" means the schedule of Receivables attached hereto as
Schedule A and, with respect to Subsequent Receivables delivered concurrently
with the execution and delivery of a Subsequent Transfer Agreement to the Trust
Collateral Agent, the schedule of Receivables attached to such Subsequent
Transfer Agreement as Schedule 1, each such schedule identifying each Receivable
being transferred and assigned to the Trust pursuant to this Agreement or the
related Subsequent Transfer Agreement by the name of the Obligor and setting
forth as to each such Receivable its Principal Balance as of the applicable
Cut-off Date, loan number, Receivable Rate, scheduled monthly payment of
principal and interest, final maturity date and original principal amount.
"Record Date" with respect to each Distribution Date means the Business Day
immediately preceding such Distribution Date, unless otherwise specified in the
Agreement.
"Registrar of Titles" means, with respect to any state, the governmental
agency or body responsible for the registration of, and the issuance of
certificates of title relating to, motor vehicles and liens thereon.
"Reporting Date" means, with respect to a Distribution Date, the earlier of
(i) the 15th day of the calendar month in which such Distribution Date occurs,
and (ii) the fourth Business Day preceding such Distribution Date.
"Repossession" means any action taken or to be taken pursuant to the UCC or
other applicable laws in connection with recovery on a Defaulted Receivable
(including any Liquidated Receivable), including repossession of the related
Financed Vehicle with or without judicial proceedings, sale of such Financed
Vehicle at public or private sale, retention of such Financed Vehicle in
satisfaction of the Obligor's obligations under such Defaulted Receivable, or a
levy on and sheriff's sale of the related Financed Vehicle in enforcement of a
judgment on such Defaulted Receivable or by voluntary surrender or otherwise.
"Required Reserve Amount" means, with respect to any Distribution Date, an
amount equal to the product of (i) a per annum rate equal to the Interest Rate
less 250 basis points (2.5%), (ii) the amount of funds on deposit in the
Pre-Funding Account after giving effect to any withdrawals therefrom on such
Distribution Date and (iii) a fraction, the numerator of which is the number of
days from and including such Distribution Date to (but excluding) the
Distribution Date immediately following the end of the Pre-Funding Period, and
the denominator of which is 360.
"Requisite Amount" has the meaning specified in the Spread Account
Agreement.
"Responsible Officer" means, with respect to the Trust Collateral Agent,
any officer within the Corporate Trust Office of the Trust Collateral Agent,
including any Managing Director, Vice President, Assistant Vice President,
Assistant Treasurer, Assistant Secretary or any other officer of the Trust
Collateral Agent customarily performing functions similar to those performed by
any of the above designated officers, and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
<PAGE>
"Sale Agreement" means the Sale Agreement, dated as of even date herewith,
between Funding Trust II and the Seller, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Schedule of Representations" means the Schedule of Representations and
Warranties attached hereto as Schedule B.
"Scheduled Payment" means, with respect to any Due Period for any
Receivable, the amount set forth in such Receivable as required to be paid by
the Obligor in such Due Period. If after the Closing Date, the Obligor's
obligation under a Receivable with respect to a Collection Period has been
modified so as to differ from the amount specified in such Receivable as a
result of (i) the order of a court in an insolvency proceeding involving the
Obligor, (ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended, or (iii) modifications or extensions of the Receivable permitted by
Sections 4.1(a) and (b), the Scheduled Payment with respect to such Due Period
shall refer to the Obligor's payment obligation with respect to such Due Period
as so modified.
"Seller" means National Financial Auto Funding Trust, a Delaware business
trust, and its successors in interest to the extent permitted hereunder.
"Series 1998-1 Spread Account" means the account designated as such,
established and maintained pursuant to the Spread Account Agreement.
"Servicer" means National Auto Finance Company, Inc., as the servicer of
the Receivables, and each successor Servicer pursuant to Section 10.4.
"Servicer Extension Notice" means the notice specified in Section 4.16.
"Servicer Termination Event" means an event specified in Section 10.1.
"Servicing Fee" has the meaning specified in Section 4.9.
"Servicing Fee Rate" means 2.00% per annum.
"Servicing Official" means any employee 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 the Trust Collateral Agent
and the Insurer by the Servicer, as such list may from time to time be amended.
"Servicer's Certificate" means an Officers' Certificate of the Servicer
delivered pursuant to Section 4.11(a), substantially in the form of Exhibit B.
"Simple Interest Method" means the method of allocating a fixed level
payment on an obligation between 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 on such obligation multiplied by the period of time
(expressed as a fraction of a year, based on the actual number of days in the
<PAGE>
calendar month and 365 days in the calendar year) elapsed since the preceding
payment under the obligation was made.
"Simple Interest Receivable" means a Receivable under which the portion of
the payment allocable to interest and the portion allocable to principal is
determined in accordance with the Simple Interest Method.
"Spread Account Agreement" means the Spread Account Agreement dated as of
January 20, 1998 among the Insurer, the Seller, the Trust Collateral Agent and
the Collateral Agent, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Standard & Poor's" means Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc., or its successor.
"Subsequent Cut-off Date" means, with respect to any Subsequent Transfer
Date, the third Business Day prior thereto.
"Subsequent Purchase Agreement" means an agreement by and between the
Seller and NAFI pursuant to which the Seller will acquire Subsequent
Receivables.
"Subsequent Receivables" means the Receivables transferred to the Issuer
pursuant to Section 2.2, which shall be listed on the Receivables Schedule to
the related Subsequent Transfer Agreement.
"Subsequent Transfer Agreement" means the agreement among the Issuer, the
Seller and the Servicer, substantially in the form of Exhibit A.
"Subsequent Transfer Date" means, with respect to Subsequent Receivables,
any date, occurring not more frequently than once a month, during the
Pre-Funding Period on which Subsequent Receivables are to be transferred to the
Trust pursuant to this Agreement, and a Subsequent Transfer Agreement is
executed and delivered to the Trust and the Insurer.
"Sub-Servicer" means any Eligible Sub-Servicer with whom NAFI has entered
into a Sub-Servicing Agreement.
"Sub-Servicer Account" means an account maintained by a Sub-Servicer to
which Obligors have been or will be instructed to remit payments in respect of
the Receivables, maintained in accordance with Section 4.6(c).
"Sub-Servicing Agreement" means the written contract between NAFI and any
Sub-Servicer relating to servicing and/or administration of the Receivables as
permitted by Section 4.2 hereof.
"Supplemental Servicing Fee" means, with respect to any Due Period, any
payments received from an Obligor or a Dealer in connection with any application
fees, tax processing fees, wire transfer fees, express mail fees, insurance
<PAGE>
premiums, late charges, taxes, fees or other charges imposed by any Governmental
Authority (other than any extension fees).
"Term of the Note Policy" has the meaning specified for "Term of This
Policy" in the Note Policy.
"Title Documents" means, with respect to any Financed Vehicle, the actual
motor vehicle title or certificate of title for such Financed Vehicle issued by
the Registrar of Titles or other government agency in the jurisdiction in which
such Financed Vehicle is registered; alternatively, in those certain
jurisdictions whose law requires that the original of the actual motor vehicle
title or certificate of title be possessed by the Obligor, then, in lieu of the
actual title or certificate of title, Title Documents shall mean such duplicate
titles, certificates or other documents as are permitted, required and/or
contemplated to be possessed by the secured party under the laws of such
jurisdiction.
"Transaction Documents" shall have the meaning assigned thereto in the
Insurance Agreement.
"Trigger Event" has the meaning assigned thereto in the Spread Account
Agreement.
"Trust" means the Issuer.
"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), and all proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 5.1.
"Trust Agreement" means the Trust Agreement dated as of December 15, 1997,
between the Seller and the Owner Trustee, as the same may be amended and
supplemented from time to time.
"Trust Certificates" means the certificates issued pursuant to the Trust
Agreement evidencing beneficial ownership interests in the Trust.
"Trust Collateral Agent" means the Person acting as Trust Collateral Agent
hereunder, its successors in interest and any successor Trust Collateral Agent
hereunder.
"Trust Officer" means, (i) in the case of the Trust Collateral Agent, any
officer within the Corporate Trust Office of the Trust Collateral Agent,
including any Managing Director, Vice President, Assistant Vice President,
Assistant Treasurer, Assistant Secretary or any other officer of the Trust
Collateral Agent customarily performing functions similar to those performed by
any of the above designated officers, and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject, and (ii) in
the case of the Owner Trustee, any officer in the Corporate Trust Office of the
<PAGE>
Owner Trustee or any agent of the Owner Trustee under a power of attorney with
direct responsibility for the administration of this Agreement or any of the
Transaction Documents on behalf of the Owner Trustee.
"Trust Property" means the property and proceeds conveyed pursuant to
Section 2.1 and Section 2.2. Although the Seller has pledged the Series 1998-1
Spread Account to the Trust Collateral Agent and the Insurer pursuant to the
Spread Account Agreement, the Series 1998-1 Spread Account shall not under any
circumstances be deemed to be a part of or otherwise includable in the Trust or
the Trust Property.
"Trustee" means the Person acting as Indenture Trustee under the Indenture,
its successors in interest and any successor trustee under the Indenture.
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction on the date of the Agreement.
"Unearned Finance Charge" means, with respect to any Receivable, the amount
of the add-on finance charge that, under the term of such Receivable, would be
required to be refunded or credited to the related Obligor in accordance with
such Receivable if such Receivable were then prepaid in full.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Indenture, or, if not defined therein, in the
Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings when
used in any instrument governed hereby and in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement, in any instrument governed hereby and in any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in this Agreement or in any such instrument,
certificate or other document, and accounting terms partly defined in this
Agreement or in any such instrument, certificate or other document to the extent
not defined, shall have the respective meanings given to them under generally
accepted accounting principles as in effect on the date of this Agreement or any
such instrument, certificate or other document, as applicable. To the extent
that the definitions of accounting terms in this Agreement or in any such
instrument, certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such instrument, certificate or other
document shall control.
(d) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
<PAGE>
SECTION 1.3. Usage of Terms. With respect to all terms used in this
Agreement, the singular includes the plural and the plural includes the
singular; words importing any gender include the other gender; 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;
the terms "include" or "including" mean "include without limitation" or
"including without limitation; "the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision, and Article, Section, Schedule
and Exhibit references, unless otherwise specified, refer to Articles and
Sections of Schedules and Exhibits to this Agreement.
SECTION 1.4. Certain References. All references to the Principal Balance of
a Receivable as of any date of determination shall refer to the close of
business on such day.
SECTION 1.5. No Recourse. Without limiting the obligations of NAFI
hereunder, no recourse may be taken, directly or indirectly, under this
Agreement or any certificate or other writing delivered in connection herewith
or therewith, against any stockholder, officer or director, as such, of NAFI, or
of any predecessor or successor of NAFI.
SECTION 1.6. Action by or Consent of Noteholders. Whenever any provision of
this Agreement refers to action to be taken, or consented to, by Noteholders,
such provision shall be deemed to refer to the Noteholder of record as of the
Record Date immediately preceding the date on which such action is to be taken,
or consent given, by Noteholders. Solely for the purposes of any action to be
taken, or consented to, by Noteholders, any Note registered in the name of NAFI
or any Affiliate thereof shall be deemed not to be outstanding; provided,
however, that, solely for the purpose of determining whether a Trust Officer of
the Trustee or the Trust Collateral Agent is entitled to rely upon any such
action or consent, only Notes which the Owner Trustee, the Trust Officer of the
Trustee or the Trust Collateral Agent, respectively, actually knows to be so
owned shall be so disregarded.
SECTION 1.7. Material Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Noteholders (or any similar or analogous determination), such
determination shall be made without taking into account the insurance provided
by the Note Policy.
SECTION 1.8. Calculations as to Principal and Interest in Respect of
Receivables. For all purposes of this Agreement the allocation of a payment on a
Receivable between principal and interest shall be made based upon the
amortization method provided in such Receivable. For purposes of allocating a
pay-ahead payment on a Receivable between principal and interest, the pay-ahead
shall be deemed to have been received on the date it was actually due. For all
purposes of this Agreement, no amount shall be treated as collected under a
Receivable until such amount has been deposited into the Collection Account.
<PAGE>
ARTICLE II
CONVEYANCE OF RECEIVABLEs
SECTION 2.1. Conveyance of Initial Receivables. In consideration of the
Issuer's delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the other amounts to be distributed
from time to time to the Seller in accordance with the terms of this Agreement,
the Seller does hereby sell, transfer, assign, set over and otherwise convey to
the Issuer, without recourse (subject to the obligations set forth herein), all
right, title and interest of the Seller in and to the following, whether now
owned or hereafter acquired:
(a) the Initial Receivables and all monies received thereon on or after the
Initial Cut-off Date (including amounts due on or before the Initial Cut-off
Date but received by NAFI, the Seller or the Issuer on or after the Initial
Cut-off Date);
(b) any proceeds and the right to receive proceeds with respect to the
Initial Receivables from claims on any physical damage, credit life, disability
insurance or other policies covering the related Financed Vehicles or Obligors,
including rebates of insurance premiums relating to the Receivables, and any
proceeds from the liquidation of the Initial Receivables;
(c) all rights against Dealers pursuant to Dealer Agreements or against
Originators pursuant to Originator Agreements;
(d) the related Receivables Files and any and all other documents that NAFI
or the Seller keeps on file in accordance with its customary procedures relating
to the Receivables, the Obligors or the Financed Vehicles;
(e) property (including the right to receive future Liquidation Proceeds)
that secures a Receivable and that has been acquired by or on behalf of the
Trust pursuant to liquidation of such Receivable;
(f) all funds on deposit from time to time in the Trust Accounts (less all
investments and proceeds thereof), and all rights of the Issuer therein;
(g) its rights and benefits, but none of its obligations or burdens, under
the Conveyance Agreements, including the delivery requirements, representations
and warranties and the cure and repurchase obligations of NAFI under the
Purchase Agreement; and
(h) the proceeds of any and all of the foregoing.
The foregoing transfer and assignment does not constitute and is not
intended to result in an assumption by the Trust Collateral Agent, any
Noteholder or the Insurer of any obligation of the Seller, the Master Trust,
Funding Trust II or NAFI to the Obligors, Dealers, insurers or any other Person
in connection with the Receivables, the Receivable Files, or the insurance
policies or any agreements or instruments relating to any of them.
<PAGE>
The Seller intends that the transfer and assignment by the Seller to the
Trust contemplated by this Agreement constitute a sale to the Trust of all the
Seller's right, title, and interest in and to the Receivables and the remainder
of the Trust Property (other than the Note Policy) and the beneficial interest
in and title to the Receivables and the other Trust Property 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; provided that, in the event that,
notwithstanding the intent of the Seller, the transfer is not held to be a sale,
then it is intended that the conveyance shall be deemed to be a grant of a
security interest as set forth below. By the transfer, assignment and set-over
contemplated by this Section 2.1 and Section 2.2, the Seller further grants and
transfers to the Trust Collateral Agent, for the benefit of all Noteholders and
the Insurer, a first priority, perfected security interest, as their respective
interests appear in Section 5.7, in all of the Seller's right, title and
interest in, to and under the Receivables and the remainder of the Trust
Property, whether now existing or hereafter acquired, and agrees that this
Agreement shall also constitute a security agreement under applicable law. On or
prior to the Closing Date, the Seller shall have filed a UCC financing statement
or statements, appropriate under the applicable UCC, to reflect the assignment
of the Receivables and the remainder of the Trust Property (other than the Note
Policy) by the Seller to the Trust Collateral Agent and the Insurer and to
protect the Noteholders' and the Insurer's interest in the Receivables, their
proceeds and the Financed Vehicles, against all other Persons and shall
thereafter file any appropriate continuation statements in respect thereof.
During the term of this Agreement, the Seller shall not change its name,
identity or structure or relocate its chief executive office or principal place
of business without first giving at least 30 days' advance written notice to the
Trust Collateral Agent, the Servicer and the Insurer; provided however, that the
Trust Collateral Agent, the Servicer and the Insurer shall, subject to the last
sentence of this paragraph, have no right or power to prohibit a change in the
Seller's name, identity or structure or a relocation of, its chief executive
office or principal place of business. If any change in the Seller's name,
identity or structure or the relocation of its chief executive office or
principal place of business would make any financing or continuation statement
or notice of lien filed in connection with this Agreement misleading within the
meaning of applicable provisions of the UCC or any title statute, the Seller,
promptly but in no event later than thirty days after the effective date of such
change, shall file such amendments or take such other actions as may be required
to preserve and protect the Trust Collateral Agent's interest in the Receivables
and proceeds thereof and the Financed Vehicles and the remainder of the Trust
Property. Promptly after filing such amendments or taking such other action, the
Seller shall deliver to the Trust Collateral Agent and the Insurer an Opinion of
Counsel stating that all financing statements, continuation statements or
amendments thereto necessary to continue the perfection of the interest of the
Trust Collateral Agent in the Trust Property have been filed and reciting the
details thereof.
SECTION 2.2. Conveyance of Subsequent Receivables.
Subject to the conditions set forth in paragraph (b) below, in
consideration of the Issuer's delivery on each related Subsequent Transfer Date
to or upon the order of the Seller of the amount described in Section 5.9(a) to
be delivered to the Seller, the Seller does hereby sell, transfer, assign, set
over and otherwise convey to the Issuer without recourse (subject to the
obligations set forth herein), all right, title and interest of the Seller in
and to the following whether then owned or thereafter acquired:
<PAGE>
(i) the Subsequent Receivables listed on Schedule 1 to the related
Subsequent Transfer Agreement and all monies received thereon on or after
the related Subsequent Cut-off Date (including amounts due on or before the
Subsequent Cut-off Date but received by NAFI, the Seller or the Issuer on
or after the Subsequent Cut-off Date);
(ii) any proceeds and the right to receive proceeds with respect to
such Subsequent Receivables from claims on any physical damage, credit
life, disability or other insurance policies covering the related Financed
Vehicles or Obligors, including rebating of insurance premiums relating to
the Receivables, and any proceeds from the liquidation of the Subsequent
Receivables;
(iii) all rights of the Seller against the Dealers pursuant to Dealer
Agreements or against Originators pursuant to Originator Agreements;
(iv) the related Receivables Files and any and all other documents
that NAFI or the Seller keeps on file in accordance with its customary
procedures relating to the Receivables, the Obligors or the Financed
Vehicles;
(v) property (including the right to receive future Liquidation
Proceeds) that secures a Receivable and that has been acquired by or on
behalf of the Trust pursuant to liquidation of such Receivable;
(vi) all funds on deposit from time to time in the Trust Accounts
(less all investments and proceeds thereof), and all rights of the Issuer
therein;
(vii) its rights and benefits, but none of its obligations or burdens,
under each of the Subsequent Purchase Agreements, including the delivery
requirements, representations and warranties and the cure and repurchase
obligations of NAFI under each of the Subsequent Purchase Agreements, on or
after the related Subsequent Cut-off Date; and
(viii) the proceeds of any and all of the foregoing.
(b) The Seller shall transfer to the Issuer the Subsequent Receivables and
the other property and rights related thereto described in paragraph (a) above
during the Pre-Funding Period (but not more often than once during each calendar
month or as more frequently consented to in writing by the Insurer) only upon
the satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date with respect to the Subsequent Receivables being
transferred on such Subsequent Transfer Date:
(i) the Seller shall have provided the Trust Collateral Agent, the
Owner Trustee, each Rating Agency and the Insurer with an Addition Notice
not later than ten days prior to such Subsequent Transfer Date and shall
have provided any information reasonably requested by any of the foregoing
with respect to such Subsequent Receivables;
<PAGE>
(ii) the Seller shall have delivered the Receivables Schedule for such
Subsequent Receivables to each Rating Agency and the Insurer at least three
Business Days prior to such Subsequent Transfer Date, and the Trust
Collateral Agent and the Insurer shall have received, prior to 10:00 a.m.,
New York City time, on such Subsequent Transfer Date, written notice from
each Rating Agency to the effect that such transfer will not result in the
downgrade or withdrawal of the rating then assigned by such Rating Agency
to the Notes;
(iii) the Seller shall have delivered to the Owner Trustee and the
Trust Collateral Agent a duly executed Subsequent Transfer Agreement which
shall include the Receivables Schedule for such Subsequent Receivables and
a copy thereof to the Insurer;
(iv) the Seller shall, to the extent required by Section 2.4(b), have
deposited or caused to be deposited in the Collection Account all
collections in respect of the Subsequent Receivables;
(v) as of each Subsequent Transfer Date, no Servicer Termination Event
or Insurance Agreement Event of Default shall have occurred and be
continuing;
(vi) after giving effect to the transfer of such Subsequent
Receivables on such Subsequent Transfer Date, the Receivables transferred
to the Trust pursuant hereto shall meet the following criteria (based on
the characteristics of the Initial Receivables on the Initial Cut-off Date
and the Subsequent Receivables on the related Subsequent Cut-off Dates):
(i) the weighted average APR of the Receivables transferred to the Trust
shall not be less than 18.0%, unless, with the prior consent of the Rating
Agencies and the Insurer, the Seller increases the Initial Spread Account
Deposit with respect to such Subsequent Receivables by the amount required
by the Insurer; (ii) the weighted average remaining term of the Receivables
transferred to the Trust shall not be greater than 55 months; (iii) not
more than 80% of the Aggregate Principal Balance shall represent loans to
finance the purchase of used Financed Vehicles; and (iv) the final
scheduled payment date on the Receivable with the latest maturity shall not
be later than April 21, 2003;
(vii) each of the representations and warranties made by the Seller
pursuant to Section 8.1 and pursuant to Section 3.1 with respect to such
Subsequent Receivables shall be true and correct as of the related
Subsequent Transfer Date, and the Seller shall have performed all
obligations to be performed by it hereunder on or prior to such Subsequent
Transfer Date;
(viii) the Insurer (so long as no Insurer Default shall have occurred
and be continuing), in its absolute and sole discretion, shall have
approved the transfer of such Subsequent Receivables to the Trust and shall
have been reimbursed for any fees and expenses incurred by the Insurer in
connection with the granting of such approval;
(ix) on or before such Subsequent Transfer Date, the Seller shall
deliver to the Trust Collateral Agent (with copies to the Insurer) (A) an
<PAGE>
Officer's Certificate of NAFI substantially in the form attached hereto as
Exhibit 2.2A, (b) an Officer's Certificate of the Seller substantially in
the form attached hereto as Exhibit 2.2B, and (C) a Subsequent Transfer
Agreement executed by the Seller and including, as an attachment thereto, a
Receivables Schedule identifying such Subsequent Receivables; and
(x) on or before such Subsequent Transfer Date, the Seller shall have
provided any information reasonably requested by the Rating Agencies, the
Insurer or the Trust Collateral Agent with respect to such Additional
Contracts.
The Seller covenants that in the event any of the foregoing conditions
precedent are not satisfied with respect to any Subsequent Receivable on the
date required as specified above, the Seller will immediately repurchase such
Subsequent Receivable from the Trust, at a price equal to the Purchase Amount
thereof, in the manner specified in Section 2.5.
(c) Within ten Business Days after the last day of the Pre-Funding Period,
the Seller shall, at its cost and expense, cause KPMG Peat Marwick or such other
nationally recognized firm of public accountants as may be acceptable to the
Insurer to deliver to the Insurer a report covering the Receivables then in the
Trust and addressing such procedures as the Seller and the Insurer may agree
upon.
SECTION 2.3. Further Encumbrance of Trust Property. (a) Immediately upon
the conveyance to the Trust by the Seller of any item of the Trust Property
pursuant to Section 2.1 or 2.2, all right, title and interest of the Seller in
and to such item of Trust Property shall terminate, and all such right, title
and interest shall vest in the Trust, in accordance with the Trust Agreement and
Sections 3802 and 3805 of the Business Trust Statute (as defined in the Trust
Agreement).
(b) Immediately upon the vesting of the Trust Property in the Trust, the
Trust shall have the sole right to pledge or otherwise encumber such Trust
Property. Pursuant to the Indenture and contemporaneously with such property
vesting in the Trust pursuant to clause (a) above, the Trust shall grant a
security interest to the Trust Collateral Agent (on behalf of the Noteholders
and the Insurer) in the Trust Property to secure the repayment of the Notes. The
Trust Certificates shall represent the beneficial ownership interest in the
Trust Property, and the Certificateholders shall be entitled to receive
distributions with respect thereto as set forth herein.
(c) Prior to the payment in full on the Notes, the payment of all amounts
due to the Insurer under the Insurance Agreement, the end of the Term of the
Note Policy and the surrender of the Note Policy by the Collateral Agent to the
Insurer, the Trust Collateral Agent shall hold the Trust Property for the
exclusive benefit of the Trustee on behalf of the Noteholders and the Insurer.
Following the payment in full of the Notes and the release and discharge of the
Indenture, all covenants of the Trust contained in Article III of the Indenture
shall, until payment in full of the Trust Certificates, remain as covenants of
the Trust for the benefit of the Certificateholders, enforceable by the
Certificateholders to the same extent that such covenants were enforceable by
the Noteholders prior to the discharge of the Indenture. Any rights of the Trust
Collateral Agent under Article IV of the Indenture following discharge of the
Indenture shall thereupon vest in Certificateholders.
<PAGE>
(d) The Trust Collateral Agent shall, at such time as there are no Notes
outstanding and all sums due to (i) the Trustee or any agent or counsel thereof
pursuant to the Indenture, (ii) the Insurer under the Insurance Agreement and
(iii) the Trust Collateral Agent pursuant to this Agreement, have been paid, and
the Term of the Note Policy has expired and the Trust Collateral Agent has
surrendered the Note Policy to the Insurer, release any remaining portion of the
Trust Property to the Seller.
SECTION 2.4. Books and Records; Payments on Receivables. (a) The Servicer
shall be responsible for maintaining, and shall maintain and cause the
respective Sub-Servicers, if any, to maintain, a complete set of books and
records (including tapes and disks for computer use) for each Receivable to the
extent that such books and records were delivered to the Servicer or such
Sub-Servicer or were developed by it during the course of servicing such
Receivable. The Servicer shall, and shall cause the respective Sub-Servicers to,
maintain such books of account and other records as will enable the Trust
Collateral Agent to determine the ownership status of each Receivable; provided
however, that neither the Servicer nor any Sub-Servicer shall be required to
physically mark or segregate any Receivables or other Receivable Documents to
indicate such ownership status. On or before the Closing Date and each
Subsequent Transfer Date, the Seller and the Servicer shall deliver to the
Custodian all Receivable Documents in its possession or under its control, and
shall promptly deliver to the Custodian any Receivable Documents that
subsequently come into its possession or within its control. The Servicer hereby
warrants, represents and covenants to and with the Trust Collateral Agent and
the Insurer that recordation of the name of the Servicer as lienholder in the
Title Documents respecting any Financed Vehicle as well as such lien itself is
maintained by the Servicer as agent for the Trust Collateral Agent for the
benefit of the Trust and the Servicer has no equitable ownership in the
Receivables, except as it may have by virtue of ownership of a Trust Certificate
or an equity interest in the Seller or any Noteholder. The Servicer acknowledges
that it is holding the Receivables coming into its possession and any other
property constituting a part of the Trust Property held by it, in trust for the
benefit of the Trust Collateral Agent (on behalf of the Noteholders and the
Insurer).
(b) On the Closing Date, the Seller shall deliver to the Trust Collateral
Agent for deposit in the Collection Account, or to the extent received by the
Servicer or any Sub-Servicer, cause the Servicer to deliver or cause to be
delivered to the Trust Collateral Agent for deposit in the Collection Account,
all payments received on the Receivables on or after the Initial Cut-off Date
and on or before the second Business Day preceding the Closing Date. Within two
Business Days after a Subsequent Transfer Date, the Seller shall deliver to the
Trust Collateral Agent for deposit in the Collection Account, or to the extent
received by the Servicer or any Sub-Servicer, cause the Servicer to deliver or
cause to be delivered to the Trust Collateral Agent for deposit in the
Collection Account, all payments received on the Receivables on or after the
applicable Cut-off Date and on or before such Subsequent Transfer Date.
SECTION 2.5. Seller Repurchase of Receivables. The Trust Collateral Agent,
based solely upon the representations of the Custodian, acknowledges receipt by
the Custodian as of the Closing Date and each Subsequent Transfer Date, as the
case may be, of a Receivable File relating to each Receivable. It is understood
and agreed that the Custodian makes no representation as to the contents of any
<PAGE>
Receivable File. If the Servicer or any such Sub-Servicer subsequently finds any
document or documents constituting a part of a Receivable File to be missing or
defective in any material respect, the Servicer or such Sub-Servicer shall
promptly so notify the Trust Collateral Agent, the Insurer and the Seller in
writing, and the Servicer shall add such item to the exceptions list. The Seller
shall use best efforts to cure each such omission or defect on the exceptions
list. If the Seller does not correct or cure any such omission or defect within
sixty (60) days from the date the Trust Collateral Agent was notified of such
omission or defect, then the Seller shall promptly accept a retransfer of the
related Receivable from the Trust Collateral Agent. The Purchase Amount for the
retransferred Receivable shall be delivered by the Seller to the Trust
Collateral Agent for deposit in the Collection Account and upon receipt of the
Purchase Amount by the Trust Collateral Agent and its receipt of written notice
thereof, the Trust Collateral Agent shall cause the Custodian to release to the
Seller the related Receivable File and the Trust Collateral Agent shall execute
and deliver such instruments of transfer or assignment, in each case without
recourse, as shall be reasonably necessary to vest in the Seller or its designee
any Receivable released pursuant hereto. It is understood and agreed that the
obligation of the Seller to accept a retransfer of any Receivable as to which a
material defect in or omission of a constituent document exists shall constitute
the sole remedy respecting such defect or omission available to Noteholders or
the Trust Collateral Agent on behalf of Noteholders.
ARTICLE III
THE RECEIVABLES
SECTION 3.1. Representations and Warranties of Seller. The Seller makes the
representations and warranties set forth on the Schedule of Representations
attached hereto as Schedule B as to the Receivables and the Other Conveyed
Property on which the Issuer is deemed to have relied in acquiring the
Receivables and upon which the Insurer shall be deemed to rely in issuing the
Note Policy. Such representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date in the case of the Initial
Receivables, and as of the related Subsequent Transfer Date in case of the
Subsequent Receivables (unless another date or time period is otherwise
specified or indicated in the particular representation or warranty), but shall
survive the sale, transfer and assignment of the Receivables to the Issuer and
the pledge thereof to the Trustee pursuant to the Indenture. Such
representations and warranties shall survive assignment of the Receivables to
the Trust Collateral Agent and shall survive as long as any Note is outstanding
or this Agreement has not been terminated.
SECTION 3.2. Repurchase upon Breach.
(a) The Seller, the Servicer, any Sub-Servicer, the Insurer, any Trust
Officer of the Trust Collateral Agent or the Owner Trustee, as the case may be,
shall promptly inform each of the other parties and the Insurer, in writing,
upon the discovery of any breach of the Seller's representations and warranties
made pursuant to Section 3.1 which materially and adversely affects the
interests of the Noteholders or the Insurer in the related Receivable (any
Sub-Servicer being so obligated under the related Sub-Servicing Agreement);
provided, however, that the failure to give any such notice shall not derogate
from any obligations of the Seller under this Section 3.2. In addition, with
respect to any Receivables in respect of which the Title Documents were being
applied for on the Closing Date or the relevant Subsequent Transfer Date, as
applicable, if such Title Documents have not been received by the Servicer
within 180 days after the Closing Date or such Subsequent Transfer Date, as
applicable, the Servicer shall give the Trust Collateral Agent, the Insurer and
Seller written notice of such fact. If the Seller does not correct or cure such
breach (including delivery of such Title Documents, if applicable) by the
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Reporting Date occurring during the second full calendar month following the
calendar month in which the Trust Collateral Agent was notified or the Seller,
any Sub-Servicer or the Servicer became aware, if earlier, of such breach
(including failure to deliver such Title Documents), then the Seller shall
promptly repurchase such Receivables from the Issuer. Any such repurchase by the
Seller shall be in exchange for the delivery by the Seller to the Issuer of the
Purchase Amount and shall be accomplished in the manner set forth in Section 5.6
and the Trust shall execute such assignments and other documents reasonably
requested by such Person in order to effect such repurchase. It is understood
and agreed that the obligation of the Seller to repurchase any Receivable as to
which such a breach has occurred and is continuing as described above shall,
except as described in the following paragraph, constitute the sole remedy
respecting such breach available to the Servicer, the Noteholders, the Insurer,
the Issuer, the Trust Collateral Agent, the Trustee and the Owner Trustee.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by the Seller or by the Servicer pursuant
to Section 4.1, the Seller shall indemnify the Trust, the Trust Collateral
Agent, the Insurer, and the Noteholders and any of their respective officers,
directors, employees or agents against all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel, which
may be asserted against or incurred by any of them as a result of third party
claims arising out of the events or facts giving rise to a breach of the
representation.
(b) Pursuant to Section 2.1 and 2.2 of this Agreement, the Seller conveyed
to the Trust all of the Seller's right, title and interest in its rights and
benefits, but none of its obligations or burdens, under the Purchase Agreement
including with respect to the delivery requirements, representations and
warranties and the cure or repurchase obligations of NAFI thereunder. The Seller
hereby represents and warrants to the Trust that such assignment is valid,
enforceable and effective to permit the Trust to enforce such obligations of
NAFI under the Purchase Agreement.
SECTION 3.3. Custody of Receivables Files. The Custodian shall maintain
custody and possession of the Receivable Files as custodian and bailee for, in
accordance with and pursuant to the Custodial Agreement.
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
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SECTION 4.1. Duties of the Servicer.
(a) The Servicer shall service and administer the Receivables on behalf of
the Trust and shall have full power and authority, acting alone and/or through
Sub-Servicers as provided in Section 4.2, to do any and all things which it may
deem necessary or desirable in connection with such servicing and administration
and which are consistent with this Agreement. Consistent with the terms of this
Agreement, the Servicer may waive, modify or vary any term of any Receivable or
consent to the postponement of strict compliance with any such term or in any
manner, grant indulgence to any Obligor if, in the Servicer's sole
determination, which shall be conclusive and binding, such waiver, modification,
postponement or indulgence is not materially adverse to the Noteholders or the
Insurer; provided however, that the Servicer may not permit any modification
with respect to any Receivable that would change its Annual Percentage Rate,
defer the payment of any principal or interest (except to the extent permitted
by Section 4.6(a)), reduce the outstanding principal balance (except for actual
payments of principal), or extend (except to the extent permitted by Section
4.6(a)) the final maturity date on such Receivable. Without limiting the
generality of the foregoing, the Servicer in its own name or in the name of the
Seller is hereby authorized and empowered by the Trust Collateral Agent when the
Servicer believes it appropriate in its best judgment to execute and deliver, on
behalf of the Trust, any and all instruments of satisfaction or cancellation, or
of partial or full release or discharge and all other comparable instruments,
with respect to the Receivables and with respect to the Financed Vehicles;
provided however, that notwithstanding the foregoing, the Servicer shall not,
except pursuant to an order from a court of competent jurisdiction, release an
Obligor from payment of any unpaid amount under any Receivable or waive the
right to collect the unpaid balance of any Receivable from the Obligor, except
that the Servicer may forego collection efforts if the amount subject to
collection is de minimis and if it would forego collection in accordance with
its customary procedures. If any Receivable contains a "due-on-sale" provision
allowing the holder thereof to accelerate the Receivable upon sale of the
Financed Vehicle financed thereunder, the Servicer shall take reasonable steps
under the circumstances to enforce such due on sale provision if a Financed
Vehicle is sold as soon as practicable after determining that such Financed
Vehicle has been sold; provided however, that the Servicer shall not be
obligated to take any legal action to enforce such provision.
(b) The Servicer shall service and administer the Receivables by employing
procedures (including collection procedures) and a degree of care consistent
with prudent industry standards and as are customarily employed by servicers in
servicing and administering comparable motor vehicle retail installment sales
contracts and, to the extent more exacting, the degree of skill and attention
that the Servicer exercises from time to time with respect to all comparable
motor vehicle receivables that it services for itself or others. The Servicer
shall take all actions (in addition to those required to be taken by the Seller
pursuant to this Agreement) that are necessary or desirable to maintain
continuous perfection and first priority of security interests of NAFI in the
Financed Vehicles and to maintain continuous perfection of the security interest
created by each Receivable in the related Financed Vehicle on behalf of the
Trust Collateral Agent, including, but not limited to, using reasonable efforts
to obtain execution by the Obligors and the recording, registering, filing,
re-recording, re-registering and refiling of all Title Documents (it being
understood that Title Documents have not been and need not be endorsed or
delivered to the Trust Collateral Agent and do not and need not identify the
Trust Collateral Agent as the secured party or lienholder with respect to the
Receivables), security agreements, financing statements, continuation statements
or other instruments as are necessary to maintain the security interests granted
by the Obligors under the respective Receivables on behalf of the Trust
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Collateral Agent; provided however, that the Servicer is not required to expend
any of its own funds to remove any security interest, lien or other encumbrance
on any Financed Vehicle. The Servicer shall not take any action to impair the
Trust's rights in any Receivable, except to the extent allowed pursuant to this
Agreement or required by law. The Financed Vehicle securing each Receivable
shall not be released in whole or in part from the security interest granted by
the Receivable, except upon payment in full of the Receivable or as otherwise
contemplated herein. The Servicer shall not extend or otherwise amend the terms
of any Receivable, except in accordance with Section 4.1(a). Upon discovery by
either the Servicer or any Sub-Servicer by a Trust Officer of the Trust
Collateral Agent of a default by the Servicer in the performance of its
obligations under this Section 4.1(b) which materially and adversely affects the
interests of the Noteholders or the Insurer in the related Receivable, the party
discovering such breach shall give prompt written notice thereof to the other
parties and the Insurer. If the Servicer does not correct or cure such default
by the Reporting Date occurring during the second full calendar month following
the calendar month in which the Trust Collateral Agent was notified, or the
Servicer, the Trust Collateral Agent or the Sub-Servicer became aware, if
earlier, of such default, then the Servicer shall promptly purchase such
Receivable from the Trust. Any such purchase by the Servicer shall be in
exchange for the delivery by the Servicer to the Trust of the Purchase Amount.
Except as expressly provided in Section 9.2 and subject to Section 10.1, it is
understood and agreed that the obligation of the Servicer to repurchase any
Receivable as to which such a default has occurred and is continuing as
described above shall constitute the sole remedy respecting such default
available to the Seller, the Noteholders, the Insurer or the Trustee on behalf
of the Noteholders.
(c) Upon the occurrence of an Insurance Agreement Event of Default pursuant
to Section 5.01(b), (c), (d), (e) or (j) of the Insurance Agreement, the Insurer
may (so long as an Insurer Default shall not have occurred and be continuing)
instruct the Trust Collateral Agent and the Servicer in writing to take or cause
to be taken or, if an Insurer Default shall have occurred and be continuing,
upon the occurrence of a Servicer Termination Event, the Trust Collateral Agent
and the Servicer shall take or cause to be taken such action as may, in the
opinion of counsel to the Controlling Party, be necessary to perfect or
re-perfect the security interests in the Financed Vehicles securing the
Receivables in the name of the Trust by amending the title documents of such
Financed Vehicles or by such other reasonable means as may, in the opinion of
counsel to the Controlling Party, be necessary or prudent. NAFI hereby makes,
constitutes, and appoints, the Trust Collateral Agent acting through its duly
appointed officers or any of them, its true and lawful attorney, for it and in
its name and on its behalf, for the sole and exclusive purpose of authorizing
said attorney to execute and deliver as attorney-in-fact or otherwise, any and
all documents and other instruments and to do or accomplish all other acts or
things necessary or appropriate to show the Trust Collateral Agent as lienholder
or secured party on the related Lien Certificates relating to a Financed
Vehicle. NAFI hereby agrees to pay all expenses related to such perfection or
reperfection and to take all action necessary therefor. In addition, prior to
the occurrence of an Insurance Agreement Event of Default, the Controlling Party
may instruct the Trust Collateral Agent and the Servicer to take or cause to be
taken such action as may, in the opinion of counsel to the Controlling Party, be
necessary to perfect or re-perfect the security interest in the Financed
Vehicles underlying the Receivables in the name of the Trust, including by
amending the title documents of such Financed Vehicles or by such other
reasonable means as may, in the opinion of counsel to the Controlling Party, be
necessary or prudent; provided, however, that if the Controlling Party requests
that the title documents be amended prior to the occurrence of an Insurance
Agreement Event of Default, the out-of-pocket expenses of the Servicer in
connection with such action shall be reimbursed to the Servicer by the
Controlling Party.
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(d) Subject to Section 9.5, the Servicer may perform any of its duties
pursuant to this Agreement, including those delegated to it by the Trust
Collateral Agent pursuant to this Agreement, through Persons appointed by the
Servicer. Such Persons may include affiliates of the Servicer and may include
the Seller and its affiliates. Notwithstanding any such delegation of a duty,
the Servicer shall remain obligated and liable for the performance of such duty
as if the Servicer were performing such duty.
(e) Upon the execution and delivery of this Agreement, the Servicer shall
deliver to the Trust Collateral Agent and the Insurer a list of officers and
employees of the Servicer, upon which the Trust Collateral Agent may
conclusively rely, involved in, or responsible for, the administration and
servicing of the Receivables, which list shall from time to time be updated by
the Servicer as additional officers and employees of the Servicer become
involved, or responsible for, the administration and servicing of the
Receivables or officers or employees of the Servicer previously identified on
any such list become disassociated with the administration and servicing of the
Receivables.
(f) The Servicer may take such actions as are necessary to discharge its
duties as Servicer in accordance with this Agreement, including the power to
execute and deliver on behalf of the Trust such instruments and documents as may
be customary, necessary or desirable in connection with the performance of the
Servicer's duties under this Agreement (including consents, waivers and
discharges relating to the Receivables and the Financed Vehicles and such
instruments or documents as may be necessary to effect foreclosure or other
conversion of the ownership of any Financed Vehicle). In furtherance thereof,
the Trust Collateral Agent hereby irrevocably appoints the Servicer as its
attorney-in-fact, such appointment being coupled with an interest, to execute on
its behalf such documents or instruments as are necessary to effect the
Repossession of Financed Vehicles, to deliver applicable Receivable Files,
Receivable Documents and Title Documents to the Seller upon the sale of a
Receivable to the Seller under this Agreement and to deliver applicable
Receivable Files, Receivable Documents and Title Documents upon liquidation or
final payment of a Receivable. The Trust Collateral Agent, upon receipt of a
certificate of a Servicing Official requesting the same be accepted by the Trust
Collateral Agent and certifying as to the reasons such documents are required,
shall furnish the Servicer with any other powers of attorney or other documents
reasonably necessary or appropriate which the Trust Collateral Agent may legally
execute to enable the Servicer to carry out its servicing and administrative
duties hereunder. Neither the Servicer nor any of its directors, officers,
employees or agents will be under any liability to the Trust, the Trust
Collateral Agent, the Insurer, any Noteholder, or the Seller for the
consequences of any delay resulting from having to obtain such documents from
the Trust Collateral Agent, provided that the Servicer furnished such
certificate to the Trust Collateral Agent reasonably promptly after determining
the necessity therefor in the particular instance.
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SECTION 4.2. Sub-Servicing Agreements between Servicer and the
Sub-Servicers. Subject to Section 9.5, the Servicer may enter into Sub-Servicing
Agreements with one or more Sub-Servicers for the servicing and administration
of certain of the Receivables with the prior written consent of the Insurer (so
long as a Insurer Default shall not have occurred and be continuing), which
consent shall not be unreasonably withheld. The Servicer shall notify each
Rating Agency, the Trust Collateral Agent, the Backup Servicer and the Insurer
promptly after entering into any Sub-Servicing Agreement. References in this
Agreement to actions taken or to be taken by the Servicer in servicing the
Receivables include actions taken or to be taken by a Sub-Servicer on behalf of
the Servicer. Each Servicing Agreement shall be upon such terms and conditions
as are not inconsistent with this Agreement and as the Servicer and the
Sub-Servicer have agreed. Each Sub-Servicing Agreement shall require that the
related Sub-Servicer acknowledge that it is holding the Receivables and the
Receivable Documents for the related Receivables coming into its possession and
any other property constituting a part of the Trust Property held by it, in
trust, for the benefit of the Trust Collateral Agent (on behalf of the
Noteholders and the Insurer). The Servicer and a Sub-Servicer may enter into
amendments thereto; provided however, that any such amendments or different
forms shall be consistent with and not violate the provisions of this Agreement
and provided further that the Servicer shall not amend any Sub-Servicing
Agreement without (i) with respect to a material amendment, the prior written
consent of the Insurer and (ii) with respect to all other amendments, upon five
(5) days prior written notice of such amendment.
SECTION 4.3. Obligations of the Servicer. Notwithstanding any Sub-Servicing
Agreement, any of the provisions of this Agreement relating to agreements or
arrangements between the Servicer or a Sub-Servicer or reference to actions
taken through a Sub-Servicer or otherwise, the Servicer shall remain obligated
for the servicing and administering of the Receivables in accordance with the
provisions of Section 4.1 of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreements or
arrangements or by virtue of indemnification from a Sub-Servicer and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Receivables. The Servicer shall be entitled to
enter into any agreement with a Sub-Servicer for indemnification of the
Servicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
SECTION 4.4. No Contractual Relationship between a Sub-Servicer and Trust
Collateral Agent or Noteholders. Any Sub-Servicing Agreement that may be entered
into and any other transactions or services relating to the Receivables
involving a Sub-Servicer in its capacity as such and not as an originator shall
be deemed to be between a Sub-Servicer and the Servicer alone, and the Trust
Collateral Agent, the Trust, the Trustee, the Backup Servicer, the Insurer and
Noteholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to a Sub-Servicer except
as expressly set forth in Section 4.5 or in the applicable Sub-Servicing
Agreement; provided that, if the Servicer is deemed terminated, the Sub-Servicer
may be terminated. The Servicer shall promptly provide to the Trust Collateral
Agent, the Backup Servicer and the Insurer any notice received from a
Sub-Servicer.
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SECTION 4.5. Assumption or Termination of Sub-Servicing Agreement by Trust
Collateral Agent. In the event the Servicer shall for any reason no longer be
the servicer of the Receivables (including by reason of a Servicer Termination
Event), the Backup Servicer or other successor Servicer or its designee will
thereupon assume all of the rights and obligations of the Servicer under any
Sub-Servicing Agreements that may have been entered into by the Servicer by
giving notice of such assumption to the relevant Sub-Servicer or Sub-Servicers
within ten (10) Business Days of the termination of the Servicer as servicer of
the Receivables. Upon the giving of such notice, the successor Servicer or its
designee shall be deemed to have assumed all of the Servicer's interest therein
and to have replaced the Servicer as a party to the Sub-Servicing Agreement to
the same extent as if the Sub-Servicing Agreement had been assigned to the
assuming party except that the Servicer and the Sub-Servicer, if any, shall not
thereby be relieved of any accrued liability or obligations under the
Sub-Servicing Agreement and the Sub-Servicer, if any, shall not be relieved of
any liability or obligation to the Servicer that survives the assignment or
termination of the Sub-Servicing Agreement. The Trust Collateral Agent shall
notify each Rating Agency and the Insurer if any Sub-Servicing Agreement is
assumed by a successor Servicer or its designee.
The Servicer shall, upon request of the Trust Collateral Agent but at the
expense of the Servicer, deliver to the assuming party all documents and records
relating to the Sub-Servicing Agreement and the Receivables then being serviced
and an accounting of amounts collected and held by it and otherwise use its
reasonable efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreement to the assuming party.
SECTION 4.6. Collection of Receivable Payments.
(a) The Servicer shall proceed diligently to collect all payments called
for under the terms and provisions of the Receivables, and shall service the
Receivables in a manner consistent with the servicing standards and procedures
generally accepted in the financial services industry for similar Receivables,
and as otherwise expressly provided by this Agreement, including Section 4.1(a).
Consistent with the foregoing, the Servicer may in its discretion (i) waive any
late payment charge and (ii) extend the then current maturity date of a
Receivable by two months, once during each calendar year at the request of the
related Obligor on account of the Obligor's adverse financial circumstances that
affect the Obligor's ability to make payments under such Receivable; provided
however, that the Servicer may not so extend the then current maturity date of
Receivable more than twice during the life of such Receivable; provided further,
that the Average Extension Ratio for any calendar month, commencing January
1998, shall not exceed 2.5% for each January, August, September and December and
2.0% for any other calendar month. The "Average Extension Ratio" for any
calendar month shall equal the arithmetic average of the Extension Ratios for
such calendar month and the two preceding calendar months (for example, the
Average Extension Ratio for January 1998 will equal the arithmetic average of
the Extension Ratios for the months November 1997, December 1997 and January
1998 and will be included in the report delivered by the Servicer pursuant to
Section 4.11 on or before the February 1998 Reporting Date). The "Extension
Ratio" for any calendar month shall equal the percentage equivalent of a
fraction the numerator of which is the aggregate number of Receivables that have
been extended during such calendar month and the denominator of which is the
aggregate number of Receivables outstanding as of the first day of such calendar
month.
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(b) Except as provided in subsection (c) below, the Servicer shall provide
Obligors with a monthly statement in order to enable such Obligors to make
payments with respect to the Receivables, whether by check mailed directly to
the Post-Office Box or by direct debit of the Obligor's bank account. On each
Business Day, pursuant to the Lockbox Agreement, the Lockbox Processor shall
transfer any payments from Obligors received in the Post-Office Box to the
Lockbox Account. The Servicer shall cause all amounts credited to the Lockbox
Account on account of such payments to be transferred to the Collection Account
no later than the next Business Day after receipt of such payments. The Lockbox
Account shall be a demand deposit account held by the Lockbox Bank, or at the
request of the Controlling Party, an Eligible Bank.
The Servicer shall have notified each Obligor that makes its payments on
the Receivables by check to make any such payments after the applicable Cutoff
Date directly to the Post-Office Box (except in the case of Obligors that have
already been making such payments to the Post-Office Box), and shall have
provided each such Obligor with remittance invoices in order to enable such
Obligors to make such payments directly to the Post-Office Box for deposit into
the Lockbox Account, and the Servicer will continue, not less often than every
three months, to so notify those Obligors who have failed to may payments to the
Post-Office Box. The Servicer on behalf of the Trust Collateral Agent shall
establish and maintain the Post-Office Box at a United States Post Office branch
for the benefit of the Noteholders and the Insurer.
(c) In the event that a Sub-Servicer is appointed in accordance with
Section 9.5, the Servicer shall cause the Sub-Servicer to maintain a
Sub-Servicer Account to which Obligors shall have been directed to remit
payments in respect of the Receivables. The Servicer shall instruct (or shall
cause the Sub-Servicer to instruct) all Obligors to make all payments due in
respect of the Receivables to the Sub-Servicer Account. The Servicer shall,
pursuant to the Sub-Servicing Agreement, cause the Sub-Servicer to use any
amounts other than collections in respect of motor vehicle financing obligations
serviced by the Sub-Servicer. The Servicer shall cause the Sub-Servicer to use
its best efforts to transfer to the Collection Account all collected funds on
deposit in the Sub-Servicer Account that constitute part of the Trust Property
within one Business Day, and in any event within two Business Days of receipt
thereof. If a Sub-Servicer Account is terminated for any reason prior to the
establishment of, and notification to Obligors to remit payments to, a
replacement servicing account comparable to such Sub-Servicer Account, the
Servicer shall promptly, and in any event within 30 days of termination of such
Sub-Servicer Account or comparable account, establish a Lockbox Account pursuant
to a Lockbox Agreement and notify all Obligors to remit payments in respect of
the Receivables in accordance with subsection (b) above.
(d) If the Servicer, the Seller, NAFI or any Sub-Servicer receives
collections under or other payments in respect of the Receivables, each such
Person shall as soon as practicable, but no later than two Business Days
following receipt of such item by such Person, cause such payment to be remitted
to the Trust Collateral Agent for deposit to the Collection Account. If the
Servicer determines that any amount that is not a part of the Trust Property has
been deposited in any Trust Account, the Servicer shall promptly instruct the
Trust Collateral Agent by facsimile (with prompt telephone confirmation) to
segregate such amount, and shall therein direct the Trust Collateral Agent to
turn over such amounts to the Person entitled thereto within two Business Days.
A copy of any such direction shall be delivered by the Servicer to the Insurer.
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(e) Notwithstanding any Lockbox Agreement, or any of the provisions of this
Agreement relating to a Lockbox Agreement, a Lockbox Bank or a Lockbox Account,
the Servicer shall remain obligated and liable to the Trust Collateral Agent and
the Noteholders for servicing and administering the Receivables and the rest of
the Trust Property in accordance with the provisions of this Agreement without
diminution of such obligations or liability by virtue thereof, provided,
however, that the foregoing shall not apply to any Backup Servicer for so long
as a Lockbox Bank is performing its obligations pursuant to the terms of a
Lockbox Agreement.
In the event of a termination of the Servicer, the Backup Servicer or other
successor Servicer shall assume all of the rights and obligations of the
outgoing Servicer under the Lockbox Agreement subject to the terms hereof. In
such event, the Backup Servicer or the successor Servicer shall be deemed to
have assumed all of the outgoing Servicer's interest therein and to have
replaced the outgoing Servicer as a party to each such Lockbox Agreement to the
same extent as if such Lockbox Agreement had been assigned to the successor
Servicer, except that the outgoing Servicer shall not thereby be relieved of any
liability or obligations on the part of the outgoing Servicer to the Lockbox
Bank under such Lockbox Agreement. The outgoing Servicer shall, upon request of
the Trust Collateral Agent, but at the expense of the outgoing Servicer, deliver
to the successor Servicer all documents and records relating to each such
Lockbox Agreement and an accounting of amounts collected and held by the Lockbox
Bank and otherwise use its best efforts to effect the orderly and efficient
transfer of any Lockbox Agreement to the successor Servicer. In the event that
the Insurer (so long as an Insurer Default shall not have occurred and be
continuing) or a Note Majority (if an Insurer Default shall have occurred and be
continuing) elects to change the identity of the Lockbox Bank, the outgoing
Servicer, at its expense, shall cause the Lockbox Bank to deliver, at the
direction of the Insurer (so long as an Insurer Default shall not have occurred
and be continuing) or a Security Majority (if an Insurer Default shall have
occurred and be continuing) to the Trust Collateral Agent or a successor Lockbox
Bank, all documents and records relating to the Receivables and all amounts held
(or thereafter received) by the Lockbox Bank (together with an accounting of
such amounts) and shall otherwise use its best efforts to effect the orderly and
efficient transfer of the lockbox arrangements and the Servicer shall notify the
Obligors to make payments to the Lockbox established by the successor.
SECTION 4.7. Maintenance of Insurance. The Servicer shall use its
reasonable efforts to cause each Obligor to maintain on the related Financed
Vehicle a comprehensive and collision policy providing coverage at least equal
to the lesser of (i) the actual cash value of such Financed Vehicle and (ii) the
unpaid balance owing on the related Receivable, less Unearned Finance Charges;
provided however, that the Servicer shall not be obligated to expend its own
funds to pay any insurance premiums or obtain or maintain any such policy.
Pursuant to Section 4.6 any amounts collected by the Servicer under any such
policies (other than amounts to be applied to the restoration or repair of the
related Financed Vehicles or amounts released to the Obligor in accordance with
the Servicer's normal servicing procedures) shall be deposited in the Collection
Account. All policies required by this paragraph shall be endorsed with clauses
providing for loss payable to the Servicer or the relevant Sub-Servicer and its
successors and assigns. Servicer shall maintain and keep in place a vendor's
single interest insurance policy.
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SECTION 4.8. Realization upon Defaulted Receivables.
(a) In the event that a Receivable becomes and continues to be a Defaulted
Receivable, the Servicer shall take all reasonable and lawful steps necessary
for Repossession; provided however, that the Servicer shall not be obligated to
institute any action for Repossession through judicial proceedings unless it
determines in its good faith judgment, which determination will be conclusive
and binding, that Liquidation Proceeds that would be realized in connection
therewith or amounts payable pursuant to the last sentence of this Section 4.8
would be sufficient for the reimbursement in full of its out-of-pocket expenses
pursuant to this Agreement. In connection with such Repossession, the Servicer
shall follow such practices and procedures required by Section 4.1 and make
advances of its own funds for any out-of-pocket expenses incurred. The Servicer
shall be reimbursed for Liquidation Expenses (including advances) by retention
of the required reimbursement from the first Liquidation Proceeds received with
respect to such Defaulted Receivable. The Servicer shall be entitled to receive
the following amounts with respect to any Receivable the Obligor of which has
filed bankruptcy or against whom a petition for involuntary bankruptcy has been
filed: a one time fee of $200 in respect of those Receivables not referred to
outside legal counsel, or, in the case of those Receivables that are so
referred, reimbursement of the reasonable fees and expenses of outside legal
counsel, if their retention was necessary in the reasonable judgment of the
Servicer.
(b) In the event the Servicer delivers any Repossessed Financed Vehicle for
sale to a Dealer, it agrees that prior to such delivery, it shall make such
filings and effect such notices as are necessary under Section 9-114(1) of the
New York UCC (or comparable section of the UCC of any applicable state) to
preserve its ownership interest (or security interest, as the case may be) in
any such Repossessed Financed Vehicle. The Servicer agrees that at any time
after 45 days from the Closing Date the aggregate number of unliquidated
Repossessed Financed Vehicles delivered for sale to all Dealers with respect to
which the actions referred to in the prior sentence have not been effected shall
not exceed the lesser of (i) 35 Repossessed Financed Vehicles or (ii) 20% of the
aggregate number of unliquidated Repossessed Financed Vehicles. The Servicer
further agrees that the number of unliquidated Repossessed Financed Vehicles
delivered for sale to any individual Dealer shall at no time exceed 35.
SECTION 4.9. Total Servicing Fee; Payment of Certain Expenses by Servicer.
On each Distribution Date, the Servicer shall be entitled to receive out of the
Collection Account the Base Servicing Fee and any Supplemental Servicing Fee
(together, the "Servicing Fee") for the related Due Period pursuant to Section
5.7. The Servicer shall be required to pay all expenses incurred by it in
connection with its activities under this Agreement (including taxes imposed on
the Servicer, fees and expenses of any Sub-Servicer, expenses incurred in
connection with distributions and reports made by the Servicer to Noteholders or
the Insurer and all other fees and expenses of the Owner Trustee, the Trust
Collateral Agent or the Trustee, except taxes levied or assessed against the
Trust, and claims against the Trust in respect of indemnification, which taxes
and claims in respect of indemnification against the Trust are expressly stated
to be for the account of NAFI) and shall not be entitled to reimbursement
therefor except as specifically provided herein. The Servicer shall be liable
for the fees, charges and expenses of the Owner Trustee, the Trust Collateral
Agent, the Trustee, the Custodian, the Collateral Agent, the Lockbox Bank, any
Sub-Servicer and their respective agents (and any fees under the Lockbox
Agreement).
<PAGE>
SECTION 4.10. [Reserved]
SECTION 4.11. Reports.
(a) Not later than the Reporting Date, the Servicer shall forward to the
Trust Collateral Agent, the Trustee, the Backup Servicer, each Rating Agency,
the Insurer and the Seller a statement substantially in the form attached hereto
as Exhibit B (as such form may be modified from time to time by agreement
between the Trust Collateral Agent and the Servicer with the prior written
consent of the Insurer), certified by an officer of the Servicer. In addition to
the information required by Exhibit B, the Servicer shall include in the copy of
such statement delivered to the Insurer (i) the Delinquency Ratio, Average
Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate, Average
Net Loss Rate, Average Extension Ratio and Extension Ratio for such Reporting
Date, (ii) whether any Trigger Event has occurred as of such Reporting Date,
(iii) whether any Trigger Event that may have occurred as of a prior Reporting
Date is deemed cured as of such Reporting Date, and (iv) whether to the
knowledge of the Servicer an Insurance Agreement Event of Default has occurred.
(b) On the first Business Day after each Determination Date, the Trust
Collateral Agent shall forward by telecopier to the Servicer, the Insurer and
the Seller a statement (and shall also mail a copy to the Servicer, the Insurer
and the Seller) setting forth the amount, if any, on deposit in the Collection
Account, the Distribution Account, the Pre-Funding Account, the Note
Distribution Account and the Pre-Funding Period Reserve Account as of such
Determination Date. Not later than the close of business on the fourth Business
Day prior to each Distribution Date, the Trust Collateral Agent shall forward by
telecopier to the Collateral Agent and the Insurer a copy of the statement
required to be delivered to Noteholders on such Distribution Date pursuant to
Section 5.10 prepared assuming that the Insurer will not exercise its right
under Section 5.11 and based on information set forth by the Servicer in the
statement substantially in the form of Exhibit B hereto. Not later than five
days after each Determination Date, the Trust Collateral Agent shall forward to
the Servicer, the Insurer and the Seller a statement showing, for the previous
Distribution Date, the aggregate of withdrawals from the Distribution Account
and the withdrawals and deposits to the Spread Account.
SECTION 4.12. Annual Statement as to Compliance, Notice of Servicer
Termination Event.
(a) The Servicer shall deliver or cause to be delivered to each Rating
Agency, the Trustee, the Owner Trustee, the Trust Collateral Agent, the Backup
Servicer and the Insurer on or before April 30 (or 120 days after the end of the
Servicer's fiscal year, if other than December 31) of each year, beginning on
April 30, 1998, an Officer's Certificate signed by any responsible officer of
the Servicer, or such Eligible Sub-Servicer who is performing the servicing
duties of the Servicer, dated as of December 31 (or other applicable date) of
the immediately preceding year, stating that (i) a review of the activities of
the Servicer during the preceding calendar year and of performance under this
Agreement has been made under such officer's supervision, (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof and (iii) to the
best of such officer's knowledge, each Sub-Servicer has fulfilled its
obligations under its Sub-Servicing Agreement in all material respects, or if
there has been a material default in the fulfillment of such obligations,
specifying such default known to such employee and the nature and status
thereof.
<PAGE>
(b) The Servicer shall deliver to the Trust Collateral Agent, the Insurer,
the Backup Servicer, the Noteholders and each Rating Agency, 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
Termination Event under Section 10.1.
SECTION 4.13. Annual Independent Accountants' Report.
(a) The Servicer shall, at its expense, cause a firm of nationally
recognized independent certified public accountants (the "Independent
Accountants"), who may also render other services to the Servicer or to the
Seller, to deliver to the Trustee, the Owner Trustee, the Trust Collateral
Agent, the Backup Servicer and the Insurer, on or before March 30 (or 90 days
after the end of the Servicer's fiscal year, if other than December 31) of each
year, beginning on March 30, 1998, with respect to the twelve months ended the
immediately preceding December 31 (or other applicable date) (or such other
period as shall have elapsed from the Closing Date to the date of such
certificate), a statement (the "Accountants' Report") addressed to the Board of
Directors of the Servicer, to the Trustee, the Owner Trustee, the Trust
Collateral Agent and to the Insurer, to the effect that such firm has audited
the books and records of the Servicer and that such audit (1) was made in
accordance with generally accepted auditing standards, and accordingly included
such tests of the accounting records and such other auditing procedures as such
firm considered necessary in the circumstances; (2) included an examination of
documents and records relating to the servicing of automobile installment sales
contracts under pooling and servicing agreements substantially similar one to
another (such statement to have attached thereto a schedule setting forth the
servicing agreements covered thereby, including this Agreement); (3) included an
examination of the delinquency and loss statistics relating to the Servicer's
portfolio of automobile installment sales contracts; and (4) except as described
in the statement, disclosed no exceptions or errors in the records relating to
automobile and light truck loans serviced for others that, in the firm's
opinion, generally accepted auditing standards requires such firm to report. The
Accountants' Report shall further state that (1) a review in accordance with
agreed upon procedures was made of three randomly selected Servicer's
Certificates for the Trust; (2) except as disclosed in the Report, no exceptions
or errors in the Servicer's Certificates so examined were found; and (3) the
delinquency and loss information relating to the Receivables contained in the
Servicer Certificates were found to be accurate.
(b) The Accountants' Report shall also indicate that the firm is
independent of the Seller and the Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
<PAGE>
(c) A copy of the Accountant's Report may be obtained by any Noteholder by a
request in writing to the Trust Collateral Agent addressed to its Corporate
Trust Office.
SECTION 4.14. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to representatives of the Trust
Collateral Agent, the Backup Servicer and the Insurer reasonable access to the
documentation regarding the Receivables. Each of the Seller and Servicer will
permit any authorized representative or agent designated by the Insurer to visit
and inspect any of the properties of the Seller or Servicer, as the case may be,
to examine the corporate books and financial records of the Seller or Servicer,
as the case may be, its records relating to the Receivables, and make copies
thereof or extracts therefrom and to discuss the affairs, finances, and accounts
of the Seller or Servicer, as the case may be, with its principal officers, as
applicable, and its independent accountants. Any expense incident to the
exercise by the Insurer of any right under this Section 4.14 shall be borne by
NAFI, so long as NAFI is the Servicer. In each case, such access shall be
afforded without charge but only upon reasonable request and during normal
business hours.
SECTION 4.15. Monthly Tape. (a) On or before the fourth Business Day, but
in no event later than the fifth calendar day, of each month, the Servicer will
deliver to the Trust Collateral Agent, the Insurer and the Backup Servicer a
computer tape and a diskette (or any other electronic transmission acceptable to
the Trust Collateral Agent, the Insurer and the Backup Servicer) in a format
acceptable to the Trust Collateral Agent and the Backup Servicer containing the
information with respect to the Receivables as of the preceding Determination
Date necessary for preparation of the Servicer's Certificate relating to the
immediately succeeding Determination Date and necessary to determine the
application of collections as provided in Section 5.4.
SECTION 4.16. Retention and Termination of Servicer. The Servicer hereby
covenants and agrees to act as such under the Agreement for an initial term,
commencing on the Closing Date and ending on March 31, 1998, which term shall be
extendible by the Insurer for successive quarterly terms ending on each
successive March 31, June 30, September 30 and December 31 (or, pursuant to
revocable written standing instructions from time to time to the Servicer and
the Trust Collateral Agent, for any specified number of terms greater than one),
until the termination of the Trust. Each such notice (including each notice
pursuant to standing instructions, which shall be deemed delivered at the end of
successive quarterly terms for so long as such instructions are in effect) (a
"Servicer Extension Notice") shall be delivered by the Insurer to the Trust
Collateral Agent and the Servicer. The Servicer hereby agrees that, as of the
date hereof and upon its receipt of any such Servicer Extension Notice, the
Servicer shall become bound, for the initial term beginning on the date hereof
and for the duration of the term covered by such Notice, to continue as the
Servicer subject to and in accordance with the other provisions of this
Agreement. Until such time as an Insurer Default shall have occurred and be
continuing, the Trust Collateral Agent agrees that, as of the fifteenth day
prior to the last day of any term of the Servicer, if in which the Trust
Collateral Agent shall not have received any Servicer Extension Notice from the
Insurer, the Trust Collateral Agent will, within five days thereafter, give
written notice of such non-receipt to the Insurer, and the Servicer and the
Servicer's term shall not be extended unless a Servicer Extension Notice is
received on or before the last day of such term.
<PAGE>
SECTION 4.17. Custodial Arrangement. The Custodian shall maintain custody
and possession of the Receivable Files as custodian and bailee in accordance
with and pursuant to the Custodial Agreement. The Servicer hereby assigns all of
its right, title and interest in, but none of its obligators thereunder, and to
such Custodial Agreement to the Trust Collateral Agent. To the extent the
Servicer receives any notices with respect to the Custodial Agreement, the
Servicer will forward a copy of such notice to the Trust Collateral Agent and
the Insurer.
ARTICLE V
TRUST ACCOUNTS; DISTRIBUTIONS;
STATEMENTS TO NOTEHOLDERS
SECTION 5.1. Establishment of Trust Accounts.
(a) (i) The Trust Collateral Agent, on behalf of the Noteholders, the
Certificateholders and the Insurer, shall establish and maintain in its own name
an Eligible Deposit Account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the benefit of
the Trust Collateral Agent on behalf of the Noteholders, the Certificateholders
and the Insurer. The Collection Account shall initially be established with the
Trust Collateral Agent.
(ii) The Trust Collateral Agent, on behalf of the Noteholders and the
Insurer, shall establish and maintain in its own name an Eligible Deposit
Account (the "Note Distribution Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Trust Collateral Agent on behalf of the Noteholders and the Insurer. The
Note Distribution Account shall initially be established with the Trust
Collateral Agent.
(iii) The Trust Collateral Agent, on behalf of the Noteholders and the
Insurer, shall establish and maintain in its own name an Eligible Deposit
Account (the "Pre-Funding Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Trust Collateral Agent on behalf of the Noteholders and the Insurer. The
Pre-Funding Account shall initially be established with the Trust
Collateral Agent.
(iv) The Trust Collateral Agent, on behalf of the Noteholders, the
Certificateholders and the Insurer, shall establish and maintain in its own
name an Eligible Deposit Account (the "Distribution Account"), bearing a
designation clearly indicating that the funds deposited therein are held
for the benefit of the Trust Collateral Agent on behalf of the Noteholders,
the Certificateholders and Insurer. The Distribution Account shall
initially be established with the Trust Collateral Agent.
(b) The Trust Collateral Agent shall deposit the following amounts into the
Collection Account upon receipt: (i) all amounts withdrawn by the Servicer from
the Lockbox Account or by a Sub-Servicer from the Sub-Servicer Account and all
amounts received by the Servicer, the Seller, NAFI or any Sub-Servicer and
transferred to the Trustee pursuant to Section 4.6(d); (ii) the Purchase Amount
received in respect of any Purchased Receivables pursuant to Sections 2,2, 2.5,
3.2 and 4.1 hereof; (iii) all income and gain from investments of funds in the
Collection Account; and (iv) all Liquidation Proceeds (net of Liquidation
Expenses retained by the Servicer or Sub-Servicer) and other amounts with
respect to the Trust Property, if any, received from the Seller, the Servicer or
any Sub-Servicer.
<PAGE>
(c) On each Distribution Date, the Trust Collateral Agent shall, at the
written direction of the Servicer, withdraw from the Collection Account and
deposit in the Distribution Account the amount on deposit in the Collection
Account as of the close of business on the related Determination Date (other
than any pay-ahead amounts, as provided in Section 5.4) and any amount deposited
to the Collection Account in respect of Purchased Receivables on or prior to the
related Reporting Date and subsequent to the preceding Reporting Date, less the
sum of (i) the Supplemental Servicing Fee collected with respect to the
Receivables on deposit in the Collection Account as of such Determination Date,
(ii) any income and gain on investments of deposits in the Collection Account as
of such Determination Date, (iii) any collection or other amounts deposited to
the Collection Account in respect of Purchased Receivables other than the
Purchase Amounts. In addition, on each Distribution Date, the Trust Collateral
Agent shall, in accordance with the written direction of the Servicer, withdraw
from the Collection Account and shall pay (i) to the Seller any income and gain
on investments then on deposit in the Collection Account and all late payment
fees then on deposit in the Collection Account and (ii) to pay to the Seller
with respect to each Purchased Receivable or property acquired in respect
thereof, all amounts received thereon and not distributed as of, or received
after, the date on which the related Principal Balance or Purchase Amount (or,
in the case of a retransfer pursuant to Section 11.1, the purchase amount
required therein) is determined. In the event the Servicer, any Sub-Servicer or
the Trust Collateral Agent shall deposit in the Collection Account any amount in
error and such amount is not required to be deposited therein, the Trust
Collateral Agent may withdraw at any time, on its own behalf if the erroneous
deposit was made by the Trust Collateral Agent and on behalf of the Servicer or
Sub-Servicer if the erroneous deposit was made by the Servicer or Sub-Servicer
promptly after receipt of an Officer's Certificate setting forth the reason for
such withdrawal of such amount from the Collection Account, any provision herein
to the contrary notwithstanding.
(d) Funds on deposit in the Collection Account, the Pre-Funding Account,
the Note Distribution Account, the Distribution Account and the Pre-Funding
Period Reserve Account (collectively, the "Trust Accounts") shall be invested by
the Trust Collateral Agent (or any custodian with respect to funds on deposit in
any such account) in Eligible Investments selected in writing by the Servicer
(pursuant to standing instructions or otherwise) which, absent any instruction
shall be the investments specified in clause (d) of the definition of Eligible
Investments set forth herein. Other than as permitted by the Rating Agencies and
the Insurer, funds on deposit in any Trust Account other than the Pre-Funding
Period Reserve Account shall be invested in Eligible Investments that will
mature so that such funds will be available at the close of business on the
Business Day immediately preceding the following Distribution Date. Funds
deposited in the Pre-Funding Account shall be invested by the Trust Collateral
Agent pursuant to written instructions from the Seller in Eligible Investments
that mature no later than the Business Day next preceding the earlier of the
date on which such funds are expected to be needed and the Distribution Date
next succeeding the date of such investment (or on such date or such
Distribution Date, as the case may be, if such Eligible Investment is an
obligation of the institution maintaining the Pre-Funding Account), and no such
investment shall be sold prior to its maturity. Funds deposited in a Trust
Account on the day immediately preceding a Distribution Date upon the maturity
of any Eligible Investments are not required to be invested overnight. All
Eligible Investments will be held to maturity.
<PAGE>
(e) All investment earnings of moneys deposited in the Trust Accounts shall
be deposited (or caused to be deposited) by the Trust Collateral Agent in the
Collection Account no later than the close of business on the Business Day
immediately preceding the related Distribution Date, and any loss resulting from
such investments shall be charged to the Collection Account. The Servicer shall
not direct the Trust Collateral Agent to make any investment of any funds held
in any of the Trust Accounts unless the security interest granted and perfected
in such account will continue to be perfected in such investment, in either case
without any further action by any Person, and, in connection with any direction
to the Trust Collateral Agent to make any such investment, if necessary, the
Servicer shall deliver to the Trust Collateral Agent an Opinion of Counsel to
such effect upon which the Trust Collateral Agent may conclusively rely.
(f) The Trust Collateral Agent shall not in any way be held liable by
reason of any insufficiency in any of the Trust Accounts resulting from any loss
on any Eligible Investment included therein except for losses attributable to
the Trust Collateral Agent's negligence or bad faith or its failure to make
payments on such Eligible Investments issued by the Trust Collateral Agent, in
its commercial capacity as principal obligor and not as trustee, in accordance
with their terms.
(g) If (i) the Servicer shall have failed to give investment directions for
any funds on deposit in the Trust Accounts to the Trust Collateral Agent by 2:00
p.m. Eastern Time (or such other time as may be agreed by the Issuer and Trust
Collateral Agent) on any Business Day; or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Notes but the Notes
shall not have been declared due and payable, or, if such Notes shall have been
declared due and payable following an Event of Default and amounts collected or
receivable from the Trust Property are being applied as if there had not been
such a declaration; then the Trust Collateral Agent shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments pursuant to paragraph (d) above.
(h) (i) The Trust Collateral Agent shall possess all right, title and
interest in all funds on deposit from time to time in the Trust Accounts and in
all proceeds thereof (excluding all Investment Earnings on the Collection
Account) and all such funds, investments, proceeds and income shall be part of
the Owner Trust Estate. Except as otherwise provided herein, the Trust Accounts
shall be under the sole dominion and control of the Trust Collateral Agent for
the benefit of the Noteholders and the Insurer. If, at any time, any of the
Trust Accounts ceases to be an Eligible Deposit Account, the Trust Collateral
Agent (or the Servicer on its behalf) shall within five Business Days (or such
longer period as to which each Rating Agency and the Insurer may consent)
establish a new Trust Account as an Eligible Deposit Account and shall transfer
any cash and/or any investments to such new Trust Account. In connection with
the foregoing, the Servicer agrees that, in the event that any of the Trust
Accounts are not accounts with the Trust Collateral Agent, the Servicer shall
notify the Trust Collateral Agent in writing promptly upon any of such Trust
Accounts ceasing to be an Eligible Deposit Account.
<PAGE>
With respect to the Trust Account Property:
(A) any Trust Account Property that is held in deposit accounts
shall be held solely in the Eligible Deposit Accounts; and, except as
otherwise provided herein, each such Eligible Deposit Account shall be
subject to the exclusive custody and control of the Trust Collateral
Agent, and the Trust Collateral Agent shall have sole signature
authority with respect thereto;
(B) any Trust Account Property that constitutes an instrument
within the meaning of Section 9-105(1)(I) of the UCC and are
susceptible of physical delivery shall be delivered to the Trust
Collateral Agent in accordance with paragraph (a) of the definition of
"Delivery" and shall be held, pending maturity or disposition, solely
by the Trust Collateral Agent or its nominee or custodian acting
solely for the Trust Collateral Agent;
(C) any Trust Account Property that constitutes a certificated
security (as defined in Section 8-102(a)(4) of the UCC) shall be
delivered to the Trust Collateral Agent in accordance with paragraph
(b) of the definition of "Delivery" and shall be held, pending
maturity or disposition, solely by the Trust Collateral Agent or by a
securities intermediary (as defined in Section 8-102(a)(14) of the
UCC) acting on behalf of the Trust Collateral Agent;
(D) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to Federal book-entry
regulations shall be delivered in accordance with paragraph (c) of the
definition of "Delivery" and shall be maintained by the Trust
Collateral Agent, pending maturity or disposition, through continued
book-entry registration of such Trust Account Property as described in
such paragraph; and
(E) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by
clause (D) above shall be delivered to the Trust Collateral Agent in
accordance with paragraph (d) of the definition of "Delivery" and
shall be maintained by the Trust Collateral Agent, pending maturity or
disposition, through continued registration of the Trust Collateral
Agent's (or its nominee's) ownership of such security or the agreement
of the issuer thereof to comply with the instructions of the Trust
Collateral Agent as described in such clause (D) pending maturity or
disposition;
(F) any Trust Account Property that is a "security entitlement"
(as defined in Section 8-102(a)(17) of the UCC), a securities
intermediary (i) credits, accepts for credit or is required to credit
a "financial asset" (as defined in Section 8-102(a)(9) of the UCC) to
the Trust Collateral Agent's securities account, (ii) has agreed that
it will comply with the entitlement orders described in clause (f) of
the definition of "Delivery" or (iii) confirms the purchase of such
Trust Account Property, and makes such entries on its books and
records, in the manner and as described in such clause (f), and such
credit, agreement or entries are maintained pending maturity or
disposition.
<PAGE>
SECTION 5.2. Pre-Funding Period Reserve Account.
(a) The Servicer shall cause the Trust Collateral Agent to establish and
maintain an Eligible Deposit Account (the "Pre-Funding Period Reserve Account")
with the Trust Collateral Agent, bearing a designation clearly indicating that
the funds deposited therein are held in trust for the benefit of the Noteholders
and the Insurer.
On or prior to the Closing Date, the Seller shall deposit an amount equal
to the Pre-Funding Period Reserve Account Initial Deposit into the Pre-Funding
Period Reserve Account.
(b) (i) On the Distribution Dates occurring on or prior to the
Distribution Date next succeeding termination of the Pre-Funding Period,
the Trust Collateral Agent shall, in accordance with the Servicer's
Certificate, withdraw from the Pre-Funding Period Reserve Account the
Monthly Pre-Funding Period Reserve Amount for such Distribution Date and
deposit such amount in the Collection Account as further provided in
Section 5.7.
(ii) On the Distribution Dates occurring on or prior to the
Distribution Date next succeeding termination of the Pre-Funding Period,
Servicer shall instruct the Trust Collateral Agent in writing to withdraw
from the Pre-Funding Period Reserve Account and pay to the Seller on such
Distribution Date an amount equal to the amount of funds on deposit in the
Pre-Funding Period Reserve Account (after giving effect to any required
transfer pursuant to the preceding clause (i) on such Distribution Date) in
excess of the Required Reserve Amount for such Distribution Date. Upon any
such distributions to the Seller, the Noteholders and the Insurer will have
no further rights in, or claims to, such amounts.
(iii) Any amounts remaining in the Pre-Funding Period Reserve Account
on the Distribution Date next succeeding termination of the Pre-Funding
Period after taking into account the transfer pursuant to Section 5.7(a)(i)
or (ii) shall be remitted by the Trust Collateral Agent to the Seller. Upon
any such distributions to the Seller, the Noteholders and the Insurer will
have no further rights in, or claims to, such amounts.
SECTION 5.3. Certain Reimbursements to the Servicer. The Servicer will be
entitled to be reimbursed from amounts on deposit in the Collection Account with
respect to a Due Period for amounts previously deposited in the Collection
Account but later determined by the Servicer to have resulted from mistaken or
postings or checks returned for insufficient funds. The amount to be reimbursed
hereunder shall be paid to the Servicer on the related Distribution Date
pursuant to Section 5.7(b)(i) upon certification by the Servicer of such amounts
and the provision of such information to the Trust Collateral Agent and the
Insurer as may be necessary in the opinion of the Insurer to verify the accuracy
of such certification. In the event that the Insurer has not received evidence
satisfactory to it of the Servicer's entitlement to reimbursement pursuant to
this Section, the Insurer shall (unless an Insurer Default shall have occurred
<PAGE>
and be continuing) give the Trust Collateral Agent written notice to such
effect, following receipt of which the Trust Collateral Agent shall not make a
distribution to the Servicer in respect of such amount pursuant to Section 5.7,
or if the Servicer prior thereto has been reimbursed pursuant to Section 5.7,
the Trust Collateral Agent shall withhold such amounts from amounts otherwise
distributable to the Servicer on the next succeeding Distribution Date.
SECTION 5.4. Application of Collections. For all purposes of this Agreement
the allocation of a payment on a Receivable between principal and interest shall
be made based upon the amortization method provided in the related Contract. For
purposes of allocating a pay-ahead payment on a Receivable between principal and
interest, the pay-ahead shall be deemed to have been received on the date it was
actually due. For all purposes of this Agreement, no amount shall be treated as
collected under a Receivable until such amount has been deposited into the
Collection Account.
SECTION 5.5. Withdrawals from Series 1998-1 Spread Account.
(a) In the event that the Servicer's Certificate with respect to any
Determination Date shall state that the Available Amount with respect to such
Distribution Date is less than the sum of the amounts payable on the related
Distribution Date pursuant to clauses (i) through (iv) (other than any Note
Prepayment Amount) of Section 5.7(b) (such deficiency being a "Deficiency Claim
Amount"), which notice shall also state if there are not sufficient amounts in
the Spread Account to cover such deficiency, then on the Business Day
immediately preceding the related Draw Date, the Trust Collateral Agent shall
deliver to the Collateral Agent, the Owner Trustee, the Insurer and the
Servicer, by hand delivery, telex or facsimile transmission, a written notice (a
"Deficiency Notice") specifying the Deficiency Claim Amount for such
Distribution Date and the Note Policy Claim Amount, if any. Such Deficiency
Notice shall direct the Collateral Agent to remit such Deficiency Claim Amount
(to the extent of the funds available to be distributed pursuant to the Spread
Account Agreement) to the Trust Collateral Agent for deposit in the Collection
Account on the related Distribution Date.
(b) Any Deficiency Notice shall be delivered by 10:00 am., New York City
time, on the Business Day immediately preceding the Draw Date immediately
preceding the related Distribution Date. The amounts distributed by the
Collateral Agent to the Trust Collateral Agent pursuant to a Deficiency Notice
shall be deposited by the Trust Collateral Agent into the Collection Account
pursuant to Section 5.6.
SECTION 5.6. Additional Deposits.
(a) NAFI and the Seller, as applicable, shall deposit or cause to be
deposited in the Collection Account on the Reporting Date following the date on
which such obligations are due the aggregate Purchase Amount with respect to
Purchased Receivables. On or before each Draw Date, the Trust Collateral Agent
shall remit to the Collection Account any amounts delivered to the Trust
Collateral Agent by the Collateral Agent.
<PAGE>
(b) Any Insolvency Proceeds shall be deposited in the Collection Account
pursuant to Section 11.1(b).
SECTION 5.7. Distributions.
(a) On each Distribution Date, the Trust Collateral Agent shall (based
solely on the information contained in the Servicer's Certificate delivered
pursuant to Section 4.11 on the related Reporting Date unless the Insurer shall
have notified the Trust Collateral Agent of any errors or deficiencies with
respect thereto) cause to be made the following transfers and distributions in
the amounts set forth in such report for such Distribution Date:
(i) During the Pre-Funding Period, from the Pre-Funding Period Reserve
Account to the Note Distribution Account, in immediately available funds,
the Monthly Pre-Funding Period Reserve Amount for such Distribution Date;
and
(ii) If such Distribution Date is the Mandatory Redemption Date, from
the Pre-Funding Account to the Note Distribution Account, in immediately
available funds, the Pre-Funded Amount after giving effect to the purchase
of Subsequent Receivables, if any, on the Mandatory Redemption Date.
(b) On each Distribution Date, the Trust Collateral Agent shall, to the
extent of the Available Amount (any amount of which was deposited to the
Distribution Account pursuant to Section 5.11 to be applied only as directed by
the Insurer) together with funds withdrawn from the Spread Account, if any, make
the following payments (in case of the withdrawals from the Spread Account, for
payments of the Servicing Fee, the Noteholders' Distributable Amount and any
amounts owing to the Insurer pursuant to clause (iv) below only) in the
following order of priority:
(i) from the Distribution Account to the Servicer, the Servicing Fee
for the related Due Period, Period, and any unpaid Servicing Fees from
prior Due Periods to the extent not previously paid;
(ii) from the Distribution Account to each of the Trust Collateral
Agent, the Trustee, the Owner Trustee, the Collateral Agent and the
Custodian, their respective accrued and unpaid fees to the extent not paid
by the Servicer;
(iii) from the Distribution Account to the Note Distribution Account,
the Noteholders' Distributable Amount (other than the amount to be
transferred from the Pre-Funding Account to the Note Distribution Account
in accordance with Section 5.7(a)(ii));
(iv) from the Distribution Account to the Insurer (or any designee
thereof), to the extent of any amounts owing to the Insurer under the
Insurance Agreement, the Indenture or this Agreement and not paid;
<PAGE>
(v) from the Distribution Account to the Collateral Agent for deposit
to the Spread Account, all Available Amounts remaining after distribution
pursuant to clause (i) through (iv) above;
(vi) from amounts, if any, released from the Spread Account on such
Distribution Date, to the Pre-Funding Period Reserve Account, the amount by
which the Required Reserve Amount exceeds the amount of funds on deposit
therein after giving effect to any withdrawals from the Pre-Funding Period
Reserve Account on such Distribution Date;
(vii) from amounts (as reduced by the distributions pursuant to clause (vi)
above), if any, release from the Spread Account on such Distribution Date, to
the Trustee and the Owner Trustee for any unreimbursed expenses and to pay any
indemnities owed by the Seller to the Trustee under the Indenture or to the
Owner Trustee under the Trust Agreement;
(viii) from amounts (as reduced by the distribution pursuant to clauses
(vi) and (vii) above), if any, released from the Spread Account on such
Distribution Date, to reimburse the Servicer for any expense of an Opinion of
Counsel incurred in connection with an amendment to the Indenture, and any
expenses incurred by the Servicer in connection with a realization upon a
Defaulted Receivable;
(ix) from amounts (as reduced by the distribution pursuant to clauses (vi),
(vii) and (viii) above), if any released from the Spread Account on such
Distribution Date, to reimburse the Backup Servicer for expenses incurred by the
Backup Servicer and to reimburse the Servicer for expenses incurred by and
reimbursable, or any indemnities payable by the Seller, to the Servicer pursuant
to this Agreement;
(x) from amounts (as reduced by the distribution pursuant to clauses (vi),
(vii), (viii) and (ix) above), if any released from the Spread Account on such
Distribution Date, to reimburse the Seller for expenses incurred by and
reimbursable to the Seller pursuant to the Indenture and this Agreement; and
(xi) from amounts (as reduced by the distribution pursuant to clauses (vi),
(vii), (viii), (ix) and (x) above), if any released from the Spread Account on
such Distribution Date, to the holder(s) of the Trust Certificates, any
remaining funds.
provided, however, that, (A) following an acceleration of the Notes or, (B) if
an Insurer Default shall have occurred and be continuing and an Event of Default
pursuant to Section 5.1(i), 5.1(ii), 5.1(iv), 5.1(v) or 5.1(vi) of the Indenture
shall have occurred and be continuing, in each case, to the extent actually
known by a Trust Officer of the Trust Collateral Agent, or (C) the receipt of
Insolvency Proceeds pursuant to Section 11.1(b), amounts deposited in the Note
Distribution Account (including any such Insolvency Proceeds) and the
Distribution Account shall be paid to the Noteholders and the Certificateholders
pursuant to Section 5.6 of the Indenture.
<PAGE>
(c) Each Certificateholder, by its acceptance of its Trust Certificate,
will be deemed to have consented to the provisions of paragraph (b) above
relating to the priority of distributions and will be further deemed to have
acknowledged that no property rights in any amount of funds or the proceeds of
any such amount shall vest in such Certificateholder until such amount has been
distributed to such Certificateholder pursuant to such provisions; provided,
that the foregoing shall not restrict the right of any Certificateholder, upon
compliance with the provisions hereof, from seeking to compel the performance of
the provisions hereof by the parties hereto.
(d) In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Trust Certificate, specifically
acknowledges that no amounts shall be received by it, nor shall it have any
right to receive any amounts, unless and until such amounts have been
distributed pursuant to clause (xi) above to such Certificateholder. Each
Certificateholder, by acceptance of its Trust Certificate, further specifically
acknowledges that it has no right to or interest in any monies at any time held
pursuant to the Spread Account Agreement or pursuant hereto prior to the release
of such monies as aforesaid, such monies being held in trust for the benefit of
the Noteholders and the Insurer. Notwithstanding the foregoing, in the event
that it is ever determined that the monies held in the Spread Account constitute
a pledge of collateral, then the provisions of this Agreement and the Spread
Account Agreement shall be considered to constitute a security agreement and the
Seller and the Certificateholders hereby grant to the Collateral Agent for the
benefit of the Trustee and the Insurer a first priority perfected security
interest in such amounts, to be applied as set forth in Section 3.03 of the
Spread Account Agreement. In addition, each Certificateholder, by acceptance of
its Trust Certificate, hereby appoints the Seller as its agent to pledge a first
priority perfected security interest in the Spread Account, and any amounts held
therein from time to time to the Collateral Agent for the benefit of the Trustee
and the Insurer pursuant to the Spread Account Agreement and agrees to execute
and deliver such instruments of conveyance, assignment, grant, confirmation,
etc., as well as any financing statements, in each case as the Insurer shall
consider reasonably necessary in order to perfect the Collateral Agent's
Security Interest in the Collateral (as such terms are defined in the Spread
Account Agreement).
(e) In the event that the Collection Account is maintained with an
institution other than the Trust Collateral Agent, the Servicer shall instruct
and cause such institution to make all deposits and distributions pursuant to
Section 5.7(b) on the related Distribution Date.
SECTION 5.8. Note Distribution Account.
(a) On each Distribution Date, the Trust Collateral Agent shall distribute
all amounts on deposit in the Note Distribution Account, as such amounts on
deposit in the Note Distribution Account are specified on the monthly Servicer's
Certificate, to Noteholders in respect of the Notes to the extent of amounts due
and unpaid on the Notes for principal and interest in the following amounts and
in the following order of priority:
(i) accrued and unpaid interest on the Notes; provided that if there
are not sufficient funds in the Note Distribution Account to pay the entire
amount of accrued and unpaid interest then due on the Notes, the amount in
the Note Distribution Account shall be applied to the payment of such
interest on the Notes pro rata on the basis of the amount of accrued and
unpaid interest due on the Notes; and
<PAGE>
(ii) to the Noteholders, the Noteholders' Principal Distributable
Amount until the outstanding principal balance of the Notes is reduced to
zero.
(b) On each Distribution Date, the Trust Collateral Agent shall send to
each Noteholder, in accordance with Section 5.10, the statement provided to the
Trust Collateral Agent by the Servicer pursuant to Section 4.11(b) hereof for
distribution on such Distribution Date.
(c) In the event that any withholding tax is imposed on the Trust's payment
(or allocations of income) to a Noteholder, such tax shall reduce the amount
otherwise distributable to the Noteholder in accordance with this Section. The
parties hereto hereby agree to provide to the Trust Collateral Agent the
information any such party may have, if any, with respect to any such
withholding tax. The Trust Collateral Agent is hereby authorized and directed to
retain from amounts otherwise distributable to the Noteholders sufficient funds
for the payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Trust Collateral Agent from contesting any
such tax in appropriate proceedings, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The amount of any
withholding tax imposed with respect to a Noteholder shall be treated as cash
distributed to such Noteholder at the time it is withheld by the Trust and
remitted to the appropriate taxing authority. If there is a possibility that
withholding tax is payable with respect to a distribution (such as a
distribution to a non-U.S. Noteholder), the Trust Collateral Agent may in its
sole discretion withhold such amounts in accordance with this clause (c). In the
event that a Noteholder wishes to apply for a refund of any such withholding
tax, the Trust Collateral Agent shall reasonably cooperate with such Noteholder
in making such claim so long as such Noteholder agrees to reimburse the Trust
Collateral Agent for any out-of-pocket expenses incurred.
(d) Distributions required to be made to Noteholders on any Distribution
Date shall be made to each Noteholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Noteholder at a bank or other entity having appropriate facilities therefor, if
such Noteholder shall have provided to the Note Registrar appropriate written
instructions at least five Business Days prior to such Distribution Date and
such Holder's Notes in the aggregate evidence a denomination of not less than
$1,000,000 or, if not, by check mailed to such Noteholder at the address of such
holder appearing in the Note Register; provided, however, that, unless
Definitive Notes have been issued pursuant to Section 2.12 of the Indenture,
with respect to Notes registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), distributions
will be made by wire transfer in immediately available funds to the account
designated by such nominee. Notwithstanding the foregoing, the final
distribution in respect of any Note (whether on the Final Scheduled Distribution
Date or otherwise) will be payable only upon presentation and surrender of such
Note at the office or agency maintained for that purpose by the Note Registrar
pursuant to Section 2.4 of the Indenture.
<PAGE>
SECTION 5.9. Pre-Funding Account.
(a) On the Closing Date, the Trust Collateral Agent will deposit, on behalf
of the Seller, in the Pre-Funding Account $16,490,982.64 from the proceeds of
the sale of the Notes. On each Subsequent Transfer Date, the Servicer shall
instruct the Trust Collateral Agent to withdraw from the Pre-Funding Account an
amount equal to 91% of the Principal Balance of the Subsequent Receivables
transferred to the Issuer on such Subsequent Transfer Date and to distribute
such amount to or upon the order of the Seller upon satisfaction of the
conditions set forth in this Agreement with respect to such transfer. The Trust
Collateral Agent shall also deposit into the Pre-Funding Account any income or
gain earned from the investment of amounts on deposit in the Pre-Funding Account
as received. On each Distribution Date, any income and gain earned from the
investment of amounts on deposit in the Pre-Funding Account since the previous
Distribution Date (or the Closing Date, in the case of the first Distribution
Date) shall be deposited into the Note Distribution Account.
(b) If the Pre-Funded Amount has not been reduced to zero on the date on
which the Pre-Funding Period ends after giving effect to any reductions in the
Pre-Funded Amount on such date, the Servicer shall instruct the Trust Collateral
Agent to withdraw from the Pre-Funding Account on the Mandatory Redemption Date
the Pre-Funded Amount (exclusive of any Pre-Funding Earnings) and deposit an
amount equal to the Note Prepayment Amount in the Note Distribution Account.
SECTION 5.10. Statements to Noteholders. Concurrently with each
distribution charged to the Note Distribution Account, the Trust Collateral
Agent shall forward by mail to each Noteholder, the Seller, the Servicer, the
Insurer and each Rating Agency, a written statement prepared by the Servicer
substantially in the form attached hereto as Exhibit 5.10.
SECTION 5.11. Optional Deposits by the Insurer. The Insurer shall at any
time, and from time to time, with respect to a Distribution Date, have the
option (but shall not be required, except in accordance with the terms of a
Policy) to deliver amounts to the Trust Collateral Agent for deposit into the
Distribution Account for any of the following purposes: (i) to provide funds in
respect of the payment of fees or expenses of any provider of services to the
Trust with respect to such Distribution Date, or (ii) to include such amount to
the extent that without such amount a draw would be required to be made on the
Note Policy.
ARTICLE VI
THE NOTE POLICY
SECTION 6.1. Claims Under Note Policy.
(a) In the event that the Trust Collateral Agent has delivered a Deficiency
Notice with respect to any Determination Date pursuant to Section 5.5 hereof,
the Trust Collateral Agent shall on the related Draw Date determine the Note
Policy Claim Amount for the related Distribution Date. If the Note Policy Claim
Amount specified on the Deficiency Notice for such Distribution Date is greater
than zero, the Trust Collateral Agent shall furnish to the Insurer no later than
12:00 noon New York City time on the related Draw Date, a completed Notice of
Claim (as defined in (b) below) in the amount of the Note Policy Claim Amount.
Amounts paid by the Insurer pursuant to a claim submitted under this Section 6.1
shall be deposited by the Trust Collateral Agent into the Note Distribution
Account for payment pursuant to paragraph (b) below to Noteholders on the
related Distribution Date.
<PAGE>
(b) Any notice delivered by the Trust Collateral Agent to the Insurer
pursuant to subsection 6.1(a) shall specify the Note Policy Claim Amount claimed
under the Note Policy and shall constitute a "Notice of Claim" under the Note
Policy. In accordance with the provisions of the Note Policy, the Insurer is
required to pay to the Trust Collateral Agent the Note Policy Claim Amount
properly claimed thereunder by 12:00 noon, New York City time, on the later of
(i) the third Business Day (as defined in the Note Policy) following receipt on
a Business Day (as defined in the Note Policy) of the Notice of Claim, and (ii)
the applicable Distribution Date. Any payment made by the Insurer under the Note
Policy shall be applied solely to the payment of the Notes, and for no other
purpose.
(c) The Trust Collateral Agent shall (i) receive as attorney-in-fact of
each Noteholder any Note Policy Claim Amount from the Insurer and (ii) deposit
the same in the Note Distribution Account for distribution to Noteholders. Any
and all Note Policy Claim Amounts disbursed by the Trust Collateral Agent from
claims made under the Note Policy shall not be considered payment by the Trust
or from the Spread Account with respect to such Notes, and shall not discharge
the obligations of the Trust with respect thereto. The Insurer shall, to the
extent it makes any payment with respect to the Notes, become subrogated to the
rights of the recipients of such payment, to the extent of such payments.
Subject to and conditioned upon any payment with respect to the Notes by or on
behalf of the Insurer, the Trust Collateral Agent shall assign to the Insurer
all rights to the payment of interest or principal with respect to the Notes
which are then due for payment to the extent of all payments made by the
Insurer, and the Insurer may exercise any option, vote, right, power or the like
with respect to the Notes to the extent that it has made payment pursuant to the
Note Policy. To evidence such subrogation, the Note Registrar (as defined in the
Indenture) shall note the Insurer's rights as subrogee upon the Note Register
upon receipt from the Insurer of proof of payment by the Insurer of any
Noteholders' Interest Distributable Amount or Noteholders' Principal
Distributable Amount. The foregoing subrogation shall in all cases be subject to
the rights of the Noteholders to receive all Scheduled Payments (as defined in
the Note Policy) in respect of the Notes.
(d) The Trust Collateral Agent shall keep a complete and accurate record of
all funds deposited by the Insurer into the Note Distribution Account and
Distribution Account and the allocation of such funds to payment of interest on
and principal paid in respect of any Note. The Insurer shall have the right to
inspect such records at reasonable times upon one Business Day's prior notice to
the Trust Collateral Agent.
(e) The Trust Collateral Agent shall be entitled to enforce on behalf of
the Noteholders the obligations of the Insurer under the Note Policy.
Notwithstanding any other provision of this Agreement or any Transaction
Document, the Noteholders are not entitled to make any claims under the Note
Policy or institute proceedings directly against the Insurer.
<PAGE>
SECTION 6.2. Preference Claims.
(a) In the event that the Trust Collateral Agent has received a certified
copy of an order of the appropriate court that any Scheduled Payment (as defined
in the Note Policy) has been avoided in whole or in part as a preference payment
under applicable bankruptcy law, the Trust Collateral Agent shall so notify the
Insurer, shall comply with the provisions of the Note Policy to obtain payment
by the Insurer of such avoided payment, and shall, at the time it provides
notice to the Insurer, notify Holders of the Notes by mail that, in the event
that any Noteholder's payment is so recoverable, such Noteholder will be
entitled to payment pursuant to the terms of the Note Policy. The Trust
Collateral Agent shall furnish to the Insurer its records evidencing the
payments of principal of and interest on Notes, if any, which have been made by
the Trust Collateral Agent and subsequently recovered from Noteholders, and the
dates on which such payments were made. Pursuant to the terms of the Note
Policy, the Insurer will make such payment on behalf of the Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Note Policy) and not to the Trust Collateral Agent
or any Noteholder directly (unless a Noteholder has previously paid such payment
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy, in
which case the Insurer will make such payment to the Trust Collateral Agent for
distribution to such Noteholder upon proof of such payment reasonably
satisfactory to the Insurer).
(b) The Trust Collateral Agent shall promptly notify the Insurer of any
proceeding or the institution of any action (of which the Trust Collateral Agent
has actual knowledge) seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership, rehabilitation or similar law
(a "Preference Claim") of any distribution made with respect to the Notes. Each
Noteholder, by its purchase of Notes, and the Trust Collateral Agent hereby
agree that so long as an Insurer Default shall not have occurred and be
continuing, the Insurer may at any time during the continuation of any
proceeding relating to a Preference Claim direct all matters relating to such
Preference Claim including, without limitation, (i) the direction of any appeal
of any order relating to any Preference Claim and (ii) the posting of any
surety, supersedeas or performance bond pending any such appeal at the expense
of the Insurer, but subject to reimbursement as provided in the Insurance
Agreement. In addition, and without limitation of the foregoing, as set forth in
Section 6.1(c), the Insurer shall be subrogated to, and each Noteholder and the
Trust Collateral Agent hereby delegate and assign, to the fullest extent
permitted by law, the rights of the Trust Collateral Agent and each Noteholder
in the conduct of any proceeding with respect to a Preference Claim, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such Preference
Claim.
SECTION 6.3. Surrender of Note Policy. The Trust Collateral Agent shall
surrender the Note Policy to the Insurer for cancellation upon the expiration of
such policy in accordance with the terms thereof.
SECTION 6.4. Spread Account. The Seller agrees, simultaneously with the
execution and delivery of this Agreement, to execute and deliver the Spread
Account Agreement, and pursuant to the terms thereof, to deposit the Initial
Spread Account Deposit in the Spread Account.
<PAGE>
ARTICLE VII
RESERVED
ARTICLE VIII
The Seller
SECTION 8.1. Representations, Warranties and Covenants of the Seller. The
Seller hereby represents, warrants and covenants to the Trust Collateral Agent,
the Insurer and the Servicer, which representations, warranties and covenants
shall survive as long as any Note shall be outstanding or this Agreement has not
been terminated, that as of the Closing Date and each Subsequent Transfer Date:
(a) the Seller is a Delaware business trust duly organized, validly
existing, and in good standing under the laws of the State of Delaware and has
all licenses and approvals necessary to carry on its business as now being
conducted and shall appoint and employ agents or attorneys in each jurisdiction
where it shall be necessary to take action under this Agreement and the other
Transaction Documents; the Seller has the full power and authority to own its
property, to carry on its business as presently conducted, and to execute,
deliver and perform each of the Transaction Documents to which it is a party;
the execution, delivery and performance of each of the Transaction Documents to
which it is a party (including all instruments of transfer to be delivered
pursuant to any such Transaction Documents to which it is a party) by the Seller
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized; each of the Transaction Documents to which it
is a party evidences the valid, binding and enforceable obligations of the
Seller (subject to applicable bankruptcy and insolvency laws and other similar
laws affecting the enforcement of creditors' rights generally and to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law); and all requisite action has been taken by the
Seller to make each of the Transaction Documents to which it is a party valid
and binding upon the Seller (subject as aforesaid in the preceding clause);
(b) the Seller is not required to obtain the consent of any other party or
obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Transaction Document to which it
is a party;
(c) the consummation of the transactions contemplated by this Agreement and
the other Transaction Documents will not result in the breach of any term or
provision of the trust agreement of the Seller or result in the breach of any
term or provision of, or conflict with or constitute a default (with or without
notice, lapse of time or both) under or result in the acceleration of any
obligation under, any agreement, indenture or loan or credit agreement or other
instrument to which the Seller or its property is subject or result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such agreement, indenture or loan or credit agreement or other
instrument (aside from the lien created pursuant to this Agreement), or result
in the violation of any law (including, without limitation, any bulk transfer or
similar law), rule, regulation, order, judgment or decree to which the Seller or
its property or the Receivables are subject;
<PAGE>
(d) no statement, report or other document furnished or to be furnished
pursuant to this Agreement or in connection with the transaction contemplated
hereby contains or will, when furnished, contain any untrue statement of a
material fact or omits or will, when furnished, omit to state a material fact
necessary to make the statements contained therein not misleading, in light of
the circumstances under which they were made;
(e) neither the Seller nor any of its subsidiaries or Affiliates is a party
to, bound by or in breach or violation of any indenture or other agreement or
instrument, or subject to or in violation of any statute, order or regulation of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over it, which materially and adversely affects, or may in the
future materially and adversely affect, the ability of the Seller to perform its
obligations under this Agreement or any other Transaction Document;
(f) this Agreement and each Conveyance Agreement, when duly executed and
delivered, shall effect a valid sale, transfer and assignment of the Receivables
and the remaining Trust Property, enforceable against the Seller and creditors
of and purchasers from the Seller;
(g) there are no actions, suits, proceedings or investigations pending or,
to the Seller's knowledge, threatened against the Seller or NAFI, before any
court, regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Seller or its properties (i)
asserting the invalidity of this Agreement or any of the Transaction Documents,
(ii) seeking to prevent the issuance of the Notes or the consummation of any of
the transactions contemplated by this Agreement or any of the Transaction
Documents, (iii) seeking any determination or ruling that might materially and
adversely affect the performance by the Seller of its obligations under, or the
validity or enforceability of, this Agreement or any of the Transaction
Documents, (iv) involving the Seller and which might adversely affect the
federal income tax or other federal, state or local tax attributes of the Notes,
or (v) that could have a material adverse effect on the Receivables.
(h) the Seller has obtained or made all necessary consents, approvals,
waivers and notifications of creditors, lessors and other non-governmental
persons, in each case, in connection with the execution and delivery of this
Agreement and the other Transaction Documents, and the consummation of all the
transactions herein and therein contemplated;
(i) the Seller shall not take any action to impair the Trust Collateral
Agent's rights on behalf of the Noteholders and the Insurer in any Contract;
(j) the Seller has filed all federal, state, county, local and foreign
income, franchise and other tax returns required to be filed by it through the
date hereof, and has paid all taxes reflected as due thereon;
<PAGE>
(k) since the date of its organization, the Seller has maintained its chief
executive office in the State of Florida or the State of Delaware, and there
have been no other locations of the Seller's principal office during the four
(4) months preceding the Closing Date;
(l) Seller is solvent and will not become insolvent after giving effect to
the transactions contemplated hereunder; Seller is paying its debts as they
become due; Seller, after giving effect to the contemplated transactions, will
have adequate capital to conduct its business;
(m) since February 1995, "National Financial Auto Funding Trust" is the
only trade name under which the Seller has operated its business and, prior to
such date, NAFCO Funding Trust was the only trade name under which the Seller
operated its business;
(n) the Seller shall not engage in any business or activity other than in
connection with or relating to the purchase of auto loan receivables and the
issuance of securities secured by, or evidencing beneficial interests in, such
auto loan receivables;
(o) the Seller is not and shall not be involved in the day-to-day or other
management of its parent or any of its affiliates;
(p) the Seller's financial statements shall reflect its separate legal
existence from any of its affiliates;
(q) the Seller shall maintain records and books of account of the Seller
and shall not commingle such records and books of account with the records and
books of account of any Person;
(r) the Seller shall act solely in its own name and through the duly
authorized trustees or agents in the conduct of its business, and shall conduct
its business so as not to mislead others as to the identity of the entity with
which they are concerned;
(s) at all times, except in the case of a temporary vacancy, which shall
promptly be filled, the Seller shall have at least one trust collateral agent
who qualifies as an "Independent Trust Collateral Agent" as such term is defined
in the Trust Agreement as in effect on the date hereof.
The Seller shall indemnify the Trust Collateral Agent, the Insurer, the
Servicer, their respective officers, directors, agents and employees and each
Noteholder, and hold each of them harmless against any and all damages
(including all expenses and legal fees) resulting from a breach of the
representations and warranties set forth in this Section 8.1.
The Insurer shall be deemed to have relied on the foregoing
representations, warranties and covenants in executing and delivering the Note
Policy.
<PAGE>
SECTION 8.2. Corporate Existence.
(a) During the term of this Agreement, the Seller will keep in full force
and effect its existence, rights and franchises as a business trust or a
corporation under the laws of Delaware and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Agreement, any Subsequent Transfer Agreement, the Transaction Documents and each
other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and such other agreements and the transactions
contemplated hereby and thereby and the performance of its obligations hereunder
and thereunder.
(b) During the term of this Agreement, the Seller shall observe the
applicable legal requirements for the recognition of the Seller as a legal
entity separate and apart from its Affiliates, including as follows:
(i) the Seller shall maintain business records and books of account
separate from those of its Affiliates;
(ii) except as otherwise provided in this Agreement, the Seller shall
not commingle its assets and funds with those of its Affiliates;
(iii) the Seller shall at all times hold itself out to the public
under the Seller's own name as a legal entity separate and distinct from
its Affiliates; and
(iv) all transactions and dealings between the Seller and its
Affiliates will be conducted on an arm's-length basis.
SECTION 8.3. Liability of Seller; Indemnities. The Seller shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken under this Agreement by the Seller and the representations made by
the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trust, the Insurer, the Trustee, the Trust Collateral Agent
and their respective officers, directors, agents and employees from and against
any taxes that may at any time be asserted against any such Person with respect
to the transactions contemplated in this Agreement and any of the Transaction
Documents (except any income taxes arising out of fees paid to the Owner
Trustee, the Trust Collateral Agent, the Trustee and the Insurer and except any
taxes to which the Owner Trustee, the Trust Collateral Agent or the Trustee may
otherwise be subject to), including any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes (but, in the
case of the Issuer, not including any taxes asserted with respect to, federal or
other income taxes arising out of distributions on the Notes) and costs and
expenses in defending against the same.
(b) The Seller shall indemnify, defend and hold harmless the Issuer, the
Owner Trustee, the Trustee, the Trust Collateral Agent, the Insurer, their
respective officers, directors, agents and employees and the Noteholders from
and against any loss, liability or expense incurred by reason of (i) the
Seller's willful misfeasance, bad faith or negligence in the performance of its
duties under this Agreement, or by reason of reckless disregard of its
obligations and duties under this Agreement and (ii) the Seller's or the
Issuer's violation of Federal or state securities laws in connection with the
offering and sale of the Notes.
<PAGE>
(c) The Seller shall indemnify, defend and hold harmless the Owner Trustee,
Trustee and the Trust Collateral Agent and their respective officers, directors,
employees and agents from and against any and all costs, expenses, losses,
claims, damages and liabilities arising out of, or incurred in connection with
the acceptance or performance of the trusts and duties set forth herein and in
the Transaction Documents except to the extent that such cost, expense, loss,
claim, damage or liability shall be due to the willful misfeasance, bad faith or
negligence (except for errors in judgment) of the Owner Trustee.
Indemnification under this Section shall survive the resignation or removal
of the Owner Trustee, the Trustee or the Trust Collateral Agent and the
termination of this Agreement or the Indenture or the Trust Agreement or the
Custodial Agreement, as applicable, and shall include reasonable fees and
expenses of counsel and other expenses of litigation. If the Seller shall have
made any indemnity payments pursuant to this Section and the Person to or on
behalf of whom such payments are made thereafter shall collect any of such
amounts from others, such Person shall promptly repay such amounts to the
Seller, without interest.
SECTION 8.4. Merger or Consolidation of, or Assumption of the Obligations
of, Seller. The Seller may not be merged or consolidated with or into any person
or transfer substantially all of its assets to any Person.
SECTION 8.5. Limitation on Liability of Seller and Others. The Seller and
any director or officer or employee or agent of the Seller may rely in good
faith on the written advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising under any Transaction Document. The Seller shall 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.
SECTION 8.6. Seller May Own Notes. The Seller and any Affiliate thereof may
in its individual or any other capacity become the owner or pledgee of Notes
with the same rights as it would have if it were not the Seller or an Affiliate
thereof, except as expressly provided herein or in any Transaction Document.
Notes so owned by the Seller or such Affiliate shall have an equal and
proportionate benefit under the provisions of the Transaction Documents, without
preference, priority, or distinction as among all of the Notes; provided,
however, that any Notes owned by the Seller or any Affiliate thereof, during the
time such Notes are owned by them, shall be without voting rights for any
purpose set forth in the Documents and will not be entitled to the benefits of
the Note Policy. The Seller shall notify the Owner Trustee, the Trustee, the
Trust Collateral Agent and the Insurer promptly after it or any of its
Affiliates become the owner or pledgee of a Note.
<PAGE>
ARTICLE IX
The Servicer
SECTION 9.1. Representations, Warranties and Covenants of the Servicer. The
Servicer hereby represents, warrants and covenants to the Trust Collateral Agent
and the Insurer that as of the Closing Date and each Subsequent Transfer Date:
(a) the Servicer is duly organized, validly existing and in good standing
under the laws of the state of its organization and is qualified to transact
business in and is in good standing under the laws of each state in which it is
necessary for it to be so qualified in order to carry on its business as now
being conducted and has all licenses necessary to carry on its business as now
being conducted; the Servicer has the full power and authority to own its
property, to carry on its business as presently conducted, and to execute,
deliver and perform each of the Transaction Documents to which it is a party;
the execution, delivery and performance of each of the Transaction Documents to
which it is a party (including all instruments of transfer to be delivered
pursuant to any such Transaction Documents to which it is a party) by the
Servicer and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized; each of the Transaction Documents
to which it is a party evidences the valid, binding and enforceable obligation
of the Servicer (subject to applicable bankruptcy and insolvency laws and other
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law) and all requisite partnership action has been
taken by the Servicer to make each of the Transaction Documents to which it is a
party valid and binding upon the Servicer (subject as aforesaid in the preceding
clause);
(b) the Servicer is not required to obtain the consent of any other party
or obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Transaction Documents to which it
is a party;
(c) the consummation of the transactions contemplated by the Transaction
Documents will not result in the breach of any term or provision of the
certificate of incorporation or by-laws of the Servicer or result in the breach
of any term or provision of, or conflict with or constitute a default (with or
without notice, lapse of time or both) under or result in the acceleration of
any obligation under, any agreement, indenture or loan or credit agreement or
other instrument to which the Servicer or its property is subject, or result in
the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such agreement, indenture or loan or credit agreement or other
instrument (aside from the lien created pursuant to this Agreement) or result in
the violation of any law, rule, regulation, order, judgment or decree to which
the Servicer or its property or the Receivables are subject;
(d) the Servicer is not a party to, bound by or in breach or violation of
any indenture or other agreement or instrument, or subject to or in violation of
any statute, order or regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which materially and
adversely affects, or may in the future materially and adversely affect, the
ability of the Servicer to perform its obligations under this Agreement or the
interest of the Noteholders, the Trust or the Insurer in any material respect;
<PAGE>
(e) there are no actions, suits, proceedings or investigations pending or,
to the Servicer's knowledge, threatened against the Servicer, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Servicer or any of its properties
(i) asserting the invalidity of this Agreement or any of the Transaction
Documents, (ii) seeking to prevent the issuance of the Notes or the consummation
of any of the transactions contemplated by this Agreement or any of the other
Transaction Documents, (iii) 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 or any
of the Transaction Documents, (iv) involving the Servicer and which might
adversely affect the federal income tax or other federal, state or local tax
attributes of the Notes, or (v) that could have a material adverse effect on the
Receivables. To the Servicer's knowledge, there are no proceedings or
investigations pending or threatened against the Servicer, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Servicer or its properties relating
to the Servicer which might adversely affect the federal income tax or other
federal, state or local tax attributes of the Notes;
(f) the principal office of the Servicer is located at One Park Place, 621
NW 53rd Street, Suite 200, Boca Raton, Florida 33487; and
(g) the Sub-Servicing Agreement is enforceable against the Servicer and has
been duly authorized by all necessary corporate action of the Servicer and has
been duly executed and delivered by the Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 9.1 shall survive delivery of the respective Receivable
Files to the Custodian and the Sub-Servicers, if any, on behalf of the Trust
Collateral Agent and shall survive as long as any Note shall be outstanding or
this Agreement has not been terminated. Upon discovery by the Seller, the
Servicer or a Responsible Officer of the Trust Collateral Agent of a breach of
any of the representations and warranties set forth in this Section 9.1 which
materially and adversely affects the interests of the Noteholders or the Insurer
in any Receivable, the party discovering such breach shall give prompt written
notice thereof to the other parties and to the Insurer. In addition to the
foregoing, the Servicer shall indemnify the Seller, the Trust Collateral Agent,
the Insurer, the Trust and the Noteholders against all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel, which may be asserted against or incurred by any of them as a result of
third party claims arising out of the events or facts giving rise to a breach of
the covenants or representations and warranties set forth in Section 9.1.
The Insurer shall be deemed to have relied on the foregoing
representations, warranties and covenants in executing and delivering the Note
Policy.
<PAGE>
SECTION 9.2. Liability of Servicer; Indemnities.
(a) The Servicer (in its capacity as such) shall be liable hereunder only
to the extent of the obligations in this Agreement specifically undertaken by
the Servicer and the representations made by the Servicer.
(b) The Servicer shall defend, indemnify and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Owner Trustee, the Backup Servicer, the
Insurer, their respective officers, directors, agents and employees, and the
Noteholders from and against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation arising out of or resulting from the use, ownership or
operation by the Servicer, any Affiliate thereof, or any Sub-Servicer of any
Financed Vehicle.
(c) The Servicer shall indemnify, defend and hold harmless the Trustee, the
Trust Collateral Agent, the Backup Servicer and the Owner Trustee and their
respective officers, directors, agents and employees from and against any taxes
that may at any time be asserted against any of such parties with respect to the
transactions contemplated in this Agreement except to the extent that such
costs, expenses, losses, damages, claims and liabilities arise out of the
negligence or willful misconduct of such parties.
(d) The Servicer (when the Servicer is NAFI) shall indemnify, defend and
hold harmless the Trust, the Trustee, the Trust Collateral Agent, the Owner
Trustee, the Backup Servicer, the Insurer, their respective officers, directors,
agents and employees and the Noteholders from and against any taxes that may at
any time be asserted against any of such parties with respect to the
transactions contemplated in this Agreement, including, without limitation, any
sales, gross receipts, tangible or intangible personal property, privilege or
license taxes (but not including any federal or other income taxes, including
franchise taxes, asserted with respect to, and as of the date of, the sale of
the Receivables and the Other Conveyed Property to the Trust or the issuance and
original sale of the Notes or asserted with respect to ownership of the
Receivables, or federal or other income taxes arising out of distributions on
the Notes) and costs and expenses in defending against the same.
(e) The Servicer (when the Servicer is not NAFI) shall indemnify, defend
and hold harmless the Trust, the Trustee, the Trust Collateral Agent, the Owner
Trustee, the Backup Servicer, the Insurer, their respective officers, directors,
agents and employees and the Noteholders from and against any taxes with respect
to the sale of Receivables in connection with servicing hereunder that may at
any time be asserted against any of such parties with respect to the
transactions contemplated in this Agreement, including, without limitation, any
sales, gross receipts, tangible or intangible personal property, privilege or
license taxes (but not including any federal or other income taxes, including
franchise taxes, asserted with respect to, and as of the date of, the sale of
the Receivables and the Other Conveyed Property to the Trust or the issuance and
original sale of the Notes or asserted with respect to ownership of the
Receivables, or federal or other income taxes arising out of distributions on
the Notes) and costs and expenses in defending against the same.
(f) The Servicer shall indemnify, defend and hold harmless the Trust, the
Trustee, the Trust Collateral Agent, the Backup Servicer, the Owner Trustee, the
Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any and all costs, expenses, losses, claims,
<PAGE>
damages, and liabilities to the extent that such cost, expense, loss, claim,
damage, or liability arose out of, or was imposed upon the Trust, the Trustee,
the Trust Collateral Agent, the Insurer or the Noteholders by reason of the
breach of this Agreement by the Servicer, the negligence, willful misfeasance,
or bad faith of the Servicer in the performance of its duties under this
Agreement or by reason of reckless disregard of its obligations and duties under
this Agreement or otherwise incurred in connection with the transactions
contemplated hereby.
(g) NAFI shall indemnify, defend and hold harmless the Trust, the Trustee,
the Trust Collateral Agent, the Owner Trustee, the Backup Servicer, the Insurer,
their respective officers, directors, agents and employees and the Noteholders
from and against any loss, liability or expense incurred by reason of the
violation by Servicer or Seller of federal or state securities laws in
connection with the registration or the sale of the Notes.
(h) Indemnification under this Article shall survive the termination of
this Agreement and will survive the early resignation or removal of any of the
parties hereto and shall include, without limitation, reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer has made any
indemnity payments pursuant to this Article and the recipient thereafter
collects any of such amounts from others, the recipient shall promptly repay
such amounts collected to the Servicer, without interest. Notwithstanding any
other provision of this Agreement, the obligations of the Servicer shall not
terminate or be deemed released upon the resignation or termination of NAFI as
the Servicer and shall survive any termination of this Agreement.
SECTION 9.3. Merger or Consolidation of, or Assumption of the Obligations
of the Servicer or the Trust Collateral Agent.
(a) During the term of this Agreement, the Servicer will keep in full force
and effect its existence, rights and franchises as a business trust or
corporation under the laws of Delaware and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Agreement, any Subsequent Transfer Agreement, the Transaction Documents and each
other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby and
thereby and the performance of its obligations hereunder and thereunder.
(b) The Servicer may be merged or consolidated with or into any Person, or
transfer substantially all of its assets to any Person, in which case any Person
resulting from any merger or consolidation to which the Servicer shall be a
party, or any Person succeeding to the business of the Servicer, shall be the
successor of the Servicer hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided however, that the successor or
surviving person to the Servicer shall be an Eligible Servicer and each
successor to the Servicer by virtue of its acquisition of substantially all of
the Servicer's assets shall be deemed to have made the representations and
warranties set forth in Section 9.1 hereof and shall agree in writing to be
bound by each of the Servicer's obligations hereunder; provided further, that,
(i) no representation or warranty of the Servicer is breached at the time of
merger, (ii) no event has occurred that, after notice or lapse of time or both,
would be an Insurance Agreement Event of Default and (iii) an opinion of counsel
to the effect that all conditions precedent to merger have been satisfied and a
security interest opinion have been provided. The Servicer shall provide notice
of any such merger, consolidation or transfer of substantially all of its assets
to the Insurer, the Trust Collateral Agent and the Rating Agencies.
<PAGE>
(c) Any Person (i) into which the Trust Collateral Agent or the Backup
Servicer may be merged or consolidated, (ii) resulting from any merger or
consolidation to which the Trust Collateral Agent or the Backup Servicer shall
be a party, (iii) which acquires by conveyance, transfer or lease substantially
all of the assets of the Trust Collateral Agent or the Backup Servicer, or (iv)
succeeding to the business of the Trust Collateral Agent or the Backup Servicer,
in any of the foregoing cases shall execute an agreement of assumption to
perform every obligation of the Trust Collateral Agent or the Backup Servicer,
as the case may be, under this Agreement and, whether or not such assumption
agreement is executed, shall be the successor to the Trust Collateral Agent or
the Backup Servicer, as the case may be, under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties to this Agreement, anything in this Agreement to the contrary
notwithstanding. The Trust Collateral Agent or the Backup Servicer, as the case
may be, or its successor hereunder shall provide the Servicer and the Insurer
with prompt notice of any such transaction. In the case of the Trust Collateral
Agent, in the event that the resulting entity does not meet the eligibility
requirements set forth in Section 6.11 of the Indenture, the Trust Collateral
Agent, upon the written request of the Insurer, shall resign. Nothing contained
herein shall be deemed to release the Trust Collateral Agent or the Backup
Servicer, as the case may be, from any obligation.
SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral Agent
and Others.
(a) In addition to the indemnities provided pursuant to Section 9.2, the
Servicer will defend and indemnify the Trust Collateral Agent, the Backup
Servicer, the Insurer and their respective officers, directors, employees and
agents and the Noteholders against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation, arising from a breach of its obligations to service the
Receivables in accordance with this Agreement; provided however, that the
Servicer shall not be liable for any such costs, expenses, losses, damages,
claims or liabilities to the extent that any thereof resulted from the
negligence or willful misconduct of the Trust Collateral Agent or the Backup
Servicer, or their officers, directors, employees and agents; and provided
further that the Servicer will not be liable for any such amount that resulted
from any act or omission to act by it done in conformity with the written
instruction of the Trust Collateral Agent. If the Servicer or Seller has made
any indemnity payments to the Noteholders or the Trust Collateral Agent, the
Insurer or their respective officers, directors, employees or agents pursuant to
this paragraph, and the Trust Collateral Agent, the Insurer or their respective
officers, directors, employees or agents thereafter collects any of the amounts
which gave rise to such indemnity payments from others or any such amounts are
received by the Trust Collateral Agent or its officers, directors, employees or
agents, the Trust Collateral Agent or its officers, directors, employees or
agents shall repay such amounts collected to the Servicer or Seller who made
such indemnity payment. These indemnities of the Servicer and the Seller will
survive any transfer of the respective rights, duties and obligations of the
Servicer or the Seller hereunder to another Person, the termination of this
Agreement, any Servicer Termination Event, the termination of the Trust Property
or the resignation or replacement of the Trust Collateral Agent for acts
accruing prior to the transfer, termination of the Trust Property or the
resignation or replacement of the Trust Collateral Agent, but will not cover
actions or omissions of any successor Servicer after a Servicer Termination
Event. Neither the Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Trust Property, the Trust Collateral
Agent, any Noteholder, the Insurer or the Seller for any action taken by the
Servicer in its capacity as such (and not in any other capacity) in good faith
or for errors in judgment except for any action taken or errors committed which
caused a breach of a representation or warranty of the Servicer under Section
9.1. The Seller, the Servicer, the Backup Servicer and any director, officer,
employee or agent of the Seller, the Servicer or the Backup 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 hereunder.
<PAGE>
(b) The Seller, the Servicer and any director, officer, employee or agent
of the Seller or the Servicer shall be indemnified by the Trust Property and
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to this Agreement or the Notes, other than any loss,
liability or expense for which the Seller or Servicer provides an indemnity as
provided in Sections 8.3 and 9.2, respectively, and in the preceding paragraph
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement). Neither the Seller nor the Servicer shall be under
any obligation to appear in, prosecute or defend any legal action which is not
in its reasonable judgment incidental to its respective duties under this
Agreement and which in its reasonable judgment may subject it to any expense or
liability; provided however, that the Servicer may in its discretion undertake
any such action which it may deem necessary or desirable in respect to this
Agreement and the rights and duties of the parties hereto and the interest of
the Noteholders hereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Property, and the Servicer shall be entitled to be
reimbursed therefor as provided herein. The rights of the Servicer to indemnity,
reimbursement or limitation on its liability pursuant to this Section 9.4 shall
survive the transfer of the rights, duties and obligations of the Servicer to
another Person or any Servicer Default.
(c) The Backup Servicer shall not be required to expend or risk its own
funds or otherwise incur financing liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if the
repayment of such funds or adequate written indemnity against such risk or
liability is not reasonably assured to it in writing prior to the expenditure or
risk of such funds or incurrence of financial liability. Notwithstanding
anything herein to the contrary, neither the Trust Collateral Agent nor the
Backup Servicer shall be liable for any obligation of the Servicer contained in
this Agreement, and the Trust Collateral Agent, the Seller, the Insurer and the
Noteholders shall look only to the Servicer to perform such obligations. The
Backup Servicer shall perform such duties and only such duties as are
specifically set forth in the Transaction Documents, and no implied covenants or
obligations shall be read into the Transaction Documents against the Backup
Servicer.
(d) The parties expressly acknowledge and consent to Harris Trust and
Savings Bank acting in the dual capacity of Backup Servicer or successor
Servicer and in the capacity as Trust Collateral Agent. Harris Trust and Savings
<PAGE>
Bank may, in such dual or other capacity, discharge its separate functions
fully, without hindrance or regard to conflict of interest principles, duty of
loyalty principles or other breach of fiduciary duties to the extent that any
such conflict or breach arises from the performance by Harris Trust and Savings
Bank of express duties set forth in the this Agreement in any of such
capacities, all of which defenses, claims or assertions are hereby expressly
waived by the other parties hereto and the Noteholders except in the case of
gross negligence and willful misconduct by Harris Trust and Savings Bank.
(e) Neither the Backup Servicer nor any of its directors, officers,
employees or agents shall be under any liability of any kind or type to any
Person arising from the incomplete or inaccurate contents of any computer tape
provided by the Servicer in accordance with Section 4.15 hereof. The Backup
Servicer shall not be under any obligations to appear in, prosecute or defend
any legal motion that is not incidental to its duties hereunder and that in its
reasonable opinion may involve it in any expense or liability; provided,
however, that the Backup Servicer may, but shall not be obligated to, take any
such action that is reasonable and that may be necessary or desirable in respect
of this Agreement and the rights and duties of the parties hereto. If any such
proposed action is commenced, the legal expenses and costs of such action and
any liabilities resulting therefrom shall be expenses, costs and liabilities of
the Servicer and the Backup Servicer shall be entitled to be reimbursed therefor
by the Servicer.
SECTION 9.5. Delegation of Duties. The Servicer may delegate duties under
this Agreement to an Affiliate of NAFI, or, pursuant to Section 4.2, to a
Sub-Servicer with the prior written consent of the Insurer (unless an Insurer
Default shall have occurred and be continuing) and the Trust Collateral Agent.
The Servicer also may at any time perform through sub-contractors the specific
duties of (i) repossession of Financed Vehicles, (ii) tracking Financed
Vehicles' insurance and (iii) pursuing the collection of deficiency balances on
certain Liquidated Receivables, in each case, without the written consent of the
Insurer and may perform other specific duties through such sub-contractors in
accordance with Servicer's customary servicing policies and procedures, with the
prior consent of the Insurer; provided, however, that no such delegation or
sub-contracting duties by the Servicer shall relieve the Servicer of its
responsibility with respect to such duties. So long as no Insurer Default shall
have occurred and be continuing neither NAFI or any party acting as Servicer
hereunder shall appoint any Sub-Servicer hereunder without the prior written
consent of the Insurer and the Trust Collateral Agent.
SECTION 9.6. Servicer Not to Resign. Subject to the provisions of Section
9.3, the Servicer shall not resign from the obligations and duties imposed on it
by this Agreement as Servicer except upon a determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would have a material adverse effect on the Servicer, and the Insurer (so long
as an Insurer Default shall not have occurred and be continuing) or a Note
Majority (if an Insurer Default shall have occurred and be continuing) does not
elect to waive the obligations of the Servicer to perform the duties which
render it legally unable to act or to delegate those duties to another Person.
Any such determination permitting the resignation of the Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered and acceptable to
the Trust Collateral Agent, the Owner Trustee and the Insurer (unless an Insurer
Default shall have occurred and be continuing). No resignation of the Servicer
shall become effective until, so long as no Insurer Default shall have occurred
and be continuing, the Backup Servicer or an entity acceptable to the Insurer
shall have assumed the responsibilities and obligations of the Servicer or, if
an Insurer Default shall have occurred and be continuing, a successor Servicer
that is an Eligible Servicer shall have assumed the responsibilities and
obligations of the Servicer. Upon the resignation of the Servicer, the Servicer
shall give prompt written notice thereof to the Rating Agencies.
<PAGE>
ARTICLE X
DEFAULT
SECTION 10.1. Servicer Termination Event. For purposes of this Agreement,
each of the following shall constitute a "Servicer Termination Event" (whatever
the reason for such Servicer Termination Event and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) Any failure by the Servicer to deliver, or cause to be delivered by any
Sub-Servicer, to the Trust Collateral Agent for distribution to Noteholders or
deposit in the Spread Account any proceeds or payment required to be so
delivered by the Servicer or Sub-Servicer under the terms of this Agreement
(including deposits of the Purchase Amount) that continues unremedied for a
period of two Business Days (one Business Day with respect to payment of
Purchase Amounts) after written notice is received by the Servicer from the
Trust Collateral Agent or (unless an Insurer Default shall have occurred and be
continuing) the Insurer or after discovery of such failure by a Responsible
Officer of the Servicer (but in no event later than five Business Days after the
Servicer is required to make such delivery or deposit); or
(b) Any failure by the Servicer to observe or perform any other of the
covenants or agreements on the part of the Servicer in this Agreement, which
failure (i) materially and adversely affects the rights of Noteholders
(determined without regard to the availability of funds under the Note Policy)
or of the Insurer (unless an Insurer Default shall have occurred and be
continuing), and (ii) continues unremedied for a period of thirty days after the
date on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Trust Collateral Agent, or to the
Servicer and the Trust Collateral Agent by the Insurer (or, if an Insurer
Default has occurred and is continuing, Noteholders evidencing in the aggregate
not less than 25% of the aggregate outstanding Principal Balance of the Notes);
or
(c) The entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Servicer in an involuntary case
under the federal bankruptcy laws, as now or hereafter in effect, or another
present or future, federal bankruptcy, insolvency or similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
ordering the winding up or liquidation of the affairs of the Servicer or the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and such case is not dismissed within 60 days; or
<PAGE>
(d) The commencement by the Servicer of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future,
federal or state, bankruptcy, insolvency or similar law, or the consent by the
Servicer to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Servicer or of any substantial part of its property or the making by the
Servicer of an assignment for the benefit of creditors or the failure by the
Servicer generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer in furtherance of any of the foregoing; or
(e) Any representation, warranty or statement of the Servicer made in this
Agreement or any certificate, report or other writing delivered pursuant hereto
shall prove to be incorrect in any material respect as of the time when the same
shall have been made, and the incorrectness of such representation, warranty or
statement has a material adverse effect on the interests of the Trust, the
Insurer or the Noteholders (or of the Seller if NAFI is the Servicer) in the
Receivables (determined without regard to the availability of funds under the
Note Policy) and, within 30 days after written notice thereof shall have been
given to the Servicer by the Trust Collateral Agent or the Insurer (or, if an
Insurer Default shall have occurred and be continuing, a Noteholder), the
circumstances or condition in respect of which such representation, warranty or
statement was incorrect shall not have been eliminated or otherwise cured; or
(f) There shall have occurred an Insurance Agreement Event of Default or an
event of default under any other insurance agreement to which the Insurer and
NAFI and/or the Seller or any other affiliate of NAFI are party; or
(g) The Servicer fails to deliver the report required to be delivered by
the Servicer pursuant to Section 4.11 and such failure remains unremedied for a
period of five days;
(h) A claim is made under the Note Policy; or
(i) so long as an Insurer Default shall not have occurred and be
continuing, the Insurer shall not have delivered a Servicer Extension Notice
pursuant to Section 4.16.
SECTION 10.2. Consequences of a Servicer Termination Event. If a Servicer
Termination Event shall occur, then, and in each and every such case, so long as
such Servicer Termination Event shall not have been remedied, the Trust
Collateral Agent may, with the written consent of the Insurer (unless an Insurer
Default has occurred and is continuing), and at the written direction of the
Insurer (or, if an Insurer Default has occurred and is continuing, a Note
Majority), the Trust Collateral Agent shall, by notice in writing to the
Servicer, the Seller and the Backup Servicer, (i) terminate all of the rights
and obligations of the Servicer under this Agreement and in and to any
Receivables and the proceeds thereof, subject to compensation, rights of
reimbursement, indemnity and limitation on liability to which the Servicer is
then entitled and the rights of indemnity to which the Trust Collateral Agent
and the Insurer are then entitled pursuant to Sections 9.2 and 9.4 hereof, and
(ii) subject to Section 10.4, appoint the Backup Servicer as the successor
<PAGE>
Servicer. Such notice shall specify, to the extent possible, the timing and
method of transition of the servicing of the Receivables from the Servicer to
the Backup Servicer or another successor Servicer appointed pursuant to Section
10.4. On and after the receipt by the Servicer of such written notice and upon
the effective date of the transfer to the Backup Servicer or such other
successor Servicer specified in such notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Notes or the
Receivables or otherwise, shall pass to and be vested in the Backup Servicer or
such other successor Servicer, pursuant to and under this Section; and, without
limitation, such Person is hereby authorized and empowered to execute and
deliver, on behalf of the Servicer, an attorney-in-fact or otherwise, any and
all documents and other 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 or assignment of
the Receivables and related documents, or otherwise. The Servicer agrees to
cooperate with such Person in effecting the termination of the Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to such party for administration by is of all cash amounts which shall
thereafter be received with respect to the Receivables.
The Trust Collateral Agent shall not be charged with knowledge of any event
referred to in clauses (a) through (f) above unless a Responsible Officer of the
Trust Collateral Agent at the Corporate Trust Office obtains actual knowledge of
such event or receives written notice of such event from the Servicer, the
Insurer or from a Noteholder. The Trust Collateral Agent promptly shall send
written notice to each Rating Agency and the Insurer of each Servicer
Termination Event of which it is charged with knowledge in accordance with the
preceding sentence.
If the Servicer is terminated pursuant to this Section 10.2, then the
Servicer shall bear all of the costs and expenses of transferring the duties and
obligations of the Servicer to a successor Servicer and except as otherwise
agreed by the Insurer such costs and expenses shall not be reimbursable from the
Trust Property nor payable by the Seller or the Trust Collateral Agent. To the
extent not borne by the Servicer as described above, such costs and expenses
(including attorney's fees and expenses) shall be borne by the Trust Property in
accordance with Section 5.7(b)(ix).
SECTION 10.3. Additional Consequences of a Servicer Termination Event. The
successor Servicer is authorized and empowered by this Agreement to execute and
deliver, on behalf of the terminated Servicer, as attorney-in-fact or otherwise,
any and all documents and other 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 the Other Conveyed Property and related documents to show the Trust as
lienholder or secured party on the related Lien Certificates, or otherwise. The
terminated Servicer agrees to cooperate with the successor Servicer in effecting
the termination of the responsibilities and rights of the terminated Servicer
under this Agreement, including, without limitation, the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the terminated Servicer for deposit, or have been deposited
by the terminated Servicer, in the Collection Account or thereafter received
with respect to the Receivables and the delivery to the successor Servicer of
all Receivable Files, Monthly Records and a computer tape in readable form as of
the most recent Business Day containing all information necessary to enable the
successor Servicer or a successor Servicer to service the Receivables and the
Other Conveyed Property. If requested by the Controlling Party, the successor
<PAGE>
Servicer shall terminate the Lockbox Agreement and direct the Obligors to make
all payments under the Receivables directly to the successor Servicer (in which
event the successor Servicer shall process such payments in accordance with
Section 4.2(e)), or to a lockbox established by the successor Servicer at the
direction of the Controlling Party, at the terminated Servicer's expense. The
terminated Servicer shall grant the Trust Collateral Agent, the successor
Servicer and the Controlling Party reasonable access to the terminated
Servicer's premises at the terminated Servicer's expense.
SECTION 10.4. Appointment of Successor.
(a) On and after (i) the time the Servicer receives a notice of termination
pursuant to Section 10.2, (ii) upon non-extension of the servicing term as
referred to in Section 4.16, or (iii) upon the resignation of the Servicer
pursuant to Section 9.6, the Backup Servicer (unless an alternate successor
Servicer shall have been appointed pursuant to Section 10.4(b)) shall be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for in this Agreement, and
shall be subject to all the rights, responsibilities, restrictions, duties,
liabilities and termination provisions relating thereto placed on the Servicer
by the terms and provisions of this Agreement except as otherwise stated herein.
The Trust Collateral Agent and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession. If
a successor Servicer is acting as Servicer hereunder, it shall be subject to
term-to-term servicing as referred to in Section 4.16 and to termination under
Section 10.2 upon the occurrence of any Servicer Termination Event applicable to
it as Servicer.
(b) The Insurer, or in the event that an Insurer Default shall have
occurred and be continuing a Note Majority, may exercise at any time its right
to appoint as successor to the Servicer a Person other than the Person serving
as Backup Servicer at the time, and (in the case of the Insurer, without
limiting its obligations under the Note Policy) shall have no liability to the
Trust Collateral Agent, NAFI, the Seller, the Person then serving as Backup
Servicer, any Noteholders or any other Person if it does so.
(c) If, pursuant to Section 10.4(a) and (b) hereof (i) the Backup Servicer
would become successor Servicer and (ii) at such time the Backup Servicer shall
be legally unable or unwilling to act as Servicer, the Backup Servicer may, if
it shall be unwilling to so act, or shall, if it is unable to so act, appoint,
subject to the prior written consent of the Insurer (unless an Insurer Default
has occurred and is continuing), or, if an Insurer Default has occurred and is
continuing, the Backup Servicer, the Trust Collateral Agent or the Note Majority
may petition a court of competent jurisdiction to appoint, any experienced
servicer of motor vehicle installment sales contracts and notes having a net
worth of not less than $10,000,000 as the successor to the Servicer hereunder in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Servicer hereunder. Pending appointment of a successor Servicer pursuant
to the preceding sentence, the Backup Servicer shall act as successor Servicer
unless it is legally unable to do so, in which event the outgoing Servicer shall
continue to act as Servicer until a successor has been appointed and accepted
such appointment.
<PAGE>
(d) Subject to Section 9.6, no provision of this Agreement shall be
construed as relieving the Backup Servicer of its obligation to succeed as
Servicer upon the termination of the Servicer pursuant to Section 10.2, the
resignation of the Servicer pursuant to Section 9.6 or the non-extension of the
servicing term of the Servicer, as referred to in Section 4.14. If, upon the
termination of the Servicer pursuant to Section 10.2 or the resignation of the
Servicer pursuant to Section 9.6, a Person other than the Backup Servicer is
appointed as successor Servicer pursuant to subsection (b) or (c) above, the
Backup Servicer shall not be relieved of its duties as Backup Servicer
hereunder. If the Backup Servicer becomes the successor Servicer at a time when
it is also serving as Trust Collateral Agent, it may seek to have a successor to
it appointed as Servicer.
(e) In connection with any appointment of a successor Servicer, the Trust
Collateral Agent may make such arrangements for the compensation of such
successor Servicer out of payments on Receivables as it and such successor shall
agree; provided however, that no such compensation to such successor Servicer
shall be in excess of that permitted the Servicer hereunder unless (A) the Trust
Collateral Agent and the Insurer (or if an Insurer Default has occurred and is
continuing, a Note Majority) agree in writing to a larger Servicing Fee and (B)
each Rating Agency delivers a letter to the Trust Collateral Agent to the effect
that such larger Servicing Fee will not result in a reduction or the withdrawal
of the rating assigned by such Rating Agency to the Notes; and provided further,
however, that the Servicing Fee to a successor Servicer, including the Backup
Servicer, shall not exceed a monthly fee equal to 1/12th of the product of (i)
the aggregate amount of the Outstanding Principal Balances of all Receivables
outstanding as of the last day of the related Due Period and (ii) two percent
(2%).
(f) The Seller, the Backup Servicer, the Trust Collateral Agent, any
Sub-Servicer and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. (g) If the
Backup Servicer shall succeed to the Servicer's duties as Servicer of the
Receivables as provided herein, it shall do so in its individual capacity and
not in its capacity as Trust Collateral Agent. In the event that the Backup
Servicer shall not seek to appoint a successor Servicer within three months of
its succession to the Servicer's duties as servicer, it shall resign as Trust
Collateral Agent pursuant to Section 10.8 and the Seller shall, with the written
consent of the Insurer (unless an Insurer Default shall have occurred and be
continuing), appoint, or petition a court to appoint, a successor trust
collateral agent. To the extent a successor Servicer is appointed, the Backup
Servicer shall not be liable for the acts or omissions of such successor
Servicer.
SECTION 10.5. [RESERVED]
SECTION 10.6. Notification to Noteholders and Rating Agencies. Upon any
termination of, or appointment of a successor to, the Servicer, the Trust
Collateral Agent shall give prompt written notice thereof to each Noteholder and
Rating Agency.
<PAGE>
SECTION 10.7. Waiver of Past Defaults. So long as no Insurer Default shall
have occurred and be continuing, the Insurer (or, if an Insurer Default shall
have occurred and be continuing, the Note Majority) may, on behalf of all
Noteholders, waive any default by the Servicer in the performance of its
obligations hereunder and its consequences. Upon any such waiver of a past
default, such default shall cease to exist, and any Servicer Termination Event
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 thereto. Written notice of such waiver shall be
given promptly to each Rating Agency.
SECTION 10.8. Termination of Trust Collateral Agent. The Trust Collateral
Agent may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Seller and Insurer. Upon receiving such
notice of resignation, the Seller shall, with the written consent of the Insurer
(unless an Insurer Default has occurred and is continuing), promptly appoint a
successor trust collateral agent by written instrument, in triplicate, one copy
of which instrument shall be delivered to the resigning Trust Collateral Agent,
one copy to the Insurer and one copy to the successor trust collateral agent. If
no successor shall have been so appointed and have accepted appointment within
thirty (30) days after the giving of such notice of resignation, the resigning
Trust Collateral Agent may petition any court of competent jurisdiction for the
appointment of a successor trust collateral agent. If the Trust Collateral Agent
shall resign voluntarily, for any reason, except lack of eligibility, then the
Trust Collateral Agent shall bear all of its costs and expenses (including
without limitation its attorney's fees) of transferring the trusteeship to a
successor trustee and such costs and expenses shall not be reimbursable from the
Trust Property nor payable by the Seller or the Servicer.
If any of the following events occur and shall be continuing, the Insurer
(so long as an Insurer Default shall not have occurred and be continuing), or,
in the event that an Insurer Default has occurred and is continuing, the Note
Majority, upon notice to the Noteholders, may terminate all of the duties of the
Trust Collateral Agent under this Agreement:
(i) the Trust Collateral Agent shall cease to meet the eligibility
requirements for the Trustee as set forth in Section 6.11 of the Indenture
and shall fail to resign after written request therefor by the Insurer, or
(ii) the Trust Collateral Agent shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trust
Collateral Agent or of its property shall be appointed, or any public
officer shall take charge or control of the Trust Collateral Agent or of
its property or affairs for the purpose of rehabilitation, conservation or
liquidation or
(iii) the Trust Collateral Agent has failed to perform its duties
hereunder.
On or after the receipt by the Trust Collateral Agent of such written
notice, all authority, power, obligations and responsibilities of the Trust
Collateral Agent under this Agreement, whether with respect to the Notes or the
Other Conveyed Property or otherwise, automatically shall pass to, be vested in
and become obligations and responsibilities of such other successor trust
collateral agent appointed by the Controlling Party. Nothing contained herein
shall be deemed to release the Trust Collateral Agent from any obligation.
<PAGE>
The Insurer (or if an Insurer Default shall have occurred and be
continuing, Noteholders holding Notes evidencing in the aggregate a majority of
the outstanding Principal Balance of the Notes) at any time may remove the Trust
Collateral Agent and appoint a successor trust collateral agent by written
instrument or instruments, in triplicate, signed by the Insurer or such
Noteholders, as the case may be, or their attorneys-in-fact duly authorized, one
complete set of which instruments shall be delivered to the Seller, one complete
set to the Trust Collateral Agent so removed and one complete set to the
successor trust collateral agent so appointed.
SECTION 10.9. Successor to Servicer.
(a) The Backup Servicer, in its capacity as successor to the Servicer,
shall perform such duties and only such duties as are specifically set forth in
this Agreement with respect to the assumption of any servicing duties,
including, without limitation, to supervise, verify, monitor or administer the
performance of the Servicer and no implied covenants or obligations shall be
read into this Agreement against the Backup Servicer.
(b) In the absence of bad faith or negligence on its part, the Backup
Servicer may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Backup Servicer and conforming to the requirements of this
Agreement; but in the ease of any such certificates or opinions, which by any
provision hereof are specifically required to be furnished to the Backup
Servicer, the Backup Servicer shall be under a duty to examine the same and to
determine whether or not they conform to the requirements of this servicing
agreement.
(c) The Backup Servicer shall have no liability for any actions taken or
omitted by the Servicer.
ARTICLE XI
TERMINATION
SECTION 11.1. Optional Purchase of All Receivables.
(a) On the last day of any Due Period as of which the Pool Balance shall be
less than or equal to 10% of the Original Pool Balance plus the aggregate
Principal Balance of the Subsequent Receivables, if any, sold to the Trust, as
of their respective Cut-off Dates, the Seller or the Servicer shall have the
option to purchase the Owner Trust Estate, other than the Trust Accounts (with
the consent of the Insurer if such purchase would result in a claim on either
Policy or would result in any amount owing to any Noteholder or the Insurer
under the Insurance Agreement remaining unpaid); provided, however, that the
amount to be paid for such purchase (as set forth in the following sentence)
shall be sufficient to pay the full amount of principal, premium, if any, and
interest then due and payable on the Notes. To exercise such option, the Seller
shall (i) deliver written notice of such purchase to the Trust Collateral Agent
and the Servicer not later than the fifteenth day of the month next preceding
the month in which such purchase will occur, and (ii) deposit pursuant to
Section 5.6 in the Collection Account an amount equal to the aggregate Purchase
Amount for the Receivables (including Liquidated Receivables), plus the
appraised value of any other property held by the Trust, such value to be
determined by an appraiser mutually agreed upon by the Servicer, the Insurer and
the Trust Collateral Agent, and shall succeed to all interests in and to the
Trust. Written notice of the exercise of the option to purchase described in
this Section 11.1(a) shall be given to each Rating Agency by the Seller.
<PAGE>
(b) Upon any sale of the assets of the Trust pursuant to Section 9.1 of the
Trust Agreement, the Servicer shall instruct the Trust Collateral Agent to
deposit the proceeds from such sale after all payments and reserves therefrom
(including the expenses of such sale) have been made (the "Insolvency Proceeds")
in the Collection Account.
(c) Notice of any termination of the Trust shall be given by the Servicer
to the Owner Trustee, the Trustee, the Trust Collateral Agent, the Backup
Servicer, the Insurer and the Rating Agencies as soon as practicable after the
Servicer has received notice thereof. Such notice shall state (i) the
Distribution Date upon or with respect to which final payment of the Notes shall
be made upon presentation and surrender of the Notes at the office of the Trust
Collateral Agent herein designated, (ii) the amount of any such final payment,
(iii) that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Notes at the office of the Trust Collateral Agent therein specified and (iv) no
amounts will thereafter be payable under the Notes.
ARTICLE XII
ADMINISTRATIVE DUTIES OF THE SERVICER
SECTION 12.1. Administrative Duties.
(a) Duties with Respect to the Indenture. The Servicer shall perform all
its duties and the duties of the Issuer under the Indenture. In addition, the
Servicer shall consult with the Owner Trustee as the Servicer deems appropriate
regarding the duties of the Issuer under the Indenture. The Servicer shall
monitor the performance of the Issuer and shall advise the Owner Trustee when
action is necessary to comply with the Issuer's duties under the Indenture. The
Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture, including, without limitation,
pursuant to Sections 2.7, 3.5, 3.6, 3.7, 3.9, 3.10, 3.17, 5.1, 7.3, 8.3, 9.2,
9.3, 11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in this
Agreement or any of the Transaction Documents, the Servicer shall perform
such calculations and shall prepare for execution by the Issuer or the
Owner Trustee or shall cause the preparation by other appropriate Persons
of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer or the Owner Trustee to
prepare, file or deliver pursuant to this Agreement or any of the
<PAGE>
Transaction Documents or under state and federal tax and securities laws,
and at the request of the Owner Trustee shall take all appropriate action
that it is the duty of the Issuer to take pursuant to this Agreement or any
of the Transaction Documents, including, without limitation, pursuant to
Sections 2.6 and 2.11 of the Trust Agreement. In accordance with the
directions of the Issuer or the Owner Trustee, the Servicer shall
administer, perform or supervise the performance of such other activities
in connection with the Collateral (including the Transaction Documents) as
are not covered by any of the foregoing provisions and as are expressly
requested by the Issuer or the Owner Trustee and are reasonably within the
capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Transaction Documents to the contrary, the Servicer shall be responsible
for promptly notifying the Owner Trustee and the Trust Collateral Agent in
the event that any withholding tax is imposed on the Issuer's payments (or
allocations of income) to an Owner (as defined in the Trust Agreement) as
contemplated by this Agreement. Any such notice shall be in writing and
specify the amount of any withholding tax required to be withheld by the
Owner Trustee or the Trust Collateral Agent pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Transaction
Documents to the contrary, the Servicer shall be responsible for
performance of the duties of the Issuer or the Seller set forth in Section
5.1(a), (b), (c) and (d) of the Trust Agreement with respect to, among
other things, accounting and reports to Owners (as defined in the Trust
Agreement).
(iv) The Servicer shall perform the duties of the Servicer specified
in Section 10.2 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any
other duties expressly required to be performed by the Servicer under this
Agreement or any of the Transaction Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into transactions
with or otherwise deal with any of its Affiliates; provided, however, that
the terms of any such transactions or dealings shall be in accordance with
any directions received from the Issuer and shall be, in the Servicer's
opinion, no less favorable to the Issuer in any material respect.
(c) Tax Matters. The Servicer shall prepare and file, on behalf of the
Seller, all tax returns, tax elections, financial statements and such annual or
other reports of the Issuer as are necessary for preparation of tax reports as
provided in Article V of the Trust Agreement, including without limitation forms
1099 and 1066. All tax returns will be signed by the Seller.
(d) Non-Ministerial Matters. With respect to matters that in the reasonable
judgment of the Servicer are non-ministerial, the Servicer shall not take any
action pursuant to this Article XII unless within a reasonable time before the
taking of such action, the Servicer shall have notified the Owner Trustee, Trust
Collateral Agent and the Insurer of the proposed action and the Owner Trustee
and, with respect to items (A), (B), (C) and (D) below, the Insurer shall not
have withheld consent or provided an alternative direction. For the purpose of
the preceding sentence, "non-ministerial matters" shall include:
<PAGE>
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Receivables);
(C) the amendment, change or modification of this Agreement or any of
the Transaction Documents;
(D) the appointment of successor Note Registrars, successor Paying
Agents and successor Trustees pursuant to the Indenture or the appointment
of Successor Servicers or the consent to the assignment by the Note
Registrar, Paying Agent or Trustee of its obligations under the Indenture;
and
(E) the removal of the Trustee or the Trust Collateral Agent.
(e) Exceptions. Notwithstanding anything to the contrary in this Agreement,
except as expressly provided herein or in the other Transaction Documents, the
Servicer, in its capacity hereunder, shall not be obligated to, and shall not,
(1) make any payments to the Noteholders under the Transaction Documents, (2)
sell the Indenture Trust Property pursuant to Section 5.4 of the Indenture, (3)
take any other action that the Issuer directs the Servicer not to take on its
behalf or (4) in connection with its duties hereunder assume any indemnification
obligation of any other Person.
(f) Notwithstanding anything to the contrary in this Agreement, neither the
Backup Servicer nor any successor Servicer shall be responsible for any
obligations or duties of the Servicer under Section 12.1.
SECTION 12.2. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection by the Issuer
and the Trust Collateral Agent at any time during normal business hours.
SECTION 12.3. Additional Information to be Furnished to the Issuer. The
Servicer shall furnish to the Issuer and the Trust Collateral Agent from time to
time such additional information regarding the Collateral as the Issuer and the
Trust Collateral Agent shall reasonably request.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1. Amendment.
<PAGE>
(a) This Agreement may be amended from time to time by the parties hereto,
with the consent of the Trustee (which consent may not be unreasonably
withheld), with the prior written consent of the Insurer (so long as no Insurer
Default has occurred and is continuing) but without the consent of any of the
Noteholders, to cure any ambiguity, to correct or supplement any provisions in
this Agreement, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement or the
Insurance Agreement; provided, however, that such action shall not adversely
affect in any material respect the interests of any Noteholder or the Insurer.
This Agreement may also be amended from time to time by the parties hereto,
with the consent of the Insurer, the consent of the Trustee and the consent of
the Holders of Notes evidencing not less than a majority of the outstanding
principal amount of the Notes (which consent of such Holders of Notes given
pursuant to this Section 13.1 or pursuant to any other provision of this
Agreement shall be conclusive and binding on such Holder and on all future
Holders of such securities and of any Security issued upon the transfer thereof
or in exchange thereof or in lieu thereof whether or not notation of such
consent is made upon the security) for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on Receivables or
distributions that shall be required to be made for the benefit of the
Noteholders, or (b) reduce the aforesaid percentage of the outstanding principal
amount of the Notes and the Note Balance, the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all the
outstanding Notes.
Promptly after the execution of any such amendment or consent, the Trust
Collateral Agent shall furnish written notification of the substance of such
amendment or consent to each Noteholder and each Rating Agency. In addition, a
copy of the final executed amendment shall be delivered to each Rating Agency.
It shall not be necessary for the consent of Noteholders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents (and any other consents of Noteholders
provided for in this Agreement) and of evidencing the authorization of any
action by Noteholders shall be subject to such reasonable requirements as the
Trustee or the Owner Trustee, as applicable, may prescribe, including the
establishment of record dates.
The Owner Trustee, the Trust Collateral Agent and the Trustee may, but
shall not be obligated to, enter into any amendment which affects the Issuer's,
the Owner Trustee's, the Trust Collateral Agent's or the Trustee's, as
applicable, own rights, duties or immunities under this Agreement or otherwise.
Prior to the execution of any amendment to this Agreement, the Trustee and
the Trust Collateral Agent shall be entitled to receive and rely conclusively
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied.
<PAGE>
(b) Notwithstanding anything to the contrary contained in subsection
13.1(a) above, the provisions of the Agreement relating to (i) the Spread
Account Agreement, the Series 1998-1 Spread Account, the Requisite Amount, a
Trigger Event or any component definition of a Trigger Event and (ii) any
additional sources of funds which may be added to the Series 1998-1 Spread
Account or uses of funds on deposit in the Series 1998-1 Spread Account may be
amended in any respect by the Seller, the Servicer, the Insurer and the
Collateral Agent (the consent of which shall not be withheld or delayed with
respect to any amendment that does not adversely affect the Collateral Agent)
without the consent of, or notice to, the Noteholders.
SECTION 13.2. Protection of Title to Trust.
(a) The Seller 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 interest of the Issuer and the interests of the Trust Collateral Agent and
the Insurer in the Receivables and the Other Conveyed Property and in the
proceeds thereof. The Seller shall deliver (or cause to be delivered) to the
Insurer, the Owner Trustee and the Trust Collateral Agent file-stamped copies
of, or filing receipts for, any document filed as provided above, as soon as
available following such filing.
(b) Neither the Seller nor 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(7) of the UCC, unless
it shall have given the Insurer, the Owner Trustee, the Trust Collateral Agent
and the Trustee at least thirty days' prior written notice thereof and shall
have promptly filed appropriate amendments to all previously filed financing
statements or continuation statements. Promptly upon such filing, the Seller or
the Servicer, as the case may be, shall deliver an Opinion of Counsel in form
and substance reasonably satisfactory to the Insurer, the Trust Collateral Agent
and the Trustee, stating either (A) all financing statements and continuation
statements have been executed and filed that are necessary fully to preserve and
protect the interest of the Issuer and the Trust Collateral Agent in the
Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest.
(c) Each of the Seller and the Servicer shall have an obligation to give
the Insurer, the Owner Trustee, the Trust Collateral Agent and the Trustee at
least 60 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 of any previously filed financing or
continuation statement or of any new financing statement and shall promptly file
any such amendment. The Servicer shall at all times maintain each office from
which it shall service Receivables, and its principal executive office, within
the United States of America.
<PAGE>
(d) The Servicer shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Collection Account in respect of such
Receivable.
(e) The Servicer shall maintain or cause to be maintained, a computer
systems so that, from and after the time of sale under this Agreement of the
Receivables to the Issuer, such master computer records (including any backup
archives) that refer to a Receivable shall indicate clearly the interest of the
Trust in such Receivable and that such Receivable is owned by the Trust.
Indication of the Trust's interest in a Receivable shall be deleted from or
modified on such computer systems when, and only when, the related Receivable
shall have been paid in full or repurchased by NAFI or the Seller.
(f) If at any time the Seller or NAFI 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
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trust unless such Receivable has been paid in full or repurchased by NAFI or the
Seller.
(g) Upon request, the Servicer shall furnish or cause to be furnished to
the Insurer, the Owner Trustee or to the Trustee, at any time upon request, a
list of all Receivables (by contract number and name of Obligor) then held as
part of the Trust, together with a reconciliation of such list to the
Receivables Schedule and to each of the Servicer's Certificates furnished before
such request indicating removal of Receivables from the Trust. The Trustee shall
hold any such list and Receivables Schedule for examination by interested
parties during normal business hours at the Corporate Trust Office upon
reasonable notice by such Persons of their desire to conduct an examination.
(h) The Servicer shall deliver to the Insurer, the Owner Trustee, the Trust
Collateral Agent and the Trustee:
(A) simultaneously with the execution and delivery of the Agreement
and, if required pursuant to Section 13.1, of each amendment, an Opinion of
Counsel stating that, in the opinion of such Counsel, in form and substance
reasonably satisfactory to the Insurer, either (A) all financing statements
and continuation statements have been executed and filed that are necessary
fully to preserve and protect the interest of the Trust and the Trustee in
the Receivables, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (B) no such
action shall be necessary to preserve and protect such interest or (C) any
action which is necessary to preserve and protect such interest during the
following 12-month period; and
<PAGE>
(B) within 90 days after the beginning of each calendar year beginning
with the first calendar year beginning more than three months after the
Cut-off Date, an Opinion of Counsel, dated as of a date during such 90-day
period, stating that, in the opinion of such counsel, either (A) all
financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the interest of the
Trust and the Trustee in the Receivables, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details are
given, or (B) no such action shall be necessary to preserve and protect
such interest.
Each Opinion of Counsel referred to in clause (1) or (2) above shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
(i) The Servicer shall permit the Trustee, the Trust Collateral Agent, the
Insurer and their respective agents, during regular business hours and upon
reasonable advance notice, to inspect and make copies of the records regarding
any Receivables or any other portion of the Receivables.
SECTION 13.3. Notices. All demands, notices and communications upon or to
the Seller, the Servicer, the Owner Trustee, the Trustee, the Insurer or the
Rating Agencies under this Agreement shall be in writing, personally delivered,
or mailed by certified mail, or sent by confirmed telecopier transmission and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller to National Financial Auto Funding Trust, One Park Place, 621 N.W. 53rd
Street, Boca Raton, Florida 33487, (b) in the case of the Servicer to National
Auto Finance Company, Inc., One Park Place, 621 N.W. 53rd Street, Suite 200,
Boca Raton, Florida 33487, (c) in the case of the Issuer or the Owner Trustee,
at 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890;
Attention: Corporate Trust Administration, (d) in the case of the Trustee or the
Trust Collateral Agent, at 311 West Monroe Street, Chicago, Illinois 60606, (e)
in the case of the Insurer, to Financial Security Assurance Inc., 350 Park
Avenue, New York, New York 10022; Attention: Senior Vice President, Surveillance
(in each case in which notice or other communication to the Insurer refers to a
Servicer Termination Event, a claim on a Policy, a Deficiency Notice pursuant to
Section 5.5 of this Agreement or with respect to which failure on the part of
the Insurer to respond shall be deemed to constitute consent or acceptance, then
a copy of such notice or other communication should also be sent to the
attention of each of the General Counsel and the Head -Financial Guaranty Group
and shall be marked to indicate "URGENT MATERIAL ENCLOSED") Telecopier #
212-339-3518, (f) in the case of Moody's, to Moody's Investors Service, Inc.,
ABS Monitoring Department, 99 Church Street, New York, New York 10007,
Telecopier # 212-553-0344, and (g) in the case of Standard & Poor's, to Standard
& Poor's Ratings Group, 25 Broadway - 15th Floor, New York, New York 10004,
Attention: Asset Backed Surveillance Department, Telecopier # 212- 208-1582. Any
notice required or permitted to be mailed to a Noteholder shall be given by
first class mail, postage prepaid, at the address of such Noteholder as shown in
the Note Register, as applicable. Any notice so mailed within the time
prescribed in the Agreement shall be conclusively presumed to have been duly
given, whether or not the Noteholder shall receive such notice.
<PAGE>
SECTION 13.4. Assignment. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything to the contrary contained herein, except as
provided in Sections 8.4 and 9.3 and as provided in the provisions of this
Agreement concerning the resignation of the Servicer, this Agreement may not be
assigned by the Seller or the Servicer without the prior written consent of the
Owner Trustee, the Trust Collateral Agent, the Trustee and the Insurer (or if an
Insurer Default shall have occurred and be continuing the Noteholders holding
not less than 66% of the principal amount of the outstanding Notes).
SECTION 13.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the parties hereto and for the benefit
of the Trustee and the Noteholders, as third-party beneficiaries. The Insurer
and its successors and assigns shall be a third-party beneficiary to the
provisions of this Agreement, and shall be entitled to rely upon and directly
enforce such provisions of this Agreement so long as no Insurer Default shall
have occurred and be continuing. Except as expressly stated otherwise herein,
any right of the Insurer to direct, appoint, consent to, approve of, or take any
action under this Agreement, shall be a right exercised by the Insurer in its
sole and absolute discretion. The Insurer may disclaim any of its rights and
powers under this Agreement (but not its duties and obligations under the Note
Policy) upon delivery of a written notice to the Owner Trustee. Nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Owner Trust Estate
or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 13.6. Severability. Any provision of this Agreement that is
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 13.7. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 13.8. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 13.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 13.10. Assignment to Trustee. The Seller hereby acknowledges and
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to the Trustee pursuant to the Indenture for the benefit of the
Noteholders and the Insurer of all right, title and interest of the Issuer in,
to and under the Receivables and/or the assignment of any or all of the Issuer's
rights and obligations hereunder to the Trustee.
<PAGE>
SECTION 13.11. Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement, the Servicer and the Seller shall not, prior to
the date which is one year and one day after the termination of this Agreement
with respect to the Issuer, acquiesce, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement, the Servicer
shall not, prior to the date that is one year and one day after the termination
of this Agreement with respect to the Seller, acquiesce to, petition or
otherwise invoke or cause the Seller to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Seller under any federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or other similar official of the Seller or any substantial part of its property,
or ordering the winding up or liquidation of the affairs of the Seller.
SECTION 13.12. Limitation of Liability of Owner Trustee, Trustee, Trust
Collateral Agent and Backup Servicer.
(a) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Wilmington Trust Company not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall Wilmington Trust Company in its individual capacity or,
except as expressly provided in the Trust Agreement, as Owner Trustee have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII, VIII and X of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Chase Manhattan Bank Delaware not in its
individual capacity but solely in its capacity as Trustee of the Seller and in
no event shall Chase Manhattan Bank Delaware in its individual capacity have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Seller hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Seller.
(c) Notwithstanding anything contained herein to the contrary, this
Agreement has been executed and delivered by Harris Trust and Savings Bank not
in its individual capacity but solely as Trust Collateral Agent and Backup
<PAGE>
Servicer and in no event shall Harris Trust and Savings Bank, have any liability
for the representations, warranties, covenants, agreements or other obligations
of the Issuer hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Issuer.
(d) In no event shall Wilmington Trust Company, in any of its capacities
hereunder, be deemed to have assumed any duties of the Owner Trustee under the
Delaware Business Trust Statute, common law, or the Trust Agreement.
SECTION 13.13. Independence of the Servicer. For all purposes of this
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer, the Trust Collateral Agent or the
Owner Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder. Unless expressly authorized by this
Agreement, the Servicer shall have no authority to act for or represent the
Issuer or the Owner Trustee in any way and shall not otherwise be deemed an
agent of the Issuer or the Owner Trustee.
SECTION 13.14. No Joint Venture. Nothing contained in this Agreement (i)
shall constitute the Servicer and either of the Issuer or the Owner Trustee as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
SECTION 13.15. Insurer as Controlling Party. Each Noteholder by purchase of
the Notes held by it acknowledges that as partial consideration of the issuance
of the Note Policy, the Insurer shall have certain rights hereunder for so long
as no Insurer Default shall have occurred and be continuing. So long as an
Insurer Default has occurred and is continuing, any provision giving the Insurer
the right to direct, appoint or consent to, approve of, or take any action under
this Agreement shall be inoperative during the period of such Insurer Default
and such right shall instead vest in the Trust Collateral Agent acting at the
written direction of the Noteholders of Notes. The Insurer may disclaim any of
its rights and powers under this Agreement (but not its duties and obligations
under the Note Policy) upon delivery of a written notice to the Trust Collateral
Agent. The Insurer may give or withhold any consent hereunder in its sole and
absolute discretion.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sale and Servicing
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and the year first above written.
NATIONAL AUTO FINANCE 1998-1 TRUST,
by the Wilmington Trust Company, not in its
individual capacity but solely
as Owner Trustee on behalf of the Trust,
By:
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST, Seller,
by Chase Manhattan Bank Delaware, not in its
individual capacity but solely
as Trustee of National Financial Auto Funding Trust,
By:
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.,
in its individual capacity and as Servicer,
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as Trust
Collateral Agent and Backup Servicer
By:
Name:
Title:
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
<PAGE>
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Trust Collateral Agent on
behalf of the Noteholders and the Insurer as of the Closing Date with respect to
the Initial Receivables transferred to the Trust on the Closing Date and as of
each Subsequent Transfer Date with respect to the Subsequent Receivables
transferred to the Trust on such Subsequent Transfer Date (unless another date
or time period is otherwise specified or indicated in the particular
representation or warranty):
1. immediately prior to the Closing Date or the Subsequent Transfer
Date, as the case may be, the Seller had a valid and enforceable 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 Trust Collateral Agent;
2. on and after the Closing Date or the Subsequent Transfer Date, as
the case may be, there shall exist under the Receivable a valid, subsisting
and enforceable first priority perfected security interest in the Financed
Vehicle securing such Receivable (other than, as to the priority of such
security interest, any statutory lien arising by operation of law after the
Closing Date or the Subsequent Transfer Date, as the case may be, which is
prior to such interest) and at such time as enforcement of such security
interest is sought there shall exist a valid, subsisting and enforceable
first priority perfected security interest in such Financed Vehicle in
favor of the Trust Collateral Agent (other than, as to the priority of such
security interest, any statutory lien arising by operation of law after the
Closing Date or the Subsequent Transfer Date, as the case may be, which is
prior to such interest);
3. no Receivable has been sold, assigned or pledged to any other
Person other than an endorsement to the Servicer for purposes of servicing
or any such pledge has been released; immediately prior to the transfer and
assignment herein contemplated, the Seller has good and marketable title
thereto free and clear of any lien, encumbrance, equity, pledge, charge,
claim or security interest and is the sole owner thereof and has full right
to transfer such Receivable to the Trust Collateral Agent. No Dealer has a
participation in, or other right to receive, proceeds of any Receivable.
None of NAFI, the Master Trust, Funding Trust II nor the Seller has taken
any action to convey any right to any Person that would result in such
Person having a right to payments received under the related insurance
policies, Dealer Agreements or Originator Agreements or to payments due
under such Receivable;
4. upon the transfers pursuant to Sections 2.1 and 2.2, the Trust
Collateral Agent will have a first priority ownership or security interest
in each such Receivable free and clear of any encumbrance, lien, pledge,
charge, claim, security interest or rights of others; the purchase of each
such Receivable by NAFI from a Dealer or Originator was not an extension of
financing to such Dealer or Originator;
<PAGE>
5. no such Receivable is delinquent for more than thirty days in
payment as to any scheduled payment;
6. there is no lien against any related Financed Vehicle for
delinquent taxes;
7. there is no right of rescission, offset, defense or counterclaim to
the obligation of the related Obligor to pay the unpaid principal or
interest due under such Receivable; the operation of the terms of such
Receivable or the exercise of any right thereunder will not render such
Receivable unenforceable in whole or in part or subject to any right of
rescission, offset, defense or counterclaim, and no such right of
rescission, offset, defense or counterclaim has been asserted;
8. no Receivable is assumable by another Person in a manner which
would release the Obligor thereon from such Obligor's obligations to the
Seller with respect to such Receivable;
9. there are no prior liens or claims for work, labor or material
affecting any related Financed Vehicle which are or may become a lien prior
to or equal with the security interest granted by such Receivable;
10. each such Receivable, and the sale of the Financed Vehicle
securing such Receivable, where applicable, complied, at the time it was
made and as of the Closing Date or related Subsequent Transfer Date, as
applicable, 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 law, the Federal Trade
Commission Act, and applicable state laws regulating retail installment
sales contracts and loans in general and motor vehicle retail installment
sales contracts and loans in particular, and the transfer of such
Receivable to the Trust will not violate any such laws;
11. each such Receivable is a legal, valid and binding obligation of
the Obligor thereunder and is enforceable in accordance with its terms,
except only as such enforcement may be limited by laws affecting the
enforcement of creditors' rights generally whether enforcement is sought in
a proceeding in equity or at law, and all parties to such Receivable had
full legal capacity to execute such Receivable and all documents related
thereto and to grant the security interest purported to be granted thereby
at the time of execution and grant;
12. as of the Closing Date or such Subsequent Transfer Date, as the
case may be, the terms of each such Receivable have not been impaired,
waived, altered or modified in any respect, except by written instruments
that are part of the Receivable Documents, and no such Receivable has been
satisfied, subordinated or rescinded;
13. at the time of origination of each such Receivable, the proceeds
of such Receivable were fully disbursed, there is no requirement for future
advances thereunder, and all fees and expenses in connection with the
origination of such Receivable have been paid;
14. there is no default, breach, violation or event of acceleration
existing under any such Receivable (except payment delinquencies permitted
by paragraph 5 above) 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 or would otherwise affect the
value or marketability of such contract; NAFI and the Seller have not
waived any such default, breach, violation or event of acceleration; and as
of the applicable Cut-off Date, the related Financed Vehicle has not been
repossessed;
<PAGE>
15. at the origination date of each such Receivable, the related
Financed Vehicle was covered by a comprehensive and collision insurance
policy (a) in an amount at least equal to the lesser of (i) the actual cash
value of the related Financed Vehicle or (ii) the unpaid balance owing of
such Receivable, less the related Unearned Finance Charge, (b) naming NAFI
as a loss payee and (c) insuring against loss and damage due to fire,
theft, transportation, collision and other risks generally covered by
comprehensive and collision coverage; each Receivable requires the Obligor
to maintain physical loss and damage insurance, naming NAFI as an
additional insured party;
16. each such Receivable was acquired by NAFI from either a Dealer
with which it ordinarily does business or from an Originator; such Dealer
or Originator, as applicable, had full right to assign to NAFI such
Receivable and the security interest in the related Financed Vehicle (and
the Dealer that assigned any such Receivable to any such Originator had
full right to assign to such Originator such Receivable and the security
interest in the related Financed Vehicle) and the Dealer's or Originator's
assignment thereof to NAFI is legal, valid and binding (and any assignment
by an Dealer to any Originator is legal, valid and binding) and NAFI had
full right to assign to the Seller such Receivable and the respective
security interest in the related Financed Vehicle and NAFI's respective
assignment thereof to the Seller is legal, valid and binding;
17. each 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;
18. scheduled payments under each such Receivable are due monthly (or,
in the case of the first payment, no later than the forty-fifth day after
the date of the Receivable) in substantially equal amounts to maturity
(other than with respect to those Receivables designated as balloon
contracts on the related Receivables Schedule), and will be sufficient to
fully amortize such Receivable at maturity, assuming that each scheduled
payment is made on its Due Date; such scheduled payments are applicable
only to payment of principal and interest on such Receivable and not to the
payment of any insurance premiums (although the proceeds of the extension
of credit on such Receivable may have been used to pay insurance premiums);
and the original term to maturity of each such Receivable was not more than
60 months;
19. the collection practices used with respect to each such Receivable
have been in all material respects legal, proper, prudent and customary in
the automobile installment sales contract or installment loan servicing
business;
20. there is only one original of each such Receivable, the Servicer
or a Sub-Servicer is currently in possession of the Receivable Documents
for such Receivable and there are no custodial agreements in effect
adversely affecting the rights of the Seller to make the deliveries
required hereunder on the Closing Date or the Subsequent Transfer Date, as
the case may be;
<PAGE>
21. as of the Cut-off Date or Subsequent Cut-off Date, as applicable,
no Obligor was the subject of a current bankruptcy proceeding;
22. with respect to each Due Period, the aggregate of the interest due
on all the Receivables in such Due Period from scheduled payments is in
excess of the sum of (i) the Servicing Fee due and any fees due to the
Trust Collateral Agent and the Insurer, each with respect to such Due
Period and (ii) the amount of interest payable on the Notes with respect to
such Due Period, in each case assuming that each scheduled payment is made
on its Due Date;
23. the Receivables constitute "chattel paper" within the meaning of
the UCC as in effect in the applicable jurisdiction and all filings
(including without limitation, UCC filings) required to be made and all
actions required to be taken or performed by any Person in any jurisdiction
to give the Trust Collateral Agent a first priority perfected lien on, or
ownership interest in, the Receivables and the proceeds thereof and the
remaining Trust Property have been made, taken or performed;
24. the information regarding such Receivables set forth in the
applicable Receivables Schedule is true and correct in all material
respects at the applicable Cut-off Date and the Closing Date or Subsequent
Closing Date, as applicable; each Receivable was originated in the United
States of America and at the time of origination, materially conformed to
all requirements of the NAFI underwriting policies and guidelines then in
effect; and no Obligor is the United States of America or any state or any
agency, department, subdivision or instrumentality thereof;
25. by the Closing Date and prior to each Subsequent Transfer Date, as
applicable, NAFI will have caused the portions of NAFI's servicing records
relating to the Receivables to be clearly and unambiguously marked to show
that the Receivables constitute part of the Trust Property and are owned by
the Trust in accordance with the terms of this Agreement;
26. the computer tape or listing made available by NAFI to the Trust
Collateral Agent on the Closing Date and on each Subsequent Transfer Date
was complete and accurate as of the applicable Cut-off Date, and includes a
description of the same Receivables that are described in the applicable
Receivables Schedule;
27. no Receivable was originated in, or is subject to the laws of, any
jurisdiction, the laws of which would make unlawful, void or voidable the
sale, transfer and assignment of such Receivable under this Agreement or
the Subsequent Transfer Agreement, as applicable, or pursuant to transfers
of the Notes. The Seller has not entered into any agreement with any
account debtor that prohibits, restricts or conditions the assignment of
any portion of the Receivables;
28. no selection procedures adverse to the Noteholders or to the
Insurer have been utilized in selecting such Receivable from all other
similar Receivables originated by NAFI;
<PAGE>
29. as of the Initial Cut-off Date, the APR of the Initial Receivables
was approximately 19.19% and the weighted average remaining scheduled
maturity on the Initial Receivables was approximately 51.82 months and the
percentage of the aggregate outstanding balance of the Initial Receivables
relating to the financing of used Financed Vehicles was 77.38%. The final
scheduled payment date on the Initial Receivable with the latest maturity
is December 15, 2002. Each Receivable amortizes based on a Simple Interest
Method or Actuarial Method; and
30. no Receivable provides for a prepayment penalty.
<PAGE>
EXHIBIT 5.10
FORM OF STATEMENT TO NOTEHOLDERS
<PAGE>
EXHIBIT 2.2A
OFFICER'S CERTIFICATE OF NATIONAL AUTO FINANCE COMPANY, INC.
The undersigned, a duly authorized officer of National Auto
Finance Company, Inc. (the "Company"), hereby certifies that:
1. Capitalized terms used but not defined herein have the meanings set
forth in the Sale and Servicing Agreement (the "Sale and Servicing Agreement"),
dated as of December [__], 1997, among National Financial Auto Funding Trust
(the "Seller"), the Company, as the Servicer, National Auto Finance 1998-1 Trust
and Harris Trust and Savings Bank, not in its individual capacity but solely as
Trust Collateral Agent and Backup Servicer. This certificate is being delivered
pursuant to Section 2.2(b)(ix)(A) of the Sale and Servicing Agreement.
2. The sale and transfer of the Subsequent Receivables by the Company to
the Seller on the date hereof pursuant to the Purchase and Contribution
Agreement and the related Conveyance (which Conveyance is dated as of the date
hereof) was made in good faith for legitimate business purposes and was not made
with intent to hinder, delay or defraud any Person to which the Company has
been, is or will become, on or after the date hereof, indebted.
3. The Company did not receive less than a reasonably equivalent value in
exchange for the sale of the Subsequent Receivables by the Company to the Seller
on the date hereof pursuant to the Purchase and Contribution Agreement and the
related Conveyance.
4. The Company is not insolvent on the date hereof and will not become
insolvent as a result of the sale of Subsequent Receivables by the Company to
the Seller on the date hereof pursuant to the Purchase and Contribution
Agreement and the related Conveyance.
5. The Company is not engaged in a business or transaction, and is not
about to engage in a business or transaction, for which any property remaining
with the Company after such business or transaction would be an unreasonably
small capital.
6. The Company has not incurred, and does not believe that it will incur,
debts that are beyond the Company's ability to pay as such debts mature.
7. No Servicer Termination Event has occurred and is continuing.
IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be
duly executed this ____ day of ________, 199_.
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.,
in its individual capacity and as Servicer,
By:_
Name:
Title:
<PAGE>
EXHIBIT 2.2B
OFFICER'S CERTIFICATE OF NATIONAL FINANCIAL AUTO FUNDING TRUST
The undersigned, a duly authorized officer of National Financial Auto
Funding Trust (the "Seller"), hereby certifies that:
1. Capitalized terms used but not defined herein have the meanings set
forth in the Sale and Servicing Agreement (the "Sale and Servicing Agreement"),
dated as of December [__], 1997, among the Seller, National Auto Finance
Company, Inc. (the "Company"), as the Servicer, National Auto Finance 1998-1
Trust (the "1998-1 Trust") and Harris Trust and Savings Bank, not in its
individual capacity but solely as Trust Collateral Agent and Backup Servicer.
This certificate is being delivered pursuant to Section 2.2(b)(ix)(B) of the
Sale and Servicing Agreement.
2. The sale and transfer of the Subsequent Receivables by the Seller to the
1998-1 Trust on the date hereof pursuant to the Sale and Servicing Agreement and
the related Subsequent Transfer Agreement (which Subsequent Transfer Agreement
is dated as of the date hereof) was made in good faith for legitimate business
purposes and was not made with intent to hinder, delay or defraud any Person to
which the Funding Trust has been, is or will become, on or after the date
hereof, indebted.
3. The Funding Trust did not receive less than a reasonably equivalent
value in exchange for the sale of the Subsequent Receivables by the Funding
Trust to the 1998-1 Trust on the date hereof pursuant to the Sale and Servicing
Agreement and the related Subsequent Transfer Agreement.
4. The Funding Trust is not insolvent on the date hereof and will not
become insolvent as a result of the sale of Subsequent Receivables by the
Funding Trust to the 1998-1 Trust on the date hereof pursuant to the Sale and
Servicing Agreement and the related Subsequent Transfer Agreement..
5. The Funding Trust is not engaged in a business or transaction, and is
not about to engage in a business or transaction, for which any property
remaining with the Funding Trust after such business or transaction would be an
unreasonably small capital.
6. The Funding Trust has not incurred, and does not believe that it will
incur, debts that are beyond the Funding Trust's ability to pay as such debts
mature.
7. No Servicer Termination Event has occurred and is continuing.
IN WITNESS WHEREOF, the Funding Trust has caused this Officer's Certificate
to be duly executed this ____ day of ________, 199_.
<PAGE>
NATIONAL FINANCIAL AUTO FUNDING TRUST,
by Chase Manhattan Bank Delaware, not in its individual
capacity but solely as Trustee of National Financial Auto
Funding Trust,
By:
Name:
Title:
<PAGE>
EXHIBIT A
SUBSEQUENT TRANSFER AGREEMENT
TRANSFER No. ___ OF SUBSEQUENT Receivables pursuant to a Sale and Servicing
Agreement dated as of July __, 1997 (the "Sale and Servicing Agreement"), among
NATIONAL AUTO FINANCE 1998-1 TRUST, a Delaware business trust (the "Issuer"),
NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware business trust (the "Seller"),
NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation (the "Servicer"),
and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, not in its
individual capacity, but solely as Trust Collateral Agent and Backup Servicer
(the "Trust Collateral Agent").
W I T N E S S E T H:
WHEREAS pursuant to the Sale and Servicing Agreement, the Seller wishes to
convey the Subsequent Receivables to the Issuer; and
WHEREAS, the Issuer is willing to accept such conveyance subject to the
terms and conditions hereof.
NOW, THEREFORE, the Issuer, the Seller, the Servicer and the Trust
Collateral Agent hereby agree as follows:
1. Defined Terms. Capitalized terms used herein shall have the meanings
ascribed to them in the Sale and Servicing Agreement unless otherwise defined
herein.
"Subsequent Cut-off Date" shall mean, with respect to the Subsequent
Receivables conveyed hereby, _______________, 199_.
"Subsequent Transfer Date" shall mean. with respect to the Subsequent
Receivables conveyed hereby, _____________, 199_.
2. Receivables Schedule. Annexed hereto is a supplement to Schedule A to
the Sale and Servicing Agreement listing the Receivables that constitute the
Subsequent Receivables to be conveyed pursuant to this Agreement on the
Subsequent Transfer Date. Such Receivables Schedule is marked as Schedule 1 to
this Subsequent Transfer Agreement and is hereby incorporated in and made a part
of this Subsequent Transfer Agreement and the Sale and Servicing Agreement.
3. Conveyance of Subsequent Receivables. In consideration of the Issuer's
delivery to or upon the order of the Seller of $____________, the Seller does
hereby sell, transfer, assign, set over and otherwise convey to the Issuer,
without recourse (except as expressly provided in the Sale and Servicing
Agreement) and does hereby grant to the Trust Collateral Agent, in trust for
exclusive use and benefit of all present and future Noteholders and the Insurer,
all right, title and interest of the Seller in and to the following, whether now
owned or hereafter acquired:
<PAGE>
the Subsequent Receivables and all moneys received thereon, on and after
the related Subsequent Cut-off Date (including amounts due on or before the
Subsequent Cut-off Date but received by NAFI, the Seller or the Issuer on or
after the Subsequent Cut-off Date);
(b) any proceeds and the right to receive proceeds with respect to the
Subsequent Receivables from claim and the right to receive proceeds on any
physical damage, credit life or disability insurance policies or other policies
covering Financed Vehicles or Obligors, including rebating of insurance premiums
relating to the Receivables, and any proceeds from the liquidation of the
Subsequent Receivables; (c) all rights of the Seller against the Dealers
pursuant to Dealer Agreements or against Originators pursuant to Originator
Agreements; (d) the related Receivables Files and any and all other documents
that NAFI keeps on file in accordance with its customary procedures relating to
the Receivables, the Obligors or the Financed Vehicles; (e) property (including
the right to receive future Liquidation Proceeds) that secures a Receivable and
that has been acquired by or on behalf of the Trust pursuant to liquidation of
such Receivable; (f) all funds on deposit from time to time in the Trust
Accounts (less all investments and proceeds thereof), and all rights of the
Issuer therein; (g) all of the Seller's right, title and interest in its rights
and benefits, but none of its obligations or burdens, under each of the
Subsequent Purchase Agreements, including the delivery requirements,
representations and warranties and the cure and repurchase obligations of NAFI
under each of the Subsequent Purchase Agreements, on or after the related
Subsequent Cut-off Date; and (h) the proceeds of any and all of the foregoing.
4. Representations and Warranties of the Seller. The Seller hereby represents
and warrants to the Issuer as of the date of this Agreement and as of the
Subsequent Transfer Date that:
(a) Schedule of Representations. The representations and warranties set
forth on the Schedule of Representations attached hereto as Schedule B are true
and correct.
(b) Organization and Good Standing. The Seller is a Delaware business trust
duly organized, validly existing, and 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 are currently owned and such business is
currently conducted, and had at all relevant times, and now has, power,
authority and legal right to acquire, own and sell the Receivables and the Other
Conveyed Property transferred to the Trust.
<PAGE>
(c) Due Qualification. The Seller has obtained all necessary licenses and
approvals in all jurisdictions where the failure to do so would materially and
adversely affect Seller's ability to transfer the Receivables and the Other
Conveyed Property to the Trust pursuant to this Agreement, or the validity or
enforceability of the Receivables and the Other Conveyed Property or to perform
Seller's obligations hereunder and under the Transaction Documents to which the
Seller is a party.
(d) Power and Authority. The Seller has the power and authority to execute
and deliver this Agreement and its Transaction Documents and to carry out its
terms and their terms, respectively; the Seller has full power and authority to
sell and assign the Receivables and the Other Conveyed Property to be sold and
assigned to and deposited with the Trust by it and has duly authorized such sale
and assignment to the Trust; and the execution, delivery and performance of this
Agreement and the Transaction Documents to which the Seller is a party have been
duly authorized by the Seller.
(e) Valid Sale, Binding Obligations. This Agreement effects a valid sale,
transfer and assignment of the Receivables and the Other Conveyed Property,
enforceable against the Seller and creditors of and purchasers from the Seller;
and this Agreement and the Transaction Documents to which the Seller is a party,
when duly executed and delivered, shall constitute legal, valid and binding
obligations of the Seller enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by equitable limitations on the availability of specific
remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
(f) No Violation. The consummation of the transactions contemplated by this
Agreement and the Transaction Documents and the fulfillment of the terms of this
Agreement and the Transaction Documents shall not conflict with, result in any
breach of any of the terms and provisions of or constitute (with or without
notice, lapse of time or both) a default under the certificate of incorporation
or by-laws of the Seller, or any indenture, agreement, mortgage, deed of trust
or other instrument to which the Seller is a party or by which it is bound, or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement, mortgage, deed of trust
or other instrument, other than this Agreement, or violate any law, order, rule
or regulation applicable to the Seller of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Seller or any of its properties.
(g) No Proceedings. There are no proceedings or investigations pending or,
to the Seller's knowledge, threatened against the Seller, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Seller or its properties (A)
asserting the invalidity of this Agreement or any of the Transaction Documents,
(B) seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any of the Transaction Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Seller of its obligations under, or the validity or
enforceability of, this Agreement or any of the Transaction Documents, or (D)
seeking to adversely affect the federal income tax or other federal, state or
local tax attributes of the Notes.
<PAGE>
(h) Approvals. All approvals, authorizations, consents, order or other
actions of any person, corporation or other organization, or of any court,
governmental agency or body or official, required in connection with the
execution and delivery by the Seller of this Agreement and the consummation of
the transactions contemplated hereby have been or will be taken or obtained on
or prior to the Closing Date.
(i) No Consents. The Seller is not required to obtain the consent of any
other party or any consent, license, approval or authorization, or registration
or declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement which has not already been obtained.
(j) Chief Executive Office. The chief executive office of the Seller is at
One Park Place, 621 N.W. 53rd Street, Boca Raton, Florida, 33487.
(k) Principal Balance. The aggregate Principal Balance of the Receivables
listed on the supplement to Schedule A annexed hereto and conveyed to the Issuer
pursuant to this Agreement as of the Subsequent Cut-off Date is $____________.
(l) Contract Files. The Seller does hereby deliver to the Custodian the
original motor vehicle retail installment sale contracts and Receivables Files
for each Receivable identified in the Receivables Schedule.
5. Receivable File. The Seller does hereby deliver to the Custodian the
original motor vehicle retail installment sale contracts and Receivables Files
for each Receivable identified in the Receivables Schedule.
6. Conditions Precedent. The obligation of the Issuer to acquire the
Receivables hereunder is subject to the satisfaction, on or prior to the
Subsequent Transfer Date, of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Seller in Section 4 of this Agreement and in Section 8.1
of the Sale and Servicing Agreement shall be true and correct as of the date of
this Agreement and as of the Subsequent Transfer Date.
(b) Sale and Servicing Agreement Conditions. Each of the conditions set
forth in Section 2.2(b) to the Sale and Servicing Agreement shall have been
satisfied.
(c) Additional Information. The Seller shall have delivered to the Issuer
such information as was reasonably requested by the Issuer to satisfy itself as
to (i) the accuracy of the representations and warranties set forth in Section 4
of this Agreement and in Section 8.1 of the Sale and Servicing Agreement and
(ii) the satisfaction of the conditions set forth in this Section 6.
<PAGE>
7. Ratification of Agreement. As supplemented by this Agreement, the Sale
and Servicing Agreement is in all respects ratified and confirmed and the Sale
and Servicing Agreement as so supplemented by this Agreement shall be read,
taken and construed as one and the same instrument.
8. Counterparts. This Agreement may be executed in two or more counterparts
(and by different parties in separate counterparts), each of which shall be an
original but all of which together shall constitute one and the same instrument.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
10. Third-Party Beneficiaries. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successor and
permitted assigns. Except as otherwise provided in this Section 10, no other
person shall have any right or obligation hereunder. The Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Agreement, and shall be entitled to rely upon and directly enforce such
provisions of this Agreement so long as no Insurer Default shall have occurred
and be continuing. Except as expressly stated otherwise herein or in the
Transaction Documents, any right of the Insurer to direct, appoint, consent to,
approve of, or take any action under this Agreement, shall be a right exercised
by the Insurer to direct, appoint, consent to, approve of, or take any action
under this Agreement, shall be a right exercised by the Insurer in its sole and
absolute discretion. The Insurer may disclaim any of its rights and powers under
this Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Trustee.
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Seller and the Servicer have caused
this Agreement to be duly executed and delivered by their respective duly
authorized officers as of day and the year first above written.
NATIONAL AUTO FINANCE 1998-1 TRUST
by Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee on behalf of the
Trust,
by
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST, Seller,
by Chase Manhattan Bank Delaware, not in its individual
capacity, but solely as Trustee of National Financial
Auto Funding Trust,
by
Title:
NATIONAL AUTO FINANCE COMPANY, INC., Servicer,
by
Title:
Acknowledged and Accepted:
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity
but solely as Trust Collateral
Agent and Backup Servicer
by
Title:
<PAGE>
EXHIBIT B
FORM OF SERVICER'S CERTIFICATE
EXECUTION COPY
================================================================================
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL AUTO FINANCE 1998-1 TRUST,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
NATIONAL AUTO FINANCE COMPANY, INC.,
Dated as of January 20, 1998
National Auto Finance 1998-1 Trust
5.88% Automobile Receivables-Backed Notes
$85,200,000
================================================================================
11.TXT
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.DEFINITIONS
Section 1.01. Definitions...................................................2
ARTICLE II.REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of the Trust...................3
Section 2.02. Affirmative Covenants of the Trust............................7
Section 2.03. Negative Covenants of the Trust..............................14
Section 2.04. Representations and Warranties of NAFI and the Transferor....17
Section 2.05. Affirmative Covenants of NAFI and the Transferor.............25
Section 2.06. Negative Covenants of NAFI and the Transferor................34
Section 2.07. Representations and Warranties of NAFI and the
Transferor with respect to the Master Trust and Funding Trust
II...........................................................38
Section 2.08. Affirmative Covenants of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II........39
Section 2.09. Negative Covenants of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II........40
ARTICLE III.THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.01. Issuance of the Policy.......................................41
Section 3.02. Payment of Fees and Premium..................................41
Section 3.03. Reimbursement Obligation.....................................42
Section 3.04. Indemnification..............................................44
Section 3.05. Subrogation..................................................46
ARTICLE IV.FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of Agreement............................46
Section 4.02. Obligation Absolute..........................................47
Section 4.03. Assignments; Reinsurance; Third-Party Rights.................48
Section 4.04. Liability of Financial Security..............................49
ARTICLE V.EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default............................................49
Section 5.02. Remedies; Waivers............................................53
ARTICLE VI.MISCELLANEOUS
Section 6.01. Amendments, Etc..............................................54
Section 6.02. Notices......................................................54
Section 6.03. Payment Procedure............................................56
Section 6.04. Confidentiality..............................................56
Section 6.05. Severability.................................................56
Section 6.06. Governing Law................................................57
-i-
11.TXT
<PAGE>
Page
Section 6.07. Consent to Jurisdiction......................................57
Section 6.08. Consent of Financial Security................................58
Section 6.09. Counterparts.................................................58
Section 6.10. Trial by Jury Waived.........................................58
Section 6.11. Limited Liability............................................58
Section 6.13. Entire Agreement.............................................59
Appendix I Definitions
Appendix II Conditions Precedent to Issuance of the Policy
Annex I Form of Financial Guaranty Insurance Policy
Appendix A Opinions of Counsel
-ii-
11.TXT
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of January 20, 1998, by and
among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL AUTO
FINANCE 1998-1 TRUST (the "Trust"), NATIONAL FINANCIAL AUTO FUNDING TRUST (the
"Transferor") and NATIONAL AUTO FINANCE COMPANY, INC. ("NAFI", and in its
capacity as Servicer, the "Servicer").
INTRODUCTORY STATEMENTS
A. On the Closing Date, (i) the Master Trust will sell all of its right,
title and interest in and to the Initial Receivables and certain other property
related thereto to Funding Trust II pursuant to the Assignment Agreement and
will simultaneously release its liens on such Initial Receivables and such other
property related thereto, (ii) Funding Trust II will simultaneously (A) sell all
of its right, title and interest in and to certain of the Initial Receivables
and such other property related thereto to the Transferor pursuant to the Sale
Agreement and (B) convey all of its right, title and interest in and to certain
of the Initial Receivables and such other property related thereto to NAFI as a
dividend, and in each case will simultaneously release its liens on such Initial
Receivables and such other property related thereto, (iii) NAFI will contribute
all of its right, title and interest in and to the Initial Receivables and the
other property related thereto conveyed to NAFI by Funding Trust II as a
dividend to the Transferor pursuant to the Purchase and Contribution Agreement,
and (iv) the Transferor will simultaneously sell all of its right, title and
interest in and to the Initial Receivables and such other property related
thereto to the Trust pursuant to the Sale and Servicing Agreement.
A. On each Subsequent Transfer Date, the Transferor proposes to purchase
Subsequent Receivables and certain other property related thereto from NAFI
pursuant to the Purchase and Contribution Agreement and to simultaneously sell
to the Trust all of its right, title and interest in and to such Subsequent
Receivables and such other property related thereto pursuant to the Sale and
Servicing Agreement and the related Subsequent Transfer Agreement.
A. The Trust will issue the Securities pursuant to the Indenture and the
Certificates pursuant to the Trust Agreement. The Trust has requested that
Financial Security issue a financial guaranty insurance policy guaranteeing
certain distributions of the principal of and interest on the Securities
(including any such distributions subsequently avoided as a preference under
-1-
<PAGE>
applicable bankruptcy law) upon the terms and subject to the conditions provided
herein.
A. It is contemplated that NAFI and/or Funding Trust II and/or the
Transferor and/or any other Affiliate of NAFI may in the future enter into one
or more pooling and servicing agreements, sale and servicing agreements,
indentures, receivables purchase agreements or other financing documents (each,
a "Securitization Agreement") pursuant to which NAFI, Funding Trust II, the
Transferor and/or such other Affiliate of NAFI will sell, pledge or otherwise
transfer all or a portion of its right, title and interest in and to pools of
contracts and/or other financial assets or property to a trust or other Person
and in connection therewith Financial Security in its discretion may in the
future issue additional policies with respect to certain guaranteed
distributions or scheduled payments with respect to the corresponding
securities, certificates, notes or other obligations issued or arising under
such Securitization Agreements.
A. The parties hereto desire to specify the conditions precedent to the
issuance of the Policy, the terms of payment of premium in respect of the
Policy, the indemnity and reimbursement to be provided to Financial Security in
respect of amounts paid by Financial Security under the Policy or otherwise and
certain other matters.
In consideration of the premises and of the agreements herein contained,
Financial Security, the Trust, the Transferor and NAFI hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used herein shall have the
meanings provided in Appendix I hereto unless the context otherwise requires. In
addition, all terms defined in the Sale and Servicing Agreement or in the Spread
Account Agreement shall have the same meanings in this Insurance Agreement.
Unless otherwise specified, if a word or phrase defined in the Sale and
Servicing Agreement or in the Spread Account Agreement can be applied with
respect to one or more Series, such a word or phrase shall be used herein as
applied to Series 1998-1.
-2-
<PAGE>
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. Representations and Warranties of the Trust. The Trust
represents, warrants and covenants, as of the date hereof, the Date of Issuance
and each Subsequent Transfer Date, with respect to itself and otherwise as
follows:
(a) Due Organization and Qualification. The Trust is a Delaware
statutory business trust, duly formed, validly existing and in good
standing under the laws of the State of Delaware, with power and authority
to own its properties and to conduct its business. The Trust is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and as described in the Offering Document and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such
approvals would render any Receivable unenforceable in any respect or would
otherwise have a material adverse effect upon the Transaction.
(b) Power and Authority. The Trust has all necessary trust power and
authority to conduct its business as currently conducted and as described
in the Offering Document, to execute, deliver and perform its obligations
under the Transaction Documents and to consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of the
Transaction Documents by the Trust have been duly authorized by all
necessary action on the part of the Trust and do not require any additional
approvals or consents or other action by or any notice to or filing with
any Person by or on behalf of the Trust, including, without limitation, any
governmental entity.
(d) Noncontravention. None of the execution and delivery of the
Transaction Documents by the Trust, the consummation of the transactions
contemplated thereby or the satisfaction of the terms and conditions of the
Transaction Documents,
(i) conflicts with or results in any breach or violation of any
provision of the certificate of trust of the Trust or the Trust
Agreement, or any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award currently in effect having
-3-
<PAGE>
applicability to the Trust, or any of its properties, including
regulations issued by an administrative agency or other governmental
authority having supervisory powers over the Trust,
(ii) constitutes or will constitute a default by the Trust under
or a breach of any provision of any loan agreement, mortgage,
indenture or other agreement or instrument to which the Trust is a
party or by which it or any of its properties may be bound or
affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of the Trust except as otherwise
contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or
investigation, by or before any court, governmental or administrative
agency or arbitrator against or affecting all or any of the Receivables,
the Trust, or any properties or rights of the Trust, pending or threatened,
which, in any case, if decided adversely, could result in a Material
Adverse Change with respect to the Trust or any Receivable.
(f) Valid and Binding Obligations. Each of the Transaction Documents
to which the Trust is a party when executed and delivered by the Owner
Trustee on behalf of the Trust, will constitute the legal, valid and
binding obligations of the Trust, enforceable in accordance with its
respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equitable principles. The
Securities, when executed, authenticated and delivered in accordance with
the Indenture, will be entitled to the benefits of the Indenture and will
constitute legal, valid and binding obligations of the Trust, enforceable
in accordance with their terms. The Certificates, when executed,
authenticated and delivered in accordance with the Trust Agreement, will be
validly issued and outstanding and entitled to the benefits of the Trust
Agreement and will evidence the entire beneficial interest in the Trust.
(g) ERISA. The Trust does not maintain or contribute to, or have any
obligation to maintain or contribute to, any Plan. The Trust is not subject
to any of the provisions of ERISA.
(h) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with
-4-
<PAGE>
respect to the Trust or the Transaction that was untrue or misleading in
any material respect when made. Since the furnishing of the Provided
Documents, there has been no change, nor any development or event involving
a prospective change known to the Trust that would render any of the
Provided Documents untrue or misleading in any material respect. There is
no fact known to the Trust which has a material possibility of causing a
Material Adverse Change with respect to the Trust or the Receivables.
(i) Compliance With Securities Laws. The offer and sale of the
Securities and the Certificates comply in all material respects with all
requirements of law, including all applicable registration requirements of
securities laws. Without limitation of the foregoing, the Offering Document
does not contain any untrue statement of a material fact and does not omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading; provided that no representation is made with
respect to information included in an Offering Document and furnished by
Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that, in respect of the Offering
Document, the Financial Security Information is limited to the information
included under the caption "THE INSURER", and such additional information
as may be deemed to be included in the Offering Document pursuant to the
second paragraph under the heading "Incorporation Of Certain Documents By
Reference" on page S-3 of the Offering Document. None of the Trust
Agreement, the Indenture or the Sale and Servicing Agreement is required to
be qualified under the Trust Indenture Act.
(j) Incorporation of Certain Representations and Warranties. Each of
the representations and warranties of the Trust contained in the
Transaction Documents is true and correct in all material respects and the
Trust hereby makes each such representation and warranty made by it to, and
for the benefit of, Financial Security as if the same were set forth in
full herein.
(k) No Consents. No consent, license, approval or authorization from,
or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required with respect to, or to be obtained by,
the Trust in connection with the execution, delivery and performance by the
Trust of this Insurance
-5-
<PAGE>
Agreement or any other Transaction Document to which the Trust is a party,
except (in each case) such as have been obtained and are in full force and
effect.
(l) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by the Trust in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to it which, if enforced, would result in a Material Adverse
Change with respect to the Trust.
(m) Special Purpose Entity.
(i) The capital of the Trust is adequate for the business and
undertakings of the Trust.
(ii) Other than the transactions as provided in the Transaction
Documents, the Trust is not engaged in any business transactions with
NAFI, the Transferor or any of their respective Subsidiaries or
Affiliates.
(iii) The Trust's funds and assets are not, and will not be,
commingled with the funds of any other Person.
(n) Solvency; Fraudulent Conveyance. The Trust is solvent and will not
be rendered insolvent by the Transaction and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount
of capital with which to engage in its business. The Trust does not intend
to incur, or believe that it has incurred, debts beyond its ability to pay
such debts as they mature. The Trust does not contemplate the commencement
of insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of the Trust or any of its assets. The Trust is not
pledging the Collateral to the Trust Collateral Agent, or issuing the
Securities and the Certificates, as provided in the Transaction Documents,
with any intent to hinder, delay or defraud any of the Trust's creditors.
(o) Investment Company Act Compliance. Neither the Trust nor the Owner
Trust Estate is required to be registered as an "investment company" under
the Investment Company Act. The Trust is not subject to the information
reporting requirements of the Securities Exchange Act.
(p) Collateral. On the Date of Issuance, and on each Subsequent
Transfer Date, the Trust will be the owner of, and will have good and
marketable title to, each item of
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Other Trust Property conveyed on such date and will own each such item free
and clear of all Liens and Restrictions on Transferability (other than
Liens contemplated under the Indenture) or any equity or participation
interest of any other Person and will have full right, power and lawful
authority to pledge such Other Trust Property. The Indenture constitutes a
valid pledge of the Collateral to the Trust Collateral Agent, and the Trust
Collateral Agent shall have a valid and perfected first priority security
interest in the Collateral, free and clear of all Liens and Restrictions on
Transferability.
(q) Perfection of Liens and Security Interest. On the Closing Date,
the Lien and security interest in favor of the Trust Collateral Agent with
respect to the Collateral will be perfected by the delivery of the
Receivable Files to the Custodian, which Receivable Files the Custodian
will hold on behalf of the Trust Collateral Agent, the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or
filing is necessary for the perfection of such Lien and security interest,
and the establishment of the Collection Account, the Pre-Funding Account,
the Pre-Funding Period Reserve Account, the Distribution Account and the
Note Distribution Account in accordance with the provisions of the
Transaction Documents, and no other filings in any jurisdiction or any
other actions (except as expressly provided herein) are necessary to
perfect the Trust Collateral Agent's first priority Lien on and security
interest in the Collateral as against any third parties.
(r) Security Interest in Funds and Investments. Assuming the retention
of funds in the Trust Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority
security interest in favor of the Trust Collateral Agent on behalf of the
Indenture Trustee (on behalf of the holders of the Securities) and
Financial Security. Assuming the retention of funds in the Spread Account
and the acquisition of Eligible Investments in accordance with the Spread
Account Agreement, such funds and Eligible Investments will be subject to a
valid and perfected, first priority security interest in favor of the
Collateral Agent on behalf of Financial Security.
Section 2.2. Affirmative Covenants of the Trust. The Trust hereby agrees,
that during the Term of this Agreement, unless Financial Security shall
otherwise expressly consent in writing:
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(a) Compliance With Agreements and Applicable Laws. The Trust shall
perform each of its obligations under the Transaction Documents and shall
comply with all material requirements of, and the Securities and the
Certificates shall be offered and sold in accordance with, any law, rule or
regulation applicable to it or thereto, or that are required in connection
with its performance under any of the Transaction Documents. The Trust will
not cause or permit to become effective any amendment to or modification of
any of the Transaction Documents to which it is a party unless Financial
Security shall have previously approved in writing the form of such
amendment or modification. The Trust shall not take any action or fail to
take any action that would interfere with the enforcement of any rights
under the Transaction Documents.
(b) Financial Statements; Accountants' Reports; Other Information. The
Trust shall keep or cause to be kept in reasonable detail books and records
of account of its assets and business, which shall be furnished to
Financial Security upon request. The Trust shall furnish or cause to be
furnished to Financial Security the following to the extent any of the
following is prepared by or on behalf of the Trust:
(i) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of the Trust,
the audited balance sheets of the Trust as of the end of such fiscal
year and the audited statements of income, changes in shareholders'
equity and cash flows of the Trust, all in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year, prepared
in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the certificate of the
Trust's independent accountants (who shall be, in each case, a
nationally recognized firm or otherwise acceptable to Financial
Security) and by the certificate specified in Section 2.02(c) hereof.
(ii) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each fiscal year of the Trust, the unaudited balance
sheets of the Trust, as of the end of such quarter and the unaudited
statements of income, changes in shareholders' equity and cash flows
of the Trust for the portion of the fiscal year then ended, all in
reasonable detail and stating in comparative form the
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respective figures for the corresponding date and period in the
preceding fiscal year, prepared in accordance with generally accepted
accounting principles, consistently applied (subject to normal
year-end adjustments), and accompanied by the certificate specified in
Section 2.02(c) hereof.
(iii) Accountants' Reports. Copies of any reports submitted to
the Trust by its independent accountants in connection with any
examination of the financial statements of the Trust.
(iv) Other Information. Promptly upon receipt thereof, copies of
all reports, statements, certifications, schedules, financial
statements, notices or other similar items delivered to or by the
Trust pursuant to the terms of the Transaction Documents and, promptly
upon request, such other data as Financial Security may reasonably
request. The books and records of the Trust will be maintained at the
address designated herein for receipt of notices, unless the Trust
shall otherwise advise the parties hereto in writing.
(v) Documents. The Trust shall provide or cause to be provided to
Financial Security an executed original copy of each document executed
in connection with the Transaction within 10 days after the date of
closing.
(vi) Tax Documentation. Not less than ten days prior to the date
of filing with the IRS of any tax return or amendment thereto, copies
of the proposed form of such return or amendment and promptly after
the filing or sending thereof, copies of all tax returns and
amendments thereto, proxy statements, financial statements, reports
and registration statements which the Trust files, or delivers to, the
IRS, the Commission, or any other federal, state or foreign government
agency, authority or body which supervises the issuance of securities
by the Trust or any national securities exchange.
(c) Compliance Certificate. The Trust shall deliver to Financial
Security concurrently with the delivery of the financial statements
required pursuant to Section 2.02(b)(i) hereof and concurrently with the
delivery of the financial statements required pursuant to Section
2.02(b)(ii) hereof a certificate signed by an officer of the Trust stating
that:
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(i) a review of the Trust's performance under the Transaction
Documents during such period has been made under such officer's
supervision;
(ii) to the best of such individual's knowledge, no Special
Event, Default or Event of Default has occurred, or if a Special
Event, Default or Event of Default has occurred, specifying the nature
thereof and, if the Trust has a right to cure any such Default or
Event of Default pursuant to Section 5.01, stating in reasonable
detail the steps, if any, being taken by the Trust to cure such
Default or Event of Default or to otherwise comply with the terms of
the agreement to which such Default or Event of Default relates; and
(iii) the attached financial reports submitted in accordance with
Section 2.02(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial
condition and results of operations of the Trust, as of the dates and
for the periods indicated, in accordance with generally accepted
accounting principles consistently applied (subject as to interim
statements to normal year end adjustments).
(d) Notice of Material Events. The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Trust pertaining to the Receivables in general, (B) with
respect to a material portion of the Receivables or (C) in which a
request has been made for certification as a class action (or
equivalent relief) that would involve a material portion of the
Receivables;
(ii) any change in the location of the Trust's principal office
or any change in the location of the Trust's books and records;
(iii) the occurrence of any Default or Special Event; or
(iv) any other event, circumstance or condition that has
resulted, or the Trust reasonably believes might result, in a Material
Adverse Change in respect of the Trust or the Receivables.
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(e) Access to Records, Discussions with Officers and Accountants. The
Trust shall, upon the request of Financial Security, permit Financial
Security or its authorized agents (i) to inspect the books and records of
the Trust as they may relate to the Securities, the Certificates, the
Receivables and the Other Trust Property, the obligations of the Trust
under the Transaction Documents, the Trust's business and the Transaction
and (ii) to discuss the affairs, finances and accounts of the Trust with
any of its personnel and representatives, including its independent
accountants. Such inspections and discussions shall be conducted during
normal business hours and shall not unreasonably disrupt the business of
the Trust. The books and records of the Trust will be maintained at the
address of the Trust designated herein for receipt of notices, unless the
Trust shall otherwise advise the parties hereto in writing.
(f) Further Assurances. The Trust will file all necessary financing
statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in
such manner and in such places as may be required by law to preserve and
protect fully the Lien on and security interest in, and all rights of the
Trust Collateral Agent with respect to the Collateral under the Indenture.
In addition, the Trust shall, upon the request of Financial Security, from
time to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within ten (10) days of such request, such
amendments hereto and such further instruments and take such further action
as may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents or to protect the interest of the
Trust Collateral Agent in the Collateral under the Indenture, free and
clear of all Liens and Restrictions on Transferability except the Lien in
favor of the Trust Collateral Agent. In addition, the Trust agrees to
cooperate with S&P and Moody's in connection with any review of the
Transaction which may be undertaken by S&P and Moody's after the date
hereof.
(g) Retirement of Securities. The Trust shall, upon retirement of the
Securities, furnish to Financial Security a notice of such retirement, and,
upon retirement of the Securities and the expiration of the Term of the
Policy, surrender the Policy to Financial Security for cancellation.
(h) Third-Party Beneficiary. The Trust agrees that Financial Security
shall have all rights of a third-party beneficiary in respect of each of
the Transaction Documents and hereby incorporates and restates its
representations,
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warranties and covenants as set forth therein for the benefit of Financial
Security.
(i) Preservation of Existence. The Trust shall observe in all material
respects all procedures required by its certificate of trust and the Trust
Agreement and preserve and maintain its existence as a trust and its
rights, franchises and privileges in the jurisdiction of its organization,
and duly qualify and remain in good standing in each jurisdiction where the
nature of its business requires it to do so.
(j) Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of a
dividend to its stockholders. No consideration is given by the New
York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making
such determinations.
(2) Each Offering Document delivered with respect to the
Securities subsequent to the Date of Issuance shall be in form and
substance satisfactory to Financial Security in its sole discretion as
evidenced by Financial Security's prior written consent to the use
thereof.
(k) Special Purpose Entity.
(i) The Trust shall conduct its business solely in its own name
through its duly authorized officers or agents so as not to mislead
others as to the identity of the entity with which those officers are
concerned, and particularly will avoid the appearance of
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conducting business on behalf of NAFI, the Transferor or any of their
respective Affiliates or that the assets of the Trust are available to
pay the creditors of NAFI, the Transferor or any of their respective
Affiliates. Without limiting the generality of the foregoing, all oral
and written communications, including, without limitation, letters,
invoices, purchase orders, contracts, statements and loan
applications, will be made solely in the name of the Trust.
(ii) The Trust shall maintain trust records and books of account
separate from those of NAFI, the Transferor or any of their respective
Affiliates. The books and records of the Trust will be separate from
those of NAFI, the Transferor and their respective Affiliates and will
be maintained at the address designated herein for receipt of notices,
unless the Trust shall otherwise advise the parties hereto in writing
with respect to such address.
(iii) The Trust shall obtain proper authorization from its equity
owners of all trust action requiring such authorization, and copies of
each such authorization and the minutes or other written summary of
each such meeting shall be delivered to Financial Security within two
weeks of such authorization or meeting, as the case may be.
(iv) Although the organizational expenses of the Trust have been
paid by the Seller, operating expenses and liabilities of the Trust
shall be paid from its own funds.
(v) The annual financial statements of the Trust shall disclose
the effects of the Trust's transactions in accordance with generally
accepted accounting principles and shall disclose that the assets of
the Trust are not available to pay creditors of NAFI, the Transferor
or any of their respective Affiliates.
(vi) The resolutions, agreements and other instruments of the
Trust underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Trust as official records of the Trust separately
identified and held apart from the records of NAFI, the Transferor or
any of their respective Affiliates.
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(vii) The Trust shall maintain an arm's-length relationship with
NAFI, the Transferor and their respective Affiliates and will not hold
itself out as being liable for the debts of NAFI, the Transferor or
any of their respective Affiliates.
(viii) The Trust shall keep its assets and its liabilities wholly
separate from those of all other entities, including, but not limited
to NAFI, the Transferor and their respective Affiliates.
(l) Maintenance of Licenses. The Trust shall maintain all licenses,
permits, charters and registrations which are material to the performance
by the Trust of its business and of its obligations under this Insurance
Agreement and each other Transaction Document to which the Trust is a party
or by which the Trust is bound.
(m) Tax Matters. The Trust will take all actions necessary to ensure
that the Trust is taxable as a partnership for federal and state income tax
purposes and not as an association (or publicly traded partnership) taxable
as a corporation.
(n) Securities Laws. The Trust shall comply in all material respects
with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder
for which non-compliance would result in a Material Adverse Change with
respect to the Trust.
(o) Incorporation of Covenants. The Trust shall comply with each of
the Trust's covenants set forth in the Transaction Documents and hereby
incorporates such covenants by reference as if each were set forth herein.
(p) Notification of Failure to Perform or Observe Certain Covenants or
Agreements. The Trust shall promptly deliver to the Transferor, the
Servicer or NAFI, as applicable, a copy of any written notice delivered to
the Trust pursuant to Section 5.01(d) concerning any failure to perform or
observe any covenant or agreement contained in any of the Transaction
Documents by the Transferor, the Servicer or NAFI, as the case may be.
Section 2.3. Negative Covenants of the Trust. The Trust hereby agrees that
during the Term of this Agreement, unless Financial Security shall otherwise
expressly consent in writing:
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(a) Restrictions on Liens. The Trust shall not, except as contemplated
by the Transaction Documents (i) create, incur or suffer to exist, or agree
to create, incur or suffer to exist, or consent to cause or permit in the
future (upon the happening of a contingency or otherwise) the creation,
incurrence or existence of any Lien or Restriction on Transferability on
the Receivables and the Other Trust Property except for the Lien in favor
of the Trust Collateral Agent under the Indenture or (ii) sign or file
under the Uniform Commercial Code of any jurisdiction any financing
statement which names the Trust as a debtor, or sign any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Receivables and the Other Trust Property, except in
each case any such instrument solely securing the rights and preserving the
Lien of the Trust Collateral Agent, for the benefit of the holders of the
Securities and Financial Security.
(b) Impairment of Rights. The Trust shall not take any action, or fail
to take any action, if such action or failure to take action may (i)
interfere with the enforcement of any rights under the Transaction
Documents that are material to the rights, benefits or obligations of the
Indenture Trustee, the Certificateholders, the holders of Securities or
Financial Security, (ii) result in a Material Adverse Change in respect of
the Receivables or (iii) impair the ability of the Trust to perform its
obligations under the Transaction Documents.
(c) Waiver, Amendments, Etc. The Trust shall not waive, modify or
amend, or consent to any waiver, modification or amendment of, any of the
provisions of any of the Transaction Documents or its certificate of trust
or the Trust Agreement unless Financial Security shall have consented
thereto in writing.
(d) Successors. The Trust shall not terminate or designate, or consent
to the termination or designation of, the Servicer, the Backup Servicer,
the Custodian, the Owner Trustee, the Trust Collateral Agent, the Indenture
Trustee or the Collateral Agent or any successor thereto without the prior
approval of Financial Security.
(e) Creation of Indebtedness; Guarantees. The Trust shall not create,
incur, assume or suffer to exist any indebtedness other than indebtedness
guaranteed or approved in writing by Financial Security. Without the prior
written consent of Financial Security, the Trust shall not assume,
guarantee, endorse or otherwise be or become directly or contingently
liable for the obligations of any Person by,
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among other things, agreeing to purchase any obligation of another Person,
agreeing to advance funds to such Person or causing or assisting such
Person to maintain any amount of capital.
(f) Subsidiaries. The Trust shall not form, or cause to be formed, any
Subsidiaries.
(g) Issuance of Additional Beneficial Ownership Interests. The Trust
shall not issue or allow the issuance of any additional beneficial
ownership interests or securities convertible into or exchangeable for
beneficial ownership interests in the Trust.
(h) No Mergers. The Trust shall not consolidate with or merge into any
Person or transfer all or any material portion of its assets to any Person
or liquidate or dissolve except as contemplated by the Transaction
Documents.
(i) Other Activities. The Trust shall not:
(i) sell, transfer, exchange or otherwise dispose of any of its
assets except as permitted under the Transaction Documents; or
(ii) engage in any business or activity except as contemplated by
the Transaction Documents and as permitted under its certificate of
trust.
(j) Insolvency. The Trust shall not commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to the bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, corporation or other relief with
respect to it or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or make a general assignment for the benefit of its creditors. The
Trust shall not take any action in furtherance of, or indicating the
consent to, approval of, or acquiescence in any of the acts set forth
above. The Trust shall not admit in writing its inability to pay its debts.
(k) ERISA. The Trust shall not contribute or incur any obligation to
contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
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Section 2.4. Representations and Warranties of NAFI and the Transferor.
NAFI represents, warrants and covenants, as of the date hereof, the Date of
Issuance and each Subsequent Transfer Date with respect to itself, with respect
to the Transferor and otherwise as follows, and the Transferor represents,
warrants and covenants, as of the date hereof, the Date of Issuance and each
Subsequent Transfer Date, with respect to itself and otherwise, as follows:
(a) Due Organization and Qualification. NAFI is a corporation, duly
organized, validly existing and in good standing under the laws of the
State of Delaware. The Transferor is a Delaware statutory business trust,
duly formed, validly existing and in good standing under the laws of the
State of Delaware. Each of NAFI and the Transferor is duly qualified to do
business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals (together, "approvals")
necessary for the conduct of its business as currently conducted and as
described in the Offering Document and the performance of its obligations
under the Transaction Documents, in each jurisdiction in which the failure
to be so qualified or to obtain such approvals would render any Receivable
unenforceable in any respect or would otherwise have a material adverse
effect upon the Transaction.
(b) Power and Authority. Each of NAFI and the Transferor has all
necessary power and authority to conduct its business as currently
conducted and as described in the Offering Document, to execute, deliver
and perform its obligations under the Transaction Documents and to
consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of the
Transaction Documents by each of NAFI and the Transferor have been duly
authorized by all necessary action and do not require any additional
approvals or consents or other action by or any notice to or filing with
any Person.
(d) Noncontravention. None of the execution and delivery of the
Transaction Documents by the Transferor or NAFI, the consummation of the
transactions contemplated thereby or the satisfaction of the terms and
conditions of the Transaction Documents,
(i) conflicts with or results in any breach or violation of any
provision of the certificate of trust and the trust agreement of the
Transferor or the certificate of incorporation and by-laws of NAFI, or
any law, rule, regulation, order, writ, judgment,
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injunction, decree, determination or award currently in effect having
applicability to the Transferor or NAFI, as the case may be, or any of
their respective properties, including regulations issued by an
administrative agency or other governmental authority having
supervisory powers over the Transferor or NAFI, as the case may be,
(ii) constitutes a default by the Transferor or NAFI, as the case
may be, under or a breach of any provision of any loan agreement,
mortgage, indenture or other agreement or instrument to which the
Transferor or NAFI, as the case may be, or any of their respective
Subsidiaries or Affiliates is a party or by which it or any of its or
their properties is or may be bound or affected, or
(iii) results in or requires the creation of any Lien upon or in
respect of any of the assets of the Transferor or NAFI or any of their
respective Subsidiaries or Affiliates except as otherwise expressly
contemplated by the Transaction Documents.
(e) Legal Proceedings. There is no action, proceeding or investigation
by or before any court, governmental or administrative agency or arbitrator
against or affecting all or any of the Receivables, NAFI, the Transferor or
any of their respective Subsidiaries or Affiliates, or any properties or
rights of NAFI, the Transferor or any of their respective Subsidiaries or
Affiliates, pending or threatened, which, in any case, if decided
adversely, would result in a Material Adverse Change with respect to NAFI,
the Transferor or any Receivable.
(f) Valid and Binding Obligations. Each of the Transaction Documents
to which either NAFI or the Transferor is a party when executed and
delivered by NAFI or by the Transferor, as the case may be, will constitute
the legal, valid and binding obligations of such Person, enforceable in
accordance with their respective terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and general equitable
principles. The Securities, when executed, authenticated and delivered in
accordance with the Indenture, will be binding obligations of the Trust,
enforceable in accordance with their terms, validly issued and outstanding
and entitled to the benefits of the Indenture, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable
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principles. The Certificates, when executed, authenticated and delivered in
accordance with the Trust Agreement, will be validly issued and outstanding
and entitled to the benefits of the Trust Agreement and will evidence the
entire beneficial ownership interest in the Trust.
(g) Financial Statements. The Financial Statements of each of the
Transferor and NAFI, copies of which have been furnished to Financial
Security, (i) are, as of the dates and for the periods referred to therein,
complete and correct in all material respects, (ii) present fairly the
financial condition and results of operations of each of the Transferor and
NAFI as of the dates and for the periods indicated and (iii) have been
prepared in accordance with generally accepted accounting principles
consistently applied, except as noted therein (subject as to interim
statements to normal year-end adjustments). Since the date of the most
recent Financial Statements, there has been no Material Adverse Change in
such financial condition or results of operations. Except as disclosed in
the Financial Statements, neither the Transferor nor NAFI is subject to any
contingent liabilities or commitments that, individually or in the
aggregate, have a material possibility of causing a Material Adverse Change
in respect of the Transferor or NAFI, as the case may be.
(h) ERISA. Each of the Transferor and NAFI is in compliance with ERISA
and has not incurred and does not reasonably expect to incur any
liabilities to the PBGC under ERISA in connection with any Plan or
Multiemployer Plan or to contribute now or in the future in respect of any
Plan or Multiemployer Plan.
(i) Accuracy of Information. None of the Provided Documents contain
any statement of a material fact with respect to NAFI, the Transferor or
the Transaction that was untrue or misleading in any material respect when
made. Since the furnishing of the Provided Documents, there has been no
change, nor any development or event involving a prospective change known
to NAFI or to the Transferor, that would render any of the Provided
Documents untrue or misleading in any material respect. There is no fact
known to NAFI or to the Transferor which has a material possibility of
causing a Material Adverse Change with respect to NAFI, the Transferor or
the Receivables.
(j) Compliance With Securities Laws. The offer and sale of the
Securities and the Certificates comply in all material respects with all
requirements of law, including all applicable registration requirements of
securities laws. Without limitation of the foregoing, the Offering Document
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does not contain any untrue statement of a material fact and does not omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading; provided that no representation is made with
respect to information included in an Offering Document and furnished by
Financial Security in writing expressly for use therein (all such
information so furnished being referred to herein as "Financial Security
Information"), it being understood that, in respect of the Offering
Document, the Financial Security Information is limited to the information
included under the caption "THE INSURER", and such additional information
as may be deemed to be included in the Offering Document pursuant to the
second paragraph under the heading "Incorporation Of Certain Documents By
Reference" on page S-3 of the Offering Document. Neither the Trust nor the
Owner Trust Estate is required to be registered as an "investment company"
under the Investment Company Act. None of the Trust Agreement, the
Indenture or the Sale and Servicing Agreement is required to be qualified
under the Trust Indenture Act.
(k) Incorporation of Certain Representations and Warranties. Each of
the representations and warranties of NAFI and of the Transferor contained
in the Transaction Documents is true and correct in all material respects
and each of NAFI and the Transferor hereby makes each such representation
and warranty made by it to, and for the benefit of, Financial Security as
if the same were set forth in full herein.
(l) No Consents. No consent, license, approval or authorization from,
or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any
consent, approval, waiver or notification of any creditor, lessor or other
nongovernmental Person, is required in connection with the execution,
delivery and performance by NAFI or by the Transferor of this Insurance
Agreement or of any other Transaction Document to which such Person is a
party, except (in each case) such as have been obtained and are in full
force and effect.
(m) Compliance With Law, Etc. No practice, procedure or policy
employed or proposed to be employed by NAFI or by the Transferor in the
conduct of their respective businesses violates any law, regulation,
judgment, agreement, order or decree applicable to it which, if enforced,
would result in a Material Adverse Change with respect to such Person or
the Receivables.
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(n) Special Purpose Entity.
(i) The capital of the Transferor is adequate for the business
and undertakings of the Transferor.
(ii) Other than with respect to the ownership by NAFI and its
Affiliates of all of the beneficial ownership interests of the
Transferor and the transactions as provided in (A) the Transaction
Documents and (B) the corresponding applicable agreements relating to
the issuance by each of National Auto Finance 1995-1 Trust, National
Auto Finance 1996-1 Trust and National Auto Finance 1997-1 Trust of a
Series, the Transferor is not engaged in any business transactions
with NAFI or any of its Affiliates.
(iii) At least one co-trustee of the Transferor shall be a Person
who is not, and will not be, a director, officer, employee or holder
of any partnership interests or equity securities or other beneficial
ownership interests of NAFI or any of its Affiliates.
(iv) The Transferor's funds and assets are not, and will not be,
commingled with the funds of any other Person.
(v) The trust agreement of the Transferor requires it to maintain
(A) correct and complete books and records of account, and (B) minutes
of the meetings and other proceedings of its holders of beneficial
ownership interests and trustees (including any co-trustees).
(o) Solvency; Fraudulent Conveyance. Each of NAFI and the Transferor
is solvent and will not be rendered insolvent by the Transaction and, after
giving effect to such Transaction, neither NAFI nor the Transferor will be
left with an unreasonably small amount of capital with which to engage in
its business. Neither NAFI nor the Transferor intends to incur, or believes
that it has incurred, debts beyond its ability to pay such debts as they
mature. Neither NAFI nor the Transferor is contemplating the commencement
of insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar
official in respect of NAFI or the Transferor, as the case may be, or any
of their respective assets. The amount of consideration being received by
the Transferor upon the sale of the Receivables and related Other Trust
Property to the Trust constitutes reasonably equivalent value and fair
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consideration for such Receivables and related Other Trust Property. The
amount of consideration being received by the Master Trust upon the sale of
the Initial Receivables and related Other Trust Property to Funding Trust
II constitutes reasonably equivalent value and fair consideration for such
Receivables and related Other Trust Property. The amount of consideration
being received by Funding Trust II upon the sale of the Initial Receivables
and related Other Trust Property to the Transferor constitutes reasonably
equivalent value and fair consideration for such Receivables and related
Other Trust Property. The amount of consideration to be received by NAFI
upon the transfer of the Subsequent Receivables and related Other Trust
Property to the Transferor constitutes reasonably equivalent value and fair
consideration for such Subsequent Receivables and related Other Trust
Property. None of (i) the Master Trust, with respect to the Initial
Receivables and related Other Trust Property transferred by it to Funding
Trust II, (ii) Funding Trust II, with respect to the Initial Receivables
and related Other Trust Property transferred by it to the Transferor and
NAFI, and (iii) NAFI, with respect to any Subsequent Receivables and
related Other Trust Property transferred by it to the Transferor, is
transferring any of the above-mentioned Receivables and related Other Trust
Property or interests with any intent to hinder, delay or defraud any of
their respective creditors. The Transferor is not transferring the
Receivables and related Other Trust Property to the Trust or selling the
Securities, as provided in the Transaction Documents, with any intent to
hinder, delay or defraud any of the Transferor's creditors.
(p) Investment Company Act Compliance. Neither NAFI nor the Transferor
is required to be registered as an "investment company" under the
Investment Company Act.
(q) Good Title; Valid Transfer; Absence of Liens; Security Interest.
(i) Immediately prior to the sale of the Initial Receivables and related
Other Trust Property by the Transferor to the Trust pursuant to the Sale
and Servicing Agreement on the Closing Date and immediately prior to the
sale of any Subsequent Receivables and related Other Trust Property by the
Transferor to the Trust pursuant to the Sale and Servicing Agreement and
the related Subsequent Transfer Agreement on any Subsequent Transfer Date,
the Transferor was the owner of, and had good and marketable title to, such
property free and clear of all Liens and Restrictions on Transferability,
and had full right, power and lawful authority to assign, transfer and
pledge such Receivables and related Other Trust Property. The Sale and
Servicing Agreement constitutes a valid sale, transfer and assignment of
the Initial Receivables and related Other Trust Property
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to the Trust, and the Sale and Servicing Agreement and each related
Subsequent Transfer Agreement constitute a valid sale, transfer and
assignment of the Subsequent Receivables and related Other Trust Property
to the Trust, in each case enforceable against creditors of and purchasers
of the Transferor. In the event that, in contravention of the intention of
the parties, the transfer of such Receivables and related Other Trust
Property by the Transferor to the Trust is characterized as other than a
sale, such transfer shall be characterized as a secured financing, and the
Trust shall have a valid and perfected first priority security interest in
the Receivables and related Other Trust Property free and clear of all
Liens and Restrictions on Transferability.
(ii) Immediately prior to the pledge of the Collateral by the
Trust to the Trust Collateral Agent pursuant to the Indenture, the
Trust was the owner of, and had good and marketable title to, the
Receivables and related Other Trust Property free and clear of all
Liens and Restrictions on Transferability, and had full right, trust
power and lawful authority to assign, transfer and pledge such
property. The Indenture constitutes a valid pledge of the Collateral
to the Trust Collateral Agent, and the Trust Collateral Agent shall
have a valid and perfected first priority security interest in the
Collateral, free and clear of all Liens and Restrictions on
Transferability.
(r) Perfection of Liens and Security Interest. On the Closing Date,
the Lien and security interest in favor of the Trust Collateral Agent with
respect to the Collateral will be perfected by the delivery of the
Receivable Files to the Custodian, which Receivable Files the Custodian
will hold on behalf of the Trust Collateral Agent, the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or
filing is necessary for the perfection of the security interest in favor of
the Trustee and the establishment of the Collection Account, the
Distribution Account, the Note Distribution Account, the Pre-Funding Period
Reserve Account, the Pre-Funding Account and the Lockbox Account in
accordance with the provisions of the Transaction Documents, and no other
filings in any jurisdiction or any other actions (except as expressly
provided herein) are necessary to perfect the Trustee Collateral Agent's
first priority Lien on and security interest in the Collateral as against
any third parties.
(s) Security Interest in Funds and Investments. Assuming the retention
of funds in the Trust Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
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Investments will be subject to a valid and perfected, first priority
security interest in favor of the Trust Collateral Agent on behalf of the
Indenture Trustee (on behalf of the holders of the Securities) and Finance
Security. Assuming the retention of funds in the Spread Account and the
acquisition of Eligible Investments in accordance with the Spread Account
Agreement, such funds and Eligible Investments will be subject to a valid
and perfected, first priority security interest in favor of the Collateral
Agent on behalf of Financial Security.
(t) Taxes. Each of NAFI and the Transferor have and each of their
respective Subsidiaries have filed all Federal and state tax returns which
are required to be filed and paid all taxes, including any assessments
received by it, to the extent that such taxes have become due. Any taxes,
fees and other governmental charges payable by the Transferor or NAFI in
connection with the Transaction, the execution and delivery of the
Transaction Documents and the issuance of the Securities and the
Certificates have been paid or shall have been paid at or prior to the Date
of Issuance.
(u) Subsequent Receivables. With respect to the transfer by NAFI of
Subsequent Receivables and related Other Trust Property on any Subsequent
Transfer Date, immediately prior to the sale of such Subsequent Receivables
and related Other Trust Property to the Transferor pursuant to the Purchase
and Contribution Agreement and the related Conveyance, NAFI was the owner
of, and had good and marketable title to, such Subsequent Receivables and
related Other Trust Property free and clear of all Liens and Restrictions
on Transferability, and had full right, corporate power and lawful
authority to assign, transfer and pledge such Subsequent Receivables and
related Other Trust Property. The Purchase and Contribution Agreement and
the related Conveyance constitute a valid sale, transfer and assignment of
the related Subsequent Receivables and related Other Trust Property by NAFI
to the Transferor enforceable against creditors of and purchasers of NAFI.
In the event that, in contravention of the intention of the parties, the
transfer of such Subsequent Receivables and related Other Trust Property by
NAFI to the Transferor is characterized as other than a sale, such transfer
shall be characterized as a secured financing, and the Transferor shall
have a valid and perfected first priority security interest in such
Subsequent Receivables and related Other Trust Property free and clear of
all Liens and Restrictions on Transferability.
(v) Registration Statement; Prospectus. The Transferor has filed with
the Commission a registration statement on Form S-3 (No. 333-28829) and
Form S-3MEF (No.
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333-44159) filed pursuant to Rule 462(b) of the Securities Act, including a
preliminary prospectus and prospectus supplement for the registration of
the Securities under the Securities Act, has filed such amendments thereto,
and such amended preliminary prospectuses and prospectus supplements as may
have been required to the date hereof, and will file such additional
amendments thereto and such amended prospectuses and prospectus supplements
as may hereafter be required. Such registration statement (as amended, if
applicable) and the prospectus, together with the prospectus supplement
relating to the Securities, constituting a part thereof (including in each
case all documents, if any, incorporated by reference therein and the
information, if any, deemed to be part thereof pursuant to the rules and
regulations of the Commission under the Securities Act, as from time to
time amended or supplemented pursuant to the Securities Act or otherwise),
are hereinafter referred to as the "Registration Statement" and the
"Prospectus", respectively, except that if any revised prospectus or
prospectus supplement shall be provided by the Transferor for use in
connection with the offering of the Securities which differs from the
Prospectus filed with the Commission pursuant to Rule 424 of the rules and
regulations under the Securities Act (whether or not such revised
prospectus is required to be filed by the Transferor pursuant to such rules
and regulations), the term "Prospectus" shall refer to such revised
prospectus and prospectus supplement from and after the time it is first
provided to the Underwriter for such use. The Registration Statement at the
time it became effective complied, and at each time that the Prospectus is
provided to the Underwriter for use in connection with the offering or sale
of any Securities will comply, in all material respects with the
requirements of the Securities Act and the rules and regulations
thereunder. The Registration Statement and the Prospectus at the time the
Registration Statement became effective did not and on the date hereof does
not, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus at the time it was
first provided to the Underwriter for use in connection with the offering
of the Securities did not, and on the date hereof does not, contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein in light of the circumstances
under which they were made not misleading.
Section 2.5. Affirmative Covenants of NAFI and the Transferor. NAFI hereby
agrees with respect to itself and with respect to the Transferor, and the
Transferor hereby agrees with
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respect to itself, that during the Term of this Agreement, unless Financial
Security shall otherwise expressly consent in writing:
(a) Compliance With Agreements and Applicable Laws. Each of the
Transferor and NAFI shall perform each of its respective obligations under
the Transaction Documents and shall comply with all material requirements
of, and the Securities and the Certificates shall be offered and sold in
accordance with, any law, rule or regulation applicable to it or thereto,
or that are required in connection with its performance under any of the
Transaction Documents.
(b) Financial Statements; Accountants' Reports; Other Information.
Each of NAFI and the Transferor shall keep or cause to be kept in
reasonable detail books and records of account of its respective assets and
business and, in the case of NAFI, shall clearly reflect therein the
transfer of Subsequent Receivables to the Transferor, and, in the case of
the Transferor, shall clearly reflect therein the transfer of the
Receivables to the Trust. NAFI shall cause the Master Trust to keep in
reasonable detail books and records of account of its assets and business
and to clearly reflect therein the transfer of the Initial Receivables to
Funding Trust II. NAFI shall cause Funding Trust II to keep in reasonable
detail books and records of account of its assets and business and to
clearly reflect therein the transfer of the Initial Receivables to the
Transferor. Each of NAFI and the Transferor shall furnish or cause to be
furnished to Financial Security:
(i) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of NAFI and
the Transferor, the audited balance sheets of NAFI and the Transferor,
as the case may be, as of the end of such fiscal year and the audited
statements of income, changes in equity and cash flows of NAFI and the
Transferor, as the case may be, for such fiscal year, all in
reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding fiscal
year, prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by the certificate
of NAFI's and the Transferor's independent accountants (who shall be,
in each case, a nationally recognized firm or otherwise acceptable to
Financial Security) and by the certificate specified in Section
2.05(c) hereof.
(ii) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three
quarters of each
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fiscal year of NAFI and the Transferor, as the case may be, the
unaudited balance sheets of NAFI and the Transferor, as the case may
be, as of the end of such quarter and the unaudited statements of
income, changes in equity and cash flows of NAFI and the Transferor,
as the case may be, for the portion of the fiscal year then ended, all
in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding fiscal
year, prepared in accordance with generally accepted accounting
principles, consistently applied (subject to normal year-end
adjustments), and accompanied by the certificate specified in Section
2.05(c) hereof if such certificate is required to be provided pursuant
to such Section.
(iii) Accountants' Reports. If a Special Event has occurred,
copies of any reports submitted to NAFI or the Transferor by their
respective independent accountants in connection with any examination
of the financial statements of NAFI or the Transferor, promptly upon
receipt thereof.
(iv) Other Information. Promptly upon receipt thereof, copies of
all reports, statements, certifications, schedules, or other similar
items delivered to or by NAFI or the Transferor pursuant to the terms
of the Transaction Documents and, promptly upon request, such other
data as Financial Security may reasonably request; provided, however,
that neither NAFI nor the Transferor shall be required to deliver any
such items if provision by some other party to Financial Security is
required under the Transaction Documents unless such other party
wrongfully fails to deliver such item. NAFI and the Transferor shall,
upon the request of Financial Security, permit Financial Security or
its authorized agents (A) to inspect the books and records of NAFI and
the Transferor as they may relate to the Securities, the Certificates,
the Receivables and the Other Trust Property, the obligations of NAFI
or of the Transferor under the Transaction Documents, the Transaction
and, but only following the occurrence of a Special Event, NAFI's
business; (B) to discuss the affairs, finances and accounts of NAFI or
the Transferor with its respective Chief Operating Officer and Chief
Financial Officer, no more frequently than annually, unless a Special
Event has occurred; and (C) to discuss the affairs, finances and
accounts of NAFI or the Transferor with its independent accountants,
provided that an officer of NAFI or the Transferor, as the case may
be, shall have
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the right to be present during such discussions. Such inspections and
discussions shall be conducted during normal business hours and shall
not unreasonably disrupt the business of NAFI or the Transferor, as
the case may be. In addition, NAFI shall promptly (but in no case more
than 30 days following issuance or receipt by a Commonly Controlled
Entity) provide to Financial Security a copy of all correspondence
between a Commonly Controlled Entity and the PBGC, IRS, Department of
Labor or the administrators of a Multiemployer Plan relating to any
Reportable Event or the underfunded status, termination or possible
termination of a Plan or a Multiemployer Plan. The books and records
of NAFI and the Transferor will be maintained at the respective
addresses designated herein for receipt of notices, unless NAFI or the
Transferor shall otherwise advise the parties hereto in writing.
(v) NAFI shall provide or cause to be provided to Financial
Security an executed original copy of each document executed in
connection with the Transaction within 10 days after the Closing Date
or the related Subsequent Transfer Date, as applicable.
(vi) Promptly after the filing or sending thereof, copies of all
proxy statements, financial statements, reports and registration
statements which NAFI or the Transferor files, or delivers to, the
IRS, the Commission, or any other Federal, state or foreign government
agency, authority or body which supervises the issuance of securities
by NAFI or the Transferor or any national securities exchange.
(c) Compliance Certificate. Each of NAFI and the Transferor shall
deliver to Financial Security concurrently with the delivery of the
financial statements required pursuant to Section 2.05(b)(i) hereof and
concurrently with the delivery of the financial statements required
pursuant to Section 2.05(b)(ii) hereof, a certificate signed by the Chief
Financial Officer of each of NAFI and the Transferor stating that:
(i) a review of NAFI's and the Transferor's respective
performance under the Transaction Documents during such period has
been made under such officer's supervision;
(ii) to the best of such individual's knowledge, no Special
Event, Default or Event of Default has occurred, or if a Special
Event, Default or Event of
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Default has occurred, specifying the nature thereof and, if NAFI or
the Transferor has a right to cure any such Default or Event of
Default pursuant to Section 5.01, stating in reasonable detail the
steps, if any, being taken by NAFI or the Transferor, as the case may
be, to cure such Default or Event of Default or to otherwise comply
with the terms of the agreement to which such Default or Event of
Default relates; and
(iii) the attached financial reports submitted in accordance with
Section 2.05(b)(i) or (ii) hereof, as applicable, are complete and
correct in all material respects and present fairly the financial
condition and results of operations of NAFI or the Transferor, as the
case may be, as of the dates and for the periods indicated, in
accordance with generally accepted accounting principles consistently
applied (subject as to interim statements to normal year-end
adjustments).
(d) Notice of Material Events. Each of NAFI and the Transferor shall
promptly inform (unless, in the case of clause (i) only, prohibited by
applicable law) Financial Security in writing of the occurrence of any of
the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against NAFI or the Transferor pertaining to the Receivables in
general, (B) with respect to a material portion of the Receivables or
(C) in which a request has been made for certification as a class
action (or equivalent relief) that would involve a material portion of
the Receivables;
(ii) any change in the location of NAFI's or the Transferor's
principal office or any change in the location of NAFI's or of the
Transferor's books and records;
(iii) the occurrence of any Default, Event of Default or Special
Event; or
(iv) any other event, circumstance or condition that has
resulted, or has a material possibility of resulting, in a Material
Adverse Change in respect of NAFI or of the Transferor.
(e) Further Assurances. Each of NAFI and the Transferor will file or
cause to be filed all necessary financing statements, assignments or other
instruments, and
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any amendments or continuation statements relating thereto, necessary to be
kept and filed in such manner and in such places as may be required by law
to preserve and protect fully the Lien on and first priority security
interest in, and all rights of the Trust Collateral Agent with respect to
the Collateral under the Indenture. In addition, each of NAFI and the
Transferor shall, upon the request of Financial Security, from time to
time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, within ten (10) days of such request, such
amendments hereto and such further instruments and take such further action
as may be reasonably necessary to effectuate the intention, performance and
provisions of the Transaction Documents or to protect the interest of the
Trust Collateral Agent with respect to the Collateral under the Indenture,
free and clear of all Liens and Restrictions on Transferability except the
Lien in favor of the Trust Collateral Agent under the Indenture. In
addition, each of NAFI and the Transferor agrees to cooperate with S&P and
Moody's in connection with any review of the Transaction which may be
undertaken by S&P and Moody's after the date hereof.
(f) Retirement of Securities. Each of NAFI and the Transferor shall
cause the Trust Collateral Agent, upon retirement of the Securities
pursuant to the Indenture or otherwise, to furnish to Financial Security a
notice of such retirement, and, upon retirement of the Securities and the
expiration of the Term of the Policy, to surrender the Policy to Financial
Security for cancellation.
(g) Third-Party Beneficiary. Each of NAFI and the Transferor agrees
that Financial Security shall have all rights of a third-party beneficiary
in respect of each of the Transaction Documents and hereby incorporates and
restates its representations, warranties and covenants as set forth therein
for the benefit of Financial Security.
(h) Preservation of Existence. Except as provided in Section 2.06(h),
each of NAFI and the Transferor shall maintain its existence as a
corporation organized under the laws of the State of Delaware and as a
statutory business trust organized the laws of the State of Delaware,
respectively, and shall at all times continue to be duly organized under
the laws of the jurisdiction of its formation and duly qualified and duly
authorized (as described in Sections 2.04(a), (b) and (c) hereof) and shall
conduct its business in accordance with the terms of its certificate of
incorporation and by-laws or certificate of trust and trust agreement or
other applicable governing documents, as the case may be.
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(i) Disclosure Document. (1) Each Offering Document delivered with
respect to the Securities shall clearly disclose that the Policy is not
covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. In addition, each Offering
Document delivered with respect to the Securities which includes financial
statements of Financial Security prepared in accordance with generally
accepted accounting principles shall include the following statement
immediately preceding such financial statements:
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and
for determining whether its financial condition warrants the
payment of a dividend to its stockholders. No consideration is
given by the New York State Insurance Department to financial
statements prepared in accordance with generally accepted
accounting principles in making such determinations.
(2) Each Offering Document delivered with respect to the
Securities subsequent to the Date of Issuance shall be in form and
substance satisfactory to Financial Security in its sole discretion as
evidenced by Financial Security's prior written consent to the use
thereof.
(j) Special Purpose Entity.
(i) The Transferor shall conduct its business solely in its own
name through its duly authorized officers or agents so as not to
mislead others as to the identity of the entity with which those
officers are concerned, and particularly will use its best efforts to
avoid the appearance of conducting business on behalf of NAFI or any
Affiliate thereof or that the assets of the Transferor are available
to pay the creditors of NAFI or any Affiliate thereof. Without
limiting the generality of the foregoing, all oral and written
communications, including, without limitation, letters, invoices,
purchase orders, Receivables, statements and loan applications, will
be made solely in the name of the Transferor.
(ii) The Transferor shall maintain records and books of account
separate from those of NAFI and the
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Affiliates thereof. The Transferor's books and records shall clearly
reflect the transfer of the Receivables to the Trust as a sale of the
Transferor's interest in the Receivables. The books of account and
records of the Transferor will be separate from those of NAFI and its
Affiliates and will be maintained at the address designated herein for
receipt of notices, unless the Transferor shall otherwise advise the
parties hereto in writing with respect to such address.
(iii) The Transferor shall obtain proper authorization of all
action requiring approval of the co-trustees or holders of beneficial
ownership interests of the Transferor, as the case may be. Meetings of
the holders of beneficial ownership interests of the Transferor shall
be held not less frequently than one time per annum and copies of each
such authorization and the minutes of each such meeting shall be
delivered to Financial Security within two weeks of such authorization
or meeting, as the case may be.
(iv) Although the organizational expenses of the Transferor have
been paid by NAFI, operating expenses and liabilities of the
Transferor shall be paid from its own funds.
(v) The annual financial statements of the Transferor shall
disclose the effects of the Transferor's transactions in accordance
with generally accepted accounting principles and shall disclose that
the assets of the Transferor are not available to pay creditors of
NAFI or any Affiliate thereof.
(vi) The resolutions, agreements and other instruments of the
Transferor underlying the transactions described in this Insurance
Agreement and the other Transaction Documents shall be continuously
maintained by the Transferor as official records of the Transferor
separately identified and held apart from the records of NAFI and each
Affiliate thereof.
(vii) The Transferor shall maintain an arm's-length relationship
with NAFI and the Affiliates thereof and will not hold itself out as
being liable for the debts of NAFI or any Affiliate thereof.
(viii) The Transferor shall keep its assets and its liabilities
wholly separate from those of all other entities, including, but not
limited to NAFI and the Affiliates thereof.
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(k) Maintenance of Licenses. NAFI and the Transferor shall each
maintain all licenses, permits, charters and registrations which are
material to the performance by NAFI or the Transferor, as the case may be,
of its business and of its respective obligations under this Insurance
Agreement and each other Transaction Document.
(l) Incorporation of Covenants. NAFI and the Transferor shall each
comply with their respective covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each
were set forth herein.
(m) Release of Liens. NAFI and the Transferor shall each duly file or
cause to be duly filed with respect to itself and on behalf of the Master
Trust and Funding Trust II and other relevant parties, no later than the
Closing Date or the related Subsequent Transfer Date, as applicable, (i)
the amendments to, and/or terminations of, UCC financing statements,
evidencing the release by NAFI, the Transferor, the Master Trust and
Funding Trust II and other relevant parties of any Liens, security
interests and/or ownership interests in the Receivables and Other Trust
Property and (ii) the financing statements on Form UCC-1 in each
jurisdiction where such recording or filing is necessary for the perfection
of Liens and security interest of the Trust Collateral Agent in favor of
the Collateral.
(n) Notification of Failure to Perform or Observe Certain Covenants or
Agreements. The Transferor shall promptly deliver to the Trust, the
Servicer or NAFI, as applicable, a copy of any written notice delivered to
the Transferor pursuant to Section 5.01(d) concerning any failure to
perform or observe any covenant or agreement contained in any of the
Transaction Documents by the Trust, the Servicer or NAFI, as the case may
be.
(o) Certain Additional Documentation With Respect to Series 1998-1 and
the Prior Series.
(i) On or prior to March 31, 1998, each of NAFI and the
Transferor shall execute and deliver (and satisfy the conditions
precedent thereto set forth therein) and shall cause the other parties
thereto other than Financial Security to execute and deliver (and
satisfy the conditions precedent thereto set forth therein) such
documentation (including operative documents, opinions, officer
certificates and other ancillary documents) with respect to Series
1998-1 and each of the prior Series as Financial Security shall
determine is necessary to provide for the cross-
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collateralization of the Series 1998-1 Spread Account and the spread
accounts for each of the prior Series with cash flow priority to such
cross-collateralization and a position senior to any and all lenders
and security holders other than holders of securities guaranteed by
Financial Security and providing customary bankruptcy remoteness and
nonconsolidation protections for all funds to be held in any spread
account (including pursuant to such cross-collateralization). The
substantive terms of such cross-collateralization provisions and such
documentation shall be comparable to automobile receivable
securitizations in which Financial Security has issued a guaranty and
in which the non-guaranteed securities (or other interests) are
retained by the sponsor of the securitization. The substantive terms
of such cross-collateralization provisions and such documentation
shall be in all other respects reasonably satisfactory to Financial
Security.
(ii) On or prior to March 31, 1998, each of NAFI and the
Transferor shall execute and deliver (and satisfy the conditions
precedent thereto set forth therein) and shall cause the other
parties thereto other than Financial Security to execute and
deliver (and satisfy the conditions precedent thereto set forth
therein) such documentation (including operative documents,
opinions, officer certificates and other ancillary documents)
with respect to Series 1998-1 and each of the prior Series as
Financial Security shall determine is necessary to provide for a
backup servicing arrangement reasonably satisfactory to Financial
Security in Series 1998-1 and in each of the prior Series, which
documentation shall be in form and substance reasonably
satisfactory to Financial Security; provided, however, that such
backup servicing arrangement shall provide for standby data
verification and other standby services commencing no later than
June 21, 1998.
Section 2.6. Negative Covenants of NAFI and the Transferor. NAFI hereby
agrees with respect to itself and with respect to the Transferor and the
Transferor hereby agrees with respect to itself that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing:
(a) Restrictions on Liens. Neither NAFI nor the Transferor shall (i)
create, incur or suffer to exist, or agree to create, incur or suffer to
exist, or consent to cause or permit in the future (upon the happening of a
contingency or otherwise) the creation, incurrence or
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existence of any Lien or Restriction on Transferability on the Receivables
or the Other Trust Property except for the Lien in favor of the Trust
Collateral Agent under the Indenture for the benefit of the holders of the
Securities and Financial Security or (ii) with respect to the Receivables
or the Other Trust Property, sign or file under the Uniform Commercial Code
of any jurisdiction any financing statement which names either NAFI or the
Transferor as a debtor, or sign any security agreement authorizing any
secured party thereunder to file such financing statement, except in each
case any such instrument solely securing the rights and preserving the Lien
of the Trust Collateral Agent, for the benefit of the holders of the
Securities and Financial Security, under the Indenture.
(b) Impairment of Rights. Neither NAFI nor the Transferor shall take
any action, or fail to take any action, if such action or failure to take
action may (i) interfere with the enforcement of any rights under the
Transaction Documents that are material to the rights, benefits or
obligations of the Trust, the Trust Collateral Agent, the holders of the
Securities, the Certificateholders or Financial Security, (ii) result in a
Material Adverse Change in respect of the Receivables or the Other Trust
Property or (iii) impair the ability of NAFI or of the Transferor to
perform its obligations under the Transaction Documents, including any
consolidation or merger with any Person or any transfer of all or any
material amount of NAFI's or the Transferor's assets to any other Person if
such consolidation, merger or transfer would materially impair the net
worth of NAFI or the Transferor or any successor Person obligated, after
such event, to perform NAFI's or the Transferor's obligations under the
Transaction Documents.
(c) Waiver, Amendments, Etc. Neither NAFI nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or amendment
of, any of the provisions of any of the Transaction Documents or the
Transferor's certificate of trust or trust agreement.
(d) Successors. Neither NAFI nor the Transferor shall terminate or
designate, or consent to the termination or designation of, the Servicer,
the Backup Servicer, the Custodian, the Owner Trustee, the Trust Collateral
Agent, the Indenture Trustee or the Collateral Agent or any successor
thereto without the prior written approval of Financial Security.
(e) Creation of Indebtedness; Guarantees. Other than as permitted in
the Transaction Documents, the Transferor
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shall not create, incur, assume or suffer to exist any indebtedness other
than indebtedness guaranteed or approved in writing by Financial Security.
Without the prior written consent of Financial Security, the Transferor
shall not assume guarantee, endorse or otherwise be or become directly or
contingently liable for the obligations of any Person by, among other
things, agreeing to purchase any obligation of another Person, agreeing to
advance funds to such Person or causing or assisting such Person to
maintain any amount of capital.
(f) Subsidiaries. The Transferor shall not form, or cause to be
formed, any Subsidiaries.
(g) Issuance of Additional Beneficial Ownership Interests. The
Transferor shall not issue or allow the issuance of any additional
beneficial ownership interests or securities convertible into or
exchangeable for beneficial ownership interests in the Transferor.
(h) No Mergers. (a) The Transferor shall not consolidate with or merge
into any Person or transfer all or any material portion of its assets to
any Person or liquidate or dissolve; and (b) NAFI shall not consolidate
with or merge into any Person unless it complies with the procedures set
forth in Section 9.3 of the Sale and Servicing Agreement with respect to
the merger or consolidation of the Servicer or transfer all or any material
portion of its assets to any Person or liquidate or dissolve.
(i) Other Activities. The Transferor shall not:
(i) sell, transfer, exchange or otherwise dispose of any of its
assets except as permitted under the Transaction Documents; or
(ii) engage in any business or activity other than as
contemplated in the Transaction Documents and as permitted under its
certificate of trust and trust agreement.
(j) Insolvency. Neither NAFI nor the Transferor shall commence with
respect to the Transferor any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to the bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, corporation or other relief with respect to it or (B) seeking
appointment of a
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receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its assets, or make a general assignment for the
benefit of its creditors. Neither NAFI nor the Transferor shall take any
action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above. The Transferor shall not
admit in writing its inability to pay its debts.
(k) ERISA. The Transferor shall not contribute or incur any obligation
to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.
(l) Distributions. The Transferor shall not declare or make payment of
(i) any distribution on or in respect of any of its beneficial ownership
interests, or (ii) any payment on account of the purchase, redemption,
retirement or acquisition of any option, warrant or other right to acquire
its beneficial ownership interests unless (in each case) at the time of
such declaration or payment (and after giving effect thereto) no amount
payable by the Transferor or the Trust under any Transaction Document with
respect to any Series is then due and owing but unpaid.
(m) Transfer of the Certificates. The Transferor shall not sell,
transfer, assign, convey or pledge, and shall not permit or allow the sale,
transfer, assignment, conveyance or pledge of, any Certificates at any time
subsequent to the Date of Issuance to any Person that is an Affiliate of
NAFI or the Transferor unless, prior to such sale, transfer, assignment,
conveyance or pledge, the Transferor delivers to Financial Security an
opinion of counsel addressed to Financial Security and satisfactory to
Financial Security in its sole discretion and substantially similar in form
and substance to the opinion of counsel delivered on the Date of Issuance
as to non-consolidation of the assets and liabilities of (x) the Transferor
and NAFI and (y) the Transferor and any such Person that is an Affiliate of
the Transferor (other than NAFI); provided, however, that the Transferor
shall not sell, transfer, assign, convey or pledge, and shall not permit or
allow the sale, transfer, assignment, conveyance or pledge of, any
Certificate at any time subsequent to the Date of Issuance to any Person
that is not an Affiliate of either the Transferor or NAFI unless, (i) prior
to such sale, transfer, assignment, conveyance or pledge, such Person
delivers to Financial Security (A) its agreement in writing to the effect
that so long as it has any interest in any Certificate such Person shall
not become an Affiliate of the Transferor or NAFI and (B) its agreement in
writing containing a nonpetition covenant with respect to the
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Transferor in form and substance satisfactory to Financial Security in its
sole discretion, and (ii) the obligations of the Transferor to such Person
in connection with such sale, transfer, assignment, conveyance or pledge
shall be recourse only to the extent of amounts, if any, received by the
Transferor pursuant to Section 3.03(b) of the Spread Account Agreement.
Section 2.7. Representations and Warranties of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II. Each of the Transferor and
NAFI represents, warrants and covenants, as of the date hereof, as of the Date
of Issuance and as of each Subsequent Transfer Date, with respect to itself,
with respect to the Master Trust, with respect to Funding Trust II and
otherwise, as follows:
(a) Good Title; Valid Transfer; Absence of Liens; Security Interest.
Immediately prior to the sale of the Initial Receivables and related Other
Trust Property to Funding Trust II pursuant to the Assignment Agreement on
the Closing Date, the Master Trust was the owner of, and had good and
marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Receivables and related Other
Trust Property. Immediately prior to the sale of the Initial Receivables
and related Other Trust Property to the Transferor pursuant to the Sale
Agreement on the Closing Date, Funding Trust II was the owner of, and had
good and marketable title to, such property free and clear of all Liens and
Restrictions on Transferability, and had full right, power and lawful
authority to assign, transfer and pledge such Receivables and related Other
Trust Property. The Assignment Agreement constitutes a valid sale, transfer
and assignment of the Initial Receivables and related Other Trust Property
to Funding Trust II, enforceable against creditors of and purchasers of the
Master Trust. The Sale Agreement constitutes a valid sale, transfer and
assignment of the Initial Receivables and the related Other Trust Property
to the Transferor, enforceable against creditors of and purchasers of
Funding Trust II. In the event that, in contravention of the intention of
the parties, (i) the transfer of the Initial Receivables and related Other
Trust Property by the Master Trust to Funding Trust II or (ii) the transfer
of the Initial Receivables and related Other Trust Property by Funding
Trust II to the Transferor is characterized as other than a sale, such
transfer shall be characterized as a secured financing, and Funding Trust
II or the Transferor, as applicable, shall have a valid and perfected first
priority security interest in such Receivables and related Other Trust
Property free and clear
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of all Liens and Restrictions on Transferability other than as imposed by
the Transaction Documents.
(b) Compliance With Agreements and Applicable Laws. Each of the Master
Trust and Funding Trust II has performed each of its obligations under the
Assignment Agreement and the Sale Agreement, respectively, and is in
compliance with all material requirements of any law, rule or regulation
applicable to it, or that are required in connection with its performance
under the Assignment Agreement and the Sale Agreement, respectively. Each
of the Master Trust and Funding Trust II has not taken any action that
would interfere with the enforcement of any rights under the Assignment
Agreement and the Sale Agreement, respectively.
Section 2.8. Affirmative Covenants of NAFI and the Transferor with respect
to the Master Trust and Funding Trust II. Each of NAFI and the Transferor hereby
agrees with respect to itself, with respect to the Master Trust, with respect to
Funding Trust II and otherwise, that during the Term of this Agreement, unless
Financial Security shall otherwise expressly consent in writing:
(a) Notice of Material Events. Each of NAFI and the Transferor shall
promptly inform Financial Security in writing of the occurrence of any of
the following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation (A)
against the Master Trust or Funding Trust II, as the case may be, (B)
with respect to any of the Receivables transferred by the Master Trust
to Funding Trust II or Funding Trust II to the Transferor, or (C) in
which a request has been made for certification as a class action (or
equivalent relief) that would involve any of the Receivables
transferred by the Master Trust to Funding Trust II or Funding Trust
II to the Transferor; or
(ii) any other event, circumstance or condition that has resulted
in a material adverse change in the ability of the Master Trust or
Funding Trust II to perform its obligations under the Assignment
Agreement or the Sale Agreement, respectively.
(b) Further Assurances. Each of NAFI and the Transferor will file, or
cause to be filed, all necessary termination statements, assignments or
other instruments, and any amendments or continuation statements relating
thereto, necessary to be kept and filed in such manner and in such places
as may be required by law to release the Lien
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and security interest of (i) the Master Trust in any Receivables
transferred by the Master Trust to Funding Trust II or (ii) Funding Trust
II in any Receivables transferred by Funding Trust II to the Transferor. In
addition, each of NAFI and the Transferor shall, upon the written request
of Financial Security, from time to time, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, within ten (10) days
of such request, such further instruments and take such further action as
may be reasonably commercially necessary to protect the interest of the
Transferor in the Receivables transferred by the Master Trust to Funding
Trust II and by Funding Trust II to the Transferor, free and clear of all
Liens and Restrictions on Transferability created by or for the benefit of
the Master Trust or Funding Trust II, as the case may be.
(c) Third-Party Beneficiary. The Transferor and NAFI agree that
Financial Security shall have all rights of a third-party beneficiary in
respect of the Assignment Agreement and the Sale Agreement and each of NAFI
and the Transferor hereby restates the representations, warranties and
covenants of the Master Trust and Funding Trust II as set forth therein for
the benefit of Financial Security.
Section 2.9. Negative Covenants of NAFI and the Transferor with respect to
the Master Trust and Funding Trust II. Each of NAFI and the Transferor hereby
agrees with respect to itself, with respect to the Master Trust, with respect to
Funding Trust II and otherwise that during the Term of this Agreement, unless
Financial Security shall otherwise expressly consent in writing:
(a) Restrictions on Liens. Neither NAFI nor the Transferor shall
permit the execution or filing under the Uniform Commercial Code of any
jurisdiction any financing statement naming the Master Trust or Funding
Trust II as a debtor, or the execution of any security agreement
authorizing any secured party thereunder to file such financing statement,
with respect to the Receivables transferred by the Master Trust to Funding
Trust II and by Funding Trust II to the Transferor, except in each case any
such instrument solely securing the rights and preserving the Lien of the
Trustee, for the benefit of the holders of the Securities and Financial
Security.
(b) Waiver, Amendments, Etc. Neither NAFI nor the Transferor shall
waive, modify or amend, or consent to any waiver, modification or amendment
of, any of the provisions of the certificate of trust or trust agreement of
Funding Trust II (including not permitting any Affiliate of NAFI or the
Transferor to take any such action).
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ARTICLE III.
THE POLICY; REIMBURSEMENT; INDEMNIFICATION
Section 3.1. Issuance of the Policy. Financial Security agrees to issue the
Policy subject to satisfaction of the conditions precedent set forth in Appendix
II hereto.
Section 3.2. Payment of Fees and Premium.
(a) Inducement Letter Fees and Expenses. On the Date of Issuance, NAFI
and the Transferor agree to pay or cause to be paid the amounts specified
with respect to fees, expenses and disbursements in the Inducement Letter
unless otherwise agreed between NAFI and Financial Security.
(b) Legal Fees. On the Date of Issuance, NAFI shall pay or cause to be
paid legal fees and disbursements incurred by Financial Security in
connection with the issuance of the Policy.
(c) Rating Agency Fees. The initial fees of S&P and Moody's with
respect to the Securities and the transactions contemplated hereby shall be
paid by the Transferor in full on the Date of Issuance, or otherwise
provided for to the satisfaction of Financial Security. All periodic and
subsequent fees of S&P or Moody's with respect to, and directly allocable
to, the Securities shall be for the account of, and shall be billed to, the
Transferor. The fees for any other rating agency shall be paid by the party
requesting such other agency's rating, unless such other agency is a
substitute for S&P or Moody's in the event that S&P or Moody's is no longer
rating the Securities, in which case the cost for such agency shall be paid
by the Transferor.
(d) Auditors' Fees. The Transferor shall pay on demand any additional
fees of Financial Security's auditors payable in respect of any Offering
Document that are incurred after the Date of Issuance. It is understood
that Financial Security's auditors shall not incur any additional fees in
respect of future Offering Documents except at the request of or with the
consent of the Transferor.
(e) Premium. In consideration of the issuance by Financial Security of
the Policy, Financial Security shall be entitled to receive the Premium as
and when due in accordance with the terms of the Premium Letter (i) in the
case of Premium due on or before the Date of Issuance, directly from the
Transferor and (ii) in the case of Premium
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due after the Date of Issuance, first, from monies available for such
payment in accordance with Section 5.7 of the Sale and Servicing Agreement
and second, to the extent that such monies are insufficient, from NAFI. The
Premium paid hereunder or under the Sale and Servicing Agreement shall be
nonrefundable without regard to whether Financial Security makes any
payment under the Policy or any other circumstances relating to the
Securities or provision being made for payment of the Securities prior to
maturity. Although the Premium is fully earned by Financial Security as of
the Closing Date, the Premium shall be payable in periodic installments as
provided in the Premium Letter. Anything herein or in any of the
Transaction Documents notwithstanding, upon the occurrence of an Event of
Default, the entire outstanding balance of further installments of the
Premium shall be immediately due and payable. All payments of Premium shall
be made by wire transfer to an account designated from time to time by
Financial Security by written notice to the Transferor and NAFI.
Section 3.3. Reimbursement Obligation. Notwithstanding any of the following
provisions of this Section 3.03 to the contrary, the payment obligations set
forth in Sections 3.03(a), (b) (other than in respect of amounts due from NAFI),
(c) (other than in respect of amounts due from NAFI and other amounts that,
after due notice and any required passage of time, would not be payable as a
"Scheduled Payment" under the Policy), and (d)(v) shall be non-recourse
obligations with respect to NAFI, the Transferor or any Affiliate of either
(other than the Trust) and shall be payable only from monies available for such
payment in accordance with Section 5.7 of the Sale and Servicing Agreement
(except to the extent that any such payment obligation arises from a failure to
perform or default of NAFI, the Transferor or any of their respective Affiliates
under any Transaction Document or by reason of negligence, willful misconduct or
bad faith on the part of NAFI, the Transferor or any of their respective
Affiliates in the performance of its duties and obligations thereunder or
reckless disregard by NAFI, the Transferor or any of their respective Affiliates
of its duties and obligations thereunder). NAFI, the Transferor and the Trust
agree to pay to Financial Security the following amounts as and when incurred:
(a) a sum equal to the total of all amounts paid by Financial Security
under the Policy;
(b) interest on any and all amounts described in this Section 3.03 or
Section 3.02(e) from the date due to Financial Security pursuant to the
provisions hereof until payment thereof in full, payable to Financial
Security at the Late Payment Rate per annum;
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(c) any payments made by Financial Security on behalf of, or advanced
to, NAFI, in its capacity as Servicer, the Trust, the Owner Trustee, the
Trust Collateral Agent, the Collateral Agent or the Indenture Trustee,
including, without limitation, any amounts payable by NAFI, in its capacity
as Servicer, the Trust, the Owner Trustee, the Trust Collateral Agent, the
Collateral Agent or the Indenture Trustee pursuant to the Securities or any
other Transaction Documents; and any payments made by Financial Security
as, or in lieu of, any servicing, management, trustee, custodial or
administrative fees payable, in the sole discretion of Financial Security
to third parties in connection with the Transaction; and
(d) any and all out-of-pocket charges, fees, costs and expenses which
Financial Security may reasonably pay or incur, including, but not limited
to, attorneys' and accountants' fees and expenses, in connection with (i)
in the event of payments under the Policy, any accounts established to
facilitate payments under the Policy, to the extent Financial Security has
not been immediately reimbursed on the date that any amount is paid by
Financial Security under the Policy, or other administrative expenses
relating to such payments under the Policy, (ii) the administration,
enforcement, defense or preservation of any rights in respect of any of the
Transaction Documents, including defending, monitoring or participating in
any litigation or proceeding (including any insolvency or bankruptcy
proceeding in respect of any Transaction participant or any Affiliate
thereof) relating to any of the Transaction Documents, any party to any of
the Transaction Documents or the Transaction, (iii) any amendment, waiver
or other action with respect to, or related to, any Transaction Document
whether or not executed or completed, (iv) any review or investigation made
by Financial Security in those circumstances where its approval or consent
is sought under any of the Transaction Documents, (v) the foreclosure
against, sale or other disposition of any collateral securing any
obligations under any of the Transaction Documents or otherwise in the
discretion of Financial Security, or pursuit of any other remedies under
any of the Transaction Documents, to the extent such costs and expenses are
not recovered from such foreclosure, sale or other disposition, (vi)
preparation of bound volumes of the Transaction Documents (vii) the
transfer of Subsequent Receivables to the Trust and related Other Trust
Property and (viii) any Federal, state or local tax (other than taxes
payable in respect of the gross income of Financial Security) or other
governmental charge imposed in connection with the issuance of the Policy.
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Section 3.4. Indemnification.
(a) Indemnification by NAFI and the Transferor. In addition to any and
all rights of reimbursement, indemnification, subrogation and any other
rights pursuant hereto or under law or in equity, each of NAFI and the
Transferor, jointly and severally, agrees to pay, and to protect, indemnify
and save harmless, Financial Security and its officers, directors,
shareholders, employees, agents and each Person, if any, who controls
Financial Security within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act from and
against any and all claims, losses, liabilities (including penalties),
actions, suits, judgments, demands, damages, costs or expenses (including,
without limitation, fees and expenses of attorneys, consultants and
auditors and reasonable costs of investigations) of any nature arising out
of or relating to the transactions contemplated by the Transaction
Documents by reason of:
(i) any statement, omission or action (other than of or by
Financial Security) in connection with the offering, issuance, sale,
remarketing or delivery of the Securities or the Certificates;
(ii) the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer, employee or
agent of the Trust, the Transferor or NAFI, as the case may be;
(iii) the breach by the Trust, the Transferor or NAFI, as the
case may be, of any representation, warranty or covenant under any of
the Transaction Documents or the occurrence, in respect of the Trust,
the Transferor or NAFI, as the case may be, under any of the
Transaction Documents of any "event of default" or any event which,
with the giving of notice or the lapse of time or both, would
constitute any "event of default";
(iv) the violation by the Trust, the Transferor or NAFI of any
federal, state or foreign law, rule or regulation, or any judgment,
order or decree applicable to it; or
(v) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any Offering
Document or in any amendment or supplement thereto or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the
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statements therein not misleading, except insofar as such claims arise
out of or are based upon any untrue statement or omission in the
Financial Security Information, it being understood that in respect of
the Offering Document, the Financial Security Information is limited
to information included under the caption "THE INSURER", or such
additional information as may be deemed to be included in the Offering
Document pursuant to the second paragraph under the heading
"Incorporation of Certain Documents by Reference" on page S-3 of the
Offering Document.
(b) Conduct of Actions or Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted
against Financial Security, any officer, director, shareholder, employee or
agent of Financial Security or any Person controlling Financial Security
(individually, an "Indemnified Party" and, collectively, the "Indemnified
Parties") in respect of which indemnity may be sought from the Transferor
and NAFI (the "Indemnifying Party") hereunder, Financial Security shall
promptly notify the Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
satisfactory to Financial Security and the payment of all expenses. An
Indemnified Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof at the expense of the
Indemnified Party; provided, however, that the fees and expenses of such
separate counsel shall be at the expense of the Indemnifying Party if (i)
the Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party shall have failed to assume the defense of such action
or proceeding and employ counsel satisfactory to Financial Security in any
such action or proceeding or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party shall have been
advised by counsel that (A) there may be one or more legal defenses
available to it which are different from or additional to those available
to the Indemnifying Party and (B) the representation of the Indemnifying
Party and the Indemnified Party by the same counsel would be inappropriate
or contrary to prudent practice (in which case, if the Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not, in connection with any one
such action or proceeding or separate but substantially
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similar or related actions or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at
any time for the Indemnified Parties, which firm shall be designated in
writing by Financial Security). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without its
written consent to the extent that any such settlement shall be prejudicial
to the Indemnifying Party but, if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or
proceeding with respect to which the Indemnifying Party shall have received
notice in accordance with this subsection (b), the Indemnifying Party
agrees to indemnify and hold the Indemnified Parties harmless from and
against any loss or liability by reason of such settlement or judgment.
(c) Contribution. To provide for just and equitable contribution if
the indemnification provided by the Indemnifying Party is determined to be
unavailable for any Indemnified Party (other than due to application of
this Section), the Indemnifying Party shall contribute to the losses
incurred by the Indemnified Party on the basis of the relative fault of the
Indemnifying Party, on the one hand, and the Indemnified Party, on the
other hand.
Section 3.5. Subrogation. Subject only to the priority of payment
provisions of the Sale and Servicing Agreement, each of the Trust, the
Transferor and NAFI acknowledges that, to the extent of any payment made by
Financial Security pursuant to the Policy, Financial Security is to be fully
subrogated to the extent of such payment and any additional interest due on any
late payment, to the rights of the holders of the Securities to any moneys paid
or payable in respect of the Securities under the Transaction Documents or
otherwise. Each of the Trust, the Transferor and NAFI agrees to such subrogation
and, further, agrees to execute such instruments and to take such actions as, in
the sole judgment of Financial Security, are necessary to evidence such
subrogation and to perfect the rights of Financial Security to receive any
moneys paid or payable in respect of the Securities under the Transaction
Documents or otherwise.
ARTICLE IV.
FURTHER AGREEMENTS
Section 4.1. Effective Date; Term of Agreement. This Insurance Agreement
shall take effect on the Date of Issuance and shall remain in effect until the
later of (a) such time as
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Financial Security is no longer subject to a claim under the Policy and the
Policy shall have been surrendered to Financial Security for cancellation and
(b) all amounts payable to Financial Security and the holders of the Securities
under the Transaction Documents and under the Securities have been paid in full;
provided, however, that the provisions of Sections 3.02, 3.03, 3.04 and 4.02
hereof shall survive any termination of this Insurance Agreement.
Section 4.2. Obligation Absolute. (a) The payment obligations of the Trust,
the Transferor and NAFI hereunder shall be absolute and unconditional, and shall
be paid strictly in accordance with this Insurance Agreement under all
circumstances irrespective of the following:
(i) any lack of validity or enforceability of, or any amendment
or other modifications of, or waiver with respect to, any of the
Transaction Documents, the Securities or the Policy;
(ii) any exchange or release of any other obligations hereunder;
(iii) the existence of any claim, setoff, defense, reduction,
abatement or other right which the Trust, the Transferor or NAFI may
have at any time against Financial Security or any other Person;
(iv) any document presented in connection with the Policy proving
to be forged, fraudulent, invalid or insufficient in any respect,
including any failure to strictly comply with the terms of the Policy,
or any statement therein being untrue or inaccurate in any respect;
(v) any failure of the Transferor to receive the proceeds from
the sale of the Securities;
(vi) any breach by the Trust, the Transferor or NAFI of any
representation, warranty or covenant contained in any of the
Transaction Documents;
(vii) any other circumstances, other than payment in full, which
might otherwise constitute a defense available to, or discharge of the
Trust, the Transferor or NAFI in respect of any Transaction Document.
(b) Each of the Trust, the Transferor and NAFI and any and all others
who are now or may become liable for all or part of the obligations of any
of them under this Insurance Agreement agree to be bound by this Insurance
Agreement and (i) to the extent permitted by law, waive and renounce any
and all
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redemption and exemption rights and the benefit of all valuation and
appraisement privileges against the indebtedness, if any, and obligations
evidenced by any Transaction Document or by any extension or renewal
thereof; (ii) waive presentment and demand for payment, notices of
nonpayment and of dishonor, protest of dishonor and notice of protest;
(iii) waive all notices in connection with the delivery and acceptance
hereof and all other notices in connection with the performance, default or
enforcement of any payment hereunder except as required by the Transaction
Documents; (iv) waive all rights of abatement, diminution, postponement or
deduction, or to any defense other than payment, or to any right of setoff
or recoupment arising out of any breach under any of the Transaction
Documents, by any party thereto or any beneficiary thereof, or out of any
obligation at any time owing to the Trust, the Transferor or NAFI; (v)
agree that any consent, waiver or forbearance hereunder with respect to an
event shall operate only for such event and not for any subsequent event;
(vi) consent to any and all extensions of time that may be granted by
Financial Security with respect to any payment hereunder or other
provisions hereof and to the release of any security at any time given for
any payment hereunder, or any part thereof, with or without substitution,
and to the release of any Person or entity liable for any such payment; and
(vii) consent to the addition of any and all other makers, endorsers,
guarantors and other obligors for any payment hereunder, and to the
acceptance of any and all other security for any payment hereunder, and
agree that the addition of any such obligors or security shall not affect
the liability of the parties hereto for any payment hereunder.
(c) Nothing herein shall be construed as prohibiting the Trust, NAFI
or the Transferor from pursuing any rights or remedies it may have against
any Person other than Financial Security in a separate legal proceeding.
Section 4.3. Assignments; Reinsurance; Third-Party Rights. (a) This
Insurance Agreement shall be a continuing obligation of the parties hereto and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. None of the Trust, the Transferor
nor NAFI may assign its rights under this Insurance Agreement, or delegate any
of its duties hereunder, without the prior written consent of Financial
Security. Any assignment made in violation of this Insurance Agreement shall be
null and void.
(b) Financial Security shall have the right to give participations in
its rights under this Insurance Agreement and to enter into contracts of
reinsurance with respect to the Policy upon such terms and conditions as
Financial Security may in its discretion determine; provided, however, that
no such participation or reinsurance agreement or arrangement shall
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relieve Financial Security of any of its obligations hereunder or under the
Policy.
(c) In addition, Financial Security shall be entitled to assign or
pledge to any bank or other lender providing liquidity or credit with
respect to the Transaction or the obligations of Financial Security in
connection therewith any rights of Financial Security under the Transaction
Documents, or with respect to any real or personal property or other
interests pledged to Financial Security, or in which Financial Security has
a security interest, in connection with the Transaction.
(d) Except as provided herein with respect to participants and
reinsurers, nothing in this Insurance Agreement shall confer any right,
remedy or claim, express or implied, upon any Person, including,
particularly, any holder of the Securities or Certificateholder other than
Financial Security, against the Trust, the Transferor or NAFI, and all the
terms, covenants, conditions, promises and agreements contained herein
shall be for the sole and exclusive benefit of the parties hereto and their
successors and permitted assigns. None of the Trust Collateral Agent, the
Indenture Trustee, the Owner Trustee, any holder of the Securities or any
Certificateholder shall have any right to payment from any premiums paid or
payable hereunder or from any other amounts paid by NAFI or the Transferor
pursuant to Section 3.02, 3.03 or 3.04 hereof.
Section 4.4. Liability of Financial Security. Neither Financial Security
nor any of its officers, directors or employees shall be liable or responsible
for: (a) the use which may be made of the Policy by the Trust Collateral Agent
or for any acts or omissions of the Trust Collateral Agent in connection
therewith or (b) the validity, sufficiency, accuracy or genuineness of documents
delivered to Financial Security (or its Fiscal Agent) in connection with any
claim under the Policy, or of any signatures thereon, even if such documents or
signatures should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged (unless Financial Security had actual
knowledge thereof). In furtherance and not in limitation of the foregoing,
Financial Security (or its Fiscal Agent) may accept documents that appear on
their face to be in order, without responsibility for further investigation.
ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.1. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
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(a) any demand for payment shall be made under the Policy;
(b) any representation or warranty made by the Trust, the Transferor,
the Servicer or NAFI under any of the Transaction Documents, or in any
certificate or report furnished under any of the Transaction Documents,
shall prove to be untrue or incorrect in any material respect; provided,
however, that if the Trust, the Transferor, the Servicer or NAFI, as
applicable, effectively cures any such defect in any representation or
warranty under any Transaction Document, or certificate or report furnished
under any Transaction Document, within the time period specified in the
relevant Transaction Document as the cure period therefor, such defect
shall not in and of itself constitute an Event of Default hereunder;
(c) (i) the Trust, the Transferor, the Servicer or NAFI shall fail to
pay when due any amount payable by the Trust, the Transferor, the Servicer
or NAFI under any of the Transaction Documents, unless such amounts are
paid in full within any applicable cure period explicitly provided for
under the relevant Transaction Document; (ii) the Trust, the Transferor,
the Servicer or NAFI shall have asserted that any of the Transaction
Documents to which it is a party is not valid and binding on the parties
thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or
any property thereof shall find or rule that any material provision of any
of the Transaction Documents is not valid and binding on the parties
thereto;
(d) the Trust, the Transferor, the Servicer, or NAFI shall fail to
perform or observe any other covenant or agreement contained in any of the
Transaction Documents (except for the obligations described under Section
2.05(o), clause (c) above and clause (n) below) and such failure shall
continue for a period of 30 days after written notice given to either the
Trust or the Transferor;
(e) the Trust, NAFI, the Servicer or the Transferor shall fail to pay
its debts generally as they come due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors, or shall institute any proceeding seeking to
adjudicate it insolvent or seeking a liquidation, or shall take advantage
of any insolvency act, or shall commence a case or other proceeding naming
it as debtor under the United States Bankruptcy Code or similar law,
domestic or foreign, or a case or other proceeding shall be commenced
against any of the Trust, NAFI, the Servicer or
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the Transferor under the United States Bankruptcy Code or similar law,
domestic or foreign, or any proceeding shall be instituted against any of
the Trust, NAFI, the Servicer or the Transferor seeking liquidation of its
assets and such Person shall fail to take appropriate action resulting in
the withdrawal or dismissal of such proceeding within 30 days or there
shall be appointed or any of the Trust, NAFI, the Servicer or the
Transferor shall consent to, or acquiesce in, the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect
of such Person or the whole or any substantial part of its properties or
assets or such Person shall take any corporate action in furtherance of any
of the foregoing;
(f) as of any Reporting Date (i) ocurring before the January 1999
Distribution Date, the Average Delinquency Ratio shall have been equal to
or greater than 11.50% or (ii) occurring after the January 1999
Distribution Date, (x) if the Cumulative Loss Rate as of the January 1999
Distribution Date is equal to or greater than 4.0%, the Average Delinquency
Ratio shall have been equal to or greater than 11.50% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than
4.0%, the Average Delinquency Ratio shall have been equal to or greater
than 11.10%;
(g) as of any Reporting Date (i) occurring before the January 1999
Distribution Date, the Average Default Rate is equal to or greater than
25.50%, (ii) occurring after the January 1999 Distribution Date but before
the January 2000 Distribution Date and (x) if the Cumulative Loss Rate as
of the January 1999 Distribution Date is equal to or greater than 4.0%, the
Average Default Rate is equal to or greater than 25.50% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than
4.0%, the Average Default Rate is equal to or greater than 25.10% and (iii)
occurring subsequent to the January 2000 Distribution Date and (x) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is equal to
or greater than 4.0%, the Average Default Rate is equal to or greater than
17.50% or (y) if the Cumulative Loss Rate as of the January 1999
Distribution Date is less than 4.0%, the Average Default Rate is equal to
or greater than 17.10%;
(h) as of any Reporting Date (i) occurring before the January 1999
Distribution Date, the Average Net Loss Rate is equal to or greater than
12.20%, (ii) occurring after the January 1999 Distribution Date but before
the January 2000 Distribution Date and (x) if the Cumulative Loss Rate as
of the January 1999 Distribution Date is equal to or greater than 4.0%, the
Average Net Loss Rate is equal to or greater
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than 12.20% or (y) if the Cumulative Loss Rate as of the January 1999
Distribution Date is less than 4.0%, the Average Net Loss Rate is equal to
or greater than 11.30% and (iii) occurring subsequent to the January 2000
Distribution Date and (x) if the Cumulative Loss Rate as of the January
1999 Distribution Date is equal to or greater than 4.0%, the Average Net
Loss Rate is equal to or greater than 9.20% or (y) if the Cumulative Loss
Rate as of the January 1999 Distribution Date is less than 4.0%, the
Average Net Loss Rate is equal to or greater than 8.30%.
(i) the Trust becomes taxable as an association (or publicly traded
partnership) taxable as a corporation for Federal or state income tax
purposes;
(j) the occurrence of a Servicer Termination Event under the Sale and
Servicing Agreement;
(k) the occurrence of an "Event of Default" under and as defined in
any Insurance and Indemnity Agreement or similar agreement among (x)
Financial Security and (y) NAFI and/or the Transferor and/or any other
Affiliate of NAFI, entered into with respect to another Series.
(l) any default in the observance or performance of any covenant or
agreement of the Trust made in the Indenture (other than a default in the
payment of the interest or principal of any Security when due) or any
representation or warranty of the Trust made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been
given, by registered or certified mail, to the Trust, NAFI and the
Indenture Trustee by Financial Security, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied;
(m) [reserved];
(n) the failure to file in the appropriate jurisdictions any of the
financing statements described in Section 2.01(q), 2.04(r) or 2.05(m) by
the Date of Issuance or if a filing service is used, the failure to deliver
any of the financing statements described in Section 2.01(q), 2.04(r) or
2.05(m) by the Date of Issuance to such filing
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service for prompt filing in the appropriate jurisdictions; and
(o) the Notes not being treated as debt for federal or applicable
state income tax purposes and such characterization having a material
adverse effect on the Trust, the holders of the Notes, or Financial
Security.
Section 5.2. Remedies; Waivers. (a) Upon the occurrence of an Event of
Default, Financial Security may exercise any one or more of the rights and
remedies set forth below:
(i) declare the Premium Supplement to be immediately due and
payable, and the same shall thereupon be immediately due and payable,
whether or not Financial Security shall have declared an "Event of
Default" or shall have exercised, or be entitled to exercise, any
other rights or remedies hereunder;
(ii) exercise any rights and remedies available under the
Transaction Documents in its own capacity or in its capacity as the
Controlling Party under the Transaction Documents, including, without
limitation, its right to accelerate the Securities or to terminate
NAFI as Servicer and to appoint a substitute servicer; or
(iii) take whatever action at law or in equity may appear
necessary or desirable in its judgment to enforce performance of any
obligation of the Trust, the Transferor or NAFI under the Transaction
Documents.
(b) Unless otherwise expressly provided, no remedy herein conferred
upon or reserved is intended to be exclusive of any other available remedy,
but each remedy shall be cumulative and shall be in addition to other
remedies given under the Transaction Documents or existing at law or in
equity. No delay or failure to exercise any right or power accruing under
any Transaction Document upon the occurrence of any Event of Default or
otherwise shall impair any such right or power or shall be construed to be
a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle
Financial Security to exercise any remedy reserved to Financial Security in
this Article, it shall not be necessary to give any notice, other than such
notice as may be expressly required in this Article.
(c) If any proceeding has been commenced to enforce any right or
remedy under this Insurance Agreement and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely
to Financial Security, then and in every such case the parties hereto
shall, subject to any
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determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.
(d) Financial Security shall have the right, to be exercised in its
complete discretion, to waive any covenant, Default or Event of Default by
a writing setting forth the terms, conditions and extent of such waiver
signed by Financial Security and delivered to the Trust, the Transferor and
NAFI. Any such waiver may only be effected in writing duly executed by
Financial Security, and no other course of conduct shall constitute a
waiver of any provision hereof. Unless such writing expressly provides to
the contrary, any waiver so granted shall extend only to the specific event
or occurrence so waived and not to any other similar event or occurrence.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Amendments, Etc. This Insurance Agreement may be amended,
modified or terminated only by written instrument or written instruments
signed by the parties hereto. No act or course of dealing shall be deemed
to constitute an amendment, modification or termination hereof.
Section 6.2. Notices. All demands, notices and other communications to
be given hereunder shall be in writing (except as otherwise specifically
provided herein) and shall be mailed by registered mail or personally
delivered or telecopied to the recipient as follows:
(a) To Financial Security: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Surveillance Department
Re: National Auto Finance 1998-1
Trust, 5.88% Automobile Receivables
Backed Notes
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518,
(212) 339-3529
(in each case in which notice or other communication to Financial
Security refers to an Event of Default, a claim on the Policy or
with respect to which failure on the part of Financial Security
to respond shall be deemed to
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constitute consent or acceptance, then a copy of such notice or
other communication should also be sent to the attention of each
of the General Counsel and the Head-Financial Guaranty Group and
shall be marked to indicate "URGENT MATERIAL ENCLOSED.")
(b) To the Transferor: National Financial Auto Funding
Trust
c/o Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust
Administration
Telecopy No: (302) 984-4903
Confirmation: (302) 428-3375
with a copy to: Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust
Administration
Telecopy No: (718) 242-3529
Confirmation: (718) 242-7283
(c) To NAFI: National Auto Finance Company, Inc.
One Park Place (Suite 200)
621 N.W. 53rd Street
Boca Raton, Florida 33487
Attention: President
Telecopy No: (800) 787-6232
Confirmation: (407) 997-2747
(d) To the Trust: National Auto Finance 1998-1 Trust
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust
Administration
Telecopy No: (302) 651-8882
Confirmation: (302) 651-1000
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A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section 6.3. Payment Procedure. In the event of any payment by Financial
Security for which it is entitled to be reimbursed or indemnified as provided
above, each of the Trust, the Transferor and NAFI agrees to accept the voucher
or other evidence of payment as prima facie evidence of the propriety thereof
and the liability therefor to Financial Security. All payments to be made to
Financial Security under this Insurance Agreement shall be made to Financial
Security in lawful currency of the United States of America in immediately
available funds to the account number provided in the Premium Letter before 1:00
p.m. (New York, New York time) on the date when due or as Financial Security
shall otherwise direct by written notice to the Trust, the Transferor and NAFI.
In the event that the date of any payment to Financial Security or the
expiration of any time period hereunder occurs on a day which is not a Business
Day, then such payment or expiration of time period shall be made or occur on
the next succeeding Business Day with the same force and effect as if such
payment was made or time period expired on the scheduled date of payment or
expiration date. Payments to be made to Financial Security under this Insurance
Agreement shall bear interest at the Late Payment Rate from the date due to the
date paid.
Section 6.4. Confidentiality. Any information obtained by Financial
Security pursuant to this Insurance Agreement shall be held in confidence by
Financial Security unless (i) such information has become available to the
public other than as a result of a disclosure by or through Financial Security,
(ii) such information was available to Financial Security on a nonconfidential
basis prior to its disclosure to Financial Security hereunder, (iii) Financial
Security shall be required in connection with any legal or regulatory proceeding
to disclose such information, or (iv) Financial Security, in its sole
discretion, deems it necessary to disclose such information to the Rating
Agencies; provided, that, in any such instance, Financial Security will use its
best efforts to notify the Trust, the Transferor or NAFI of its intention to
make any such disclosure prior to making any such disclosure and, in the case of
disclosure to a Rating Agency, Financial Security shall notify such Rating
Agency that such information is confidential and should be treated as such by
such Rating Agency.
Section 6.5. Severability. In the event that any provision of this
Insurance Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render
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unenforceable any other provision hereof. The parties hereto further agree that
the holding by any court of competent jurisdiction that any remedy pursued by
any party hereto is unavailable or unenforceable shall not affect in any way the
ability of such party to pursue any other remedy available to it.
Section 6.6. Governing Law. THIS INSURANCE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 6.7. Consent to Jurisdiction. (a) THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED
IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR,
TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE
THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT 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. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.
(b) To the extent permitted by applicable law, the parties hereto shall not
seek and hereby waive the right to any review of the judgment of any such court
by any court of any other nation or jurisdiction which may be called upon to
grant an enforcement of such judgment.
(c) Each of the Trust, the Transferor and NAFI hereby irrevocably appoints
and designates CT Corporation System, whose address is 1633 Broadway, New York,
New York 10019, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process. Each of the Trust, the Transferor and
NAFI agrees that service of such process upon such Person shall constitute
personal service of such process upon it.
(d) Nothing contained in this Insurance Agreement shall limit or affect
Financial Security's right to serve process in
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any other manner permitted by law or to start legal proceedings relating to any
of the Transaction Documents against the Trust, the Transferor or NAFI or its
respective property in the courts of any jurisdiction.
Section 6.8. Consent of Financial Security. In the event that Financial
Security's consent is required under any of the Transaction Documents, the
determination whether to grant or withhold such consent shall be made by
Financial Security in its sole discretion without any implied duty towards any
other Person, except as otherwise expressly provided therein.
Section 6.9. Counterparts. This Insurance Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.
Section 6.10. Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH
ANY OF THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREUNDER. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.
Section 6.11. Limited Liability. No recourse under any Transaction Document
shall be had against, and no personal liability shall attach to, any officer,
employee, director, Affiliate or shareholder of any party hereto, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise in respect of any of the Transaction
Documents, the Securities or the Policy, it being expressly agreed and
understood that each Transaction Document is solely a corporate obligation of
each party hereto, and that any and all personal liability, either at common law
or in equity, or by statute or constitution, of every such officer, employee,
director, Affiliate or shareholder for breaches by any party hereto of any
obligations under any Transaction Document is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Insurance Agreement.
Section 6.12. Servicing Transfer; Termination of Sub-Servicer. Financial
Security hereby acknowledges that (i) it has been present at one or more
meetings with NAFI at which the establishment by NAFI of a servicing center, the
transfer to NAFI of servicing functions previously performed by OFSA and the
termination of OFSA as Sub-Servicer were discussed, (ii) NAFI has
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assumed certain servicing functions previously performed by OFSA pursuant to the
Amended and Restated Servicing Agreement, dated as of December 5, 1994 (the
"Servicing Agreement"), between OFSA (as assignee of World Omni Financial Corp.)
and NAFI (as successor to National Auto Finance Company L.P.), and (iii) NAFI
has taken significant steps and entered into certain material commitments in
furtherance of the establishment of the servicing center and the assumption by
NAFI of all servicing functions previously or currently performed by OFSA
pursuant to the Servicing Agreement. NAFI hereby covenants to provide Financial
Security with prior notification of the occurrence of any event or events that,
individually or the aggregate, constitute a material transfer of servicing
functions from OFSA to NAFI. In addition, NAFI shall, prior to the effectiveness
of the termination of OFSA as Sub-Servicer, obtain the written consent of
Financial Security to such termination, which consent shall not be unreasonably
withheld.
Section 6.13. Entire Agreement. This Insurance Agreement, the Premium
Letter, the Inducement Letter and the Policy set forth the entire agreement
between the parties with respect to the subject matter thereof, and this
Insurance Agreement supersedes and replaces any agreement or understanding that
may have existed between the parties prior to the date hereof in respect of such
subject matter.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Insurance Agreement, all as of the day and year first above written.
FINANCIAL SECURITY ASSURANCE INC.
By:
Name:
Title:
NATIONAL AUTO FINANCE 1998-1
TRUST
By:
Name:
Title: of
Wilmington Trust Company, not
in its individual capacity, but
solely in its capacity as owner
trustee for National Auto
Finance 1998-1 Trust
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:
Name:
Title: of
Chase Manhattan Bank Delaware,
not in its individual capacity, but
solely in its capacity as trustee for
National Financial Auto Funding Trust
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
<PAGE>
APPENDIX I
DEFINITIONS
"Accumulated Funding Deficiency" has the meaning provided in Section 412 of
the Code and Section 302 of ERISA, whether or not waived.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities
Act.
"Assignment Agreement" means the Assignment Agreement, dated as of December
15, 1997, between the Master Trust and Funding Trust II, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof.
"Business Day" means any day other than (a) a Saturday or Sunday or (b) a
day on which banking institutions in the City of New York, Wilmington, Delaware,
Chicago, Illinois or the State of Florida are authorized or obligated by law or
executive order to be closed.
"Certificate" means a Certificate of Trust (as defined in the Trust
Agreement).
"Code" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Collateral" has the meaning specified in the Indenture.
"Commission" means the Securities and Exchange Commission.
"Commonly Controlled Entity" means, with respect to the Trust, the
Transferor or NAFI, as the case may be, and each entity, whether or not
incorporated, which is affiliated with the Trust, the Transferor or NAFI
pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Conveyance" has the meaning specified on the Purchase and Contribution
Agreement.
"Custodian Agreement" means the Custodial Agreement, dated as of January
20, 1998, between NAFI and Omni Financial Services of America, Inc. as
custodian, as the same may be amended,
Appendix I
1
<PAGE>
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Date of Issuance" means the date on which the Policy is issued as
specified therein.
"Default" means any event which results, or which with the giving of notice
or the lapse of time or both would result, in an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Event of Default" means any event of default specified in Section 5.01 of
this Insurance Agreement.
"Expiration Date" means the final date of the Term of the Policy, as
specified in the Policy.
"Financial Security" means Financial Security Assurance Inc., a New York
stock insurance company, its successors and assigns.
"Financial Security Information" has the meaning provided in Sections
2.01(i) and 2.04(j) of this Insurance Agreement.
"Financial Statements" means with respect to NAFI and the Transferor, as
the case may be, the balance sheet as of December 31, 1996 and the statements of
income, retained earnings and cash flows for the 12-month period then ended and
the notes thereto and the balance sheet as of September 30, 1997 and the
statement of income, retained earnings and cash flows for the three months then
ended and the notes thereto.
"Fiscal Agent" means the Fiscal Agent, if any, designated pursuant to the
terms of the Policy.
"Funding Trust II" means National Financial Auto Funding Trust II, a
business trust formed by NAFI under the laws of the State of Delaware.
"Indemnification Agreement" means the Indemnification Agreement dated as of
January 20, 1998, among Financial Security, the Transferor and the Underwriter,
as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Indenture" means the Indenture, dated as of December 15, 1997, between
National Auto Finance 1998-1 Trust and Harris Trust
Appendix I
2
<PAGE>
and Savings Bank, as Indenture Trustee and Trust Collateral Agent, as the same
may be amended, amended and restated, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
"Indenture Trustee" means Harris Trust and Savings Bank, an Illinois
banking corporation, as indenture trustee under the Indenture, and any successor
thereto as indenture trustee under the Indenture.
"Inducement Letter" means that letter dated November 21, 1995, from NAFI to
Financial Security.
"Insurance Agreement" means this Insurance and Indemnity Agreement dated as
of January 20, 1998, among Financial Security, the Trust, the Transferor and
NAFI, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"Insurance Agreement Indenture Cross Default" means an Event of Default
specified in clauses (a), (e), (i), (l) and (o) of Section 5.01 of this
Insurance Agreement.
"Investment Company Act" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"IRS" means the Internal Revenue Service.
"Late Payment Rate" means the lesser of (a) the greater of (i) the per
annum rate of interest, publicly announced from time to time by Chase Manhattan
Bank at its principal office in the City of New York, as its prime or base
lending rate (any change in such rate of interest to be effective on the date
such change is announced by Chase Manhattan Bank) plus 3%, and (ii) the then
applicable highest rate of interest on the Securities and (b) the maximum rate
permissible under applicable usury or similar laws limiting interest rates. The
Late Payment Rate shall be computed on the basis of the actual number of days
elapsed over 360 days.
"Lien" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise: (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security interest
or encumbrance of any kind or (b) any arrangement, express or implied, under
which such property or assets are transferred, sequestered or otherwise
identified for the purpose of subjecting
Appendix I
3
<PAGE>
or making available the same for the payment of debt or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person.
"Master Trust" means National Financial Auto Receivables Master Trust, a
trust formed by the Transferor under the laws of the State of New York.
"Material Adverse Change" means, (a) in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations
or properties of such Person or any of its Subsidiaries or Affiliates, or (ii)
the ability of such Person to perform its obligations under any of the
Transaction Documents to which it is a party, (b) in respect of any Receivable,
a material adverse change in (i) the value or marketability of such Receivable,
or (ii) the probability that amounts now or hereafter due in respect of such
Receivable will be collected on a timely basis or (c) the ability of Financial
Security or the Trust to realize the benefits of the security afforded under the
Transaction Documents.
"Moody's" means Moody's Investors Service, Inc., a Delaware corporation,
and any successor thereto, and, if such corporation shall for any reason no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized rating agency designated by
Financial Security.
"Multiemployer Plan" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.
"NAFI" means National Auto Finance Company, Inc., a Delaware corporation.
"National Auto Finance 1995-1 Trust" means the National Auto Finance 1995-1
Trust.
"National Auto Finance 1996-1 Trust" means the National Auto Finance 1996-1
Trust.
"National Auto Finance 1997-1 Trust" means the National Auto Finance 1997-1
Trust
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Exhibit A to Endorsement No. 1 to the Policy.
Appendix I
4
<PAGE>
"Offering Document" means the Prospectus and any other offering document of
the Transferor or an Affiliate thereof in respect of the Securities that makes
reference to the Policy.
"OFSA" means Omni Financial Services of America, Inc., a Florida
corporation.
"Other Trust Property" means the Trust Property and the property and
proceeds conveyed by the Transferor to the Trust pursuant to Section 2.2 of the
Sale and Security Agreement and any Subsequent Transfer Agreement, in each case
exclusive of the Policy.
"Owner Trust Estate" has the meaning provided in the Trust Agreement.
"Owner Trustee" means Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor thereto as owner trustee under the Trust
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.
"Person" means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, business or owner trust, partnership,
limited liability company, limited liability partnership or other organization
or entity (whether governmental or private).
"Plan" means any pension plan (other than a Multiemployer Plan) covered by
Title IV of ERISA, which is maintained by a Commonly Controlled Entity or in
respect of which a Commonly Controlled Entity has liability.
"Policy" means the financial guaranty insurance policy, including any
endorsements thereto, issued by Financial Security with respect to the
Securities, substantially in the form attached as Annex I to this Insurance
Agreement.
"Premium" means the premium payable in accordance with Section 3.02 of this
Insurance Agreement and the Premium Supplement, if any.
"Premium Letter" means the side letter dated January 20, 1998, among
Financial Security, NAFI, the Transferor and the Trust Collateral Agent in
respect of the premium payable in consideration of the issuance of the Policy.
Appendix I
5
<PAGE>
"Premium Supplement" means a non-refundable premium, in addition to the
premium payable in accordance with Section 3.02 of this Insurance Agreement,
accruing to Financial Security in monthly installments commencing on the Premium
Supplement Commencement Date and on each monthly anniversary in accordance with
the terms set forth in the Premium Letter and payable upon and in accordance
with a declaration under Section 5.02 of this Insurance Agreement.
"Premium Supplement Commencement Date" means the date of occurrence of an
Event of Default whether or not an "Event of Default" shall have been declared.
"Prospectus" has the meaning provided in Section 2.04(v) of this Insurance
Agreement.
"Provided Documents" means the Transaction Documents and any documents,
agreements, instruments, schedules, certificates, statements, cash flow
schedules, number runs or other writings or data furnished to Financial Security
by or on behalf of the Trust, the Transferor or NAFI with respect to itself, its
Subsidiaries or Affiliates, the Receivables or the Transaction.
"Purchase and Contribution Agreement" means the Purchase and Contribution
Agreement dated as of December 15, 1997, between NAFI and the Transferor, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Receivables" has the meaning provided in the Sale and Servicing Agreement.
"Registration Statement" has the meaning provided in Section 2.04(v) of
this Insurance Agreement.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.
"Restrictions on Transferability" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.
Appendix I
6
<PAGE>
"Sale Agreement" means the Sale Agreement, dated as of December 15, 1997,
between the Transferor and Funding Trust II, as the same may be amended, amended
and restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of December 15, 1997, among the Trust, the Transferor, the Servicer,
the Backup Servicer and the Trust Collateral Agent, as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Securities" means the $85,200,000 of National Auto Finance 1998-1 Trust,
5.88% Automobile Receivables-Backed Notes issued pursuant to the Indenture.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Securitization Agreement" has the meaning provided in paragraph D of the
Introductory Statements to this Insurance Agreement.
"Series 1998-1" means the Series issued on the date hereof pursuant to the
Indenture.
"Series of Certificates" or "Series" means Series 1998-1 or any, or as the
context may require, all, additional series of securities, certificates, notes
or other obligations issued or arising as described in paragraph D of the
Introductory Statements hereto.
"Servicer Termination Side Letter" means the letter from Financial Security
to the Trust Collateral Agent, the Transferor and NAFI dated as of January 20,
1998, with regard to the renewal term of the Servicer.
"S&P" means Standard & Poor's Ratings Group, division of McGraw Hill, Inc.,
and any successor thereto, and, if such entity shall for any reason no longer
perform the functions of a securities rating agency, "S&P" shall be deemed to
refer to any other nationally recognized rating agency designated by Financial
Security.
Appendix I
7
<PAGE>
"Special Event" means the occurrence of any one of the following: (a) an
Event of Default under this Insurance Agreement has occurred and is continuing,
(b) a Trigger Event has occurred and is continuing, (c) any legal proceeding or
binding arbitration is instituted with respect to the Transaction or (d) any
governmental or administrative investigation, action or proceeding is instituted
that would, if adversely decided, result in a Material Adverse Change in respect
of the Trust, NAFI, the Transferor or the Receivables.
"Spread Account Agreement" means the Master Spread Account Agreement, dated
as of January 20, 1998 among the Transferor, the Collateral Agent named therein
and Financial Security, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Subsidiary" means, with respect to any Person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent or (b) that is, at the time any
determination is being made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Term of this Agreement" shall be determined as provided in Section 4.01 of
this Insurance Agreement.
"Term of the Policy" has the meaning provided in the Policy for the term
"Term of this Policy".
"Transaction" means this transactions contemplated by the Transaction
Documents, including the transactions described in the Offering Document.
"Transaction Documents" means the Securities, the Certificates, this
Insurance Agreement, the Lockbox Agreement, the Custodian Agreement, the
Indemnification Agreement, the Sale and Servicing Agreement, the Indenture, the
Premium Letter, any Sub-Servicing Agreement, the Inducement Letter, the Purchase
and Contribution Agreement, the Sale Agreement, the Assignment Agreement, the
Servicer Termination Side Letter, each Subsequent Transfer Agreement, each
Conveyance, the Underwriting Agreement, the Spread Account Agreement, the
certificate of trust of the Trust and the Trust Agreement.
Appendix I
8
<PAGE>
"Transferor" means National Financial Auto Funding Trust, a business trust
formed by NAFI under the laws of the State of Delaware.
"Trust" means the trust created under the Trust Agreement.
"Trust Accounts" means the Collection Account, the Distribution Account,
the Note Distribution Account, the Pre- Funding Account, the Pre-Funding Period
Reserve Account and the Lockbox Account.
"Trust Agreement" means the Trust Agreement, dated as of December 15, 1997,
between the Transferor and the Owner Trustee with respect to the Trust, as the
same may be amended, amended and restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Trust Collateral Agent" means Harris Trust and Savings Bank, an Illinois
banking corporation, as trust collateral agent under the Indenture and as trust
collateral agent under the Sale and Servicing Agreement, as applicable, and any
successor thereto as trust collateral agent under the Indenture or trust
collateral agent the Sale and Servicing Agreement, as the case may be.
"Trust Indenture Act" means the Trust Indenture Act of 1939, including,
unless the context otherwise requires, the rules and regulations thereunder, as
amended from time to time.
"Underfunded Plan" means any Plan that has an Underfunding.
"Underfunding" means, with respect to any Plan, the excess, if any, of (a)
the present value of all benefits under the Plan (based on the assumptions used
to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.
"Underwriter" means First Union Capital Markets Corp.
"Underwriting Agreement" means the Underwriting Agreement dated as of
January 15, 1998, by and among the Transferor and the Underwriter, with respect
to the offer and sale of the Securities, as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
Appendix I
9
<PAGE>
APPENDIX II
TO INSURANCE AND INDEMNITY AGREEMENT
CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY
(a) Payment of Initial Premium and Expenses; Premium Letter. Financial
Security shall have been paid, by or on behalf of NAFI, a nonrefundable Premium
and shall have been reimbursed, by or on behalf of NAFI, for other fees and
expenses identified in Section 3.02 of this Insurance Agreement as payable at
closing and Financial Security shall have received a fully executed copy of the
Premium Letter.
(b) Transaction Documents. Financial Security shall have received a copy of
each of the Transaction Documents (other than any Subsequent Transfer Agreement
to be delivered to Financial Security on or following the related Subsequent
Transfer Date), in form and substance satisfactory to Financial Security, duly
authorized, executed and delivered by each party thereto. Without limiting the
foregoing, the provisions of the Sale and Servicing Agreement relating to the
payment to Financial Security of the Premium due on the Policy and the
reimbursement to Financial Security of amounts paid under the Policy shall be in
form and substance acceptable to Financial Security in its sole discretion.
(c) Certified Documents and Resolutions. Financial Security shall have
received a copy of (i) the certificate of trust and the trust agreement for each
of the Trust, the Transferor and Funding Trust II, (ii) the certificate of
incorporation and by-laws of NAFI, (iii) the consent, if necessary, of the
co-trustees and/or holders of beneficial interests of each of the Transferor and
Funding Trust II, and (iv) the resolutions of the Board of Directors of NAFI, in
each case authorizing the issuance of the Securities and the Certificates, and
the execution, delivery and performance by the Trust, the Transferor, Funding
Trust II and NAFI, as applicable, of the Transaction Documents and the
transactions contemplated thereby, certified by a Secretary or Assistant
Secretary of the Trust, the Transferor, Funding Trust II and NAFI, as applicable
(which certificate shall state that such certificate of trust and trust
agreement or certificate of incorporation and by-laws, as the case may be, are
in full force and effect without modification on the Date of Issuance).
(d) Incumbency Certificate. Financial Security shall have received a
certificate of a Secretary or Assistant Secretary of each of the Transferor, the
Owner Trustee, the Trust Collateral Agent, the Indenture Trustee and NAFI,
respectively, certifying
Appendix II
1
<PAGE>
the name and signatures of the officers of the Transferor, the Owner Trustee,
the Trust Collateral Agent, the Indenture Trustee and NAFI, as the case may be,
authorized to execute and deliver the Transaction Documents and that all
consents necessary to execute and deliver such documents have been obtained.
(e) Representations and Warranties; Certificate. The representations and
warranties of the Trust, the Transferor and NAFI in this Insurance Agreement
shall be true and correct as of the Date of Issuance with respect to such Person
as if made on the Date of Issuance and Financial Security shall have received a
certificate of an appropriate officer of the Owner Trustee, the Transferor and
NAFI, as the case may be, to that effect.
(f) Opinions of Counsel. Financial Security shall have received opinions of
counsel addressed to Financial Security, Moody's and S&P in respect of the
Trust, the Owner Trustee, the Indenture Trustee, the Transferor, NAFI, Funding
Trust II, the other parties to the Transaction Documents and the Transaction in
form and substance satisfactory to Financial Security, addressing such matters
as Financial Security may reasonably request, including without limitation, the
items set forth in Appendix A hereto, and the counsel providing each such
opinion shall have been instructed by its client to deliver such opinion to the
addressees thereof.
(g) Approvals, Etc. Financial Security shall have received true and correct
copies of all approvals, licenses and consents, if any, including, without
limitation, the approval of the co-trustees of each of the Transferor and
Funding Trust II, the holders of beneficial ownership interests in each of the
Transferor and Funding Trust II and the board of directors of NAFI, required in
connection with the Transaction.
(h) No Litigation, Etc. No suit, action or other proceeding, investigation,
or injunction or final judgment relating thereto, shall be pending or threatened
before any court or governmental agency in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with any of the
Transaction Documents or the consummation of the Transaction.
(i) Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents, illegal or otherwise prevent the consummation
thereof.
(j) Satisfaction of Conditions of the Underwriting Agreement. All
conditions in the Underwriting Agreement to the
Appendix II
2
<PAGE>
Underwriter's obligation to purchase the Securities (other than the issuance of
the Policy) shall have been satisfied.
(k) Issuance of Ratings. Financial Security shall have received
confirmation that the risk secured by the Policy constitutes an investment grade
risk by S&P and an insurable risk by Moody's and that the Securities, when
issued, will be rated "AAA" by S&P and "Aaa" by Moody's.
(l) Maintenance of Receivable Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the
Receivable Files are being maintained by and held in the custody of the
Custodian pursuant to the Sale and Servicing Agreement and the Custodian
Agreement; (ii) all filings necessary to perfect the interest of the Trust
Collateral Agent in the Collateral have been made; and (iii) all taxes, fees and
other changes payable in connection with such filings shall have been paid.
(m) No Default. No Default or Event of Default shall have occurred.
(n) Absence of Liens. Financial Security shall have received evidence
satisfactory to it in its sole discretion that all Liens of Funding Trust II and
the Master Trust and Restrictions on Transferability relating to the Initial
Receivables transferred by the Master Trust to Funding Trust II and by Funding
Trust II to the Transferor have been released or removed on or prior to the Date
of Issuance.
(o) Additional Items. Financial Security shall have received such other
documents, instruments, approvals or opinions requested by Financial Security as
may be reasonably necessary to effect the Transaction, including but not limited
to evidence satisfactory to Financial Security that all conditions precedent, if
any, in the Transaction Documents have been satisfied.
Appendix II
3
<PAGE>
ANNEX I
TO
INSURANCE AND INDEMNITY AGREEMENT
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
<PAGE>
APPENDIX A
OPINIONS OF COUNSEL
There shall be delivered to Financial Security, Moody's and S&P opinions of
counsel satisfactory in form and substance to Financial Security and its
counsel, including, without limitation, opinions as follows:
(i) opinions to the effect that the Securities and the Certificates have
been duly issued, and the Transaction Documents have been duly executed and
delivered, and each constitutes legal, valid and binding obligations,
enforceable in accordance with its respective terms;
(ii) opinions as to compliance with applicable securities laws, including,
but not limited to, opinions to the effect that:
(A) no filing or registration with or notice to or consent, approval,
authorization or order of any court or governmental authority or agency is
required for the consummation of the Transaction, except such as may be
required and have been obtained under the Securities Act and state
securities or "blue sky" laws;
(B) the Registration Statement is effective under the Securities Act
and, to the best of counsel's knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been issued
under the Securities Act or proceedings therefor initiated or threatened by
the Commission;
(C) none of the Transferor, NAFI, the Trust or the Trust Estate is
required to be registered under the Investment Company Act; and
(D) none of the Indenture, the Trust Agreement or the Sale and
Servicing Agreement is required to be qualified under the Trust Indenture
Act;
(iii) an opinion to the effect that (A) the Trust Collateral Agent has a
first priority perfected security interest in the Collateral and the proceeds
thereof (covering perfection by possession and by filing UCC-1 financing
statements) under the applicable Uniform Commercial Code; (B) the Receivables
and the Other Trust Property would not be included as part of the estate of NAFI
or Funding Trust II in the event of any receivership or insolvency proceedings
in respect thereof; (C) the contribution of certain of the Receivables and other
property related thereto
Appendix A
1
<PAGE>
by NAFI to the Transferor pursuant to the Purchase and Contribution Agreement
would be characterized by a court of competent jurisdiction as a contribution of
such Receivables and such other property related thereto and not as a borrowing
by the Transferor or a relationship of joint ownership, partnership, joint
venture or similar arrangement; and (D) the transfer of the Receivables and the
Other Trust Property would be characterized by a court of competent jurisdiction
as a sale of such Receivables and Other Trust Property by NAFI or Funding Trust
II to the Transferor, as applicable, and not as a borrowing by NAFI or Funding
Trust II, as applicable, or a relationship of joint ownership, partnership,
joint venture or similar arrangement; and (E) the assets and liabilities of each
of the Trust and the Transferor would not be substantively consolidated with
those of NAFI in the event of any receivership or insolvency proceeding in
respect of NAFI;
(iv) the Collateral Agent under the Spread Account Agreement has a valid,
perfected first priority perfected security interest in the collateral held
thereunder for the benefit of secured parties thereunder;
(v) a title and perfection opinion with respect to the Financed Vehicles
from Florida, Georgia and North Carolina;
(vi) opinions with respect to United States federal tax law and ERISA;
(vii) general corporate and enforceability opinions with respect to NAFI,
the Master Trust, Funding Trust II, the Transferor, the Trust, the Collateral
Agent, the Owner Trustee, the Trust Collateral Agent and the Indenture Trustee;
(viii) an opinion to the effect that the forms of Receivables used comply
with the disclosure requirements of the Federal Truth-in-Lending Act and
Regulations Z and B of the Federal Reserve Board; and
(ix) such other opinions as Financial Security shall request.
Appendix A
2
<PAGE>
EXECUTION COPY
MASTER SPREAD ACCOUNT AGREEMENT,
dated as of January 20, 1998
among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
FINANCIAL SECURITY ASSURANCE INC.
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee and as Collateral Agent
12.TXT
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01. Definitions................................................3
Section 1.02. Rules of Interpretation...................................17
ARTICLE II
REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.01. Reversionary Holders......................................18
Section 2.02. Series Supplements........................................19
Section 2.03. Creation and Grant of Security Interest by
the Transferor.........................................19
Section 2.04. Priority..................................................20
Section 2.05. Transferor Remains Liable.................................20
Section 2.06. Maintenance of Collateral.................................21
Section 2.07. Termination and Release of Rights.........................24
Section 2.08. Non-Recourse Obligations of Transferor and
the Reversionary Holders...............................25
ARTICLE III
SPREAD ACCOUNTS
Section 3.01. Establishment of Spread Accounts; Initial
Deposits into Spread Accounts..........................26
Section 3.02. Investments...............................................27
Section 3.03. Distributions; Priority of Payments.......................28
Section 3.04. General Provisions Regarding Spread Accounts..............31
Section 3.05. Reports by the Collateral Agent...........................32
ARTICLE IV
THE COLLATERAL AGENT AND SECURITIES INTERMEDIARY
Section 4.01. Appointment and Powers....................................32
Section 4.02. Performance of Duties.....................................33
Section 4.03. Limitation on Liability...................................33
Section 4.04. Reliance upon Documents...................................34
Section 4.05. Successor Collateral Agent................................34
Section 4.06. Indemnification...........................................37
Section 4.07. Compensation and Reimbursement............................37
Section 4.08. Representations and Warranties of the
Collateral Agent.......................................37
Section 4.09. Waiver of Setoffs.........................................38
Section 4.10. Control by the Controlling Party..........................38
ARTICLE V
COVENANTS OF THE TRANSFEROR
Section 5.01. Preservation of Collateral................................39
Section 5.02. Opinions as to Collateral.................................39
Section 5.03. Notices...................................................40
-i-
<PAGE>
Section 5.04. Waiver of Stay or Extension Laws; Marshalling
of Assets..............................................40
Section 5.05. Noninterference, etc......................................40
Section 5.06. Transferor Changes........................................41
ARTICLE VI
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.01. Appointment of Controlling Party..........................41
Section 6.02. Controlling Party's Authority.............................42
Section 6.03. Rights of Secured Parties.................................43
Section 6.04. Degree of Care............................................43
ARTICLE VII
REMEDIES UPON DEFAULT
Section 7.01. Remedies upon a Default...................................44
Section 7.02. Waiver of Default.........................................44
Section 7.03. Restoration of Rights and Remedies........................44
Section 7.04. No Remedy Exclusive.......................................44
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Further Assurances........................................45
Section 8.02. Waiver....................................................45
Section 8.03. Amendments, Waivers.......................................45
Section 8.04. Severability..............................................46
Section 8.05. Nonpetition Covenant......................................46
Section 8.06. Notices...................................................47
Section 8.07. Term of this Agreement....................................49
Section 8.08. Assignments, Third-Party Rights; Reinsurance..............49
Section 8.09. Consent of Controlling Party..............................50
Section 8.10. Trial by Jury Waived......................................50
Section 8.11. Governing Law.............................................50
Section 8.12. Consents to Jurisdiction..................................50
Section 8.13. Limitation of Liability...................................51
Section 8.14. Determination of Adverse Effect...........................51
Section 8.15. Counterparts..............................................51
Section 8.16. Headings..................................................51
-ii-
<PAGE>
MASTER SPREAD ACCOUNT AGREEMENT
MASTER SPREAD ACCOUNT AGREEMENT, dated as of January 20, 1998 (the
"Agreement"), by and among NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware
business trust (the "Transferor"), FINANCIAL SECURITY ASSURANCE INC., a New York
stock insurance company ("Financial Security"), and HARRIS TRUST AND SAVINGS
BANK, an Illinois banking corporation, in its capacities as Trustee under each
Securitization Agreement referred to below, in such capacity as agent for the
Securityholders and Financial Security with respect to the related Series (the
"Trustee") and as Collateral Agent (as defined below).
RECITALS
1. National Auto Finance 1998-1 Trust (the "Series 1998-1 Trust"), a
Delaware business trust, was formed pursuant to a Trust Agreement dated as of
December 15, 1997 (as such agreement may be amended, amended and restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, the "Series 1998-1 Trust Agreement"), between the Transferor and
Wilmington Trust Company, a Delaware banking corporation, as Owner Trustee (the
"Owner Trustee").
2. Pursuant to a Sale and Servicing Agreement dated as of December 15, 1997
(as such agreement may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof, the
"Series 1998-1 Sale and Servicing Agreement") by and among the Series 1998-1
Trust, the Transferor, National Auto Finance Company, Inc., a Delaware
corporation ("NAFI"), in its capacity as Servicer (the "Servicer") and Harris
Trust and Savings Bank, an Illinois banking corporation, as Trust Collateral
Agent (the "Trust Collateral Agent") and Backup Servicer (the "Backup
Servicer"), the Transferor will, on the Closing Date and from time to time
thereafter, sell all of its right, title and interest in and to the Receivables
and certain other property of the Series 1998-1 Trust Estate to the Series
1998-1 Trust, and pursuant to the Indenture dated as of December 15, 1997 (as
such agreement may be amended, amended and restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof, the "Series
1998-1 Indenture", and together with the Series 1998-1 Trust Agreement and the
Series 1998-1 Sale and Servicing Agreement, the "Series 1998-1 Securitization
Agreements"), between the Series 1998-1 Trust and Harris Trust and Savings Bank,
as Indenture Trustee and as Trust Collateral Agent, the Series 1998-1 Trust has
assigned the Receivables and certain other property of the Series 1998-1 Trust
Estate to the Trust Collateral Agent for the benefit of the Noteholders and
Financial Security. Also pursuant to the Series 1998-1 Indenture, the Series
1998-1 Trust will issue $85,200,000 aggregate principal amount of 5.88%
Automobile Receivables-Backed Notes (the "Series 1998" or "Series 1998-1").
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3. Financial Security has been asked to issue the Series 1998-1 Note Policy
to the Trust Collateral Agent to guarantee payment of the Scheduled Payments (as
defined in the Series 1998-1 Note Policy) on each Distribution Date in respect
of the Series 1998.
4. In partial consideration of the issuance of the Series 1998-1 Note
Policy, the Transferor has agreed that Financial Security shall have certain
rights as Controlling Party, to the extent set forth herein.
5. In order to secure the performance of the Secured Obligations, the
Transferor, in its capacity as the agent of the Reversionary Holders, has agreed
to pledge the Collateral to the Collateral Agent for the benefit of Financial
Security and for the benefit of the Trustees on behalf of the Securityholders,
upon the terms and conditions set forth herein.
6. It is contemplated that NAFI and/or the Transferor and/or any other
Affiliate of NAFI may in the future enter into one or more additional
Securitization Agreements pursuant to which the Transferor and/or NAFI and/or
such other Affiliate of NAFI will sell or pledge all or a portion of its right,
title and interest in and to pools of contracts and/or other financial assets or
property to a Trust or other Person and in connection therewith Financial
Security in its discretion may in the future issue additional Policies with
respect to certain guaranteed distributions or scheduled payments with respect
to the corresponding additional Series. In connection with any such issuance of
additional Policies, it is contemplated that Financial Security will obtain
certain Controlling Party rights with respect to the related Series, and that,
in connection with each such additional Series, the parties hereto will enter
into a Series Supplement hereto pursuant to which NAFI and/or the Transferor
and/or any other Affiliate of NAFI will assign, or cause to be assigned,
additional Collateral pursuant to the terms hereof.
AGREEMENTS
In consideration of the premises, and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Unless defined in this Agreement, capitalized
terms used in this Agreement shall have the meaning given such terms in the
applicable Securitization Agreement or
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Series Supplement, as identifiable from the context in which such term is used.
The following terms shall have the following respective meanings:
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities Act
of 1933, as amended.
"Agreement" means this Master Spread Account Agreement, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms hereof.
"Authorized Officer" with respect to Series 1998-1, has the meaning
specified in Section 1.01 of the Series 1998-1 Securitization Agreement for
"Responsible Officer".
"Authorized Officer" means, (i) with respect to Financial Security, the
Chairman of the Board, the President, the Executive Vice President or any
Managing Director of Financial Security, (ii) with respect to the Trustees or
the Collateral Agent, any Vice President or Trust Officer thereof, and (iii)
with respect to the Transferor, any Co-Trustee thereof.
"Backup Servicer" with respect to Series 1998-1, has the meaning specified
in the Series 1998-1 Securitization Agreement for "Standby Servicer".
"Collateral" means the Series 1998-1 Collateral, and with respect to any
other Series, all collateral delivered hereunder with respect to each of such
Series, as specified in the related Series Supplement.
"Collateral Agent" means, initially, Harris Trust and Savings Bank, in its
capacity as collateral agent on behalf of the Secured Parties, including its
successors in interest, until a successor Person shall have become the
Collateral Agent pursuant to Section 4.05 hereof, and thereafter "Collateral
Agent" shall mean such successor Person.
"Collateral Agent Fee" means, with respect to the Series 1998, the annual
fee payable to the Collateral Agent for services rendered as the Collateral
Agent, which Collateral Agent Fee is included in the fees paid to Harris Trust
and Savings Bank pursuant to the applicable Series 1998-1 Securitization
Agreement.
"Collection Account" means the Collection Account applicable to any Series,
as specified in the related Securitization Agreement.
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"Control" shall have the meaning specified in Section 8-106 of the UCC.
"Controlling Party" means, with respect to a Series, at any time, the
Person designated as the Controlling Party at such time pursuant to Section 6.01
hereof.
"Cumulative Loss Rate" means, as of any Reporting Date, a fraction,
expressed as a percentage, the numerator of which is an amount equal to the
excess of (i) the sum of (a) the aggregate of the Principal Balances of all
Receivables that have become Liquidated Receivables (each such Principal Balance
calculated as of the last day of the Due Period during which such Receivable
became a Liquidated Receivable), (b) accrued and unpaid interest on such
Principal Balances through the last day of the Due Period during which such
Receivable became a Liquidated Receivable and (c) the amount of all Bankruptcy
Losses with respect to the Receivables over (ii) the Net Liquidation Proceeds
received by the Trust with respect to all Liquidated Receivables, and the
denominator of which is an amount equal to the sum of the Series 1998-1 Initial
Balance and the aggregate Principal Balances of Subsequent Receivables sold to
the Trust through the last day of the related Due Period (which Aggregate
Principal balances shall be as of the respective dates on which such Subsequent
Receivables were sold to the Trust).
"Deemed Cured" means, as of a Reporting Date, with respect to a Trigger
Event that has occurred with respect to a Series, that no Trigger Event with
respect to such Series shall have occurred as of such Reporting Date or as of
any of the two consecutively preceding Reporting Dates.
"Default" means with respect to any Series, at any time, (i) if Financial
Security is then the Controlling Party with respect to such Series, any
Insurance Agreement Event of Default with respect to such Series, and (ii) if
the Trustee is then the Controlling Party with respect to such Series, any
Servicer Termination Event with respect to such Series.
"Deficiency Claim Date" means, with respect to any Distribution Date, the
fourth Business Day preceding such Distribution Date.
"Delivery" means with respect to the Collateral:
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(1) the perfection and priority of a security interest in which is
governed by the law of a jurisdiction which has adopted the 1978
Revision to Article 8 of the UCC:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(l)(i) of the UCC (other than
certificated securities) and are susceptible of physical delivery, transfer
thereof to the Collateral Agent by physical delivery to the Collateral
Agent, indorsed to, or registered in the name of, the Collateral Agent or
its nominee or indorsed in blank and such additional or alternative
procedures as may hereafter become appropriate to effect the complete
transfer of ownership of any such Collateral to the Collateral Agent free
and clear of any adverse claims, consistent with changes in applicable law
or regulations or the interpretation thereof;
(b) with respect to a "certificated security" (as defined in Section
8-102(1)(a) of the UCC), transfer thereof:
(i) by physical delivery of such certificated security to the
Collateral Agent, provided that if the certificated security is in
registered form, it shall be indorsed to, or registered in the name
of, the Collateral Agent or indorsed in blank;
(ii) by physical delivery of such certificated security to a
"financial intermediary" (as defined in Section 8-313(4) of the UCC)
of the Collateral Agent specially indorsed to or issued in the name of
the Collateral Agent;
(iii) by the sending by a financial intermediary, not a "clearing
corporation" (as defined in Section 8-102(3) of the UCC), of a
confirmation of the purchase and the making by such financial
intermediary of entries on its books and records identifying as
belonging to the Collateral Agent of (A) a specific certificated
security in the financial intermediary's possession, (B) a quantity of
securities that constitute or are part of a fungible bulk of
certificated securities in the financial intermediary's possession, or
(C) a quantity of securities that constitute or are part of a fungible
bulk of securities shown on the account of the financial intermediary
on the books of another financial intermediary; or
(iv) by the making by a clearing corporation of appropriate
entries on its books reducing the
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appropriate securities account of the transferor and increasing the
appropriate securities account of the Collateral Agent or a Person
designated by the Collateral Agent by the amount of such certificated
security, provided that in each case: (A) the clearing corporation
identifies such certificated security for the sole and exclusive
account of the Collateral Agent or the Person designated by the
Collateral Agent, (B) such certificated security shall be subject to
the clearing corporation's exclusive control, (C) such certificated
security is in bearer form or indorsed in blank or registered in the
name of the clearing corporation or custodian bank or a nominee or
either of them, (D) custody of such certificated security shall be
maintained by such clearing corporation or a "custodian bank" (as
defined in Section 8-102(4) of the UCC) or the nominee of either
subject to the control of the clearing corporation and (E) such
certificated security is shown on the account of the transferor
thereof on the books of the clearing corporation prior to the making
of such entries; and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of
ownership of any such Collateral to the Collateral Agent free and
clear of any adverse claims, consistent with changes in applicable law
or regulations or the interpretation thereof;
(c) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book entry regulations, the following
procedures, all in accordance with applicable law, including applicable
Federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such property to an appropriate book-entry account
maintained with a Federal Reserve Bank by a financial intermediary which is
also a "depositary" pursuant to applicable Federal regulations and issuance
by such financial intermediary of a deposit advice or other written
confirmation of such book-entry registration to the Collateral Agent of the
purchase by the financial intermediary on behalf of the Collateral Agent of
such book-entry security; the identification by the Federal Reserve Bank of
such book-entry certificates on its records being credited to the
securities intermediary's Participant's securities account; the making by
such financial intermediary of entries in its books and records identifying
such book-entry security held through the Federal Reserve System pursuant
to Federal book-entry regulations as belonging to the Collateral Agent and
indicating that such financial intermediary holds such
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book-entry security solely an agent for the Collateral Agent; and such
additional or alternative procedures as may hereafter become appropriate to
effect complete transfer of ownership of any such Collateral to the
Collateral Agent free of any adverse claims, consistent with changes in
applicable law or regulations or the interpretation thereof;
(d) with respect to any item of Collateral that is an "uncertificated
security" (as defined in Section 8-102(1)(b) of the UCC) and that is not
governed by clause (c) above, transfer thereof:
(i) by registration of the transfer thereof to the Collateral
Agent, on the books and records of the issuer thereof;
(ii) by the sending of a confirmation by a financial intermediary
of the purchase, and the making by such financial intermediary of
entries on its books and records identifying as belonging to the
Collateral Agent (A) a quantity of securities which constitute or are
part of a fungible bulk of uncertificated securities registered in the
name of the financial intermediary or (B) a quantity of securities
which constitute or are part of a fungible bulk of securities shown on
the account of the financial intermediary on the books of another
financial intermediary; or
(iii) by the making by a clearing corporation of appropriate
entries on its books reducing the appropriate account of the
transferor and increasing the account of the Collateral Agent or a
person designated by the Collateral Agent by the amount of such
uncertificated security, provided that in each case: (A) the clearing
corporation identifies such uncertificated security for the sole and
exclusive use of the Collateral Agent or the Person designated by the
Collateral Agent, (B) such uncertificated security is registered in
the name of the clearing corporation or a custodian bank or a nominee
of either, and (C) such uncertificated security is shown on the
account of the transferor on the books of the clearing corporation
prior to the making of such entries; and
(e) in each case of delivery contemplated herein, the Collateral Agent
shall make appropriate notations on its records, and shall cause same to be
made of the records of
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its nominees, indicating that such securities are held in trust pursuant to
and as provided in this Agreement.
(2) the perfection and priority of a security interest in which is governed
by the law of a jurisdiction which has adopted the 1994 Revision to Article 8 of
the UCC:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC (other than
certificated securities) and are susceptible of physical delivery, transfer
thereof to the Collateral Agent by physical delivery to the Collateral
Agent, indorsed to, or registered in the name of, the Collateral Agent or
its nominee or indorsed in blank and such additional or alternative
procedures as may hereafter become appropriate to effect the complete
transfer of ownership of any such Collateral to the Collateral Agent free
and clear of any adverse claims, consistent with changes in applicable law
or regulations or the interpretation thereof;
(b) with respect to a "certificated security" (as defined in Section
8-102(a)(4) of the UCC), transfer thereof:
(i) by physical delivery of such certificated security to the
Collateral Agent, provided that if the certificated security is in
registered form, it shall be indorsed to, or registered in the name
of, the Collateral Agent or indorsed in blank;
(ii) by physical delivery of such certificated security in
registered form to the Securities Intermediary acting on behalf of the
Collateral Agent if the certificated security has been specially
endorsed to the Collateral Agent by an effective endorsement.
(c) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or by the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to Federal book entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such property to an appropriate book-entry account
maintained with a
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Federal Reserve Bank by a securities intermediary which is also a
"depositary" pursuant to applicable federal regulations and issuance by
such securities intermediary of a deposit advice or other written
confirmation of such book-entry registration to the Collateral Agent of the
purchase by the securities intermediary on behalf of the Collateral Agent
of such book-entry security; the identification by the Federal Reserve Bank
of such book-entry certificates on its records being credited to the
securities intermediary's Participant's securities account; the making by
such securities intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations as belonging to the
Collateral Agent and indicating that such securities intermediary holds
such book-entry security solely as agent for the Collateral Agent; and such
additional or alternative procedures as may hereafter become appropriate to
effect complete transfer of ownership of any such Collateral to the
Collateral Agent free of any adverse claims, consistent with changes in
applicable law or regulations or the interpretation thereof;
(d) with respect to any item of Collateral that is an "uncertificated
security" (as defined in Section 8-102(a)(18) of the UCC) and that is not
governed by clause (c) above, transfer thereof:
(i) (A) by registration to the Collateral Agent as the registered
owner thereof, on the books and records of the issuer thereof.
(B) by another Person (not a securities intermediary) either
becomes the registered owner of the uncertificated security on
behalf of the Collateral Agent, or having become the registered
owner acknowledges that it holds for the Collateral Agent.
(ii) the issuer thereof has agreed that it will comply with
instructions originated by the Collateral Agent without further
consent of the registered owner thereof.
(e) in each case of delivery contemplated herein, the Collateral Agent
shall make appropriate notations on its records, and shall cause same to be
made of the records of its nominees, indicating that securities are held in
trust pursuant to and as provided in this Agreement.
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(f) with respect to a "security entitlement" (as defined in Section
8-102(a)(17) of the UCC)
(i) if a securities intermediary (as defined in Section
8-102(a)(14)of the UCC)(A) indicates by book entry that a "financial
asset" (as defined in Section 8-102(a)(9) of the UCC) has been
credited to the Collateral Agent's "securities account" (as defined in
Section 8-501(a) of the UCC), (B) receives a financial asset (as so
defined) from the Collateral Agent or acquires a financial asset for
the Collateral Agent, and in either case, accepts it for credit to the
Collateral Agent's securities account (as so defined), (C) becomes
obligated under other law, regulation or rule to credit a financial
asset to the Collateral Agent's securities account, or (D) has agreed
that it will comply with "entitlement orders" (as defined in Section
8-102(a)(8) of the UCC) originated by the Collateral Agent without
further consent by the "entitlement holder" (as defined in Section 8-
102(a)(7) of the UCC), of a confirmation of the purchase and the
making by such securities intermediary of entries on its books and
records identifying as belonging to the Collateral Agent of (I) a
specific certificated security in the securities intermediary's
possession, (II) a quantity of securities that constitute or are part
of a fungible bulk of certificated securities in the securities
intermediary's possession, or (III) a quantity of securities that
constitute or are part of a fungible bulk of securities shown on the
account of the securities intermediary on the books of another
securities intermediary.
"Eligible Deposit Account" with respect to Series 1998-1, has the meaning
specified in Section 1.01 of the Series 1998-1 Securitization Agreement for "
Eligible Account".
"Eligible" with respect to Series 1998-1, has the meaning specified in
Section 1.01 of the Series 1998-1 Securitization Agreement for "Permitted
Investment".
"Entitlement Holder" shall have the meaning specified in Section
8-102(a)(7) of the UCC. "Final Termination Date" means, with respect to a
Series, the date that is the later of (i) the Insurer Termination Date with
respect to such Series and (ii) the Trustee Termination Date with respect to
such Series.
"Financial Asset" shall have the meaning specified in Section 8-102(a)(9)
of the UCC.
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"Financial Security Default" means, with respect to any Series, any one of
the following events shall have occurred and be continuing:
(a) Financial Security shall have failed to make a payment required
under the related Policy;
(b) Financial Security shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii)
made a general assignment for the benefit of its creditors, or (iii) had an
order for relief entered against it under the United States Bankruptcy Code
or any other similar Federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is final
and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for Financial Security or for all or
any material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of Financial Security
(or the taking of possession of all or any material portion of the property
of Financial Security).
"Guaranteed Distributions" shall have the meaning set forth in the related
Policy.
"Harris Trust and Savings Bank" means Harris Trust and Savings Bank, an
Illinois banking corporation.
"Initial Spread Account Deposit" means, with respect to the Series 1998, an
amount equal to $3,745,054.95.
"Insurance Agreement" means, with respect to any Series, the Insurance and
Indemnity Agreement among Financial Security and/or NAFI and/or the Transferor
and such other parties as may be named therein, pursuant to which Financial
Security issued a Policy to the Trustee, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Insurer Secured Obligations" means, with respect to a Series, all amounts
and obligations which may at any time be owed to or on behalf of Financial
Security (or any agents, accountants or attorneys for Financial Security) under
the Insurance Agreement related to such Series or under any Transaction
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Document in respect of such Series, regardless of whether such amounts are owed
now or in the future, whether liquidated or unliquidated, contingent or
noncontingent.
"Insurer Termination Date" means, with respect to any Series, the date
which is the latest of (i) the date of the expiration of all Policies issued in
respect of such Series, (ii) the date on which Financial Security shall have
received payment and performance in full of all Insurer Secured Obligations with
respect to such Series and (iii) the latest date any payment referred to above
could be avoided as a preference or otherwise under the United States Bankruptcy
Code or any other similar Federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization, as specified in an
Opinion of Counsel delivered to the Collateral Agent and the Trustee.
"Lien" means any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and any
liens that attach by operation of the law.
"Monthly Period" means, with respect to a Reporting Date or a Distribution
Date, the calendar month immediately preceding the month in which such Reporting
Date or Distribution Date occurs (such calendar month being referred to as the
"related" Monthly Period with respect to such Reporting Date or Distribution
Date).
"NAFI" means National Auto Finance Company, Inc., a Delaware corporation.
"Non-Controlling Party" means with respect to a Series at any time, the
Secured Party that is not the Controlling Party at such time.
"Opinion of Counsel" means a written opinion of counsel acceptable, as to
form, substance and issuing counsel, to the Controlling Party.
"Policy" means the Series 1998-1 Note Policy and any insurance policy
subsequently issued by Financial Security with respect to a Series.
"Requisite Amount" means, with respect to Series 1998-1,as of any Reporting
Date after giving effect to any distributions of principal on the Series 1998 to
be made on the related Distribution Date, the greater of (a) the lesser of
(i)(A) if such Reporting Date occurs before the January 1999 Distribution Date,
5.0% of an amount equal to the sum of the Series 1998-1 Initial Balance and the
aggregate Principal Balance of Subsequent Receivables sold to the Trust through
such Reporting Date (such Principal Balance calculated as of the related
Subsequent Cutoff
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Dates), or (B) if such Reporting Date occurs after the January 1999 Distribution
Date and (1) the Cumulative Loss Rate as of the January 1999 Distribution Date
is less than 4.0%, 2.5% of an amount equal to the sum of the Series 1998-1
Initial Balance and the aggregate Principal Balance of Subsequent Receivables
sold to the Trust through such Reporting Date (such Principal Balance calculated
as of the related Subsequent Cutoff Dates) or (2) the Cumulative Loss Rate as of
the January 1999 Distribution Date is equal to or greater than 4.0%, 5.0% of an
amount equal to the sum of the Series 1998-1 Initial Balance and the aggregate
Principal Balance of Subsequent Receivables sold to the Trust through such
Reporting Date (such Principal Balance calculated as of the related Subsequent
Cutoff Dates), and (ii) the greater of (A) the outstanding principal amount of
the Series 1998 as of such Reporting Date after giving effect to any
distributions of principal to be made thereon on the related Distribution Date
and (B) $100,000, and (b)(i) if a Trigger Event shall have occurred as of such
Reporting Date (and until such Trigger Event is Deemed Cured) and no Insurance
Agreement Event of Default shall have occurred as of such Reporting Date, 9.0%
of the Series 1998-1 Balance as of such Reporting Date, or (ii) if an Insurance
Agreement Event of Default shall have occurred as of such Reporting Date, an
unlimited amount. Notwithstanding the foregoing, if the Reporting Date for which
the Requisite Amount is being determined occurs after March 31, 1998 and NAFI or
the Transferor has failed to perform or observe either of its covenant set forth
in Section 2.05(o)(i) or (ii) of the Series 1998-1 Insurance Agreement (without
giving effect to any grace period provided for in the Series 1998-1 Insurance
Agreement) and for so long as such failure of performance or observance of
either of its covenants is continuing, the "Requisite Amount" shall be an
unlimited amount.
"Reversionary Holders" has the meaning specified in Section 2.01 hereof.
"Scheduled Payments" shall have the meaning set forth in the related
Policy.
"Secured Obligations" means, with respect to each Series the Insurer
Secured Obligations with respect to such Series and the Trustee Secured
Obligations with respect to such Series.
"Secured Parties" means Financial Security and the Trustee.
"Securities" means the "notes", "certificates" or other obligations issued
or arising under a Securitization Agreement.
"Securities Intermediary" means the Person acting as securities
intermediary within the meaning of Section 8- 102(a)(14) under this Agreement
(which initially is Harris Trust and Savings Bank).
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"Securitization Agreement" means, with respect to the Series 1998, the
Series 1998-1 Securitization Agreements and, for each other Series created
pursuant to a Securitization Agreement, the "Trust Agreement", the "Sale and
Servicing Agreement", the "Indenture", the "Pooling and Servicing Agreement",
"Sale and Servicing Agreement", "Indenture", "Purchase and Contribution
Agreement" or any other financing document related to such Series.
"Securityholders" means the holders of the Securities of a Series as more
particularly described in the Securitization Agreement with respect to such
Series.
"Security Interests" means, with respect to the Series 1998-1 Notes, the
security interests and Liens in the Series 1998-1 Collateral granted pursuant to
Section 2.03 hereof, and, with respect to any other Series, the security
interests and Liens in the related Collateral granted pursuant to the related
Series Supplement.
"Series 1998-1 Balance" means with respect to any Reporting Date, the sum
of the Pool Balance as of the last day of the related Due Period and the amount
on deposit in the Pre-Funding Account, if any, on such date.
"Series 1998-1 Collateral" has the meaning specified in Section 2.03(a)
hereof.
"Series 1998-1 Indenture" has the meaning provided in the second recital to
this Agreement.
"Series 1998-1 Initial Balance" means $75,504,414.69.
"Series 1998-1 Insurance Agreement" means the Insurance Agreement related
to the Series 1998.
"Series 1998-1 Insurer Secured Obligations" means the Insurer Secured
Obligations with respect to the Series 1998.
"Series 1998-1 Note Policy" means the Policy issued with respect to the
Series 1998.
"Series 1998" has the meaning set forth in the second recital to this
Agreement.
"Series 1998-1 Reversionary Holders" has the meaning specified in Section
2.01 hereof.
"Series 1998-1 Secured Obligations" means the Secured Obligations related
to the Series 1998.
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"Series 1998-1 Securitization Agreements" has the meaning set forth in the
second recital to this Agreement.
"Series 1998-1 Spread Account" has the meaning specified in Section 3.01(a)
hereof.
"Series 1998-1 Trust" has the meaning provided in the first recital to this
Agreement.
"Series 1998-1 Trust Agreement" has the meaning provided in the first
recital to this Agreement.
"Series 1998-1 Trust Estate" means the Trust Estate with respect to the
Series 1998, as described in the Series 1998-1 Sale and Servicing Agreement and
the Series 1998-1 Indenture.
"Series of Securities" or "Series" means the Series 1998 or, as the context
may require, any other series of Securities issued or arising as described in
Section 2.02 hereof, or collectively, all such series.
"Series Supplement" means a supplement hereto executed by the parties
hereto in accordance with Section 2.02 hereof.
"Servicer Termination Side Letter" shall have the meaning set forth in the
Insurance Agreement.
"Spread Account" has the meaning specified in Section 3.01(a) hereof.
"Spread Account Eligible Investments" means Eligible Investments held by
the Collateral Agent in a Spread Account and with respect to which the
Collateral Agent has taken Delivery.
"Spread Account Shortfall" means, with respect to any Series and any
Reporting Date with respect to which (x) a Trigger Event has occurred and has
not been Deemed Cured or (y) an Insurance Agreement Event of Default has
occurred, the excess, if any, of the amount determined pursuant to the
applicable definition of Requisite Amount with respect to such Reporting Date
over the amount on deposit in the related Spread Account as of such Reporting
Date after making any withdrawals therefrom required by priorities FIRST,
SECOND, and THIRD of Section 3.03(b) hereof.
"Transaction Documents" means, with respect to a Series, this Agreement,
each of the applicable Securitization Agreements, the Servicer Termination Side
Letter, the Insurance Agreement, the Indemnification Agreement, the Purchase
Agreement, the Inducement Letter, the Premium Letter, the Assignment Agreement,
if any, the Custodian Agreement, the Lockbox Agreement, any Conveyance related
to such Series, any Subsequent Transfer
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Agreement related to such Series and any other financing document related to
such Series.
"Trigger Event" means, with respect to Series 1998-1, that as of any
Reporting Date with respect to Series 1998-1 that any one of the following
events shall have occurred and shall not have been Deemed Cured: (a)(i) as of
such Reporting Date before the January 1999 Distribution Date, the Average
Delinquency Rate is equal to or greater than 8.75% or (ii) as of such Reporting
Date after the January 1999 Distribution Date, (x) if the Cumulative Loss Rate
as of the January 1999 Distribution Date is equal to or greater than 4.0%, the
Average Delinquency Rate is equal to or greater than 8.75% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than 4.0%,
the Average Delinquency Rate is equal to or greater than 8.35%; or (b) as of
such Reporting Date (i) occurring before the January 1999 Distribution Date, the
Average Default Rate is equal to or greater than 18.50%, (ii) occurring after
the January 1999 Distribution Date but before the January 2000 Distribution Date
and (x) if the Cumulative Loss Rate as of the January 1999 Distribution Date is
equal to or greater than 4.0%, the Average Default Rate is equal to or greater
than 18.50% or (y) if the Cumulative Loss Rate as of the January 1999
Distribution Date is less than 4.0%, the Average Default Rate is equal to or
greater than 18.10% and (iii) occurring subsequent to the January 2000
Distribution Date and (x) if the Cumulative Loss Rate as of the January 1999
Distribution Date is equal to or greater than 4.0%, the Average Default Rate is
equal to or greater than 14.50% or (y) if the Cumulative Loss Rate as of the
January 1999 Distribution Date is less than 4.0%, the Average Default Rate is
equal to or greater than 14.10%; or (c) as of such Reporting Date (i) occurring
before the January 1999 Distribution Date, the Average Net Loss Rate is equal to
or greater than 9.20%, (ii) occurring after the January 1999 Distribution Date
but before the January 2000 Distribution Date and (x) if the Cumulative Loss
Rate as of the January 1999 Distribution Date is equal to or greater than 4.0%,
the Average Net Loss Rate is equal to or greater than 9.20% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than 4.0%,
the Average Net Loss Rate is equal to or greater than 8.30% and (iii) occurring
subsequent to the January 2000 Distribution Date and (x) if the Cumulative Loss
Rate as of the January 1999 Distribution Date is equal to or greater than 4.0%,
the Average Net Loss Rate is equal to or greater than 7.20% or (y) if the
Cumulative Loss Rate as of the January 1999 Distribution Date is less than 4.0%,
the Average Net Loss Rate is equal to or greater than 6.30%.
"Trust" means a trust formed pursuant to a Securitization Agreement.
"Trust Estate" with respect to any Series means the property assigned to
the Trustee or other Person or held in the estate of
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the Trust, in each case pursuant to the related Securitization Agreement.
"Trustee" means with respect to any Series, the Trustee or Trust Collateral
Agent, as applicable, named in the related Securitization Agreement.
"Trustee Secured Obligations" means, with respect to a Series, all amounts
and obligations which NAFI, the Transferor or the Trust may at any time owe to
or on behalf of the Trustee for the benefit of the Securityholders under the
Securitization Agreement with respect to such Series.
"Trustee Termination Date" means, with respect to any Series, the date
which is the latest of (i) the date on which the Trustee shall have received, as
Trustee for the holders of the Securities of such Series, payment and
performance in full of all Trustee Secured Obligations arising out of or
relating to such Series, (ii) the date on which all payments in respect of the
Securities of such Series shall have been made and the related Trust shall have
been terminated pursuant to the terms of the related Securitization Agreement
and (iii) the latest date any payment referred to above could be avoided as a
preference or otherwise under the United States Bankruptcy Code or any other
similar Federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, as specified in an Opinion of Counsel delivered
to the Collateral Agent, Financial Security and the Trustee.
"Uniform Commercial Code" or "UCC" means the Uniform Commercial Code in
effect in the relevant jurisdiction, as the same may be amended from time to
time.
"Unreimbursed Amounts" has the meaning specified in Section 3.03(b) hereof.
Section 1.2. Rules of Interpretation. The terms "hereof," "herein" or
"hereunder," unless otherwise modified by more specific reference, shall refer
to this Agreement in its entirety. Unless otherwise indicated in context, the
terms "Article," "Section," "Appendix," "Exhibit" or "Annex" shall refer to an
Article or Section of, or Appendix, Exhibit or Annex to, this Agreement. The
definition of a term shall include the singular, the plural, the past, the
present, the future, the active and the passive forms of such term. A term
defined herein and used herein preceded by a Series designation, shall mean such
term as it relates to the Series designated.
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ARTICLE II
REVERSIONARY HOLDERS; SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.1. Reversionary Holders. It is anticipated that each
Securitization Agreement will require that certain amounts be deposited into a
Spread Account. With respect to any Series, the Person or Persons who will
ultimately be entitled to receive distributions of amounts released from the
related Spread Account are the "Reversionary Holders" with respect to such
Spread Account and Series and may be classified into different classes of
Reversionary Holders pursuant to the applicable Securitization Agreement and
Section 3.03 hereof. With respect to Series 1998-1, the Reversionary Holders
(the "Series 1998-1 Reversionary Holders") shall be the holders of the Trust
Certificates.
It is intended by the parties hereto that the Collateral shall constitute
property held in trust by the Collateral Agent, to provide for the payment of
the Secured Obligations, and that such Collateral and any property rights
appurtenant thereto shall vest in the related Reversionary Holders only when
such Collateral is released to such Reversionary Holders in accordance with
Section 3.03(b) hereof.
Notwithstanding the foregoing, each Reversionary Holder may treat the
deposit of the related Collateral into the related Spread Account as the receipt
by such Reversionary Holder of such Collateral for Federal and state income
taxes, as may be required by law.
Each Securitization Agreement in which the Transferor is not itself the
sole Reversionary Holder shall provide that the Transferor shall be deemed to be
the agent of the related Reversionary Holders for the purpose of perfecting the
Collateral Agent's Security Interest in the related Collateral. Each
Securitization Agreement shall additionally provide that the Reversionary
Holders agree to execute and deliver such instruments of conveyance, assignment,
grant, confirmation, etc., as well as any financing statements, in each case, as
the Controlling Party shall consider reasonably necessary in order to perfect
the Collateral Agent's Security Interest in the related Collateral.
Section 2.2. Series Supplements. The parties hereto agree that the
Transferor will have the option to enter into a Series Supplement hereto with
respect to each Series, the Secured Obligations with respect to which are to be
secured by Collateral held pursuant to the provisions of this Agreement. The
parties will enter into a Series Supplement only if the following conditions
shall have been satisfied:
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(i) The Transferor shall have sold or pledged all or a portion of
its right, title and interest in and to a pool of receivables and/or
other financial assets or property to a Trust or other Person pursuant
to a Securitization Agreement;
(ii) Financial Security shall have issued a Policy in respect of
the Guaranteed Distributions or Scheduled Payments, as the case may
be, with respect to the Series issued or arising pursuant to such
Securitization Agreement; and
(iii) Pursuant to the related Series Supplement the related
Collateral specified herein shall be administered by the Collateral
Agent substantially on the terms set forth in Section 2.03 hereof.
Section 2.3. Creation and Grant of Security Interest by the Transferor.
(a) To secure the performance of the Series 1998-1 Secured Obligations and
the Secured Obligations with respect to each other Series to the extent provided
herein, the Transferor, including in its capacity as agent on behalf of the
Reversionary Holders, hereby pledges, assigns, grants, transfers and conveys to
the Collateral Agent, on behalf of and for the benefit of the Secured Parties, a
lien on and security interest in (which lien and security interest is intended
to be prior to all other Liens), all of its right, title and interest in and to
the following (all being collectively referred to herein as the "Series 1998-1
Collateral" and constituting Collateral hereunder):
(i) the amounts distributed to the Series 1998-1 Spread Account
pursuant to Section 5.7(b)(v) of the Series 1998-1 Sale and Servicing
Agreement and Section 5.6(a) of the Series 1998-1 Indenture and all rights
and remedies that the Series 1998-1 Reversionary Holders may have to
enforce such distributions, whether under the Series 1998-1 Securitization
Agreements or otherwise;
(ii) the Series 1998-1 Spread Account established pursuant to Section
3.01 hereof, and each other account established by the Transferor and
maintained by the Collateral Agent (including, without limitation, the
Initial Spread Account Deposit related thereto and all additional monies,
checks, securities, investments and other documents from time to time held
in or evidencing any such accounts);
(iii) all of the Transferor's right, title and interest in its
capacity as agent for the Series 1998-1 Reversionary Holders, in and to
investments made with
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proceeds of the property described in clauses (i) and (ii) above, or made
with amounts on deposit in the Series 1998-1 Spread Account; and
(iv) all distributions, revenues, products, substitutions, benefits,
profits and proceeds, in whatever form, of any of the foregoing.
(b) To effectuate the provisions and purposes of this Agreement, including
for the purpose of perfecting the security interests granted hereunder, the
Transferor represents and warrants that it has executed and filed on or prior to
the Closing Date an appropriate Uniform Commercial Code financing statement in
the State of Illinois sufficient to assure that the Collateral Agent, as agent
for the Secured Parties, has a first priority perfected security interest in all
Series 1998-1 Collateral which can be perfected by the filing of a financing
statement.
Section 2.4. Priority. The Transferor intends the security interests in
favor of the Collateral Agent, for the benefit of the Secured Parties, to be
prior to all other Liens in respect of the Collateral, and the Transferor shall
take all actions necessary to obtain and maintain, in favor of the Collateral
Agent, for the benefit of the Secured Parties, a first lien on and a first
priority perfected security interest in the Collateral. Subject to the
provisions hereof specifying the rights and powers of the Controlling Party from
time to time to control certain specified matters relating to the Collateral,
each Secured Party shall have all of the rights, remedies and recourse with
respect to the Collateral afforded a secured party under the Uniform Commercial
Code, and all other applicable law in addition to, and not in limitation of, the
other rights, remedies and recourse granted to such Secured Parties by this
Agreement or any other law relating to the creation and perfection of liens on,
and security interests in, the Collateral.
Section 2.5. Transferor Remains Liable. The Security Interests are granted
as security only and shall not (i) transfer or in any way affect or modify, or
relieve the Transferor from, any obligation to perform or satisfy, any term,
covenant, condition or agreement to be performed or satisfied by the Transferor
under or in connection with this Agreement, the Insurance Agreement or any other
Transaction Document to which it is a party or (ii) impose any obligation on any
of the Secured Parties or the Collateral Agent to perform or observe any such
term, covenant, condition or agreement or impose any liability on any of the
Secured Parties or the Collateral Agent for any act or omission on its part
relative thereto or for any breach of any representation or warranty on its part
contained therein or made
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in connection therewith, except, in each case, to the extent provided herein and
in the other Transaction Documents.
Section 2.6. Maintenance of Collateral.
(a) Safekeeping. The Collateral Agent agrees to (i) maintain the Collateral
(other than Spread Account Eligible Investments) received by it and all records
and documents relating thereto at the office of the Collateral Agent specified
in Section 8.06 hereof or such other address within the State of Illinois
(unless all filings have been made to continue the perfection of the security
interest in the Collateral to the extent such security interest can be perfected
by filing a financing statement, as evidenced by an Opinion of Counsel delivered
by the Transferor to the Controlling Party), as may be approved by the
Controlling Party and (ii) take Delivery of and maintain the Spread Account
Eligible Investments and all records and documents relating thereto at its
offices within the State of New York. The Collateral Agent shall keep all
Collateral and related documentation in its possession separate and apart from
all other property that it is holding in its possession and from its own general
assets and shall maintain accurate records pertaining to the Spread Account
Eligible Investments and Spread Accounts included in the Collateral in such a
manner as shall enable the Collateral Agent and the Secured Parties to verify
the accuracy of such record-keeping. The Collateral Agent's books and records
shall at all times show that the Collateral is held by the Collateral Agent as
agent of the Secured Parties and is not the property of the Collateral Agent.
The Collateral Agent will promptly report to each Secured Party and the
Transferor any failure on its part to hold the Collateral as provided in this
Section 2.06(a) and will promptly take appropriate action to remedy any such
failure.
(b) Access. The Collateral Agent shall permit each of the Secured Parties,
the Reversionary Holders or their respective duly authorized representatives,
attorneys, auditors or designees, to inspect the Collateral in the possession of
or otherwise under the control of the Collateral Agent pursuant hereto at such
reasonable times during normal business hours as any such Secured Party or
Reversionary Holders may reasonably request upon not less than two Business
Days' prior written notice. The costs and expenses associated with any such
inspection will be paid by the party making such inspection.
(c) With respect to the Collateral credited to the Spread Account, the
Collateral Agent, in its capacity as the Securities Intermediary agrees that:
(i) any Collateral that is held in deposit accounts shall be held
solely in a bank that is an Eligible Bank; and each such deposit account
shall be subject to the exclusive
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custody and control of the Securities Intermediary, and the Securities
Intermediary shall have sole signature authority with respect thereto;
(ii) except for any deposit accounts specified in clause (c)(i) above,
the Spread Account shall be invested only in cash, securities or other
assets which the Securities Intermediary or other Eligible Bank maintaining
the Spread Account pursuant to Section 3.01(a) agrees to treat as Financial
Assets; and
(iii) any such Collateral that is, or is treated as, a Financial Asset
shall be physically delivered (accompanied by any required endorsements)
to, or credited to an account in the name of, the Securities Intermediary
or other Eligible Bank maintaining the Spread Account pursuant to Section
3.01(a) in accordance with the Securities Intermediary's or such other
institution's customary procedures such that the Securities Intermediary or
such other institution establishes a Security Entitlement in favor of the
Collateral Agent with respect thereto over which the Securities
Intermediary or such other institution has Control.
(d) The Securities Intermediary hereby confirms that (A) the Spread Account
is an account to which Financial Assets are or may be credited, and the
Securities Intermediary shall, subject to the terms of this Agreement, treat the
Collateral Agent as entitled to exercise the rights that comprise any Financial
Asset credited to the Spread Account, (B) all Collateral in respect of the
Spread Account will be promptly credited by the Securities Intermediary to the
Spread Account, and (C) all securities or other property underlying any
Financial Assets credited to the Spread Account shall be registered in the name
of the Securities Intermediary, endorsed to the Securities Intermediary or in
blank or credited to another securities account maintained in the name of the
Securities Intermediary and in no case will any Financial Asset credited to the
Spread Account be registered in the name of the Transferor, payable to the order
of the Transferor or specially endorsed to the Transferor in each case to the
extent the foregoing have been specially endorsed to the Securities Intermediary
or in blank.
(e) The Securities Intermediary hereby agrees that each item of property
(whether investment property, financial asset, security, instrument or cash)
credited to the Spread Account shall be treated as a Financial Asset.
(f) If at any time the Securities Intermediary shall receive any order from
the Collateral Agent directing transfer or redemption of any financial asset
relating to the Spread Account, the Securities Intermediary shall comply with
such entitlement
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order without further consent by the Transferor or any other Person. If at any
time the Collateral Agent notifies the Securities Intermediary in writing that
the Final Termination Date of the last Series has occurred, then thereafter if
the Securities Intermediary shall receive any order from the Transferor
directing transfer or redemption of any financial asset relating to the Spread
Account, the Securities Intermediary shall comply with such entitlement order
without further consent by the Collateral Agent or any other Person.
(g) In the event that the Securities Intermediary has or subsequently
obtains by agreement, operation of law or otherwise a security interest in the
Spread Account or any Financial Asset credited thereto, the Securities
Intermediary hereby agrees that such security interest shall be subordinate to
the security interest of the Collateral Agent. The Financial Assets credited to
the Spread Account will not be subject to deduction, set-off, banker's lien, or
any other right in favor of any person other than the Collateral Agent.
(h) There are no other agreements entered into between the Securities
Intermediary in such capacity and the Transferor with respect to the Spread
Account. In the event of any conflict between this Agreement (or any provision
of this Agreement) and any other agreement now existing or hereafter entered
into, the terms of this Agreement shall prevail.
(i) The rights and powers granted herein to the Collateral Agent have been
granted in order to perfect its security interest in the Spread Account and the
Security Entitlements to the Financial Assets credited thereto and are powers
coupled with an interest and will neither be affected by the bankruptcy,
receivership or conservatorship, as applicable, of the Transferor nor by the
lapse of time. The obligations of the Securities Intermediary hereunder shall
continue in effect until the security interest of the Collateral Agent in the
Spread Account and such Security Entitlements has been terminated pursuant to
the terms of this Agreement and the Collateral Agent has notified the Securities
Intermediary of such termination in writing.
(j) Notwithstanding anything else contained herein, the Transferor agrees
that the Spread Account will be established only with the Securities
Intermediary which agrees substantially as follows: (i) it will comply with
Entitlement Orders related to such account issued by the Collateral Agent
without further consent by the Transferor; (ii) until termination of the
Agreement, it will not enter into any other agreement related to such account
pursuant to which it agrees to comply with Entitlement Orders of any Person
other than the Collateral Agent; and (iii) all assets delivered or credited to
it in connection with such account and all investments thereof will be promptly
credited to such account.
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Section 2.7. Termination and Release of Rights.
(a) On the Insurer Termination Date relating to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon Financial
Security pursuant to this Agreement in respect of the Collateral related to such
Series (and, to the extent provided herein, in respect of Collateral related to
other Series) shall terminate and be of no further force and effect and all
rights, remedies, powers, duties, authority and obligations of Financial
Security with respect to such Collateral shall be automatically released;
provided that any indemnity provided to or by Financial Security herein shall
survive such Insurer Termination Date. If Financial Security is acting as
Controlling Party with respect to a Series on the related Insurer Termination
Date, Financial Security agrees, at the expense of the Transferor, to execute
and deliver such instruments as the successor Controlling Party may reasonably
request to effect such release, and any such instruments so executed and
delivered shall be fully binding on Financial Security and any Person claiming
by, through or under Financial Security.
(b) On the Trustee Termination Date related to a Series, the rights,
remedies, powers, duties, authority and obligations, if any, conferred upon the
Trustee, as Collateral Agent, pursuant to this Agreement in respect of the
Collateral related to such Series (and, to the extent provided herein, in
respect of the Collateral related to other Series) shall terminate and be of no
further force and effect and all such rights, remedies, powers, duties,
authority and obligations of the Trustee, as Collateral Agent, with respect to
such Collateral shall be automatically released; provided that any indemnity
provided to or by the Trustee herein shall survive such Trustee Termination
Date. If the Trustee is acting as Controlling Party with respect to a Series on
the related Trustee Termination Date, the Trustee agrees, at the expense of the
Transferor, to execute and deliver such instruments as the Transferor may
reasonably request to effectuate such release, and any such instruments so
executed and delivered shall be fully binding on the Trustee.
(c) On the Final Termination Date with respect to a Series, the rights,
remedies, powers, duties, authority and obligations conferred upon the
Collateral Agent and each Secured Party pursuant to this Agreement shall
terminate and be of no further force and effect and all rights, remedies,
powers, duties, authority and obligations of the Collateral Agent and each
Secured Party with respect to the Collateral related to such Series (and, to the
extent provided herein, in respect of Collateral related to other Series) shall
be automatically released, subject to the application of such amounts for
indemnity payments and all other amounts due and payable hereunder. On the Final
Termination Date with respect to a
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Series, the Collateral Agent agrees, and each Secured Party agrees, at the
expense of the Transferor, to execute such instruments of release, in recordable
form if necessary, in favor of the Transferor as the Transferor may reasonably
request, to deliver any Collateral related to such Series in its possession to
the Transferor or as otherwise provided in the related Securitization Agreement,
and to otherwise release the lien of this Agreement and release and deliver to
the Transferor or as otherwise provided in the related Securitization Agreement
the Collateral related to such Series.
Section 2.8. Non-Recourse Obligations of Transferor and the Reversionary
Holders. Notwithstanding anything herein or in the other Transaction Documents
to the contrary, the parties hereto agree that the obligations of the Transferor
and the Reversionary Holders hereunder shall be recourse only to the extent of
amounts deposited in the Spread Accounts. The Transferor agrees that it shall
not declare or make payment of (i) any dividend or other distribution on or in
respect of any beneficial interests in the Transferor or (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (x) any
beneficial interest in the Transferor or (y) any option, warrant or other right
to acquire any beneficial interest in the Transferor or (z) any payment of any
loan made by NAFI or any Affiliate of NAFI to the Transferor, unless (in each
case) at the time of such declaration or payment (and after giving effect
thereto) no amount payable by the Transferor or any Reversionary Holders under
any Transaction Document is then due and owing but unpaid.
ARTICLE III
SPREAD ACCOUNTS
Section 3.1. Establishment of Spread Accounts; Initial Deposits into Spread
Accounts.
(a) On or prior to the Closing Date relating to Series 1998-1, the
Collateral Agent shall establish with respect to such Series, at its office or
at another depository institution or trust company an Eligible Deposit Account,
designated, "Spread Account - National Auto Finance Series 1998-1 Trust - Harris
Trust and Savings Bank, as Collateral Agent for Financial Security Assurance
Inc. and another Secured Party" (the "Spread Account", and, with respect to the
Series 1998, the "Series 1998- 1 Spread Account"). All Spread Accounts
established under this Agreement from time to time shall be maintained at the
same depository institution (which depository institution may be changed from
time to time in accordance with this Agreement). If any Spread Account
maintained or established with respect to a Series ceases to be an Eligible
Deposit Account, the Collateral
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Agent shall, within five Business Days, establish a new Eligible Deposit Account
for such Series.
(b) No withdrawals may be made of funds in any Spread Account except as
provided in Section 3.03 of this Agreement. Except as specifically provided in
this Agreement, funds in a Spread Account established with respect to a Series
shall not be commingled with funds in a Spread Account established with respect
to another Series or with any other moneys. All moneys deposited from time to
time in such Spread Account and all investments made with such moneys shall be
held by the Collateral Agent as part of the Collateral with respect to such
Series.
(c) On the Closing Date with respect to a Series, the Collateral Agent
shall deposit the Initial Spread Account Deposit with respect to such Series, if
any, received from the Transferor into the related Spread Account.
(d) Each Spread Account shall be separate from each Trust, and amounts on
deposit therein will not constitute a part of the Trust Estate of any Trust.
Each Spread Account shall be maintained by the Collateral Agent at all times
separate and apart from any other account of the Transferor, the Servicer or the
Trust. All income or loss on investments of funds in any Spread Account shall be
reported by the applicable Reversionary Holders as taxable income or loss of
such Reversionary Holders.
Section 3.2. Investments.
(a) Funds which may at any time be held in the Spread Account established
with respect to a Series shall be invested and reinvested by the Collateral
Agent, at the written direction (including, subject to the provisions hereof,
general standing instructions) of the Transferor (unless a Default actually
known to an Authorized Officer of the Collateral Agent shall have occurred and
be continuing, in which case at the written direction of the Controlling Party)
or its designee received by the Collateral Agent by 1:00 P.M. New York City time
on the Business Day prior to the date on which such investment shall be made, in
one or more Spread Account Eligible Investments in the manner specified in
Section 3.02(c) hereof. If no written direction with respect to any portion of
such Spread Account is received by the Collateral Agent, the Collateral Agent
shall invest such funds overnight in such Eligible Investments as the Collateral
Agent may select, provided that the Collateral Agent shall not be liable for any
loss or absence of income resulting from such investments or for investments
made pursuant to written instructions received in accordance with this Section
3.02(a).
(b) Each investment made pursuant to this Section 3.02 on any date shall
mature not later than the Business Day immediately preceding the Distribution
Date next succeeding the day such
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investment is made, except that any investment made on the day preceding a
Distribution Date shall mature on such Distribution Date; provided that any
investment of funds in any Spread Account maintained with the Collateral Agent
(which shall be qualified as a Spread Account Eligible Investment) in any
investment as to which the Collateral Agent is the obligor, if otherwise
qualified as an Eligible Investment (including any repurchase agreement on which
the Collateral Agent in its commercial capacity is liable as principal) may
mature on the Distribution Date next succeeding the date of such investment.
(c) Subject to the other provisions hereof, the Collateral Agent shall have
sole control over each such investment and the income thereon, and any
certificate or other instrument evidencing any such investment, if any, shall be
delivered directly to the Collateral Agent or its agent, together with each
document of transfer, if any, necessary to transfer title to such investment to
the Collateral Agent in a manner complying with Section 2.06 hereof and the
requirements of the definition of "Spread Account Eligible Investments."
(d) If amounts on deposit in any Spread Account are at any time invested in
a Spread Account Eligible Investment payable on demand, the Collateral Agent
shall (i) consistent with any notice required to be given thereunder, demand
that payment thereon be made on the last day such Spread Account Eligible
Investment is permitted to mature under the provisions hereof and (ii) demand
payment of all amounts due thereunder promptly upon receipt of written notice
from the Controlling Party to the effect that such investment does not
constitute a Spread Account Eligible Investment.
(e) All moneys on deposit in a Spread Account together with any deposits or
securities in which such moneys may be invested or reinvested, and any gains
from such investments, shall constitute Collateral hereunder with respect to the
related Series subject to the Security Interests of the Secured Parties.
(f) Subject to Section 4.03 hereof, the Collateral Agent shall not be
liable by reason of any insufficiency in any Spread Account resulting from any
loss on any Eligible Investment included therein except for losses attributable
to the Collateral Agent's failure to make payments on Eligible Investments as to
which the Collateral Agent, in its commercial capacity, is obligated to make.
Section 3.3. Distributions; Priority of Payments.
(a) On or before each Deficiency Claim Date with respect to any Series, the
Collateral Agent will make the following calculations on the basis of
information (including, without limitation, the amount of any Deficiency Claim
Amount with
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respect to any Series) received pursuant to Section 4.11 of the applicable
Securitization Agreement (or other section referenced in the related Series
Supplement), with respect to each such Series from the Servicer thereunder;
provided, however, that if the Collateral Agent receives notice from Financial
Security of the occurrence of an Insurance Agreement Event of Default with
respect to any Series, such notice shall be determinative for the purposes of
determining the Requisite Amount for such Series:
FIRST, determine the amounts to be on deposit in the respective Spread
Accounts (taking into account amounts to be deposited into the related
Spread Accounts) on the next succeeding Distribution Date which will be
available to satisfy any Deficiency Claim Amount.
SECOND, determine (i) the amounts, if any, to be distributed from each
Spread Account related to each Series with respect to which there exists a
Deficiency Claim Amount, and (ii) whether, following distribution from the
related Spread Accounts to the respective Trustees for deposit into the
respective Collection Account with respect to which there exists a
Deficiency Claim Amount, a Deficiency Claim Amount will continue to exist
with respect to one or more Series.
THIRD, if a Deficiency Claim Amount will continue to exist with
respect to one or more Series other than the Series 1998 following the
distributions from the related Spread Accounts contemplated by paragraph
SECOND above, determine the amount, if any, to be distributed to the
Trustee with respect to each Series from unrelated Spread Accounts other
than the Series 1998-1 Spread Account in respect of such Deficiency Claim
Amount(s). This determination shall be made in accordance with the
distribution priority scheme set forth in Section 3.03(b) below.
On such Deficiency Claim Date related to a Series, the Collateral Agent
shall deliver a certificate to each Trustee in respect of which the Collateral
Agent has received a Deficiency Notice stating the amount, if any, to be
distributed to such Trustee on the next Distribution Date in respect of such
Deficiency Claim Amount.
(b) On each Distribution Date, following the deposit into the respective
Spread Accounts of the amounts required to be deposited therein pursuant to the
respective Securitization Agreements and if the Trustee has received a
Deficiency Notice with respect to one or more such Series, or with respect to
priority SIXTH below to the extent the amount referred to therein is due and
owing, the Collateral Agent shall make the following distributions in the
following order of priority:
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FIRST, if with respect to any Series there exists a Deficiency Claim
Amount, from the Spread Account related to such Series, to the Trustee for
deposit in the related Collection Account the amount of such Deficiency
Claim Amount.
SECOND, if with respect to any Series other than the Series 1998 there
continues to exist a Deficiency Claim Amount after deposit into the
Collection Account of amounts distributed pursuant to priority FIRST of
this Section 3.03(b), from amounts, if any, on deposit in each unrelated
Spread Account other than the Series 1998-1 Spread Account, pro rata, in
excess of the related Requisite Amount, an amount in the aggregate up to
the aggregate of the Deficiency Claim Amounts for all Series other than the
Series 1998-1, for deposit in the respective Collection Accounts pro rata
in accordance with the respective Deficiency Claim Amounts.
THIRD, if with respect to any Series other than the Series 1998 there
continues to exist a Deficiency Claim Amount after deposit into the
Collection Account of amounts distributed pursuant to priority FIRST and
SECOND of this Section 3.03(b), from each unrelated Spread Account other
than the Series 1998-1 Spread Account pro rata in accordance with amounts
on deposit therein, an amount up to the aggregate of the remaining
Deficiency Claim Amounts for all Series other than the Series 1998, to the
respective Trustees for deposit in the respective Collection Accounts pro
rata in accordance with the respective Deficiency Claim Amounts.
FOURTH, if with respect to one or more Series other than the Series
1998 there exists a Spread Account Shortfall, from amounts, if any, (1) on
deposit in each Spread Account other than the Series 1998-1 Spread Account
in excess of the related Requisite Amount or (2) on deposit in any Spread
Account other than the Series 1998-1 Spread Account with respect to which
the Final Termination Date shall have occurred on such Distribution Date or
a prior Distribution Date, an amount in the aggregate up to the aggregate
of the Spread Account Shortfalls for all Series other than the Series 1998
for deposit into each Spread Account other than the Series 1998-1 Spread
Account pro rata in accordance with the respective Spread Account
Shortfalls.
FIFTH, if with respect to one or more Series, amounts have been
withdrawn from the related Spread Account pursuant to priority THIRD of
this Section 3.03(b) on such Distribution Date and/or prior Distribution
Dates and such amounts have not been redeposited in full into such Spread
Account pursuant to this priority FIFTH (such amounts in the
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aggregate for a Series "Unreimbursed Amounts"), from amounts, if any, (1)
on deposit in each Spread Account other than the Series 1998-1 Spread
Account in excess of the related Requisite Amount; or (2) on deposit in any
Spread Account other than the Series 1998-1 Spread Account with respect to
which the Final Termination Date shall have occurred on such Distribution
Date or a prior Distribution Date, an amount up to the aggregate of the
Unreimbursed Amounts for all such Series for deposit into each Spread
Account other than the Series 1998-1 Spread Account with respect to which
there exist Unreimbursed Amounts pro rata in accordance with the respective
Unreimbursed Amounts.
SIXTH, if any amounts are owed to the Trustee, the Collateral Agent or
Backup Servicer for reasonable out-of-pocket expenses in connection with
the administration of the Trust, including the expenses incurred in the
transition to a successor Servicer and such amounts have not been paid,
then from amounts (if any) on deposit in the related Spread Account, an
amount up to the amount so owed, to be paid to the Trustee, the Collateral
Agent and the Backup Servicer.
SEVENTH, any funds in a Spread Account in excess of the applicable
Requisite Amount and any funds in a Spread Account with respect to a Series
for which the Final Termination Date shall have occurred after distribution
pursuant to priorities FIRST through SIXTH will be released to the related
Reversionary Holders as provided in the related Securitization Agreement
(or, if the related Securitization Agreement does not so provide, to the
Transferor), in each case, free and clear of the Lien established
hereunder.
Section 3.4. General Provisions Regarding Spread Accounts.
(a) Promptly upon the establishment (initially or upon any relocation) of a
Spread Account hereunder, the Collateral Agent shall advise the Transferor and
each Secured Party in writing of the name and address of the depository
institution or trust company where such Spread Account has been established (if
not Harris Trust and Savings Bank or any successor Collateral Agent in its
commercial banking capacity), the name of the officer of the depository
institution responsible for overseeing such Spread Account, the account number
and the individuals whose names appear on the signature cards for such Spread
Account. The Transferor shall cause each such depository institution or trust
company to execute a written agreement, in form and substance satisfactory to
the Controlling Party, waiving, and the Collateral Agent by its execution of
this Agreement hereby waives (except to the extent expressly provided herein),
in each case to the extent permitted under applicable law, (i) any banker's or
other statutory or similar Lien, and (ii) any right of set-off or
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other similar right under applicable law with respect to such Spread Account,
and any other Spread Account, and agreeing, and the Collateral Agent by its
execution of this Agreement hereby agrees, to notify the Transferor, the
Collateral Agent, and each Secured Party of any charge or claim against or with
respect to such Spread Account. The Collateral Agent shall give the Transferor
and each Secured Party at least ten (10) Business Days' prior written notice of
any change in the location of such Spread Account or in any related account
information. If the Collateral Agent changes the location of any Spread Account,
it shall change the location of the other Spread Accounts, so that all Spread
Accounts shall at all times be located at the same depository institution.
Anything herein to the contrary notwithstanding, unless otherwise consented to
by the Controlling Party in writing, the Collateral Agent shall have no right to
change the location of any Spread Account.
(b) Upon the written request of the Controlling Party, the Transferor, or
any Reversionary Holder, the Collateral Agent shall cause, at the expense of the
Transferor, the depository institution at which any Spread Account is located to
forward to the requesting party copies of all monthly account statements for
such Spread Account.
(c) If at any time any Spread Account ceases to be an Eligible Deposit
Account, the Collateral Agent shall notify the Controlling Party of such fact
and shall establish within five (5) Business Days of such determination in
accordance with paragraph (a) of this Section, a successor Spread Account
thereto, which shall be an Eligible Deposit Account, at another depository
institution or trust company acceptable to the Controlling Party and shall
establish successor Spread Accounts with respect to all other Spread Accounts,
each of which shall be an Eligible Deposit Account, at the same depository
institution. The Transferor shall cause such depository institution to execute a
written agreement under terms provided for in paragraph (a) of this Section.
(d) No passbook, certificate of deposit or other similar instrument
evidencing a Spread Account shall be issued, and all contracts, receipts and
other papers, if any, governing or evidencing a Spread Account shall be held by
the Collateral Agent.
Section 3.5. Reports by the Collateral Agent. The Collateral Agent shall
report to the Transferor, Financial Security, the Trustee and the Servicer on a
monthly basis no later than each Distribution Date with respect to the amount on
deposit in each Spread Account and the identity of the investments included
therein as of the last day of the related Monthly Period, and shall provide
accountings of deposits into and withdrawals from the Spread Accounts, and of
the investments
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made therein, upon the request of the Transferor, Financial Security or the
Servicer.
ARTICLE IV
THE COLLATERAL AGENT AND SECURITIES INTERMEDIARY
Section 4.1. Appointment and Powers. Subject to the terms and conditions
hereof, each of the Secured Parties hereby appoints Harris Trust and Savings
Bank as the Collateral Agent with respect to the Series 1998-1 Collateral and
the related Collateral subsequently specified in a Series Supplement, and Harris
Trust and Savings Bank hereby accepts such appointment and agrees to act as
Collateral Agent with respect to the Series 1998-1 Collateral, and upon
execution of any Series Supplement, shall be deemed to accept such appointment,
and agree to act as Collateral Agent with respect to such Collateral, in each
case, for the Secured Parties, to maintain custody and possession of such
Collateral (except as otherwise provided hereunder) and to perform the other
duties of the Collateral Agent in accordance with the provisions of this
Agreement. Subject to the terms and conditions hereof, the Transferor,
individually and in its capacity as agent on behalf of the Reversionary Holders,
each of the Secured Parties and the Collateral Agent hereby appoint Harris Trust
and Savings Bank as Securities Intermediary with respect to the Spread Account,
and Harris Trust and Savings Bank hereby accepts such appointment as Securities
Intermediary and agrees to act on behalf of, and at the direction of, the
Collateral Agent with respect thereto. Each Secured Party hereby authorizes the
Collateral Agent to take such action on its behalf, and to exercise such rights,
remedies, powers and privileges hereunder, as the Controlling Party may direct
and as are specifically authorized to be exercised by the Collateral Agent by
the terms hereof, together with such actions, rights, remedies, powers and
privileges as are reasonably incidental thereto. The Collateral Agent shall act
upon and in compliance with the written instructions of the Controlling Party
delivered pursuant to this Agreement promptly following receipt of such written
instructions; provided, however, that the Collateral Agent shall not act in
accordance with any instructions (i) which are not authorized by, or in
violation of the provisions of, this Agreement, (ii) which are in violation of
any applicable law, rule or regulation or (iii) for which the Collateral Agent
has not received reasonable indemnity. Receipt of such instructions shall not be
a condition to the exercise by the Collateral Agent of its express duties
hereunder, except where this Agreement provides that the Collateral Agent is
permitted to act only following and in accordance with such instructions.
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Section 4.2. Performance of Duties. The Collateral Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement
and the other Transaction Documents to which the Collateral Agent is a party as
Collateral Agent or as directed by the Controlling Party in accordance with this
Agreement. The Collateral Agent shall not be required to take any discretionary
actions hereunder except at the written direction and with the indemnification
of the Controlling Party.
Section 4.3. Limitation on Liability. Neither the Collateral Agent nor any
of its directors, officers or employees, shall be liable for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith, except
that the Collateral Agent shall be liable for its gross negligence, bad faith or
willful misconduct; nor shall the Collateral Agent be responsible for the
validity, effectiveness, value, sufficiency or enforceability against the
Transferor of this Agreement or any of the Collateral (or any part thereof).
Notwithstanding any term or provision of this Agreement, the Collateral Agent
shall incur no liability to the Transferor or the Secured Parties for any action
taken or omitted by the Collateral Agent in connection with the Collateral,
except for the negligence, bad faith or willful misconduct on the part of the
Collateral Agent, and, further, shall incur no liability to the Secured Parties
except for negligence, bad faith or willful misconduct in carrying out its
duties to the Secured Parties. Subject to Section 4.04 hereof, the Collateral
Agent shall be protected and shall incur no liability to any such party in
relying upon the accuracy, acting in reliance upon the contents, and assuming
the genuineness of any notice, demand, certificate, signature, instrument or
other document reasonably believed by the Collateral Agent to be genuine and to
have been duly executed by the appropriate signatory, and (absent actual
knowledge to the contrary) the Collateral Agent shall not be required to make
any independent investigation with respect thereto. The Collateral Agent shall
at all times be free independently to establish to its reasonable satisfaction,
but shall have no duty to independently verify, the existence or nonexistence of
facts that are a condition to the exercise or enforcement of any right or remedy
hereunder or under any of the Transaction Documents. The Collateral Agent may
consult with counsel, and shall not be liable for any action taken or omitted to
be taken by it hereunder in good faith and in accordance with the written advice
of such counsel. The Collateral Agent shall not be under any obligation to
exercise any of the remedial rights or powers vested in it by this Agreement or
to follow any direction from the Controlling Party unless it shall have received
reasonable security or indemnity satisfactory to the Collateral Agent against
the costs, expenses and liabilities which might be incurred by it in the
exercise thereof.
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Section 4.4. Reliance upon Documents. In the absence of negligence, bad
faith or willful misconduct on its part, the Collateral Agent shall be entitled
to conclusively rely on any communication, instrument, paper or other document
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons and shall have no liability in acting, or
omitting to act, where such action or omission to act is in reliance upon any
statement or opinion contained in any such document or instrument.
Section 4.5. Successor Collateral Agent.
(a) Merger. Any Person into which the Collateral Agent may be converted or
merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Collateral Agent hereunder) be and become a
successor Collateral Agent hereunder and be vested with all of the title to and
interest in the Collateral and all of the trusts, powers, discretions,
immunities, privileges and other matters as was its predecessor without the
execution or filing of any instrument or any further act, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding, except to the extent, if any, that any such action is necessary
to perfect, or continue the perfection of, the security interest of the Secured
Parties in the Collateral.
(b) Resignation. The Collateral Agent and any successor Collateral Agent
may resign only (i) upon a determination that by reason of a change in legal
requirements, the performance of its duties under this Agreement would cause it
to be in violation of such legal requirements in a manner which would result in
a material adverse effect on the Collateral Agent, and the Controlling Party
does not elect to waive the Collateral Agent's obligation to perform those
duties which render it legally unable to act or elect to delegate those duties
to another Person, or (ii) with the prior written consent of the Controlling
Party. The Collateral Agent shall give not less than 60 days' prior written
notice of any such permitted resignation by registered or certified mail to the
other Secured Party and the Transferor; provided, that such resignation shall
take effect only upon the date which is the latest of (i) the effective date of
the appointment of a successor Collateral Agent and the acceptance in writing by
such successor Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the provisions hereof, (ii)
delivery of the Collateral to such successor to be held in accordance with the
procedures specified in Article II hereof, and (iii) receipt by the Controlling
Party of an Opinion of Counsel to the effect
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described in Section 5.02 hereof. Notwithstanding the preceding sentence, if, by
the contemplated date of resignation specified in the written notice of
resignation delivered as described above, no successor Collateral Agent or
temporary successor Collateral Agent has been appointed Collateral Agent or
becomes the Collateral Agent pursuant to subsection (d) hereof, the resigning
Collateral Agent may petition a court of competent jurisdiction in New York, New
York for the appointment of a successor.
(c) Removal. The Collateral Agent may be removed by the Controlling Party
at any time, with or without cause, by an instrument or concurrent instruments
in writing delivered to the Collateral Agent, the other Secured Party and the
Transferor. A temporary successor may be removed at any time to allow a
successor Collateral Agent to be appointed pursuant to subsection (d) below. Any
removal pursuant to the provisions of this subsection (c) shall take effect only
upon the date which is the latest of (i) the effective date of the appointment
of a successor Collateral Agent and the acceptance in writing by such successor
Collateral Agent of such appointment and of its obligation to perform its duties
hereunder in accordance with the provisions hereof, (ii) delivery of the
Collateral to such successor to be held in accordance with the procedures
specified in Article II hereof and (iii) receipt by the Controlling Party of an
Opinion of Counsel to the effect described in Section 5.02 hereof.
(d) Acceptance by Successor. The Controlling Party shall have the sole
right to appoint each successor Collateral Agent. Every temporary or permanent
successor Collateral Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor and to each Secured Party and the Transferor an
instrument in writing accepting such appointment hereunder and the relevant
predecessor shall execute, acknowledge and deliver such other documents and
instruments as will effectuate the delivery of all Collateral to the successor
Collateral Agent to be held in accordance with the procedures specified in
Article II hereof, whereupon such successor, without any further act, deed or
conveyance, shall become fully vested with all the estates, properties, rights,
powers, duties and obligations of its predecessor. Such predecessor shall,
nevertheless, on the written request of either Secured Party or the Transferor,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor hereunder. In the
event that any instrument in writing from the Transferor or a Secured Party is
reasonably required by a successor Collateral Agent to more fully and certainly
vest in such successor the estates, properties, rights, powers, duties and
obligations vested or intended to be vested hereunder in the Collateral Agent,
any and all such written instruments shall, at the request of the temporary or
permanent
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successor Collateral Agent, be forthwith executed, acknowledged and delivered by
the Transferor. The designation of any successor Collateral Agent and the
instrument or instruments removing any Collateral Agent and appointing a
successor hereunder, together with all other instruments provided for herein,
shall be maintained with the records relating to the Collateral and, to the
extent required by applicable law, filed or recorded by the successor Collateral
Agent in each place where such filing or recording is necessary to effect the
transfer of the Collateral to the successor Collateral Agent or to protect or
continue the perfection of the security interests granted hereunder.
(e) Any resignation or removal of a Collateral Agent and appointment of a
successor Collateral Agent shall be effected with respect to this Agreement and
all Series Supplements simultaneously, so that at no time is there more than one
Collateral Agent acting hereunder and under all Series Supplements.
Section 4.6. Indemnification. The Transferor shall indemnify the Collateral
Agent, its directors, officers, employees and agents for, and hold the
Collateral Agent, its directors, officers, employees and agents harmless
against, any loss, liability or expense (including the costs and expenses of
defending against any claim of liability) arising out of or in connection with
the Collateral Agent's acting as Collateral Agent hereunder, except such loss,
liability or expense as shall result from the negligence, bad faith or willful
misconduct of the Collateral Agent or its officers or agents. The obligation of
the Transferor under this Section shall survive the termination of this
Agreement and the resignation or removal of the Collateral Agent. The Collateral
Agent covenants and agrees that the obligations of the Transferor hereunder and
under Section 4.07 hereof shall be limited to the extent provided in Section
2.08 hereof, and further covenants not to take any action to enforce its rights
to indemnification hereunder with respect to the Transferor and to payment under
Section 4.07 hereof except in accordance with the provisions of Section 8.05
hereof, or otherwise to assert any Lien or take any other action in respect of
the Collateral or the Trust Estate of a Series until the applicable Final
Termination Date.
Section 4.7. Compensation and Reimbursement. The Transferor agrees for the
benefit of the Secured Parties and as part of the Secured Obligations (a) to pay
to the Collateral Agent, on each Distribution Date, the Collateral Agent Fee for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a collateral trustee);
and (b) to reimburse the Collateral Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Collateral
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Agent in accordance with any provision of, or carrying out its duties and
obligations under, this Agreement (including the reasonable compensation and
fees and the expenses and disbursements of its agents, any independent certified
public accountants and independent counsel), except any expense, disbursement or
advances as may be attributable to negligence, bad faith or willful misconduct
on the part of the Collateral Agent.
Section 4.8. Representations and Warranties of the Collateral Agent. The
Collateral Agent represents and warrants to the Transferor and to each Secured
Party as follows:
(a) Due Organization. The Collateral Agent is an Illinois banking
corporation, duly organized, validly existing and in good standing under
the laws of the State of Illinois, and is duly authorized and licensed
under applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Collateral Agent has all requisite right,
power and authority to execute and deliver this Agreement and to perform
all of its duties as Collateral Agent hereunder.
(c) Due Authorization. The execution and delivery by the Collateral
Agent of this Agreement and the other Transaction Documents to which it is
a party, and the performance by the Collateral Agent of its duties
hereunder and thereunder, have been duly authorized by all necessary
corporate proceedings and no further approvals or filings, including any
governmental approvals, are required for the valid execution and delivery
by the Collateral Agent, or the performance by the Collateral Agent, of
this Agreement and such other Transaction Documents.
(d) Valid and Binding Agreement. The Collateral Agent has duly
executed and delivered this Agreement and each other Transaction Document
to which it is a party, and each of this Agreement and each such other
Transaction Document constitutes the legal, valid and binding obligation of
the Collateral Agent, enforceable against the Collateral Agent in
accordance with its terms, except as (i) such enforceability may be limited
by bankruptcy, insolvency, reorganization and similar laws relating to or
affecting the enforcement of the rights of creditors of federally insured
depository institutions, rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
Section 4.9. Waiver of Setoffs. The Collateral Agent hereby expressly
waives any and all rights of setoff that the
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Collateral Agent may otherwise at any time have under applicable law with
respect to any Spread Account and agrees that amounts in the Spread Accounts
shall at all times be held and applied solely in accordance with the provisions
hereof.
Section 4.10. Control by the Controlling Party. The Collateral Agent shall
comply with notices and instructions given by the Transferor only if accompanied
by the written consent of the Controlling Party, except that if any Default
shall have occurred and be continuing, the Collateral Agent shall act upon and
comply with notices and instructions given by the Controlling Party alone in the
place and stead of the Transferor.
ARTICLE V
COVENANTS OF THE TRANSFEROR
Section 5.1. Preservation of Collateral. Subject to the rights, powers and
authorities granted to the Collateral Agent and the Controlling Party in this
Agreement, the Transferor, on behalf of itself and as the agent of the
Reversionary Holders, shall take such action as is necessary and proper with
respect to the Collateral in order to preserve and maintain such Collateral. The
Transferor will do, execute, acknowledge and deliver, or cause to be done by the
Reversionary Holders, or others, executed, acknowledged and delivered, such
instruments of transfer or take such other steps or actions as may be necessary,
or required by the Controlling Party, to perfect the Security Interests granted
hereunder in the Collateral, to ensure that such Security Interests rank prior
to all other Liens and to preserve the priority of such Security Interests and
the validity and enforceability thereof. Upon any delivery or substitution of
Collateral, the Transferor, on behalf of itself and as the agent of the
Reversionary Holders, shall be obligated to execute such documents and perform
such actions (or cause the Reversionary Holders to so execute and perform) as
are necessary to create in the Collateral Agent for the benefit of the Secured
Parties a valid first priority Lien on, and valid and perfected, first priority
security interest in, the Collateral so delivered and to deliver such Collateral
to the Collateral Agent, free and clear of any other Lien, together with
satisfactory assurances thereof, and to pay any reasonable costs incurred by any
of the Secured Parties or the Collateral Agent (including its agents) or
otherwise in connection with such delivery.
Section 5.2. Opinions as to Collateral. Not more than 90 days nor less than
30 days prior to (i) each anniversary of the date hereof during the term of this
Agreement and (ii) each date on which the Transferor proposes to take any action
contemplated by Section 5.06 hereof, the Transferor shall, at its own cost and
expense, furnish to each Secured Party and the Collateral Agent
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an Opinion of Counsel with respect to each Series either (a) stating that, in
the opinion of such counsel, such action has been taken with respect to the
execution and filing of any financing statements and continuation statements and
other actions as are necessary to perfect, maintain and protect the lien and
security interest of the Collateral Agent (and the priority thereof), on behalf
of the Secured Parties, with respect to such Collateral against all creditors
of, and purchasers from, the Transferor and the Reversionary Holders and
reciting the details of such action, or (b) stating that, in the opinion of such
counsel, no such action is necessary to maintain such perfected lien and
security interest. Such Opinion of Counsel shall further describe each execution
and filing of any financing statements and continuation statements and such
other actions as will, in the opinion of such counsel, be required to perfect,
maintain and protect the lien and security interest of the Collateral Agent, on
behalf of the Secured Parties, with respect to such Collateral against all
creditors of, and purchasers from, the Transferor and the Reversionary Holders
for a period, specified in such Opinion, continuing until a date not earlier
than eighteen months from the date of such Opinion.
Section 5.3. Notices. In the event that the Transferor acquires knowledge
of the occurrence and continuance of any Insurance Agreement Event of Default or
Servicer Termination Event or of any event of default or like event, howsoever
described or called, under any of the Transaction Documents, the Transferor
shall immediately give notice thereof to the Collateral Agent and each Secured
Party.
Section 5.4. Waiver of Stay or Extension Laws; Marshalling of Assets. The
Transferor, on behalf of itself and as agent for the Reversionary Holders,
covenants, to the fullest extent permitted by applicable law, that neither it
nor any Reversionary Holder will at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension or redemption law wherever enacted, now or at any
time hereafter in force, in order to prevent or hinder the enforcement of this
Agreement or any absolute sale of the Collateral or any part thereof, or the
possession thereof by any purchaser at any sale under Article VII of this
Agreement; and the Transferor, on behalf of itself and as agent for the
Reversionary Holders, to the fullest extent permitted by applicable law, for
itself, each Reversionary Holder, and all who may claim under it or them, hereby
waives the benefit of all such laws, and covenants that neither it nor any
Reversionary Holder will hinder, delay or impede the execution of any power
herein granted to the Collateral Agent, but will suffer and permit the execution
of every such power as though no such law had been enacted. The Transferor, for
itself, each Reversionary Holders, and all who may claim under it or them,
waives, to the fullest extent permitted by applicable law, all
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right to have the Collateral marshalled upon any foreclosure or other
disposition thereof.
Section 5.5. Noninterference, etc. The Transferor, on behalf of itself and
as agent for the Reversionary Holders, agrees that neither the Transferor nor
any Reversionary Holder shall (i) waive or alter any of its rights under the
Collateral (or any agreement or instrument relating thereto) without the prior
written consent of the Controlling Party; or (ii) fail to pay any tax,
assessment, charge or fee levied or assessed against the Collateral, or to
defend any action, if such failure to pay or defend may adversely affect the
priority or enforceability of the Transferor's or any Reversionary Holder's
right, title or interest in and to the Collateral or the Collateral Agent's lien
on, and security interest in, the Collateral for the benefit of the Secured
Parties; or (iii) take any action, or fail to take any action, if such action or
failure to take action would interfere with the enforcement of any rights under
the Transaction Documents.
Section 5.6. Transferor Changes.
(a) Change in Name, Structure, etc. The Transferor shall not change its
name, identity or corporate structure unless it shall have given each Secured
Party and the Collateral Agent at least 60 days' prior written notice thereof,
shall have effected any necessary or appropriate assignments or amendments
thereto and filings of financing statements or amendments thereto, and shall
have delivered to the Collateral Agent and each Secured Party an Opinion of
Counsel of the type described in Section 5.02 hereof.
(b) Relocation of the Transferor. Neither NAFI nor the Transferor shall
change its principal executive office unless it gives each Secured Party and the
Collateral Agent at least 90 days' prior written notice of any relocation of its
principal executive office. If the Transferor relocates its principal executive
office or principal place of business from Florida, the Transferor shall give
prior notice thereof to the Controlling Party and the Collateral Agent and shall
effect such appropriate recordations and filings as are necessary and shall
provide an Opinion of Counsel to the Controlling Party and the Collateral Agent,
to the effect that, upon the recording of any necessary assignments or
amendments to previously-recorded assignments and filing of any necessary
amendments to the previously filed financing or continuation statements or upon
the filing of one or more specified new financing statements, and the taking of
such other actions as may be specified in such opinion, the security interests
in the Collateral shall remain, after such relocation, valid and perfected and
first in priority.
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ARTICLE VI
CONTROLLING PARTY; INTERCREDITOR PROVISIONS
Section 6.1. Appointment of Controlling Party. From and after the Closing
Date of a Series until the Insurer Termination Date related to such Series,
Financial Security shall be the Controlling Party with respect to such Series
and shall be entitled to exercise all the rights given the Controlling Party
hereunder with respect to such Series. From and after the Insurer Termination
Date related to such Series until the Trustee Termination Date related to such
Series, the Trustee shall be the Controlling Party with respect to such Series.
Notwithstanding the foregoing, in the event that a Financial Security Default
shall have occurred and be continuing, the Trustee shall be the Controlling
Party with respect to such Series until the applicable Trustee Termination Date.
If prior to an Insurer Termination Date, the Trustee shall have become the
Controlling Party with respect to a Series as a result of the occurrence of a
Financial Security Default and either such Financial Security Default is cured
or for any other reason ceases to exist or the Trustee Termination Date with
respect to a Series occurs, then upon such cure or other cessation or on such
Trustee Termination Date, as the case may be, Financial Security shall, upon
notice thereof being duly given to the Collateral Agent, again be the
Controlling Party with respect to such Series.
Section 6.2. Controlling Party's Authority.
(a) The Transferor hereby irrevocably appoints the Controlling Party, and
any successor to the Controlling Party appointed pursuant to Section 6.01
hereof, its true and lawful attorney, with full power of substitution, in the
name of the Transferor, the Secured Parties or otherwise, at the expense of the
Transferor, to the extent permitted by law to exercise, at any time and from
time to time while any Insurance Agreement Event of Default has occurred and is
continuing, any or all of the following powers with respect to all or any of the
Collateral related to the relevant Series: (i) to demand, sue for, collect,
receive and give acquittance for any and all monies due or to become due upon or
by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto, (iii) to direct the Collateral Agent
to sell, transfer, assign or otherwise deal with the same or the proceeds
thereof as fully and effectively as if the Collateral Agent were the absolute
owner thereof, and (iv) to extend the time of payment of any or all thereof and
to make any allowance or other adjustments with respect thereto.
(b) With respect to each Series and the related Collateral, each Secured
Party hereby irrevocably and unconditionally constitutes and appoints the
Controlling Party with respect to
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such Series, and any successor to such Controlling Party appointed pursuant to
Section 6.01 hereof from time to time, as the true and lawful attorney-in-fact
of such Secured Party for so long as such Secured Party is the Non-Controlling
Party, with full power of substitution, to execute, acknowledge and deliver any
notice, document, certificate, paper, pleading or instrument and to do in the
name of the Controlling Party as well as in the name, place and stead of such
Secured Party such acts, things and deeds for and on behalf of and in the name
of such Secured Party under this Agreement with respect to such Series which
such Secured Party could or might do or which may be necessary, desirable or
convenient in such Controlling Party's sole discretion to effect the purposes
contemplated hereunder and, without limitation, exercise full right, power and
authority to take, or defer from taking, any and all acts with respect to the
administration of the Collateral related to such Series, and the enforcement of
the rights of the Secured Parties hereunder with respect to such Series, on
behalf of and for the benefit of such Controlling Party and such Non-Controlling
Party, as their interests may appear.
Section 6.3. Rights of Secured Parties. With respect to each Series and the
related Collateral, the Non-Controlling Party at any time expressly agrees that
it shall not assert any rights that it may otherwise have, as a Secured Party
with respect to the Collateral, to direct the maintenance, sale or other
disposition of the Collateral or any portion thereof, notwithstanding the
occurrence and continuance of any Insurance Agreement Event of Default or
Servicer Termination Event with respect to such Series or any non-performance by
the Transferor or any Reversionary Holders of any obligation owed to such
Secured Party hereunder or under any other Transaction Document, and each party
hereto agrees that the Controlling Party shall be the only Person entitled to
assert and exercise such rights.
Section 6.4. Degree of Care.
(a) Controlling Party. Notwithstanding any term or provision of this
Agreement, the Controlling Party shall incur no liability to the Transferor or
any Reversionary Holder for any action taken or omitted by the Controlling Party
in connection with the Collateral, except for any gross negligence, bad faith or
willful misconduct on the part of the Controlling Party and, further, shall
incur no liability to the Non-Controlling Party except for a breach of the terms
of this Agreement or for gross negligence, bad faith or willful misconduct in
carrying out its duties, if any, to the Non-Controlling Party. The Controlling
Party shall be protected and shall incur no liability to any such party in
relying upon the accuracy, acting in reliance upon the contents and assuming the
genuineness of any notice, demand, certificate, signature, instrument or other
document believed by the Controlling Party to be genuine and to have been duly
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executed by the appropriate signatory, and (absent manifest error or actual
knowledge to the contrary) the Controlling Party shall not be required to make
any independent investigation with respect thereto. The Controlling Party shall,
at all times, be free independently to establish to its reasonable satisfaction
the existence or nonexistence, as the case may be, of any fact the existence or
nonexistence of which shall be a condition to the exercise or enforcement of any
right or remedy under this Agreement or any of the Transaction Documents.
(b) The Non-Controlling Party. The Non-Controlling Party shall not be
liable to the Transferor or any Reversionary Holder for any action or failure to
act by the Controlling Party or the Collateral Agent in exercising, or failing
to exercise, any rights or remedies hereunder.
ARTICLE VII
REMEDIES UPON DEFAULT
Section 7.1. Remedies upon a Default. If a Default with respect to a Series
has occurred and is continuing, the Collateral Agent shall, at the written
direction of the Controlling Party, take whatever action at law or in equity as
may appear necessary or desirable in the judgment of the Controlling Party to
collect and satisfy all Secured Obligations, including, but not limited to,
foreclosure upon the Collateral and all other rights available to secured
parties under applicable law or to enforce performance and observance of any
obligation, agreement or covenant under any of the Transaction Documents related
to such Series.
Section 7.2. Waiver of Default. The Controlling Party shall have the sole
right, to be exercised in its complete discretion, to waive any Default by a
writing setting forth the terms, conditions and extent of such waiver signed by
the Controlling Party and delivered to the Collateral Agent, the other Secured
Party and the Transferor. Any such waiver shall be binding upon the
Non-Controlling Party and the Collateral Agent. Unless such writing expressly
provides to the contrary, any waiver so granted shall extend only to the
specific event or occurrence which gave rise to the Default so waived and not to
any other similar event or occurrence occurring subsequent to the date of such
waiver.
Section 7.3. Restoration of Rights and Remedies. If the Collateral Agent
has instituted any proceeding to enforce any right or remedy under this
Agreement, and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to such Collateral Agent, then and in
every such case the Transferor, the Collateral Agent and each of the
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Secured Parties and each Reversionary Holder shall, subject to any determination
in such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Secured
Parties shall continue as though no such proceeding had been instituted.
Section 7.4. No Remedy Exclusive. No right or remedy herein conferred upon
or reserved to the Collateral Agent, the Controlling Party or either of the
Secured Parties is intended to be exclusive of any other right or remedy, and
every right or remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law, in equity or otherwise (but, in each case, shall be subject to
the provisions of this Agreement limiting such remedies), and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time and as often and in such order as may be
deemed expedient by the Controlling Party, and the exercise of or the beginning
of the exercise of any right or power or remedy shall not be construed to be a
waiver of the right to exercise at the same time or thereafter any other right,
power or remedy.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Further Assurances. Each party hereto shall take such action
and deliver such instruments to any other party hereto, in addition to the
actions and instruments specifically provided for herein, as may be reasonably
requested or required to effectuate the purpose or provisions of this Agreement
or to confirm or perfect any transaction described or contemplated herein.
Section 8.2. Waiver. Any waiver by any party of any provision of this
Agreement or any right, remedy or option hereunder shall only prevent and estop
such party from thereafter enforcing such provision, right, remedy or option if
such waiver is given in writing and only as to the specific instance and for the
specific purpose for which such waiver was given. The failure or refusal of any
party hereto to insist in any one or more instances, or in a course of dealing,
upon the strict performance of any of the terms or provisions of this Agreement
by any party hereto or the partial exercise of any right, remedy or option
hereunder shall not be construed as a waiver or relinquishment of any such term
or provision, but the same shall continue in full force and effect.
Section 8.3. Amendments, Waivers. No amendment, modification, waiver or
supplement to this Agreement or any
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provision of this Agreement shall in any event be effective unless the same
shall have been made or consented to in writing by each of the parties hereto
and each Rating Agency shall have confirmed in writing that such amendment will
not cause a reduction or withdrawal of a rating on any Series; provided,
however, that, for so long as Financial Security shall be the Controlling Party
with respect to a Series, amendments, modifications, waivers or supplements
hereto relating to such Series, the related Collateral or Spread Account or any
requirement hereunder to deposit or retain any amounts in such Spread Account or
to distribute any amounts therein as provided in Section 3.03 hereof shall be
effective if made or consented to in writing by Financial Security, the
Transferor and the Collateral Agent (the consent of which shall not be withheld
or delayed with respect to any amendment that does not adversely affect the
Collateral Agent) but shall in no circumstances require the consent of the
Trustee or the Securityholders related to such Series or any other Series or any
Reversionary Holder.
Section 8.4. Severability. In the event that any provision of this
Agreement or the application thereof to any party hereto or to any circumstance
or in any jurisdiction governing this Agreement shall, to any extent, be invalid
or unenforceable under any applicable statute, regulation or rule of law, then
such provision shall be deemed inoperative to the extent that it is invalid or
unenforceable, and the remainder of this Agreement, and the application of any
such invalid or unenforceable provision to the parties, jurisdictions or
circumstances other than to whom or to which it is held invalid or
unenforceable, shall not be affected thereby nor shall the same affect the
validity or enforceability of any other provision of this Agreement. The parties
hereto further agree that the holding by any court of competent jurisdiction
that any remedy pursued by the Collateral Agent, or any of the Secured Parties,
hereunder is unavailable or unenforceable shall not affect in any way the
ability of the Collateral Agent or any of the Secured Parties to pursue any
other remedy available to it or them (subject, however, to the provisions of
this Agreement limiting such remedies).
Section 8.5. Nonpetition Covenant. Notwithstanding any prior termination of
this Agreement, each of the parties hereto agrees that it shall not, prior to
one year and one day after the Final Scheduled Distribution Date with respect to
each Series, acquiesce, petition or otherwise invoke or cause the Transferor or
the Trust to invoke the process of the United States of America, any State or
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government for the purpose of commencing or sustaining a case by or against
the Transferor or the Trust under a Federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator,
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assignee, trustee, custodian, sequestrator or other similar official of the
Transferor or the Trust or all or any part of their respective properties or
assets or ordering the winding up or liquidation of the affairs of the
Transferor or the Trust. The parties agree that damages will be an inadequate
remedy for breach of this covenant and that this covenant may be specifically
enforced.
Section 8.6. Notices. All notices, demands, certificates, requests and
communications hereunder ("notices") shall be in writing and shall be effective
(a) upon receipt when sent through the U.S. mails, registered or certified mail,
return receipt requested, postage prepaid, with such receipt to be effective the
date of delivery indicated on the return receipt, or (b) one Business Day after
delivery to an overnight courier, or (c) on the date personally delivered to an
Authorized Officer of the party to which sent, or (d) on the date transmitted by
legible telecopier transmission with a confirmation of receipt, in all cases
addressed to the recipient as follows:
(i) If to the Transferor:
National Financial Auto Funding Trust
c/o Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopier No.: (302) 984-4903
Confirmation No.: (302) 428-3375
with a copy to:
Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust Administration
Telecopier No.: (718) 242-3529
Confirmation No.: (718) 242-7283
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(ii) If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: National Auto Finance 1998-1 Trust
5.88% Asset Backed Notes (and/or such other Series with
respect to which such notice pertains)
Telecopier No.: (212) 339-3518
(212) 339-3529
Confirmation: (212) 826-0100 (in each case in which notice or
other communication to Financial Security refers to a Default
or a claim on the Policy or in which failure on the part of
Financial Security to respond shall be deemed to constitute
consent or acceptance, then with a copy to the attention of
the Senior Vice President Surveillance)
(iii) If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation No.: (312) 461-4662
(iv) If to the Collateral Agent:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation No.: (312) 461-4662
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(v) If to Moody's:
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Telecopier No.: (212) 553-0344
(vi) If to Standard & Poor's:
Standard & Poor's Ratings Group
26 Broadway
New York, New York 10004
Telecopier No.: (212) 208-1582
A copy of each notice given hereunder to any party hereto shall also be given to
(without duplication) Financial Security, the Transferor, the Trustee and the
Collateral Agent. Each party hereto may, by notice given in accordance herewith
to each of the other parties hereto, designate any further or different address
to which subsequent notices shall be sent.
Section 8.7. Term of this Agreement. This Agreement shall take effect on
the Closing Date of Series 1998 and shall continue in effect until the last
Final Termination Date to occur with respect to each Series. On such Final
Termination Date, this Agreement shall terminate, all obligations of the parties
hereunder shall cease and terminate and the Collateral, if any, held hereunder
and not to be used or applied in discharge of any obligations of the Transferor
or NAFI in respect of the Secured Obligations or otherwise under this Agreement,
shall be released to and in favor of the related Reversionary Holder or Holders,
or, if not otherwise identified, to the Transferor, provided that the provisions
of Sections 4.06, 4.07 and 8.05 hereof shall survive any termination of this
Agreement and the release of any Collateral upon such termination.
Section 8.8. Assignments, Third-Party Rights; Reinsurance.
(a) This Agreement shall be a continuing obligation of the parties hereto
and shall (i) be binding upon the parties and their respective successors and
assigns, and (ii) inure to the benefit of and be enforceable by each Secured
Party and the Collateral Agent, and by their respective successors, transferees
and assigns. The Transferor shall not assign this Agreement, or delegate any of
its duties hereunder, without the prior written consent of the Controlling
Party.
(b) Financial Security shall have the right (unless a Financial Security
Default shall have occurred and be continuing)
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to give participations in its rights under this Agreement and to enter into
contracts of reinsurance with respect to any Policy issued in connection with a
Series and each such participant or reinsurer shall be entitled to the benefit
of any representation, warranty, covenant and obligation of each party (other
than Financial Security) hereunder as if such participant or reinsurer was a
party hereto and, subject only to such agreement regarding such reinsurance or
participation, shall have the right to enforce the obligations of each such
other party directly hereunder; provided, however, that no such reinsurance or
participation agreement or arrangement shall relieve Financial Security of its
obligations hereunder, under the Transaction Documents to which it is a party or
under any such Policy, or shall change the status of Financial Security as a
"Controlling Party". In addition, nothing contained herein shall restrict
Financial Security from assigning to any Person pursuant to any liquidity
facility or credit facility any rights of Financial Security under this
Agreement or with respect to any real or personal property or other interests
pledged to Financial Security, or in which Financial Security has a security
interest, in connection with the transactions contemplated hereby. The terms of
any such assignment or participation shall contain an express acknowledgment by
such Person of the condition of this Section and the limitations of the rights
of Financial Security hereunder.
Section 8.9. Consent of Controlling Party. In the event that the
Controlling Party's consent is required under the terms hereof or under the
terms of any Transaction Document, it is understood and agreed that, except as
otherwise provided expressly herein, the determination whether to grant or
withhold such consent shall be made solely by the Controlling Party in its sole
discretion.
Section 8.10. Trial by Jury Waived. Each of the parties hereto waives, to
the fullest extent permitted by law, any right it may have to a trial by jury in
respect of any litigation arising directly or indirectly out of, under or in
connection with this Agreement, any of the other Transaction Documents or any of
the transactions contemplated hereunder or thereunder. Each of the parties
hereto (a) certifies that no representative, agent or attorney of any other
party has represented, expressly or otherwise, that such other party would not,
in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it has been induced to enter into this Agreement and the other
Transaction Documents to which it is a party, by among other things, this
waiver.
Section 8.11. Governing Law. This Agreement shall be governed by and
construed, and the obligations, rights and remedies of the parties hereunder
shall be determined, in accordance with the laws of the State of New York.
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Section 8.12. Consents to Jurisdiction. Each of the parties hereto
irrevocably submits to the jurisdiction of the United States District Court for
the Southern District of New York, any court in the state of New York located in
the city and county of New York, and any appellate court from any thereof, in
any action, suit or proceeding brought against it and related to or in
connection with this Agreement, the other Transaction Documents or the
transactions contemplated hereunder or thereunder or for recognition or
enforcement of any judgment and each of the parties hereto irrevocably and
unconditionally agrees that all claims in respect of any such suit or action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action, suit 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. To the extent permitted by applicable law,
each of the parties hereby waives and agrees not to assert by way of motion, as
a defense or otherwise in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such courts, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or any of the
other Transaction Documents or the subject matter hereof or thereof may not be
litigated in or by such courts. The Transferor hereby irrevocably appoints and
designates Harris Trust and Savings Bank as its true and lawful attorney and
duly authorized agent for acceptance of service of legal process. The Transferor
agrees that service of such process upon such Person shall constitute personal
service of such process upon it. Subject to Section 8.05 hereof, nothing
contained in this Agreement shall limit or affect the rights of any party hereto
to serve process in any other manner permitted by law or to start legal
proceedings relating to any of the Transaction Documents against NAFI or the
Transferor or their respective property in the courts of any jurisdiction.
Section 8.13. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) Harris Trust and Savings Bank is executing
this Agreement not in its individual capacity but solely in its capacities as
Collateral Agent and trustee of the Trusts pursuant to the Securitization
Agreements and (b) in no case whatsoever shall Harris Trust and Savings Bank be
personally or corporately liable on, or for any loss in respect of, any of the
statements, representations, warranties, covenants, agreements or obligations of
the Trusts hereunder, all such liability, if any, being expressly waived by the
parties hereto.
Section 8.14. Determination of Adverse Effect. Any determination of an
adverse effect on the interest of the Secured
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Parties or the Securityholders shall be made without consideration of the
availability of funds under the Policies.
Section 8.15. Counterparts. This Agreement may be executed in two or more
counterparts by the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 8.16. Headings. The headings of sections and paragraphs and the
Table of Contents contained in this Agreement are provided for convenience only.
They form no part of this Agreement and shall not affect its construction or
interpretation.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth on the first page hereof.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By
Name:
Title: of
Chase Manhattan Bank Delaware,
not in its individual capacity,
but solely in its capacity as
trustee for National Financial
Auto Funding Trust
FINANCIAL SECURITY ASSURANCE INC.
By
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
as Collateral Agent
By
Name:
Title:
<PAGE>
CUSTODIAL AGREEMENT
NATIONAL AUTO FINANCE COMPANY, INC.
COMPANY
AND
OMNI FINANCIAL SERVICES OF AMERICA
CUSTODIAN
-------------------------------
DATED AS OF JANUARY 20, 1998
<PAGE>
THIS CUSTODIAL AGREEMENT ("Agreement"), dated as of January 20, 1998,
is entered into by and between OMNI FINANCIAL SERVICES OF AMERICA, INC. as
custodian ("Custodian" or "OFSA"), and NATIONAL AUTO FINANCE COMPANY, INC. as
servicer (the "Company" or "NAFI").
RECITALS
A. National Financial Auto Funding Trust ("National Financial"), a
Delaware business trust, intends to transfer, set over, assign and otherwise
convey the accounts designated in Schedule 1 to the Servicing Agreement (as
defined below) (the "Assigned Accounts") to National Auto Finance 1998-1 Trust
(the "Trust") pursuant to the Sale and Servicing Agreement, dated as of December
15, 1997 (the "Sale and Servicing Agreement"), by and among the Trust, National
Financial, NAFI and Harris Trust and Savings Bank, as trust collateral agent
(the "Trust Collateral Agent").
B. NAFI and OFSA have agreed pursuant to the Amended and Restated
Servicing Agreement (the "Servicing Agreement") dated as of December 5, 1994, as
amended and supplemented, that OFSA shall provide certain accounting and
collection services with respect to the Assigned Accounts following assignment
of the Assigned Accounts by National Financial to the Trust.
C. NAFI desires to have OFSA take possession of the Receivable Files as
custodian and bailee of the Trust Collateral Agent and NAFI and the Trust
Collateral Agent, as assignee of NAFI in accordance with the terms and
conditions hereof.
D. Capitalized terms used but not defined herein shall have the same
meanings ascribed thereto in the Sale and Servicing Agreement.
STATEMENT OF AGREEMENT
A. The Custodian shall maintain custody and possession of the Receivable
Files as custodian for the benefit of, and bailee for, NAFI and the Trust
Collateral Agent, as assignee of NAFI.
B. The Custodian shall maintain possession of the related Receivable Files
at its offices in Memphis, Tennessee or at such other offices of the Custodian
as shall from time to time be identified to NAFI by written notice; provided
that, if such other offices are outside of Tennessee, the Custodian must get
NAFI's prior written consent. The Custodian 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. It is intended that by the Custodian's agreements
pursuant to this agreement that the Trust Collateral Agent will be deemed to
have possession of the Receivable Files for purposes of Section 9-305 of the UCC
as in effect in the state in which the Receivable Files are located.
<PAGE>
C. As custodian and bailee, the Custodian shall have and perform the
following powers and duties:
(i) hold the Receivable Files on behalf of NAFI and the Trust
Collateral Agent, as assignee of NAFI maintain accurate records
pertaining to each Receivable to enable it to comply with the terms
and conditions of this custodial agreement and maintain a current
inventory thereof (by computer records or otherwise);
(ii) implement policies and procedures with respect to the reasonable
and customary handling and custody of the Receivable Files;
(iii) attend to details in maintaining custody of the Receivable Files
on behalf of NAFI; and
(iv) at all times maintain the original of each fully executed
Receivable and store such original Receivable in a secure place.
D. The Custodian shall:
(i) act with reasonable care, using that degree of skill and care that
it exercises with respect to similar contracts owned and/or serviced
by it;
(ii) promptly report to NAFI any material failure by it to hold the
Receivable Files as herein provided;
(iii) promptly take appropriate action to remedy any such failure; and
(iv) in acting as custodian and bailee of the Receivable Files, not
assert, and shall cause a related subservicer not to assert, any
beneficial ownership interests in the Receivables or the Receivable
Files.
E. The Custodian agrees to indemnify the Company and the Trust Collateral
Agent, its respective officers, directors, employees and agents for any and all
liabilities, obligations, losses, damages, payments, costs or expenses of any
kind whatsoever which may be imposed on or incurred by the Company and the Trust
Collateral Agent arising from the gross negligence or willful misconduct of the
Custodian in maintaining custody of the Receivable Files pursuant to this
Agreement; provided, however, that the Custodian will not be liable to the
extent that any such amount resulted from the gross negligence or willful
misconduct of the Company and provided further that the Custodian will not be
liable for any such liability, obligation, loss, damage, payment, cost or
expense that resulted from any act or omission to act by it done in conformity
with the written instructions of the Company.
F. If at any time the Company notifies the Custodian that other custodial
arrangements have been made for the holding of the Receivable Files, such
<PAGE>
Custodian shall cooperate with the Company in such new custodial arrangement at
the expense of the Company. Such Custodian shall cooperate with the Company to
assure that the various documents contained in such Receivable Files are made
available to the Company, as necessary for the performance of the Company's
duties under the other custodial agreements.
G. The Custodian shall not without the prior written consent of the
Company and the Trust Collateral Agent, deliver or release to any Person any
Receivables or related Title Documents (or any security interest in the related
Financed Vehicle) except (i) in the ordinary course of its business in
connection with the release of collateral securing such Receivable after
satisfaction of the related indebtedness thereunder or in connection with
correcting vehicle lienholder or similar information on a Receivable or title
document or (ii) upon written notice from the Seller or NAFI that such contract
has been retransferred to the Seller in accordance with the Sale and Servicing
Agreement.
H. The Custodian shall retain possession of the Receivable File for each
Assigned Account until written notice from NAFI that the related account has
been determined to be a contract with respect to which any of the following has
occurred during the due period: (i) 91 days have elapsed since repossession of
the related financed vehicle, (ii) NAFI has in good faith determined that all
amounts that it expects to recover under such contract have been received, or
(iii) 90% of any scheduled payment on such contract is 120 days or more (or, if
the related Obligor is a debtor under Chapter 13 of the U.S. Bankruptcy Code,
180 days or more) delinquent as of the end of such due period; provided that
OFSA shall not be required to continue collection efforts beyond its standard
collection practices (as provided in the Servicing Agreement) except at NAFI's
expense.
MISCELLANEOUS PROVISIONS
A. Effect of Invalidity of Provisions. In case any one or more of the
provisions contained in this Agreement should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall in no way be affected,
prejudiced or disturbed thereby.
B. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflict of
laws rules.
C. Termination. It is agreed that either party hereto may terminate this
Agreement without cause upon 60 days prior written notice to the other party,
provided that NAFI delivers prior written notice of such termination to the
Insurer and the Custodian delivers the Receivable Files to the Trust Collateral
Agent or at the direction of the Trust Collateral Agent prior to expiration of
such 60 day period and termination of this Agreement.
<PAGE>
Notwithstanding the preceding sentence, if the Trust Collateral Agent or its
designee has not received the Receivable Files prior to expiration of such 60
day period, this Agreement will continue in full force and effect until actual
receipt of the Receivables Files by the Trust Collateral Agent or its designee.
D. Assignment. This Agreement may be assigned only with the prior written
consent of the other party hereto and the Trust Collateral Agent; provided that,
the Company may assign all its rights under this Agreement to the Trust
Collateral Agent, to which the Custodian hereby expressly consents. The Trust
Collateral Agent as assignee of the Company can enforce the rights under this
Agreement directly against the Custodian.
<PAGE>
IN WITNESS WHEREOF, the Company and Custodian have caused this
Agreement to be duly executed as of the date and year first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
Name:
Title:
OMNI FINANCIAL SERVICES OF AMERICA, INC.
By:
Name:
Title:
- --------------------------------------------------------------------------------
SALE AGREEMENT
BETWEEN
NATIONAL FINANCIAL AUTO FUNDING TRUST II
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST
---------------------
DATED AS OF DECEMBER 15, 1997
- --------------------------------------------------------------------------------
<PAGE>
SALE AGREEMENT
SALE AGREEMENT, dated as of December 15, 1997, by and between NATIONAL
FINANCIAL AUTO FUNDING TRUST, a Delaware business trust ("Funding Trust I"), and
NATIONAL FINANCIAL AUTO FUNDING TRUST II, a Delaware business trust ("Funding
Trust II").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, Funding
Trust I and Funding Trust II agree as follows:
ARTICLE I
DEFINITIONS
1.1 Incorporation of Definitions. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Pooling and
Administration Agreement dated as of December 8, 1994 (the "Pooling and
Administration Agreement"), among Funding Trust II, as transferor, National Auto
Finance Company, Inc. ("NAFI") (as successor to National Auto Finance Company
L.P.), as Administrator, and Bankers Trust Company, as Trustee, or the
Assignment Agreement, dated as of December 15, 1997, between Funding Trust II
and the Trustee.
1.2. Other Definitions. When used in this Agreement, the following
words and phrases shall have the following meanings:
Cut-off Date: As defined in Section 2.1.
Closing Date: means January 20, 1998.
Originator Agreement: An agreement pursuant to which NAFI acquired
Receivables from an Originator.
Outstanding Principal Balance: As of any date and with respect to any
Receivable, the outstanding principal balance of such Receivable as of such
date, which shall be computed by reducing the original principal balance of such
Receivable by the portion of each payment received and processed by the Servicer
on or before such date that would represent principal if such payments were
allocated to the principal of and interest on such Receivable based on the
amortization method provided in such Receivable.
Purchase Price: As defined in Section 2.1.
Receivable Assets: The assets described in clauses (i) through (ix),
inclusive, of subsection 2.1 hereof.
<PAGE>
Related Security: With respect to any Receivable, the interest of the
Seller in (i) the security interest in the Financed Vehicles granted by the
Obligors or the Receivables and any accessions thereto and (ii) physical damage,
credit life, credit disability or other insurance policies covering Financed
Vehicles or Obligors (including any blanket vendor's single interest insurance
policy).
Receivables Schedule: The schedule of Receivables attached as Schedule
1 hereto, such schedule identifying each Receivable by name of the Obligor and
setting forth as to each Receivable its Outstanding Principal Balance as of the
Cut-off Date, loan number, interest rate, scheduled monthly payment of principal
and interest, final maturity date and original principal amount.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase. Subject to and on the terms and conditions set forth
herein, Funding Trust II hereby sells, transfers, conveys and assigns, without
representation, warranty or recourse, except as specifically set forth herein,
all of its right, title and interest in and to (i) the Receivables identified on
the Receivables Schedule attached hereto as Schedule I, (ii) all monies paid or
payable thereunder on or after December 15, 1997 (the "Cut-off Date"), (iii) the
Related Security with respect to each such Receivable, (iv) all proceeds of the
foregoing, including all Collections or Related Security with respect to such
Receivables, or other recoveries applied to repay or discharge any such
Receivable received on or after the Cut-off Date (including net proceeds of sale
or other disposition of repossessed Financed Vehicles that were the subject of
any such Receivable) or other collateral or property of any Obligor or any other
party directly or indirectly liable for payment of such Receivables, (v) the
Seller Transaction Documents and the Assignment Agreement, dated as of December
15, 1997 between Funding Trust II and Bankers Trust Company, as Trustee of the
National Financial Auto Receivables Master Trust (the "Assignment Agreement"),
(vi) all records relating to any of the foregoing, (vii) all rights of Funding
Trust II assigned to Funding Trust II against Dealers under the Dealer
Agreements and against Originators under the Originator Agreements, (viii) any
other Trust Assets relating to the Receivables Assets, and (ix) the proceeds of
the foregoing. Funding Trust I agrees to pay to Funding II on the Closing Date
as the purchase price (the "Purchase Price") for the Receivable Assets sold
hereunder on such date an amount equal to $63,979,266.49 in immediately
available funds to an account at a bank designated by Funding Trust II to
Funding Trust I.
2.2. Filings. (a) On or prior to the Closing Date, Funding Trust II
shall have filed in the office of the Secretary of State of Delaware and the
Office of the Secretary of State of Florida UCC financing statements,
appropriate under the Uniform Commercial Code in effect in Delaware and Florida
to reflect the transfer of the Receivables Assets from Funding Trust II to
Funding Trust I and to protect Funding Trust I's interest in the Receivables
Assets against all other Persons, naming Funding Trust II as debtor, Funding
Trust I as secured party and Harris Trust and Savings Bank ("Harris Trust") as
<PAGE>
assignee. During the term of this Agreement, Funding Trust II shall not change
its name, identity or structure or relocate its chief executive office or
principal place of business without first giving 60 days prior written notice to
Funding Trust I and Financial Security Assurance Inc. ("Financial Security")
(for so long as any policy issued Financial Security Assurance Inc. is in effect
with respect to any securities issued by Funding Trust I or any trust of which
Funding Trust I is depositor or transferor); provided, however, that Funding
Trust I has no right or power to prohibit a change in Funding Trust II's name,
identity or structure or, subject to the last sentence of this paragraph, a
relocation of, its chief executive office. If any change in Funding Trust II's
name, identity or structure or the relocation of its chief executive office or
principal place of business would make any financing or continuation statement
or notice of lien filed in connection with this Agreement seriously misleading
within the meaning of applicable provisions of the UCC or any title statute,
Funding Trust II, shall after the effective date of such change, promptly file
or cause to be filed such amendments as may be required to preserve and protect
Funding Trust I's interest in the Receivables Assets.
(b) On or prior to the Closing Date, Funding Trust II shall deliver to
Funding Trust I or such other Person as Funding Trust I shall direct cash equal
to all payments received on such Receivables on or after the Cut-off Date and on
or before two Business days prior to the Closing Date. Within two Business Days
after the Closing Date, Funding Trust II shall deliver to Funding Trust I or
such other Person as Funding Trust I shall direct all other payments received on
such Receivables on or after the Cut-off Date and on or before the Closing Date.
Funding Trust hereby directs Funding Trust II to deliver cash equal to all such
payments described in this Section 2.2(b) to be delivered to Harris Trust and
Savings Bank ("Harris Trust") in its capacity as Trust Collateral Agent under
the Sale and Servicing Agreement (as defined herein).
2.3. No Recourse. The sale and purchase of Receivables and the other
Receivables Assets under this Agreement shall be without recourse to Funding
Trust II.
2.4. True Sales. Funding Trust II and Funding Trust I intend that the
transactions contemplated hereby be true sales of the Receivables and other
Receivables Assets by Funding Trust II to Funding Trust I providing Funding
Trust I with the full benefits of ownership of the Receivables and other
Receivables Assets free and clear of any liens, and neither Funding Trust II nor
Funding Trust I intends the transactions contemplated hereby to be, or for any
purpose to be characterized as, a loan from Funding Trust I to Funding Trust II.
Funding Trust II shall reflect sales of the Receivables Assets hereunder on the
books and records maintained by Funding Trust II as sales of assets, and shall
treat such sales as sales for all purposes.
2.5. Receipt of Payments after Closing Date. Funding Trust I shall be
entitled to all payments received or receivable with respect to any Receivable
sold and conveyed by Funding Trust II to Funding Trust I hereunder that are
received on and after the Cut-off Date. If Funding Trust II receives any payment
on a Receivable belonging to Funding Trust I, Funding Trust II promptly shall
turn such payment over to Harris Trust, as trustee under the Sale and Servicing
Agreement, dated as of December 15, 1997 (the "Sale and Servicing Agreement"),
among National Auto Finance 1998-1 Trust, Funding Trust I, NAFI and Harris
Trust.
<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 Notices. All notices, demands and requests that may be given or
that are required to be given hereunder shall be sent by United States certified
mail, postage prepaid, return receipt requested, to the parties at their
respective addresses as follows:
If to Funding Trust II:
National Financial Auto Funding Trust II
c/o Chase Manhattan Bank Delaware, as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attention: Corporate Administration Trust Department
Telecopier No.: (302) 984-4903
Confirmation: (302) 428-3375
If to Funding Trust I:
National Financial Auto Funding Trust I
c/o Chase Manhattan Bank Delaware, as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attention: Corporate Administration Trust Department
Telecopier No.: (302) 984-4903
Confirmation: (302) 428-3375
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: National Auto Finance 1998-1 Trust, 5.88%
Automobile Receivables-Backed Notes
Telecopier No: (212) 339-3518,
(212) 339-3529
Confirmation:(212) 826-0100
<PAGE>
If to Harris Trust:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopier No.: (312) 461-3525
Confirmation: (312) 461-4662
3.2. Choice of 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 hereunder shall be determined in accordance with such laws.
3.3. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
3.4. Assignment. This Agreement may not be assigned by Funding Trust II
or Funding Trust I except as contemplated by this Section; provided, however,
that simultaneously with the execution and delivery of this Agreement, Funding
Trust I shall assign all of its right, title and interest hereunder to National
Auto Finance 1998-1 Trust pursuant to the Sale and Servicing Agreement, as
provided in Section 2.1 of the Sale and Servicing Agreement.
3.5. Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto and shall also be for the
benefit of Harris Trust (for the benefit of the Noteholders) and Financial
Security, each of which shall be considered to be third-party beneficiaries of
this Agreement and shall be entitled to rely upon and directly enforce the
provisions of this Agreement. Except as otherwise provided in this Agreement, no
other Person will have any right or obligation hereunder. Financial Security may
disclaim any of its rights and powers under this Agreement upon delivery of a
written notice to Funding Trust II and Funding Trust I.
3.6. No Petition. Funding Trust II hereby agrees not to cause the
filing of a petition in bankruptcy against Funding Trust I until one year and
one day after the maturity of any securities securities evidencing a beneficial
interest in or secured by Receivable Assets sold, transferred or otherwise
conveyed by the Trustee to Funding Trust II, NAFI or any affiliate of either.
3.7. Further Assurances. It is Funding Trust II's intention to convey
its entire rights, title and interest in the Receivables Assets or other assets
related thereto acquired from National Financial Auto Receivables Master Trust
pursuant to the Assignment Agreement.
3.8. Limitation of Liability of Funding Trust I Trustee:
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Chase Manhattan Bank Delaware not in its
individual capacity but solely as Trustee and in no event shall Chase Manhattan
Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of Funding Trust I hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of Funding Trust I.
<PAGE>
3.9. Limitation of Liability of Funding Trust II Trustee:
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Chase Manhattan Bank Delaware not in its
individual capacity but solely as Trustee and in no event shall Chase Manhattan
Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of Funding Trust II hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of Funding Trust II.
3.10. Amendment. This Agreement may be amended in writing by the
parties hereto with the prior written consent of Financial Security, to cure any
ambiguity or to correct any provisions in this Agreement.
[Remainder of Page Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING TRUST II
By: Chase Manhattan Bank Delaware, not in its individual
capacity, but solely as Trustee of National Financial
Auto Funding Trust II,
By:
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: Chase Manhattan Bank Delaware, not in its individual
capacity, but solely as Trustee of National Financial
Auto Funding Trust,
By:
Name:
Title:
================================================================================
TRUST AGREEMENT
between
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
WILMINGTON TRUST COMPANY
Owner Trustee
Dated as of December 15, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 Capitalized Terms......................................................................1
SECTION 1.2. Other Definitional Provisions..........................................................3
SECTION 1.3. Action by or Consent of Noteholders and Certificateholders.............................4
SECTION 1.4 Material Adverse Effect................................................................4
ARTICLE II
ORGANIZATION
SECTION 2.1. Name...................................................................................5
SECTION 2.2. Office.................................................................................5
SECTION 2.3. Purposes and Powers....................................................................5
SECTION 2.4. Appointment of Owner Trustee...........................................................6
SECTION 2.5. Initial Capital Contribution of Trust Estate...........................................6
SECTION 2.6. Declaration of Trust...................................................................6
SECTION 2.7. Liability..............................................................................6
SECTION 2.8. Title to Trust Property................................................................6
SECTION 2.9. Situs of Trust.........................................................................7
SECTION 2.10. Representations and Warranties of the Depositor........................................7
SECTION 2.11. Federal Income Tax Allocations.........................................................8
SECTION 2.12. Covenants of the Depositor.............................................................8
SECTION 2.13. Covenants of the Certificateholders....................................................9
ARTICLE III
CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. Initial Ownership.....................................................................10
SECTION 3.2. Signature on Certificates.............................................................10
SECTION 3.3. Authentication of Certificates........................................................11
SECTION 3.4. Registration of Transfer and Exchange of Certificates.................................11
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates.....................................13
SECTION 3.6. Persons Deemed Certificateholders.....................................................14
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.............................14
SECTION 3.8. Maintenance of Office or Agency.......................................................14
SECTION 3.9. ERISA Restrictions....................................................................14
SECTION 3.10. Securities Matters....................................................................15
i
<PAGE>
ARTICLE IV
VOTING RIGHTS AND OTHER ACTIONS
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters...............................15
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters..........................16
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy...............................16
SECTION 4.4. Restrictions on Certificateholders' Power.............................................16
SECTION 4.5. Majority Control......................................................................17
SECTION 4.6. Rights of Insurer.....................................................................17
ARTICLE V
CERTAIN DUTIES
SECTION 5.1. Accounting and Records to the Noteholders, Certificateholders, the Internal Revenue
Service and Others..................................................................18
SECTION 5.2. Signature on Returns; Tax Matters Partner.............................................18
SECTION 5.3. Underwriting Agreement................................................................19
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1. General Authority.....................................................................19
SECTION 6.2. General Duties........................................................................19
SECTION 6.3. Action upon Instruction...............................................................19
SECTION 6.4. No Duties Except as Specified in this Agreement or in Instructions....................20
SECTION 6.5. No Action Except under Specified Documents or Instructions............................21
SECTION 6.6. Restrictions..........................................................................21
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1. Acceptance of Trusts and Duties.......................................................21
SECTION 7.2. Furnishing of Documents...............................................................23
SECTION 7.3. Representations and Warranties........................................................23
SECTION 7.4. Reliance; Advice of Counsel...........................................................23
SECTION 7.5. Not Acting in Individual Capacity.....................................................24
SECTION 7.6. Owner Trustee Not Liable for Certificates or Receivables..............................24
SECTION 7.7. Owner Trustee May Own Certificates and Notes..........................................25
SECTION 7.8. Payments from Owner Trust Estate......................................................25
SECTION 7.9. Doing Business in Other Jurisdictions.................................................25
ii
<PAGE>
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1. Owner Trustee's Fees and Expenses.....................................................25
SECTION 8.2. Indemnification.......................................................................26
SECTION 8.3. Payments to the Owner Trustee.........................................................26
SECTION 8.4. Non-recourse Obligations..............................................................24
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. Termination of Trust Agreement........................................................26
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1. Eligibility Requirements for Owner Trustee............................................28
SECTION 10.2. Resignation or Removal of Owner Trustee...............................................28
SECTION 10.3. Successor Owner Trustee...............................................................29
SECTION 10.4. Merger or Consolidation of Owner Trustee..............................................30
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.........................................30
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Supplements and Amendments............................................................31
SECTION 11.2. Limitations on Rights of Others.......................................................33
SECTION 11.3. Notices...............................................................................33
SECTION 11.4. Severability..........................................................................33
SECTION 11.5. Separate Counterparts.................................................................33
SECTION 11.6. Assignments; Insurer..................................................................34
SECTION 11.7. No Petition...........................................................................34
SECTION 11.8. No Recourse...........................................................................34
SECTION 11.9. Headings..............................................................................34
SECTION 11.10. Governing Law.........................................................................34
SECTION 11.11. Servicer..............................................................................34
</TABLE>
iii
<PAGE>
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
Exhibit C Form of Purchaser Representation Letter
Exhibit D Form of Transferee Representation Letter
iv
<PAGE>
TRUST AGREEMENT dated as of December 15, 1997 between NATIONAL
FINANCIAL AUTO FUNDING TRUST, a Delaware business trust (the "Depositor"), and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Owner Trustee.
ARTICLE I
DEFINITIONS
Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean with respect to any specified Person, a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, or owns, directly or
indirectly, 50% or more of, the Person specified.
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Certificate
of Trust, the Sale and Servicing Agreement, the Spread Account Agreement, the
Insurance Agreement, the Indenture and the other documents and certificates
delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.9.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code ss.. 3801 et. seq. as the same may be amended
from time to time.
"Certificate" means a trust certificate evidencing the
beneficial ownership interest of a Certificateholder in the Trust, substantially
in the form of Exhibit A attached hereto.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register mentioned and the registrar appointed pursuant to Section 3.4.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration, or at such other address as the Owner
Trustee may designate by notice to the Certificateholders and the Depositor, or
the principal corporate trust office of any successor Owner Trustee (the address
of which the successor owner trustee will notify the Certificateholders and the
Depositor).
1
<PAGE>
"Definitive Certificates" shall mean Certificates issued in
certificated, fully registered form.
"Depositor" shall mean National Financial Auto Funding Trust
in its capacity as Depositor hereunder.
"Depositor Trust Agreement" shall mean the First Amended and
Restated Trust Agreement, dated as of December 8, 1994, between National Auto
Finance Company, Inc. and The Chase Manhattan Bank (Delaware), as trustee, as
the same may be amended and supplemented from time to time.
"Distribution Account" shall mean the account designated as
such as established and maintained pursuant to the Sale and Servicing Agreement.
"ERISA" shall have the meaning assigned to such term in
Section 3.9.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose
name a Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Indenture" shall mean the Indenture dated as of December 15,
1997, between the Issuer and Harris Trust and Savings Bank, as Trust Collateral
Agent and Indenture Trustee, as the same may be amended and supplemented from
time to time in accordance with the terms thereof.
"Indenture Trustee" shall mean, initially Harris Trust and
Savings Bank, in its capacity as indenture trustee, including its successors in
interest, until and unless a successor Person shall have become the Indenture
Trustee pursuant to the Sale and Servicing Agreement and thereafter "Indenture
Trustee" shall mean such successor Person.
"Insurer" shall mean Financial Security Assurance Inc., or its
successor in interest.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3.
"Owner Trust Estate" shall mean all right, title and interest
of the Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and all other property of the Trust from time to
time, including any rights of the Owner Trustee and the Trust pursuant to the
Sale and Servicing Agreement and the Spread Account Agreement.
2
<PAGE>
"Owner Trustee" shall mean Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor Owner Trustee hereunder.
"Record Date" shall mean with respect to any Distribution
Date, the close of business on the last Business Day immediately preceding such
Distribution Date.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement among the Trust, National Financial Auto Funding Trust, as
Seller, National Auto Finance Company, Inc., as Servicer and the Trust
Collateral Agent, dated as of December 15, 1997, as the same may be amended and
supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Security Majority" means a majority by principal amount of
the Noteholders so long as the Notes are outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Spread Account" shall mean the Series Spread Account
established and maintained pursuant to the Spread Account Agreement.
"Spread Account Agreement" shall mean the Spread Account
Agreement, dated as of January 20, 1998, among National Financial Auto Funding
Trust, the Insurer, and Harris Trust and Savings Bank, as Trust Collateral Agent
and as Collateral Agent, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Accounts" shall have the meaning ascribed thereto in
the Sale and Servicing Agreement.
"Trust Collateral Agent" shall mean, initially, Harris Trust
and Savings Bank, in its capacity as collateral agent, including its successors
in interest, until and unless a successor Person shall have become the Trust
Collateral Agent pursuant to the Sale and Servicing Agreement, and thereafter
"Trust Collateral Agent" shall mean such successor Person.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Spread Account Agreement or in the Indenture.
3
<PAGE>
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles as in effect on the
date of this Agreement or any such certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
SECTION 1.3. Action by or Consent of Noteholders and
Certificateholders. Whenever any provision of this Agreement refers to action to
be taken, or consented to, by Noteholders or Certificateholders, such provision
shall be deemed to refer to the Certificateholder or Noteholder, as the case may
be, of record as of the Record Date immediately preceding the date on which such
action is to be taken, or consent given, by Noteholders or Certificateholders.
Solely for the purposes of any action to be taken, or consented to, by
Noteholders, any Note registered in the name of the Seller or any Affiliate
thereof shall be deemed not to be outstanding; provided, however, that, solely
for the purpose of determining whether the Indenture Trustee or the Trust
Collateral Agent is entitled to rely upon any such action or consent, only Notes
which the Owner Trustee, the Indenture Trustee or the Trust Collateral Agent,
respectively, knows to be so owned shall be so disregarded.
SECTION 1.4. Material Adverse Effect. Whenever a determination
is to be made under this Agreement as to whether a given event, action, course
of conduct or set of facts or circumstances could or would have a material
adverse effect on the Noteholders or Certificateholders (or any similar or
analogous determination), such determination shall be made without taking into
account the funds available from claims under the Policy.
4
<PAGE>
ARTICLE II
ORGANIZATION
Name. There is hereby formed a trust to be known as "National Auto
Finance 1998-1 Trust", in which name the Owner Trustee may conduct the business
of the Trust, make and execute contracts and other instruments on behalf of the
Trust and sue and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Certificateholders and the
Depositor.
SECTION 2.3. Purposes and Powers. (a) The purpose of the Trust is,
and the Trust shall have the power and authority, to engage in the following
activities: (i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement, and to sell the Notes; (ii) with the
proceeds of the sale of the Notes, to fund the Pre-Funding Account, the
Pre-Funding Period Reserve Account and the Spread Account and to pay the
organizational, start-up and transactional expenses of the Trust and to pay the
balance to the Depositor pursuant to the Sale and Servicing Agreement; (iii) to
assign, grant, transfer, pledge, mortgage and convey the Owner Trust Estate
(other than the Distribution Account) to the Trust Collateral Agent pursuant to
the Indenture for the benefit of the Insurer and the Indenture Trustee on behalf
of the Noteholders and to hold, manage and distribute to the Certificateholders
and the Depositor pursuant to the terms of the Sale and Servicing Agreement any
portion of the Owner Trust Estate released from the Lien of, and remitted to the
Trust pursuant to, the Indenture; (iv) to enter into and perform its obligations
under the Basic Documents to which it is a party; (v) to engage in those
activities, including entering into agreements, that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith; and (vi) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation of the
Owner Trust Estate and the making of distributions to the Certificateholders and
the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the Basic Documents.
SECTION 2.4. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Distribution Account. The Depositor shall pay
organizational expenses of the Trust as they may arise.
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SECTION 2.6. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, solely for income tax purposes, the Trust shall be treated as a branch;
provided, however, that in the event Certificates are owned by more than one
Certificateholder, it is the intention of the parties hereto that, solely for
income and franchise tax purposes, the Trust shall then be treated as a
partnership and that, unless otherwise required by appropriate tax authorities,
only after such time the Trust will file or cause to be filed annual or other
necessary returns, reports and other forms consistent with the characterization
of the Trust as a partnership for such tax purposes. Effective as of the date
hereof, the Owner Trustee shall have all rights, powers and duties set forth
herein and to the extent not inconsistent herewith, in the Business Trust
Statute with respect to accomplishing the purposes of the Trust. The Owner
Trustee shall file the Certificate of Trust with the Secretary of State.
SECTION 2.7. Liability. (a) The Depositor shall pay organizational
expenses of the Trust as they may arise or shall, upon the request of the Owner
Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the
Owner Trustee.
No Holder, other than to the extent set forth in
clause (a), shall have any personal liability for any liability or
obligation of the Trust.
SECTION 2.8. Title to Trust Property. (a) Legal title to all the
Owner Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
The Holders shall not have legal title to any part of
the Trust Property. The Holders shall be entitled to receive
distributions with respect to their undivided ownership interest
therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title or interest by any
Certificateholder of its ownership interest in the Owner Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the Trust Property.
SECTION 2.9. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of New York. Payments will be received by the Trust only in Delaware or
New York and payments will be made by the Trust only from Delaware or New York.
The Trust shall not have any employees in any state other than Delaware;
provided, however, that nothing herein shall restrict or prohibit the Owner
Trustee, the Servicer or any agent of the Trust from having employees within or
without the State of Delaware. The only office of the Trust will be at the
Corporate Trust Office in Delaware.
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SECTION 2.10. Representations and Warranties of the Depositor. The
Depositor makes the following representations and warranties on which the Owner
Trustee relies in accepting the Owner Trust Estate in trust and issuing the
Certificates and upon which the Insurer relies in issuing the Note Policy.
(a) Organization and Good Standing. The Depositor is duly organized
and validly existing as a Delaware business trust 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 is proposed to be conducted
pursuant to this Agreement and the Basic Documents.
(b) Due Qualification. It is duly qualified to do business and in
good standing, and has obtained all necessary licenses and approvals, in all
jurisdictions in which the ownership or lease of its property, the conduct of
its business and the performance of its obligations under this Agreement and the
Basic Documents requires such qualification.
(c) Power and Authority. The Depositor has the trust power and
authority to execute and deliver this Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property to be
sold and assigned to and deposited with the Trust and the Depositor has duly
authorized such sale and assignment and deposit to the Trust by all necessary
corporate action; and the execution, delivery and performance of this Agreement
has been duly authorized by the Depositor by all necessary trust action.
(d) No Consent Required. To the best knowledge of the Depositor, no
consent, license, approval or authorization or registration or declaration with,
any Person or with any governmental authority, bureau or agency is required in
connection with the execution, delivery or performance of this Agreement and the
Basic Documents, except for such as have been obtained, effected or made.
(e) No Violation. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof do 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) a default under, the organizational
documents of the Depositor, or any material indenture, agreement or other
instrument to which the Depositor is a party or by which it is 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
pursuant to the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the Depositor
of any court or of any Federal or state regulatory body, administrative agency
or other governmental instrumentality having jurisdiction over the Depositor or
its properties.
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(f) No Proceedings. There are no proceedings or investigations
pending or, to its knowledge threatened against it before any court, regulatory
body, administrative agency or other tribunal or governmental instrumentality
having jurisdiction over it or its properties (i) asserting the invalidity of
this Agreement or any of the Basic Documents, (ii) seeking to prevent the
issuance of the Certificates or the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the Basic Documents, (iii)
seeking any determination or ruling that might materially and adversely affect
its performance of its obligations under, or the validity or enforceability of,
this Agreement or any of the Basic Documents, or (iv) seeking to adversely
affect the federal income tax or other federal, state or local tax attributes of
the Certificates.
SECTION 2.11. Federal Income Tax Allocations. In the event that the
Trust is treated as a partnership for Federal income tax purposes, net income
(to the extent of available net income) and net losses of the Trust for any
month as determined for Federal income tax purposes (and each item of income,
gain, loss, credit and deduction entering into the computation thereof) shall be
allocated among the Certificateholders as of the first Record Date following the
end of such month, in proportion to their percentage ownership of the
Certificate on such date. The Depositor is authorized to modify the allocations
in this paragraph if necessary or appropriate, in its sole discretion, for the
allocations to fairly reflect the economic income, gain or loss to the
Certificateholders, or as otherwise required by the Code.
SECTION 2.12. Covenants of the Depositor. The Depositor agrees and
covenants for the benefit of each Certificateholder, the Insurer and the Owner
Trustee, during the term of this Agreement, and to the fullest extent permitted
by applicable law, that:
(a) it shall not create, incur or suffer to exist any indebtedness or
engage in any business, except, in each case, as permitted by the Depositor
Trust Agreement and the Basic Documents;
(b) it shall not, for any reason, institute proceedings for the Trust
to be adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to the bankruptcy of the Trust, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Trust or a substantial part of the property of the
Trust or cause or permit the Trust to make any assignment for the benefit of
creditors, or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the debt of
the Trust or take any action in furtherance of any such action;
(c) it shall obtain from each counterparty to each Basic Document to
which it or the Trust is a party and each other agreement entered into on or
after the date hereof to which it or the Trust is a party, an agreement by each
such counterparty that prior to the occurrence of the event specified in Section
9.1(e) such counterparty shall not institute against, or join any other Person
in instituting against, it or the Trust, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceedings
under the laws of the United States or any state of the United States; and
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(d) it shall not, for any reason, withdraw or attempt to withdraw
from this Agreement, dissolve, institute proceedings for it to be adjudicated a
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or file a petition seeking or consenting to
reorganization or relief under any applicable federal or state law relating to
bankruptcy, or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of it 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 declare
or effect a moratorium on its debt or take any action in furtherance of any such
action.
SECTION 2.13. Covenants of the Certificateholders. Each
Certificateholder agrees:
(a) to be bound by the terms and conditions of the Certificates and
of this Agreement, including any supplements or amendments hereto and to perform
the obligations of a Certificateholder as set forth therein or herein, in all
respects as if it were a signatory hereto. This undertaking is made for the
benefit of the Trust, the Owner Trustee, the Insurer and all other
Certificateholders present and future;
(b) to hereby appoint the Depositor as such Certificateholder's agent
and attorney-in-fact to sign any federal income tax information return filed on
behalf of the Trust, if any, and agree that, if requested by the Trust, it will
sign such federal income tax information return in its capacity as holder of an
interest in the Trust. Each Certificateholder also hereby agrees that in its tax
returns it will not take any position inconsistent with those taken in any tax
returns that may be filed by the Trust;
(c) if such Certificateholder is other than an individual or other
entity holding its Certificate through a broker who reports securities sales on
Form 1099-B, to notify the Owner Trustee of any transfer by it of a Certificate
in a taxable sale or exchange, within 30 days of the date of the transfer;
(d) until the completion of the events specified in Section 9.1(e),
not to, for any reason, institute proceedings for the Trust or the Depositor to
be adjudicated a bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trust or a substantial part of its property, or cause or permit
the Trust to make any assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or declare
or effect a moratorium on its debt or take any action in furtherance of any such
action; and
(e) that there shall not be more than 98 other holders of
Certificates.
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ARTICLE III
CERTIFICATES AND TRANSFER OF INTERESTS
Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the sale of the
Certificates by the Depositor, the Depositor, as the sole Certificateholder,
shall be the sole beneficiary of the Trust.
SECTION 3.2. Signature on Certificates. The Certificates shall be
executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee. Certificates bearing the manual or
facsimile signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the Trust, shall be
validly issued and entitled to the benefit of this Agreement, notwithstanding
that such individuals or any of them shall have ceased to be so authorized prior
to the authentication and delivery of such Certificates or did not hold such
offices at the date of authentication and delivery of such Certificates. A
transferee of a Certificate shall become a Certificateholder, and shall be
entitled to the rights and subject to the obligations of a Certificateholder
hereunder, upon due registration of such Certificate in such transferee's name
pursuant to Section 3.4.
SECTION 3.3. Authentication of Certificates. Concurrently with the
initial sale of the Receivables to the Trust pursuant to the Sale and Servicing
Agreement, the Owner Trustee shall cause the Certificates to be executed on
behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, its treasurer or any assistant treasurer without further corporate
action by the Depositor. No Certificate shall entitle its holder to any benefit
under this Agreement, or shall be valid for any purpose, unless there shall
appear on such Certificate a certificate of authentication substantially in the
form set forth in Exhibit A, executed by the Owner Trustee, by manual signature;
such authentication shall constitute conclusive evidence that such Certificate
shall have been duly authenticated and delivered hereunder. All Certificates
shall be dated the date of their authentication.
SECTION 3.4. Registration of Transfer and Exchange of Certificates.
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 3.8, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Owner Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Owner Trustee shall be the
initial Certificate Registrar.
The Certificates have not been registered under the Securities Act of
1933, as amended (the "Securities Act") or any state securities law. The
Certificate Registrar shall not register the transfer of any Certificate unless
such resale or transfer is pursuant to an effective registration statement under
the Securities Act or is to the Seller or unless it shall have received (i) a
representation letter substantially in the form of Exhibit C hereto or (ii) such
other representations (or an Opinion of Counsel) satisfactory to the Owner
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Trustee to the effect that such resale or transfer is made (A) in a transaction
exempt from the registration requirements of the Securities Act and applicable
state securities laws, or (B) to a person who the transferor of the Certificate
reasonably believes is a qualified institutional buyer (within the meaning of
Rule 144A under the Securities Act) that is aware that such resale or other
transfer is being made in reliance upon Rule 144A. Until the earlier of (i) such
time as the Certificates shall be registered pursuant to a registration
statement filed under the Securities Act and (ii) the date two years from the
later of the date of the original authentication and delivery of the
Certificates and the date any Certificate was acquired from the Seller or any
affiliate of the Seller, the Certificates shall bear a legend as follows:
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND SUCH STATE
SECURITIES LAWS. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE
UNLESS SUCH RESALE OR TRANSFER (A) IS MADE IN ACCORDANCE WITH SECTION 3.4 OF THE
OWNER TRUST AGREEMENT PERTAINING TO THE NATIONAL AUTO FINANCE 1998-1 TRUST (THE
"AGREEMENT") AND (B) IS MADE (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (ii) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, (iii)
TO THE SELLER, OR (iv) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, AND (C) UPON THE SATISFACTION OF CERTAIN OTHER
REQUIREMENTS SPECIFIED IN THE AGREEMENT. NEITHER THE SELLER, THE SERVICER, THE
TRUST NOR THE OWNER TRUSTEE IS OBLIGATED TO REGISTER THE CERTIFICATES UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
The Certificate Registrar shall provide the Trust Collateral Agent with
a list of the names and addresses of the Certificateholders on the Closing Date
in the form which such information is provided to the Certificate Registrar by
the Depositor. Upon any transfers of Certificates, the Certificate Registrar
shall notify the Trust Collateral Agent of the name and address of the
transferee in writing, by facsimile, on the day of such transfer.
Upon surrender for registration of transfer of any Certificate at the
office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like class percentage ownership
interest in the Trust dated the date of authentication by the Owner Trustee or
any authenticating agent. At the option of a Holder, Certificates may be
exchanged for other Certificates of the same class of a like percentage
ownership interest in the Trust upon surrender of the Certificates to be
exchanged at the office or agency maintained pursuant to Section 3.8.
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Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Certificate Registrar duly executed by
the Certificateholder or his attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in the Securities Transfer Agent's Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Certificate Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act. Each Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by the
Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
Notwithstanding the preceding provisions of this Section, the Owner
Trustee shall be required to make, and the Certificate Registrar shall not be
required to register, transfers and exchanges of Certificates for a period of 15
days preceding the due date for any payment with respect to the Certificate.
The Seller shall not sell, transfer, assign, convey or pledge any
Certificate at any time subsequent to the Closing Date to any Person that is an
Affiliate of the Seller, unless, prior to such sale, transfer, assignment,
conveyance or pledge, the Seller delivers to Financial Security an Opinion of
Counsel substantially similar in form and substance to the Opinion of Counsel
delivered on the Closing Date as to non-consolidation of the assets and
liabilities of (x) the Seller and NAFI or (y) the Seller and any such Person
that is an Affiliate of the Seller (other than NAFI), of which a copy shall be
delivered to each Rating Agency.
In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that is has no right to or interest in any monies at any time held pursuant to
the Spread Account Agreement or prior to the release of such monies pursuant to
Section 5.7(b) of the Sale and Servicing Agreement or Section 3.03 of the Spread
Account Agreement, such monies being held in trust for the benefit of the
Noteholders and the Insurer. Notwithstanding the foregoing, in the event that it
is ever determined that the monies held in the Spread Account constitute a
pledge of collateral, then the provisions of the Sale and Servicing Agreement
and the Spread Account Agreement shall be considered to constitute a security
agreement and the Seller and the Certificateholders hereby grant to the
Collateral Agent for the benefit of the Indenture Trustee on behalf of the
Noteholders and the Insurer a first priority perfected security interest in such
amounts, to be applied as set forth in Section 3.03 of the Spread Account
Agreement. In addition, each Certificateholder, by acceptance of its
Certificate, hereby appoints the Depositor as its agent to pledge a first
priority perfected security interest in the Spread Account, and any amounts held
therein from time to time, to the Collateral Agent for the benefit of the
Indenture Trustee and the Insurer pursuant to the Spread Account Agreement and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc. as well as any financing statements, in each case the Insurer
shall consider reasonably necessary in order to perfect the Collateral Agent's
Security Interest in the Collateral (as such terms are defined in the Spread
Account Agreement).
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SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates. If
(a) any mutilated Certificate shall be surrendered to the Certificate Registrar,
or if the Certificate Registrar shall receive evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (b) there shall be
delivered to the Certificate Registrar, the Owner Trustee and (unless an Insurer
Default shall have occurred and be continuing) the Insurer, such security or
indemnity as may be required by them to save each of them harmless, then in the
absence of notice that such Certificate shall have been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
class, and percentage ownership interest in the Trust. In connection with the
issuance of any new Certificate under this Section, the Owner Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Certificate issued pursuant to this Section shall constitute
conclusive evidence of an ownership interest in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
SECTION 3.6. Persons Deemed Certificateholders. Every Person by
virtue of becoming a Certificateholder in accordance with this Agreement and the
rules and regulations of the Certificate Registrar shall be deemed to be bound
by the terms of this Agreement. Prior to due presentation of a Certificate for
registration of transfer, the Owner Trustee, the Certificate Registrar and the
Insurer and any agent of the Owner Trustee, the Certificate Registrar and the
Insurer, may treat the Person in whose name any Certificate shall be registered
in the Certificate Register as the owner of such Certificate for the purpose of
receiving distributions pursuant to the Sale and Servicing Agreement and for all
other purposes whatsoever, and none of the Owner Trustee, the Certificate
Registrar or the Insurer nor any agent of the Owner Trustee, the Certificate
Registrar or the Insurer shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and
Addresses. The Owner Trustee shall furnish or cause to be furnished to the
Servicer, the Depositor or (unless an Insurer Default shall have occurred and be
continuing) the Insurer, within 15 days after receipt by the Owner Trustee of a
request therefor from such Person in writing, a list, of the names and addresses
of the Certificateholders as of the most recent Record Date. If three or more
Holders of Certificates or one or more Holders of Certificates evidencing not
less than 25% of the percentage ownership interest in the Trust apply in writing
to the Owner Trustee, and such application states that the applicants desire to
communicate with other Certificateholders with respect to their rights under
this Agreement or under the Certificates and such application is accompanied by
a copy of the communication that such applicants propose to transmit, then the
Owner Trustee shall, within five Business Days after the receipt of such
application, afford such applicants access during normal business hours to the
current list of Certificateholders. Each Holder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Depositor,
the Servicer, the Owner Trustee or the Insurer or any agent thereof accountable
by reason of the disclosure of its name and address, regardless of the source
from which such information was derived.
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SECTION 3.8. Maintenance of Office or Agency. The Owner Trustee shall
maintain in Wilmington, Delaware, an office or offices or agency or agencies
where Certificates may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Owner Trustee in respect of the
Certificates and the Basic Documents may be served. The Owner Trustee initially
designates its Corporate Trust Office for such purposes. The Owner Trustee shall
give prompt written notice to the Depositor, the Certificateholders and the
Insurer of any change in the location of the Certificate Register or any such
office or agency.
SECTION 3.9. ERISA Restrictions. The Certificates may not be acquired
by or for the account of (i) an employee benefit plan (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1985, as
amended, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its beneficial ownership interest in its Certificate, the
Holder thereof shall be deemed to have represented and warranted that it is not
a Benefit Plan.
SECTION 3.10. Securities Matters. Notwithstanding anything contained
herein to the contrary, the Owner Trustee shall not be responsible for
ascertaining whether any transfer complies with the registration provisions or
exemptions from the Securities Act of 1933, as amended, the Securities Act of
1934, as amended, applicable state securities law or the Investment Company Act;
provided, however, that if a certificate is specifically required to be
delivered to the Owner Trustee by a purchaser or transferee of a Certificate,
the Owner Trustee shall be under a duty to examine the same to determine whether
it conforms to the requirements of this Trust Agreement and shall promptly
notify the party delivering the same if such certificate does not so conform.
ARTICLE IV
VOTING RIGHTS AND OTHER ACTIONS
Prior Notice to Holders with Respect to Certain Matters. With respect
to the following matters, the Owner Trustee shall not take action unless at
least 10 days before the taking of such action, the Owner Trustee shall have
notified the Certificateholders in writing of the proposed action and the
Certificateholders shall not have notified the Owner Trustee in writing prior to
the 10th day after such notice is given that such Certificateholders have
withheld consent or provided alternative direction:
(a) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute or unless such amendment would not materially and adversely affect the
interests of the Holders);
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(b) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
or
(d) except pursuant to Section 13.1(b) of the Sale and Servicing
Agreement, the amendment, change or modification of the Sale and Servicing
Agreement, except to cure any ambiguity or defect or to amend or supplement any
provision in a manner that would not materially adversely affect the interests
of the Certificateholders.
The Owner Trustee shall notify the Certificateholders in writing of any
appointment of a successor Note Registrar, Trust Collateral Agent or Certificate
Registrar within five Business Days thereof.
SECTION 4.2. Action by Certificateholders with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Insurer or, in the event that an Insurer Default shall have occurred and
be continuing, the Security Majority in accordance with the Basic Documents, to
(a) remove the Servicer under the Sale and Servicing Agreement or (b) except as
expressly provided in the Basic Documents, sell the Receivables after the
termination of the Indenture. The Owner Trustee shall take the actions referred
to in the preceding sentence only upon written instructions signed by the
Insurer or the Securityholders, as the case may be, and the furnishing of
indemnification satisfactory to the Owner Trustee by the Certificateholders.
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.
Until the Notes have been paid in full, the Owner Trustee shall not have the
power to, and shall not, commence any proceeding or other actions contemplated
by Section 2.12(d) relating to the Trust without the prior written consent of
the Insurer (unless an Insurer Default shall have occurred and be continuing) or
the Security Majority upon an Insurer Default. After the Notes have been paid in
full, all amounts due to the Insurer under the Insurance Agreement have been
paid in full, the Term of the Policy has expired and the Trust Collateral Agent
has surrendered the Policy to the Insurer, the Owner Trustee shall not have the
power to, and shall not, commence any proceeding or other actions contemplated
by Section 2.12(d) relating to the Trust without the prior written consent of
all of the Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of written certification that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholders' Power. (a) The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 or otherwise contrary to law nor
shall the Owner Trustee be obligated to follow any such direction, if given.
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No Certificateholder (other than the Depositor as
sole Certificateholder) shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit,
action, or proceeding in equity or at law upon or under or with respect
to this Agreement or any Basic Document, unless the Certificateholders
are the Instructing Party pursuant to Section 6.3 and unless a
Certificateholder previously shall have given to the Owner Trustee a
written notice of default and of the continuance thereof, as provided
in this Agreement, and also unless Certificateholders evidencing not
less than 25% of the percentage ownership interest in the Trust shall
have made written request upon the Owner Trustee to institute such
action, suit or proceeding in its own name as Owner Trustee under this
Agreement and shall have offered to the Owner Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities
to be incurred therein or thereby, and the Owner Trustee, for 30 days
after its receipt of such notice, request, and offer of indemnity,
shall have neglected or refused to institute any such action, suit, or
proceeding, and during such 30-day period no request or waiver
inconsistent with such written request has been given to the Owner
Trustee pursuant to and in compliance with this Section or Section 6.3;
it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Owner
Trustee, that no one or more Holders of Certificates shall have any
right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb, or
prejudice the rights of the Holders of any other of the Certificates,
or to obtain or seek to obtain priority over or preference to any other
such Holder, or to enforce any right under this Agreement, except in
the manner provided in this Agreement and for the equal, ratable, and
common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 4.4, each and every
Certificateholder and the Owner Trustee shall be entitled to such
relief as can be given either at law or in equity.
SECTION 4.5. Majority Control. No Certificateholder shall have any
right to vote or in any manner otherwise control the operation and management of
the Trust except as expressly provided in this Agreement. Except as expressly
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of Certificates evidencing not less
than a majority of the percentage ownership interest in the Trust. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Agreement shall be effective if signed by
Certificateholders evidencing not less than a majority of the percentage
ownership interest in the Trust at the time of the delivery of such notice.
SECTION 4.6. Rights of Insurer. Notwithstanding anything to the
contrary in the Basic Documents, without the prior written consent of the
Insurer or if an Insurer Default shall have occurred and be continuing, the
Security Majority, the Owner Trustee shall not (i) remove the Servicer, the
Backup Servicer, or any Sub-Servicer, (ii) initiate any claim, suit or
proceeding by the Trust or compromise any claim, suit or proceeding brought by
or against the Trust, other than with respect to the enforcement of any
Receivable or any rights of the Trust thereunder, (iii) authorize the merger or
consolidation of the Trust with or into any other business trust or other entity
(other than in accordance with Section 3.10 of the Indenture), (iv) amend the
Certificate of Trust, or (v) amend this Agreement in accordance with Section
11.1 of this Agreement.
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ARTICLE V
CERTAIN DUTIES
Accounting and Records to the Noteholders, Certificateholders, the
Internal Revenue Service and Others. Subject to Sections 12.1(b)(iii) and
12.1(c) of the Sale and Servicing Agreement, the Depositor shall (a) maintain
(or cause to be maintained) the books of the Trust on a calendar year basis on
the accrual method of accounting, including, without limitation, the allocations
of net income under Section 2.11, (b) deliver (or cause to be delivered) to each
Certificateholder, as may be required by the Code and applicable Treasury
Regulations, such information as may be required (including Schedule K-1, if
applicable) to enable each Certificateholder to prepare its Federal and state
income tax returns, (c) file or cause to be filed, if necessary, such tax
returns relating to the Trust (including a partnership information return, Form
1065), and direct the Owner Trustee or the Servicer, as the case may be, to make
such elections as may from time to time be required or appropriate under any
applicable state or Federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a branch, or if applicable, as a
partnership, for Federal income tax purposes, and (d) collect or cause to be
collected any withholding tax as described in and in accordance with Section
5.9(c) of the Sale and Serving Agreement with respect to income or distributions
to Certificateholders and the appropriate forms relating thereto. The Owner
Trustee or the Servicer, as the case may be, shall make all elections pursuant
to this Section as directed in writing by the Depositor. The Owner Trustee shall
sign all tax information returns, if any, filed pursuant to this Section 5.1 and
any other returns as may be required by law, and in doing so shall rely entirely
upon, and shall have no liability for information provided by, or calculations
provided by, the Depositor or the Servicer. The Owner Trustee shall elect under
Section 1278 of the Code to include in income currently any market discount that
accrues with respect to the Receivables. The Owner Trustee shall not make the
election provided under Section 754 of the Code.
SECTION 5.2. Signature on Returns; Tax Matters Partner. (a)
Notwithstanding the provisions of Section 5.1 and in the event that the Trust is
characterized as a partnership, the Owner Trustee shall sign on behalf of the
Trust the tax returns of the Trust, unless applicable law requires a
Certificateholder to sign such documents, in which case such documents shall be
signed by the Depositor.
In the event that the Trust is characterized as a
partnership, the Depositor shall be the "tax matters partner" of the
Trust pursuant to the Code.
SECTION 5.3. Underwriting Agreement. The Servicer is hereby
authorized to execute and deliver the Underwriting Agreement with respect to the
Notes.
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ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
General Authority. The Owner Trustee is authorized and directed to
execute and deliver the Basic Documents to which the Trust is named as a party
and each certificate or other document attached as an exhibit to or contemplated
by the Basic Documents to which the Trust is named as a party and any amendment
thereto, in each case, in such form as the Depositor shall approve as evidenced
conclusively by the Owner Trustee's execution thereof, and on behalf of the
Trust, to direct the Indenture Trustee to authenticate and deliver the Notes in
the aggregate principal amount of $85,200,000. In addition to the foregoing, the
Owner Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust pursuant to the Basic Documents. The Owner Trustee is
further authorized from time to time to take such action as the Instructing
Party recommends with respect to the Basic Documents so long as such activities
are consistent with the terms of the Basic Documents.
SECTION 6.2. General Duties. It shall be the duty of the Owner
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and to administer the Trust in the
interest of the Holders, subject to the Basic Documents and in accordance with
the provisions of this Agreement. Notwithstanding the foregoing, the Owner
Trustee shall be deemed to have discharged its duties and responsibilities
hereunder and under the Basic Documents to the extent the Servicer has agreed in
the Sale and Servicing Agreement to perform any act or to discharge any duty of
the Trust or the Owner Trustee hereunder or under any Basic Document, and the
Owner Trustee shall not be liable for the default or failure of the Servicer to
carry out its obligations under the Sale and Servicing Agreement.
SECTION 6.3. Action upon Instruction. (a) Subject to Article IV and
the terms of the Spread Account Agreement, the Insurer (so long as an Insurer
Default shall not have occurred and be continuing) or the Certificateholders (if
an Insurer Default shall have occurred and be continuing) (the "Instructing
Party") shall have the exclusive right to direct the actions of the Owner
Trustee in the management of the Trust, so long as such instructions are not
inconsistent with the express terms set forth herein or in any Basic Document.
The Instructing Party shall not instruct the Owner Trustee in a manner
inconsistent with this Agreement or the Basic Documents.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Basic Document, the Owner Trustee shall promptly give notice
(in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Instructing Party received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
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Owner Trustee shall not have received appropriate instruction within ten days of
such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders, and shall have no liability to
any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Instructing
Party requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Commission filing for the Trust or to
record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any Liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee (solely in its
individual capacity) and that are not related to the ownership or the
administration of the Owner Trust Estate.
SECTION 6.5. No Action Except under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents,
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
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SECTION 6.6. Restrictions. The Owner Trustee shall not take any
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3, or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation or a publicly traded
partnership for Federal income tax purposes. The Certificateholders shall not
direct the Owner Trustee to take action that would violate the provisions of
this Section.
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Acceptance of Trusts and Duties. The Owner Trustee accepts the trusts
hereby created and agrees to perform its duties hereunder with respect to such
trusts but only upon the terms of this Agreement. The Owner Trustee also agrees
to disburse all monies actually received by it constituting part of the Owner
Trust Estate upon the terms of the Basic Documents and this Agreement. The Owner
Trustee shall not be answerable or accountable hereunder or under any Basic
Document under any circumstances, except (i) for its own willful misconduct, bad
faith or negligence, (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.3 expressly made by the Owner Trustee in its
individual capacity, (iii) for liabilities arising from the failure of the Owner
Trustee to perform obligations expressly undertaken by it in the last sentence
of Section 6.4 hereof, (iv) for any investments issued by the Owner Trustee or
any branch or affiliate thereof in its commercial capacity or (v) for taxes,
fees or other charges on, based on or measured by, any fees, commissions or
compensation received by the Owner Trustee. In particular, but not by way of
limitation (and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Instructing Party, the Depositor, the Servicer or any Certificateholder;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Basic Document if the Owner Trustee shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured or provided to it;
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(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution hereof by
the Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate or for or in respect of the validity
or sufficiency of the Basic Documents, other than the certificate of
authentication on the Certificates, and the Owner Trustee shall in no event
assume or incur any liability, duty or obligation to the Depositor, the Insurer,
Trustee, Trust Collateral Agent, the Collateral Agent, any Noteholder or to any
Certificateholder, other than as expressly provided for herein and in the Basic
Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Depositor, the Insurer, the Trustee, the Trust Collateral
Agent or the Servicer under any of the Basic Documents or otherwise and the
Owner Trustee shall have no obligation or liability to perform the obligations
under this Agreement or the Basic Documents that are required to be performed by
the Depositor under this Agreement, by the Trustee under the Indenture or the
Trust Collateral Agent or the Servicer under the Sale and Servicing Agreement;
and
(g) the Owner Trustee 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 otherwise or in relation to this
Agreement or any Basic Document, at the request, order or direction of the
Instructing Party or any of the Certificateholders, unless such Instructing
Party or Certificateholders have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence, bad faith or willful misconduct in
the performance of any such act.
SECTION 7.2. Furnishing of Documents. The Owner Trustee shall furnish
to the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
SECTION 7.3. Representations and Warranties. The Owner Trustee hereby
represents and warrants, in its individual capacity, to the Depositor, the
Holders and the Insurer (which shall have relied on such representations and
warranties in issuing the Policies), that:
(a) It is a Delaware banking corporation, duly organized and validly
existing in good standing under the laws of the State of Delaware. It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
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(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Agreement,
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will contravene any
federal or Delaware state law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
SECTION 7.4. Reliance; Advice of Counsel. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed by it to be signed
by the proper party or parties. The Owner Trustee may accept a certified copy of
a resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
method of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer, secretary or other
authorized officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Owner Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon.
In the exercise or administration of the trusts
hereunder and in the performance of its duties and obligations under
this Agreement or the Basic Documents, the Owner Trustee (i) may act
directly or through its agents or attorneys pursuant to agreements
entered into with any of them, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Owner Trustee
with reasonable care, and (ii) may consult with counsel, accountants
and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance with the
written opinion or advice of any such counsel, accountants or other
such persons and according to such opinion not contrary to this
Agreement or any Basic Document.
SECTION 7.5. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created, Wilmington Trust
Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
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SECTION 7.6. Owner Trustee Not Liable for Certificates or
Receivables. The recitals contained herein and in the Certificates (other than
the signature and countersignature of the Owner Trustee on the Certificates)
shall be taken as the statements of the Depositor and the Owner Trustee assumes
no responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Agreement, of any
Basic Document or of the Certificates (other than the signature and
countersignature of the Owner Trustee on the Certificates) or the Notes, or of
any Receivable or related documents. The Owner Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Receivable, or the perfection and priority of any security
interest created by any Receivable in any Financed Vehicle or the maintenance of
any such perfection and priority, or for or with respect to the sufficiency of
the Owner Trust Estate or its ability to generate the payments to be distributed
to Certificateholders under this Agreement or the Noteholders under the
Indenture, including, without limitation: the existence, condition and ownership
of any Financed Vehicle; the existence and enforceability of any insurance
thereon; the existence and contents of any Receivable on any computer or other
record thereof; the validity of the assignment of any Receivable to the Trust or
of any intervening assignment; the completeness of any Receivable; the
performance or enforcement of any Receivable; the compliance by the Depositor,
the Servicer or any other Person with any warranty or representation made under
any Basic Document or in any related document or the accuracy of any such
warranty or representation or any action of the Trustee or the Servicer or any
subservicer taken in the name of the Owner Trustee.
SECTION 7.7. Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledge
of Certificates or Notes and may deal with the Depositor, the Trustee and the
Servicer in banking transactions with the same rights as it would have if it
were not Owner Trustee.
SECTION 7.8. Payments from Owner Trust Estate. All payments to be
made by the Owner Trustee under this Agreement or any of the Basic Documents to
which the Trust or the Owner Trustee is a party shall be made only from the
income and proceeds of the Owner Trust Estate and only to the extent that the
Owner Trust shall have received income or proceeds from the Owner Trust Estate
to make such payments in accordance with the terms hereof. Wilmington Trust
Company, or any successor thereto, in its individual capacity, shall not be
liable for any amounts payable under this Agreement or any of the Basic
Documents to which the Trust or the Owner Trustee is a party.
SECTION 7.9. Doing Business in Other Jurisdictions. Notwithstanding
anything contained to the contrary, neither Wilmington Trust Company or any
successor thereto, nor the Owner Trustee shall be required to take any action in
any jurisdiction other than in the State of Delaware if the taking of such
action will, even after the appointment of a co-trustee or separate trustee in
accordance with Section 10.5 hereof, (i) require the consent or approval or
authorization or order of or the giving of notice to, or the registration with
or the taking of any other action in respect of, any state or other governmental
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authority or agency of any jurisdiction other than the State of Delaware; (ii)
result in any fee, tax or other governmental charge under the laws of the State
of Delaware becoming payable by Wilmington Trust Company (or any successor
thereto); or (iii) subject Wilmington Trust Company (or any successor thereto)
to personal jurisdiction in any jurisdiction other than the State of Delaware
for causes of action arising from acts unrelated to the consummation of the
transactions by Wilmington Trust Company (or any successor thereto) or the Owner
Trustee, as the case may be, contemplated hereby.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Owner Trustee's Fees and Expenses. The Owner Trustee shall receive as
compensation for its services hereunder such fees as have been separately agreed
upon before the date hereof between the Depositor and the Owner Trustee, and the
Owner Trustee shall be entitled to be reimbursed by the Depositor for its other
reasonable expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Owner Trustee may employ in connection with the exercise and performance of its
rights and its duties hereunder and under the Basic Documents.
SECTION 8.2. Indemnification. The Depositor shall be liable as
primary obligor for, and shall indemnify the Owner Trustee (in its individual
and trust capacities) and its officers, directors, successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and against, any and
all liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may (in its trust or individual capacities) at
any time be imposed on, incurred by, or asserted against the Owner Trustee or
any Indemnified Party in any way relating to or arising out of this Agreement,
the Basic Documents, the Owner Trust Estate, the administration of the Owner
Trust Estate or the action or inaction of the Owner Trustee hereunder, except
only that the Depositor shall not be liable for or required to indemnify the
Owner Trustee from and against Expenses arising or resulting from any of the
matters described in the third sentence of Section 7.1. The indemnities
contained in this Section and the rights under Section 8.1 shall survive the
resignation or termination of the Owner Trustee or the termination of this
Agreement. In any event of any claim, action or proceeding for which indemnity
will be sought pursuant to this Section, the Owner Trustee's choice of legal
counsel shall be subject to the approval of the Depositor which approval shall
not be unreasonably withheld.
SECTION 8.3. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
SECTION 8.4. Non-recourse Obligations. Notwithstanding anything in
this Agreement or any Basic Document, the Owner Trustee agrees in its individual
capacity and in its capacity as Owner Trustee for the Trust that all obligations
of the Trust to the Owner Trustee individually or as Owner Trustee for the Trust
shall be recourse to the Owner Trust Estate only and specifically shall not be
recourse to the assets of any Certificateholder.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Termination of Trust Agreement. (a) This Agreement and the Trust
shall terminate and be of no further force or effect upon the latest of (i) the
maturity or other liquidation of the last Receivable (including the purchase by
the Servicer at its option of the corpus of the Trust as described in Section
11.1 of the Sale and Servicing Agreement) and the subsequent distribution of
amounts in respect of such Receivables as provided in the Basic Documents or
(ii) the payment to Certificateholders of all amounts required to be paid to
them pursuant to this Agreement and the payment to the Insurer of all amounts
payable or reimbursable to it pursuant to the Sale and Servicing Agreement;
provided, however, that the rights to indemnification under Section 8.2 and the
rights under Section 8.1 shall survive the termination of the Trust. The
Servicer shall promptly notify the Owner Trustee and the Insurer of any
prospective termination pursuant to this Section 9.1. The bankruptcy,
liquidation, dissolution, death or incapacity of any Certificateholder shall not
(x) operate to terminate this Agreement or the Trust, nor (y) entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of all
or any part of the Trust or Owner Trust Estate nor (z) otherwise affect the
rights, obligations and liabilities of the parties hereto.
(b) Except as provided in clause (a), neither the Depositor nor any
other Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender their
Certificates to the Trust Collateral Agent for payment of the final distribution
and cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
termination from the Servicer given pursuant to Section 11.1(c) of the Sale and
Servicing Agreement, stating (i) the Distribution Date upon or with respect to
which final payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Trust Collateral Agent
therein designated, (ii) the amount of any such final payment, (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trust Collateral Agent therein specified, and (iv) interest
will cease to accrue on the Certificates. The Owner Trustee shall give such
notice to the Certificate Registrar (if other than the Owner Trustee) and the
Trust Collateral Agent at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Trust Collateral Agent
shall cause to be distributed to Certificateholders amounts distributable on
such Distribution Date pursuant to Section 5.7 of the Sale and Servicing
Agreement.
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In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Owner Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Certificates shall
not have been surrendered for cancellation, the Owner Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds remaining in the Trust after
exhaustion of such remedies shall be distributed, subject to applicable escheat
laws, by the Owner Trustee to the Depositor and Holders shall look solely to the
Depositor for payment.
(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall be
distributed by the Owner Trustee to the Depositor.
(e) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
(f) Written notice of the termination of this Agreement and the Trust
shall be given to each Rating Agency by the Owner Trustee.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Eligibility Requirements for Owner Trustee. The Owner Trustee shall
at all times be a corporation (i) satisfying the provisions of Section 3807(a)
of the Business Trust Statute; (ii) authorized to exercise corporate trust
powers; (iii) having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by Federal or State authorities; (iv)
having (or having a parent which has) a rating of at least Baa3 by Moody's and
A-1 by Standard & Poors; and (v) acceptable to the Insurer in its sole
discretion, so long as an Insurer Default shall not have occurred and be
continuing. If such corporation shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.2.
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SECTION 10.2. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Depositor (or in the event that the
Depositor is not the sole Certificateholder, the Holders of Certificates
evidencing not less than a majority of the percentage ownership interest in the
Trust), the Insurer and the Servicer. Upon receiving such notice of resignation,
the Depositor shall promptly appoint a successor Owner Trustee, meeting the
qualifications set forth in Section 10.1 herein, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and one copy to the successor Owner Trustee, provided that the
Depositor shall have received written confirmation from each of the Rating
Agencies that the proposed appointment will not result in an increased capital
charge to the Insurer by either of the Rating Agencies. If no successor Owner
Trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning Owner Trustee
or the Insurer may petition any court of competent jurisdiction for the
appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Depositor, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor with the consent of the Insurer (so long as an
Insurer Default shall not have occurred and be continuing) may remove the Owner
Trustee. If the Depositor shall remove the Owner Trustee under the authority of
the immediately preceding sentence, the Depositor shall promptly appoint a
successor Owner Trustee, meeting the qualifications set forth in Section 10.1
herein, by written instrument, in duplicate, one copy of which instrument shall
be delivered to the outgoing Owner Trustee so removed, one copy to the Insurer
and one copy to the successor Owner Trustee and payment of all fees owed to the
outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Depositor shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Depositor, the Servicer, the Insurer and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee, without any further act, deed or conveyance,
shall become fully vested with all the rights, powers, duties and obligations of
its predecessor under this Agreement, with like effect as if originally named as
Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Agreement; and the Depositor and the predecessor
Owner Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties and
obligations.
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No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Servicer shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Trustee, the Noteholders and the Rating
Agencies. If the Servicer shall fail to mail such notice within 10 days after
acceptance of appointment by the successor Owner Trustee, the successor Owner
Trustee shall cause such notice to be mailed at the expense of the Servicer.
SECTION 10.4. Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided further that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Financed Vehicle may at the time be located,
the Servicer and the Owner Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Owner Trustee and the Insurer to act as co-trustee, jointly with the Owner
Trustee, or separate trustee or separate trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Servicer and
the Owner Trustee may consider necessary or desirable. If the Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee subject, unless an Insurer Default shall
have occurred and be continuing, to the approval of the Insurer (which approval
shall not be unreasonably withheld) shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
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to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the Owner
Trustee;
(ii) no trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement; and
(iii) the Servicer and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer and the Insurer.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
ARTICLE XI
MISCELLANEOUS
Supplements and Amendments. (a) This Agreement may be amended by the
Depositor and the Owner Trustee, with the prior written consent of the Insurer
(so long as an Insurer Default shall not have occurred and be continuing) and
with prior written notice to the Rating Agencies, without the consent of any of
the Noteholders or, in the event that the Depositor is not the sole
Certificateholder, the Certificateholders, (i) to cure any ambiguity or defect
or (ii) to correct, supplement or modify any provisions in this Agreement;
provided, however, that such action shall not, as evidenced by an Opinion of
Counsel which may be based upon a certificate of the Servicer, adversely affect
in any material respect the interests of any Noteholder or Certificateholder.
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This Agreement may also be amended from time to time,
with the prior written consent of the Insurer (so long as an Insurer
Default shall not have occurred and be continuing) by the Depositor and
the Owner Trustee, with prior written notice to the Rating Agencies, to
the extent such amendment materially and adversely affects the
interests of the Noteholders, with the consent of the Noteholders
evidencing not less than a majority of the Outstanding Amount of the
Notes and, the consent of the Certificateholders evidencing not less
than a majority of the percentage ownership interest in the Trust
(which consent of any Holder of a Certificate or Note given pursuant to
this Section or pursuant to any other provision of this Agreement shall
be conclusive and binding on such Holder and on all future Holders of
such Certificate or Note and of any Certificate or Note issued upon the
transfer thereof or in exchange thereof or in lieu thereof whether or
not notation of such consent is made upon the Certificate or Note) for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Noteholders or the Certificateholders;
provided, however, that, subject to the express rights of the Insurer
under the Basic Documents, no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing
of, collections of payments on Receivables or distributions that shall
be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the
Outstanding Amount of the Notes and the Certificates, the Holders of
which are required to consent to any such amendment, without the
consent of the Holders of all the outstanding Notes and Holders of all
outstanding Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Trustee and each of the
Rating Agencies.
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Trustee pursuant to this Section to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe. Promptly after the execution of
any amendment to the Certificate of Trust, the Owner Trustee shall cause the
filing of such amendment with the Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
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SECTION 11.2. Limitations on Rights of Others. Except for Section
2.7, the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Certificateholders, the Servicer and, to the extent
expressly provided herein, the Insurer, the Trustee and the Noteholders, and
nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim in the
Owner Trust Estate or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
SECTION 11.3. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt personally delivered, delivered by overnight courier
or mailed first class mail or certified mail, in each case return receipt
requested, and shall be deemed to have been duly given upon receipt, if to the
Owner Trustee, addressed to the Corporate Trust Office; if to the Depositor,
addressed to National Financial Auto Funding Trust, One Park Place, Suite 200,
621 N.W. 53rd Street, Boca Raton, Florida 33487; if to the holder of the
Insurer, addressed to Insurer, Financial Security Assurance Inc., 350 Park
Avenue, New York, NY 10022, Attention: Surveillance Department, Re: National
Auto Finance 1998-1 Trust, 5.88% Automobile Receivables-Backed Notes, Telex No.:
(212) 688-3101, Confirmation: (212) 826-0100, Telecopy Nos.: (212) 339-3518,
(212) 339-3529 (in each case in which notice or other communication to the
Insurer refers to an Event of Default, a claim on the Note Policy or with
respect to which failure on the part of Financial Security to respond shall be
deemed to constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of the General Counsel and
the Head-Financial Guaranty Group "URGENT MATERIAL ENCLOSED"); or, as to each
party, at such other address as shall be designated by such party in a written
notice to each other party.
Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid,
at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 11.4. Severability. Any provision of this Agreement that is
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 11.5. Separate Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.6. Assignments; Insurer. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. This Agreement shall also inure to the benefit
of the Insurer for so long as an Insurer Default shall not have occurred and be
continuing. Without limiting the generality of the foregoing, all covenants and
agreements in this Agreement which confer rights upon the Insurer shall be for
the benefit of and run directly to the Insurer, and the Insurer shall be
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entitled to rely on and enforce such covenants, subject, however, to the
limitations on such rights provided in this Agreement and the Basic Documents.
The Insurer may disclaim any of its rights and powers under this Agreement (but
not its duties and obligations under the Policies) upon delivery of a written
notice to the Owner Trustee.
SECTION 11.7. No Petition. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Certificate, and the Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenants and
agrees that they will not at any time institute against the Depositor, or join
in any institution against the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Certificates, the Notes, this Agreement or any
of the Basic Documents.
SECTION 11.8. No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Servicer, the Depositor, the Owner Trustee, the Trustee, the
Insurer or any Affiliate thereof and no recourse may be had against such parties
or their assets, except as may be expressly set forth or contemplated in this
Agreement, the Certificates or the Basic Documents.
SECTION 11.9. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.11. Servicer. The Servicer is authorized to prepare, or
cause to be prepared, execute and deliver on behalf of the Trust all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Trust or Owner Trustee to prepare, file or deliver pursuant
to the Basic Documents. Upon written request, the Owner Trustee shall execute
and deliver to the Servicer a limited power of attorney appointing the Servicer
the Trust's agent and attorney-in-fact to prepare, or cause to be prepared,
execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized as of
the day and year first above written.
WILMINGTON TRUST COMPANY,
Owner Trustee,
By:_________________________________
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING TRUST,
By: CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as Trustee of Naitonal Financial Auto
Funding Trust,
By:_________________________________
Name:
Title:
Acknowledged and Agreed:
NATIONAL AUTO FINANCE COMPANY, INC.,
Servicer,
By:____________________________
Name: Keith B. Stein
Title: Vice Chairman and Treasurer
33
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EXHIBIT A
FORM OF CERTIFICATE
NUMBER
1
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND SUCH STATE
SECURITIES LAWS. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE
UNLESS SUCH RESALE OR TRANSFER (A) IS MADE IN ACCORDANCE WITH SECTION 3.4 OF THE
OWNER TRUST AGREEMENT PERTAINING TO THE NATIONAL AUTO FINANCE 1998-1 TRUST (THE
"AGREEMENT") AND (B) IS MADE (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (ii) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, (iii)
TO THE SELLER OR (iv) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A AND (C) UPON THE SATISFACTION OF CERTAIN OTHER
REQUIREMENTS SPECIFIED IN THE AGREEMENT. NEITHER THE SELLER, THE SERVICER, THE
TRUST NOR THE OWNER TRUSTEE IS OBLIGATED TO REGISTER THE CERTIFICATES UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.
TRUST CERTIFICATE
evidencing a beneficial ownership interest in certain distributions of the
Trust, as defined below, the property of which includes a pool of retail
installment sale contracts secured by new or used automobiles, vans or light
duty trucks and sold to the Trust by National Financial Auto Funding Trust.
(This Certificate does not represent an interest in or obligation of National
Financial Auto Funding Trust or any of its Affiliates, except to the extent
described below.)
THIS CERTIFIES THAT National Financial Auto Funding Trust is the
registered owner of a nonassessable, fully-paid, beneficial ownership interest
in certain distributions of National Auto Finance 1998-1 Trust (the "Trust")
formed by National Financial Auto Funding Trust, a Delaware business trust (the
"Depositor").
<PAGE>
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within mentioned
Trust Agreement.
WILMINGTON TRUST COMPANY not in its individual capacity but solely as Owner
Trustee
by ________________________________ Authenticating Agent
by _______________________________
The Trust was created pursuant to a Trust Agreement dated as of
December 15, 1997 (the "Trust Agreement"), between the Depositor and Wilmington
Trust Company, as owner trustee (the "Owner Trustee"), a summary of certain of
the pertinent provisions of which is set forth below. To the extent not
otherwise defined herein, the capitalized terms used herein have the meanings
assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates designated
as "Trust Certificates" (herein called the "Certificates"). This Certificate is
issued under and is subject to the terms, provisions and conditions of the Trust
Agreement, to which Trust Agreement the holder of this Certificate by virtue of
the acceptance hereof assents and by which such holder is bound. The property of
the Trust includes a pool of retail installment sale contracts secured by new
and used automobiles, vans or light duty trucks (the "Receivables"), all monies
due thereunder on or after Initial Cutoff Date, security interests in the
vehicles financed thereby, certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and certain other rights
under the Trust Agreement and the Sale and Servicing Agreement, all right, to
and interest of the Depositor in and to the Purchase and Contribution Agreement
dated as of December 15, 1997 between National Auto Finance Company, Inc. and
National Financial Auto Funding Trust and all proceeds of the foregoing.
Under the Trust Agreement, there will be distributed on the 21st day of
each month or, if such 21st day is not a Business Day, the next Business Day
(the "Distribution Date"), commencing on January 21, 1998, to the Person in
whose name this Certificate is registered at the close of business on the
Business Day preceding such Distribution Date (the "Record Date") such
Certificateholder's fractional undivided interest in the amount to be
distributed to Certificateholders on such Distribution Date.
The holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Sale and Servicing Agreement, the
Indenture and the Trust Agreement, as applicable.
<PAGE>
The holder of this Certificate, by acceptance of this Certificate,
specifically acknowledges that it has no right to or interest in any monies at
any time held pursuant to the Spread Account Agreement or prior to the release
of such monies pursuant to Section 5.7(b) of the Sale and Servicing Agreement,
such monies being held in trust for the benefit of the Noteholders and the
Insurer. Notwithstanding the foregoing, in the event that it is ever determined
that the monies held in the Spread Account constitute a pledge of collateral,
then the provisions of the Sale and Servicing Agreement and the Spread Account
Agreement shall be considered to constitute a security agreement and the holder
of this Certificate hereby grants to the Trust Collateral Agent for the benefit
of the Trustee and the Insurer a first priority perfected security interest in
such amounts, to be applied as set forth in Section 3.03 of the Spread Account
Agreement. In addition, each Certificateholder, by acceptance of its
Certificate, hereby appoints the Seller as its agent to pledge a first priority
perfected security interest in the Spread Account, and any amounts held therein
from time to time to the Collateral Agent for the benefit of the Trustee and the
Insurer pursuant to the Spread Account Agreement and agrees to execute and
deliver such instruments of conveyance, assignment, grant, confirmation, etc.,
as well as any financing statements, in each case as the Insurer shall consider
reasonably necessary in order to perfect the Trust Collateral Agent's security
interest in the Collateral.
It is the intent of the Depositor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a branch. In the event that the Certificates are held more than one
Holder, it is the intent of the Depositor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a partnership and the Certificateholders will be treated as partners
in that partnership. The Depositor and any other Certificateholders, by
acceptance of a Certificate, agree to treat, and to take no action inconsistent
with the treatment of, the Certificates for such tax purposes as partnership
interests in the Trust. Each Certificateholder, by its acceptance of a
Certificate, covenants and agrees that such Certificateholder will not at any
time institute against the Trust or the Depositor, or join in any institution
against the Trust or the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Certificates, the Notes, the Trust Agreement or
any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Sale
and Servicing Agreement by the Trust Collateral Agent by wire transfer or check
mailed to the Certificateholder of record in the Certificate Register without
the presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the Corporate Trust Office.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual signature,
this Certificate shall not entitle the holder hereof to any benefit under the
Trust Agreement or the Sale and Servicing Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
NATIONAL AUTO FINANCE 1998-1 TRUST
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
Dated: January 20, 1998
By:
Name:
Title:
<PAGE>
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Servicer, the Owner Trustee or any Affiliates of any of them
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated herein or in the Trust Agreement, the
Indenture or the Basic Documents. In addition, this Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections with respect to the Receivables, as more
specifically set forth herein and in the Sale and Servicing Agreement. A copy of
each of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Depositor, and at
such other places, if any, designated by the Depositor, by any Certificateholder
upon written request.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Depositor and the rights of the Certificateholders under the Trust Agreement at
any time by the Depositor and the Owner Trustee with the prior written consent
of Financial Security Assurance Inc. (the "Insurer") so long as no Insurer
Default has occurred and is continuing, and with the consent of the holders of
the Notes and the Certificates evidencing not less than a majority of the
outstanding Notes and the percentage ownership interest of the Trust. Any such
consent by the holder of this Certificate shall be conclusive and binding on
such holder and on all future holders of this Certificate and of any Certificate
issued upon the transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent is made upon this Certificate. The Trust
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the holders of any of the Certificates (other than the
Depositor or the Insurer).
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Owner Trustee in the Corporate Trust Office, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
evidencing the same percentage ownership interest in the Trust will be issued to
the designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is Wilmington Trust Company.
Except for Certificates issued to the Depositor, the Certificates are
issuable only as registered Certificates. As provided in the Trust Agreement and
subject to certain limitations therein set forth, Certificates are exchangeable
for new Certificates evidencing the same aggregate percentage ownership interest
in the Trust, as requested by the holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
<PAGE>
The Owner Trustee, the Certificate Registrar and any agent of the Owner
Trustee, the Certificate Registrar or the Insurer may treat the person in whose
name this Certificate is registered as the owner hereof for all purposes, and
none of the Owner Trustee, the Certificate Registrar nor any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement and
the Sale and Servicing Agreement and the disposition of all property held as
part of the Trust. The Servicer of the Receivables may at its option purchase
the corpus of the Trust at a price specified in the Sale and Servicing
Agreement, and such purchase of the Receivables and other property of the Trust
will effect a transfer of the Certificates; however, such right of purchase is
exercisable, subject to certain restrictions, only as of the last day of any
Monthly Period as of which the Pool Balance is 10% or less of the Original Pool
Balance.
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e) (1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By accepting and holding this
Certificate, the Holder hereof shall be deemed to have represented and warranted
that it is not a Benefit Plan.
The recitals contained herein shall be taken as the statements of the
Depositor or the Servicer, as the case may be, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Certificate or of any
Receivable or related document.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual or facsimile
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Trust Agreement or the Sale and Servicing Agreement or be valid for
any purpose.
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- ----------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- ----------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
<PAGE>
____________________ Attorney to transfer said Certificate on the books of the
Certificate Registrar, with full power of substitution in the premises.
Dated:
__________________________ *
Signature Guaranteed:
__________________________ *
- ------------
* NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Certificate in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST OF
NATIONAL AUTO FINANCE 1998-1 TRUST
This Certificate of Trust of National Auto Finance 1998-1 Trust (the
"Trust"), dated as of December 15, 1997, is being duly executed and filed by
Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 et
seq.).
1. Name. The name of the business trust formed hereby is National
Auto Finance 1998-1 Trust.
2. Delaware Trust. The name and business address of the Trustee of
the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001. Attn:
Corporate Trust Administration.
3. This Certificate of Trust will be effective December 15, 1997.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY,
not in its individual
capacity but solely as
owner trustee of the Trust.
By:_________________________________
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF INVESTMENT LETTER
[LETTERHEAD OF PURCHASER]
[Date]
Wilmington Trust Company, as trustee
of National Auto Finance 1998-1 Trust
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Ladies and Gentlemen:
The undersigned (the "Purchaser") proposes to purchase the Trust
Certificates issued pursuant to that certain Trust Agreement, dated as of
December 15, 1997 (the "Trust Agreement"), between National Financial Auto
Funding Trust, a Delaware business trust, and Wilmington Trust Company, as
trustee (the "Trustee"). Unless the context or use indicates another or
different meaning, each capitalized term used herein and not otherwise defined
herein shall have the meaning ascribed to it in the Trust Agreement.
1. The undersigned hereby certifies that, as indicated below, the
undersigned is a duly authorized officer of the Purchaser.
2. In connection with the purchase by the Purchaser of the Trust
Certificates, the undersigned hereby certifies to you, and, if you act as broker
for one or more customers, to such customers, that the Purchaser is a "qualified
institutional buyer" as defined in Rule 144A ("Rule 144A") promulgated under the
Securities Act of 1933, as amended, because the Purchaser is an entity described
in paragraph (a) (1) ___ [refer to applicable subparagraph] of Rule 144A.
3. The Purchaser certifies and acknowledges that it is familiar with
Rule 144A and understands that you and your customers (if you act as a broker
for one or more customers) are relying on the statements made therein.
4. The Purchaser certifies that the Purchaser is purchasing the Trust
Certificates in the capacity marked below (check one):
[ ] The Purchaser certifies that the Purchaser is purchasing the Trust
Certificates for its own account only; or
<PAGE>
[ ] The Purchaser certifies that the Purchaser is purchasing the Trust
Certificates for the account of [one] [specify number] other qualified
institutional buyer(s), [each of] which is a "qualified institutional buyer."
5. The Purchaser certifies that it has received from the Trust the
information that satisfies the requirements of paragraph (d)(4) of Rule 144A
(the "Rule 144A Information").
6. The Purchaser certifies that it will comply with all applicable
federal and state securities laws in connection with any subsequent resale by
the Purchaser of the Trust Certificates.
7. The Purchaser understands and acknowledges that the Trust
Certificates have not been and will not be registered under the Securities Act
of 1933, as amended, or any state securities laws and may be resold only if (a)
the Trust Certificates are registered pursuant to the provisions of the
Securities Act of 1933, as amended, and such state securities laws, or (b) if an
exemption from such registration is available. The Purchaser understands and
acknowledges that the Trust is not required to register the Trust Certificates
and that any transfer must comply with Section 3.4 of the Trust Agreement. The
Trustee is not obligated to provide Rule 144A Information.
8. The Purchaser additionally represents (check one):
( ) The Purchaser is not a Plan for ERISA purposes.
( ) The Purchaser's acquisition of the Trust Certificates
will not cause the assets of the Trust to be assets of any Plan for ERISA
purposes.
Very truly yours,
[Purchaser]
By:
Name:
Title:
================================================================================
PURCHASE AND CONTRIBUTION AGREEMENT
BETWEEN
NATIONAL AUTO FINANCE COMPANY, INC.
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST
------------------------------
DATED AS OF DECEMBER 15, 1997
================================================================================
<PAGE>
PURCHASE AND CONTRIBUTION AGREEMENT
-----------------------------------
PURCHASE AND CONTRIBUTION AGREEMENT, dated as of December 15,
1997, by and between National Auto Finance Company, Inc., a Delaware corporation
("NAFI"), and National Financial Auto Funding Trust, a Delaware business trust
("National Financial").
W I T N E S S E T H :
In consideration of the mutual covenants herein contained,
NAFI and National Financial agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Incorporation of Definitions. Capitalized terms
used but not defined herein have the meanings ascribed to them in the Sale and
Servicing Agreement (as amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof, the "Sale and Servicing Agreement"),
dated as of December 15, 1997, by and among National Financial, as Seller, NAFI,
as Servicer, Wilmington Trust Company, in its capacity as owner trustee of the
National Auto Finance 1998-1 Trust (the "Trust"), and Harris Trust and Savings
Bank, not in its individual capacity, but solely as Trust Collateral Agent and
Backup Servicer (the "Trust Collateral Agent").
SECTION 1.2. Other Definitions. When used in this Agreement,
the following words and phrases shall have the following meanings:
"Bankruptcy Event" means the occurrence of either of the
following with respect to either NAFI or National Financial:
(a) a case or other proceeding shall be commenced, without the
application or consent of NAFI or National Financial, as applicable, in any
court, seeking the liquidation, reorganization, debt arrangement, dissolution,
winding up, or composition or readjustment of debts of NAFI or National
Financial, as applicable, the appointment of a trustee, receiver, custodian,
liquidator, assignee, sequestrator or the like for NAFI or National Financial,
as applicable, or for any substantial part of its assets, or any similar action
with respect to NAFI or National Financial, as applicable, under any law
(foreign or domestic) relating to bankruptcy, insolvency, receivership,
reorganization, winding up or composition or adjustment of debts, and such case
or proceeding shall continue undismissed, or unstayed and in effect, for a
period of 60 (sixty) days or an order for relief in respect of NAFI or National
Financial, as applicable, shall be entered in an involuntary case under the
federal bankruptcy laws or other similar laws (foreign or domestic) now or
hereafter in effect; or
(b) NAFI or National Financial, as applicable, shall commence
a voluntary case or other proceeding under any applicable bankruptcy,
insolvency, receivership, reorganization, debt arrangement, dissolution or other
similar law now or hereafter in effect, or shall consent to the appointment of
<PAGE>
or taking possession by a trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for NAFI or National Financial, as applicable, or for
any substantial part of its assets, or shall make any general assignment for the
benefit of creditors, or shall fail to, or admit in writing its inability to,
pay its debts generally as they become due.
"Collection Date" means, with respect to a Receivable, the
date in each Due Period on which a scheduled payment on such Receivable is due.
"Conveyance" has the meaning given in Section 2.3(c).
"Cut-off Date" means, with respect to an Initial Receivable,
the Initial Cut-off Date, and with respect to any Subsequent Receivable, the
applicable Subsequent Cut-off Date.
"Individual Sold Balance" means, with respect to any
Receivable, the original principal balance of such Receivable reduced by the
portion of each payment received thereon before the applicable Cut-off Date that
would represent principal if such payments were allocated to the principal of
and interest on such Receivable based on the amortization method provided in the
Contract.
"Insurance Proceeds" means proceeds paid by any insurer
pursuant to any insurance policy covering a Financed Vehicle or the related
Obligor.
"Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all amounts (including without limitation, Insurance Proceeds)
realized with respect to such Receivable net of amounts that are required to be
refunded to the Obligor on such Receivable; provided however, that the
Liquidation Proceeds with respect to any Receivable shall in no event be less
than zero.
"Master Trust" means the National Financial Auto Receivables
Master Trust.
"Purchase Price" has the meaning given in Section 2.1(c).
"Receivable" means each motor vehicle retail installment sale
contract and security agreement (including any and all rights to receive
payments thereunder on and after the applicable Cut-off Date and security
interests in the Financed Vehicle securing such contract or note) assigned and
transferred to National Financial hereunder as of the Closing Date or a
Subsequent Transfer Date and not reassigned, retransferred or otherwise released
in accordance herewith, each such Receivable being identified in the Receivables
Schedule attached hereto as Schedule 1 or a Receivables Schedule attached to a
Subsequent Transfer Agreement, as applicable.
<PAGE>
"Receivable Assets" means the assets sold, transferred,
conveyed and assigned by NAFI to National Financial pursuant to this Agreement,
which consist of (i) all Receivables identified in the Receivables Schedules
attached to the Conveyances delivered hereunder on each Subsequent Transfer Date
and all monies received thereon on or after the related Cut-off Date (including
amounts due on or before the Cut-off Date but received by NAFI on or after such
Cut-off Date); (ii) any proceeds and the right to receive proceeds with respect
to the Receivables from claims on any physical damage, credit life or disability
insurance policies covering Financed Vehicles or Obligors, including rebates of
insurance premiums relating to the Receivables and any proceeds from the
liquidation of the Receivables; (iii) all rights against Dealers pursuant to
Dealer Agreements or against Originators pursuant to Originator Agreements; (iv)
the related Receivable Files and any and all other documents that NAFI keeps on
file in accordance with its customary procedures relating to the Receivables,
the Obligors or the Financed Vehicles; (v) property (including the right to
receive future Liquidation Proceeds) that secures a Receivable and that has been
acquired by or on behalf of the Trust pursuant to liquidation of such
Receivable; (vi) all funds on deposit from time to time in the Trust Accounts
(less all investments and proceeds thereof) and all rights of the Issuer
therein; and (vii) the proceeds of any and all of the foregoing.
"Receivable Documents" means, with respect to a Receivable,
all Receivable papers and documents (including those contained in the Receivable
File) and all other papers and records (including computerized data) of whatever
size or description, whether developed or originated by NAFI, a Dealer,
Originator or another Person, required to document the Receivable or to service
the Receivable.
"Receivable Files" means, with respect to a Receivable, the
fully executed original of such Receivable; the assignment of such Receivable by
a Dealer or Originator to NAFI, the original Title Document or UCC financing
statement evidencing that the security interest in a Financed Vehicle granted to
NAFI under such Receivable has been perfected under applicable public state law
(except for any Title Documents or UCC financing statements not returned from
the applicable records office, in which case NAFI will deliver to National
Financial, on the Closing Date or the Subsequent Transfer Date, as the case may
be, an Officer's Certificate of NAFI indicating that the original of such Title
Document has been applied for at, or the original of such UCC financing
statement was delivered to, such public office and shows NAFI as the lienholder
or secured party and that NAFI will deliver the originals thereof when returned
from such office); the original of any assumption agreement or any modification,
extension or refinancing agreement; and the original application of the related
Obligor to obtain the financing extended by such Receivable.
"Receivables Schedule" means the Schedule of Receivables
attached hereto as Schedule 1 or attached as Schedule 1 to any Conveyance
delivered hereunder, such Schedule identifying each Receivable by name of the
Obligor and setting forth as to each Receivable its Individual Sold Balance as
of the Cut-off-Date, loan number, Receivable Rate, scheduled monthly payment of
principal and interest, final maturity date and original principal amount.
"Unearned Financing Charge" means, with respect to any
Receivable, the amount of the add-on finance charge that, under the term of the
Receivable, would be required to be refunded or credited to the related Obligor
in accordance with such Receivable if such Receivable were then prepaid in full.
<PAGE>
ARTICLE II
PURCHASE SALE AND CONTRIBUTION
SECTION 2.1.Purchase and Contribution. (a) Subject to and on
the terms and conditions set forth herein, NAFI hereby transfers, conveys and
assigns, without recourse except as expressly set forth herein, as a
contribution of capital to National Financial, all of its right, title and
interest in and to (i) the Receivables identified on the Receivables Schedule
attached hereto as Schedule 1 and all monies received thereon on or after the
Initial Cut-off Date (including amounts due on or before the Initial Cut-off
Date but received by NAFI on or after the Initial Cut-off Date) and (ii) the
other Receivable Assets related thereto.
(b) Pursuant to and in connection with the transfer of certain
retail installment sale contracts or promissory notes or other financing
documents for a new or used motor vehicles and certain other property related
thereto by Bankers Trust Company ("Bankers Trust"), as trustee of the National
Financial Auto Receivables Master Trust (the "Master Trust"), to National
Financial Auto Funding Trust II, a Delaware business trust ("Funding Trust II"),
under the Assignment Agreement dated as of December 15, 1997 (the "Assignment
Agreement"), between Bankers Trust and Funding Trust II, and by Funding Trust II
to National Financial under the Sale Agreement dated as of December 15, 1997
(the "Sale Agreement") between Funding Trust II and National Financial, NAFI
hereby transfers, conveys and assigns, without recourse except as expressly set
forth herein, all of NAFI's rights against Dealers under the Dealer Agreements
and Originators under the Originator Agreements with respect to such retail
installment sales contracts, promissory notes or other financing documents, to
the extent such rights have not been previously conveyed by NAFI to Funding
Trust II and by Funding Trust II to the Master Trust.
(c) Subject to and on the terms and conditions set forth
herein, NAFI hereby agrees to sell, transfer, convey and assign, without
recourse except as expressly provided herein, all of its right, title and
interest in and to the Receivable Assets to National Financial on each
Subsequent Transfer Date. National Financial agrees to pay to NAFI on each
Subsequent Transfer Date as the purchase price (the "Purchase Price") for the
Receivable Assets sold hereunder on such date an amount equal to 100% of the
Aggregate Principal Balance of the Receivables included in such Receivable
Assets as of the related Cut-off Date.
(d) NAFI may from time to time during the term of this
Agreement and in its sole discretion, elect to contribute capital to National
Financial in the form of Receivables and Receivable Assets conveyed hereunder,
in an amount equal to the excess of (i) the Principal Balance of Receivables
included in Receivable Assets conveyed on any Subsequent Transfer Date over (ii)
the amount of the cash Purchase Price paid by National Financial to NAFI on such
Subsequent Transfer Date.
SECTION 2.2.Filings. On or prior to the Closing Date, NAFI
shall have filed in the office of the Secretary of State of Florida a UCC
financing statement, appropriate under the applicable UCC, to reflect the
transfer of the Receivables identified on the Receivables Schedule attached
hereto as Schedule 1 and the other Related Assets related thereto by NAFI to
National Financial on the Closing Date and the Receivable Assets to be
transferred from NAFI to National Financial on any Subsequent Transfer Date and
to protect National Financial's interest in the Receivable Assets against all
other Persons. NAFI shall thereafter file any appropriate continuation
statements in respect thereof.
<PAGE>
SECTION 2.3. Sales. (a) During the Pre-Funding Period,
National Financial shall, to the extent permitted by the Sale and Servicing
Agreement, use funds on deposit in the Pre-Funding Account established under the
Sale and Servicing Agreement to purchase Subsequent Receivables and other
Receivable Assets from NAFI. On or prior to each Subsequent Transfer Date, NAFI
shall notify National Financial in writing of the outstanding principal amount
of eligible Receivables included in Receivable Assets available to be sold and
conveyed by NAFI to National Financial on such Subsequent Transfer Date pursuant
to this Agreement, and subject to the terms and conditions of this Agreement,
NAFI shall, on the applicable Subsequent Transfer Date, sell and convey to
National Financial eligible Receivables and other Receivable Assets having an
aggregate outstanding principal amount equal to the amount specified in such
written notice. Each Subsequent Transfer Date shall be on the date and at the
time and place mutually agreed upon by National Financial and NAFI with the
prior written consent of the Insurer. Payment of the Purchase Price for the
Subsequent Receivables and other Receivable Assets sold and conveyed on a
Subsequent Transfer Date shall be made by National Financial to NAFI. National
Financial's obligation to purchase Subsequent Receivables and other Receivable
Assets shall be limited by the amount of funds available for such purchase in
the Pre-Funding Account pursuant to the Sale and Servicing Agreement and shall
be subject to the satisfaction of the conditions in the Sale and Servicing
Agreement.
(b) On or prior to the Closing Date, NAFI shall (i) deliver to
National Financial or such other Person as National Financial shall direct the
original motor vehicle retail installment sale contracts, duly endorsed by NAFI
and the Receivable Files with respect to each Initial Receivable included in the
Receivable Assets then being sold to National Financial, (ii) deliver to
National Financial or such other Person as National Financial shall direct cash
equal to all payments received by NAFI on such Initial Receivables on or after
the Initial Cut-off Date and on or before two Business Days prior to such
Initial Transfer Date. Within two Business Days after such Initial Transfer
Date, NAFI shall deliver to National Financial or such other Person as National
Financial shall direct all other payments received by NAFI on such Initial
Receivables on or after the applicable Cut-off Date and on or before the Closing
Date. National Financial hereby directs NAFI to deliver the materials referenced
in the preceding clause (i) of the second preceding sentence to OFSA, as
Custodian, and hereby directs NAFI to remit any payments received by NAFI and
referenced in the preceding sentence or in clause (ii) of the second preceding
sentence to the Collection Account.
(c) On or prior to any Subsequent Transfer Date, NAFI shall
(i) deliver to National Financial a conveyance instrument substantially in the
form attached hereto as Exhibit A (a "Conveyance") with respect to the
Receivable Assets sold and conveyed hereunder on such Subsequent Transfer Date,
(ii) deliver to National Financial or such other Person as National Financial
shall direct the original motor vehicle retail installment sale contracts, duly
endorsed by NAFI and the Receivable Files with respect to each Subsequent
Receivable included in the Receivable Assets then being sold to National
Financial, (iii) deliver to National Financial or such other Person as National
Financial shall direct cash equal to all payments received by NAFI on such
Subsequent Receivables on or after the applicable Cut-off Date and on or before
two Business Days prior to such Subsequent Transfer Date. Within two Business
<PAGE>
Days after such Subsequent Transfer Date, NAFI shall deliver to National
Financial or such other Person as National Financial shall direct all other
payments received by NAFI on such Subsequent Receivables on or after the
applicable Cut-off Date and on or before such Subsequent Transfer Date. National
Financial hereby directs NAFI to deliver the materials referenced in the
preceding clause (ii) of the second preceding sentence to OFSA, as Custodian,
and hereby directs NAFI to remit any payments received by NAFI and referenced in
the preceding sentence or in clause (iii) of the second preceding sentence to
the Collection Account.
SECTION 2.4.No Recourse. Except as specifically provided in
this Agreement, the sale and purchase of Receivables and other Receivable Assets
under this Agreement shall be without recourse to NAFI; provided that NAFI shall
be liable to National Financial for all representations, warranties and
covenants made by NAFI pursuant to the terms of this Agreement, it being
understood that such obligations of NAFI do not constitute recourse for the
credit risk of the Obligors.
SECTION 2.5. True Sales. NAFI and National Financial intend
that the transactions contemplated hereby be true sales of Receivables and other
Receivable Assets by NAFI to National Financial providing National Financial
with the full benefits of ownership of the Receivables and other Receivable
Assets free and clear of any Liens, and neither NAFI nor National Financial
intends the transactions contemplated hereby to be, or for a purpose to be
characterized as, a loan from National Financial to NAFI. NAFI shall reflect
sales of the Receivable Assets hereunder on its balance sheet and other
financial statements as sales of assets, and shall treat such sales as sales for
all purposes. NAFI will respond to third party inquiries by indicating that the
Receivables have been sold.
SECTION 2.6. Receipt of Payments after Closing Date and
Subsequent Transfer Dates. National Financial shall be entitled to all payments
received or receivable with respect to any Receivable or Subsequent Receivable
sold and conveyed by NAFI to National Financial hereunder that are received on
and after the applicable Cut-off Date. If NAFI receives any payment on a
Receivable belonging to the Trust, NAFI promptly shall turn such payment over to
the Trust Collateral Agent not later than two Business Days after receipt for
deposit in the Collection Account.
SECTION 2.7. Servicing of Receivables. Consistent with
National Financial's ownership of the Receivable Assets, National Financial
shall have the sole right to service, administer and collect the Receivables, to
assign such right and to delegate such right to others. In consideration of
National Financial's purchase of the Receivable Assets, NAFI agrees to cooperate
fully with National Financial to facilitate the full and proper performance of
such duties and obligations for the benefit of National Financial.
SECTION 2.8. Other Sales. Prior to the end of the Pre-Funding
Period, NAFI shall not sell, transfer, convey or assign any motor vehicle retail
installment sale contract originated or purchased by it, except as follows: (i)
NAFI may sell, transfer, convey and assign any such motor vehicle retail
installment sale contract to National Financial pursuant to this Agreement; (ii)
NAFI may sell, transfer, convey and assign to any Person, without limitation,
any such motor vehicle retail installment sale contract that does not comply
with the representations and warranties set forth in Section 4.1(b) or, if
<PAGE>
included in the Trust Property, would result in a violation of clause (v) of
Article III; and (iii) NAFI may sell, transfer, assign and convey such motor
vehicle retail installment sale contract to any Person, without limitation,
pursuant to a warehouse lending, repurchase or other similar arrangement for the
financing of the Receivable Assets pending transfer to NAFI hereunder on the
next Subsequent Transfer Date.
SECTION 2.9. Protection of Title to Interest.
(a) NAFI shall execute and file such financing statements and
cause to be executed and filed such continuation and other statements, all in
such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of National Financial, the Trust, the Trust
Collateral Agent and the Insurer under this Agreement in the Trust Property and
in the proceeds thereof. NAFI shall deliver (or cause to be delivered) to
National Financial and the Insurer file-stamped copies of, or filing receipts
for, any document filed as provided above, as soon as available following such
filing.
(b) NAFI 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 National Financial in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Trust Collateral Agent and the
Insurer (so long as an Insurer Default shall not have occurred and be
continuing) at least 60 days prior written notice thereof, and shall promptly
file appropriate amendments to all previously filed financing statements and
continuation statements as may be required to preserve and protect National
Financial's interest in the Receivable Assets, which filings shall be made no
later than 30 days after the effective date of any such change.
(c) NAFI shall give National Financial, the Trust Collateral
Agent and the Insurer at least 60 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 of
any previously filed financing or continuation statement or of any new financing
statement, and shall promptly file appropriate amendments to all previously
filed financing statements and continuation statements as may be required to
preserve and protect National Financial's interest in the Receivable Assets,
which filings shall be made no later than 30 days after the effective date of
any such change. NAFI shall at all times maintain each office from which it
services Receivables and its principal executive office within the United States
of America.
(d) If at any time NAFI proposes to sell, grant a security
interest in, or otherwise transfer any interest in automotive receivables to any
prospective purchaser, lender or other transferee, NAFI shall give to such
prospective purchaser, lender or other transferee computer tapes, records or
printouts (including any restored from backup archives) that, if they refer in
any manner whatsoever to any Receivable, indicate clearly that such contract has
been sold and is owned by the Trust unless such Receivable has been paid in full
or repurchased by NAFI, National Financial or the Servicer.
(e) NAFI shall permit National Financial, the Trust Collateral
Agent, the Insurer and their respective agents, at any time to inspect, audit
and make copies of and abstracts from NAFI's records regarding any Receivables
or any other portion of the Trust Property.
<PAGE>
(f) NAFI shall furnish to National Financial, the Trust
Collateral Agent and the Insurer at any time upon request a list of all
Receivables then held as part of the Trust Property, together with a
reconciliation of such list to the Receivables Schedules and to each of the
Servicer's statements furnished before such request indicating removal of
Receivables from the Trust Property. The Trust Collateral Agent shall hold any
such list and Receivables Schedules for examination by interested parties during
normal business hours at the Corporate Trust Office upon reasonable notice by
such Persons of their desire to conduct an examination.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1.National Financial's obligation to purchase
Receivable Assets hereunder on the Closing Date shall be subject to the
execution, delivery and effectiveness of the Sale and Servicing Agreement and
the Indenture and the delivery of the purchase price for the Notes to the Trust
by the initial purchasers thereof. In addition, the obligation of National
Financial to purchase Receivable Assets hereunder on each Subsequent Transfer
Date shall be further subject to the satisfaction of the following conditions on
or before such Subsequent Transfer Date:
(i) all representations and warranties of NAFI contained in Section
4.1(a) shall be true and correct and all representations and
warranties of NAFI in Section 4.1(b) shall be true and correct with
respect to the Receivables sold, transferred, conveyed and assigned to
National Financial on such Subsequent Transfer Date, in each case, on
and as of such Subsequent Transfer Date, as the case may be;
(ii) on such Subsequent Transfer Date, NAFI shall have duly completed
and executed to National Financial a Conveyance conforming to the
requirements of Section 2.3(b) or 2.4(b), as applicable;
(iii) on or before such Subsequent Transfer Date, (a) NAFI shall have
delivered to National Financial or such other Person as National
Financial shall direct the original motor vehicle retail installment
sale contract, duly endorsed by NAFI to National Financial, and the
Receivable Files that relate to each Receivable included in the
Receivable Assets then being sold by NAFI to National Financial and
(b) NAFI shall have performed all other obligations then required to
be performed by it pursuant to this Agreement, including, without
limitation, Sections 2.2 and 2.3(b) or 2.3(c), as applicable;
(iv) no Bankruptcy Event or Servicer Termination Event shall have
occurred and be continuing on and as of such Subsequent Transfer Date;
(v) as of such Subsequent Transfer Date, the Receivables then in the
Trust Property, together with the Subsequent Receivables to be
transferred to National Financial on such Subsequent Transfer Date,
shall meet the following criteria (computed based on the
characteristics of the Subsequent Receivables as of the applicable
Subsequent Cut-off Date): (A) the weighted average Interest Rate of
the Receivables shall not be less than 18.0%, (B) the weighted average
<PAGE>
remaining term of the Receivables shall not be greater than 55 months,
and (C) not more than 80% of the Aggregate Principal Balance
Receivables shall represent loans to finance the purchase of used
Financed Vehicles and (D) the final scheduled payment date on the
Receivable with the latest maturity shall not be later than April 21,
2003; and
(vi) all conditions precedent in Section 2.2 of the Sale and Servicing
Agreement to the transfer and assignment of such Subsequent
Receivables to the Trust pursuant to the Sale and Servicing Agreement
shall have been satisfied.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.1.(a) NAFI hereby represents, warrants and covenants
to National Financial on and as of the Closing Date and each Subsequent Transfer
Date that:
(i) NAFI is a Delaware corporation duly organized, validly existing,
and in good standing under the laws of the state of its incorporation
and has all licenses and approvals necessary to carry on its business
as now being conducted and shall appoint and employ agents or
attorneys in each jurisdiction where it shall be necessary to take
action under this Agreement; NAFI has the full power and authority to
own its property, to carry on its business as presently conducted, and
to execute, deliver and perform this Agreement; the execution,
delivery and performance of this Agreement (including all instruments
of transfer to be delivered pursuant to this Agreement) by NAFI and
the consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement evidences the valid,
binding and enforceable obligation of NAFI (subject to applicable
bankruptcy and insolvency laws and other similar laws affecting the
enforcement of creditors' rights generally and to general principles
of equity, regardless of whether enforcement is sought in a proceeding
in equity or at law); and all requisite corporate action has been
taken by NAFI to make this Agreement valid and binding upon NAFI
(subject as aforesaid in the preceding clause);
(ii) NAFI is not required to obtain the consent of any other party or
obtain the consent, license, approval or authorization of, or make any
registration or declaration with, any governmental authority, bureau
or agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement except for those which
have been obtained;
(iii) the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of
the bylaws of NAFI or result in the breach of any term or provision
of, or conflict with or constitute a default (with or without notice,
lapse of time, or both) under or result in the acceleration of any
obligation under, any material agreement, indenture or loan or credit
agreement or other instrument to which NAFI or its property is
subject, or result in the violation of any law (including, without
limitation, any bulk transfer or similar law), rule, regulation,
order, judgment or decree to which NAFI or its property or the
Receivables are subject;
<PAGE>
(iv) no statement, report or other document furnished or to be
furnished pursuant to this Agreement or in connection with the
transaction contemplated hereby contains or will, when furnished,
contain any untrue statement of a material fact or omits or will, when
furnished, omit to state a material fact necessary to make the
statements contained therein not misleading, in light of the
circumstances under which they were made;
(v) neither NAFI nor any of its subsidiaries or Affiliates is a party
to, bound by or in breach or violation of any indenture or other
agreement or instrument, or is subject to or in violation of any
statute, order or regulation of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
it, which materially and adversely affects, or may in the future
materially and adversely affect, the ability of NAFI to perform its
obligations under this Agreement;
(vi) there are no actions, suits or proceedings pending or, to the
knowledge of NAFI, threatened against NAFI, before or by any court,
regulatory body, administrative agency, arbitrator or governmental
body with respect to any of the transactions contemplated by this
Agreement, which will, if determined adversely to NAFI, affect the
validity or enforceability hereof or materially and adversely affect
NAFI's ability to perform its obligations under this Agreement;
(vii) NAFI has obtained or made all necessary consents, approvals,
waivers and notifications of creditors, lessors and other
non-governmental persons, in each case, in connection with the
execution and delivery of this Agreement, and the consummation of all
the transactions herein contemplated;
(viii) NAFI shall not take any action to impair National Financial's
rights in any Receivable; and
(ix) NAFI is solvent and will not become insolvent after giving effect
to the transactions contemplated hereunder and under the Transaction
Documents; NAFI is paying its debts as they become due; NAFI, after
giving effect to the contemplated transactions, will have adequate
capital to conduct its business.
NAFI shall indemnify National Financial and the Insurer and
hold National Financial and the Insurer harmless against any loss and damages
resulting from a breach of the representations and warranties set forth in
Section 4.1(a).
(b) NAFI hereby represents and warrants to National Financial
as of the Closing Date with respect to the Initial Receivables contributed and
conveyed to National Financial on the Closing Date by NAFI pursuant to this
Agreement and the Initial Receivables sold and conveyed to National Financial on
the Closing Date by National Financial Auto Funding Trust II ("Funding Trust
II") and as of each Subsequent Transfer Date with respect to the Subsequent
Receivables sold and conveyed to National Financial on such Subsequent Transfer
Date by NAFI (unless another date or time period is otherwise specified or
indicated in the particular representation or warranty):
<PAGE>
(i) the information regarding such Receivables set forth in the applicable
Receivables Schedule is true and correct in all material respects at
the applicable Cut-off Date; each Receivable was originated in the
United States of America and at the time of origination, materially
conformed to all requirements of the NAFI underwriting policies and
guidelines then in effect; and no Obligor is the United States of
America or any state or any agency, department, subdivision or
instrumentality thereof;
(ii) immediately prior to the Closing Date or such Subsequent Transfer
Date, as the case may be, Funding Trust II or NAFI, as the case may
be, had a valid and enforceable 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
exist or may hereafter arise, and Funding Trust II or NAFI, as
applicable, had the full right to assign such security interest to
National Financial;
(iii) on and after the Closing Date or such Subsequent Transfer Date,
as the case may be, there shall exist under the Receivable a valid,
subsisting and enforceable first priority perfected security interest
in the Financed Vehicle securing such Receivable (other than, as to
the priority of such security interest, any statutory lien arising by
operation of law after the Closing Date or the Subsequent Transfer
Date, as the case may be, which is prior to such interest) and at such
time as enforcement of such security interest is sought there shall
exist a valid, subsisting and enforceable first priority perfected
security interest in such Financed Vehicle in favor of National
Financial or its assigns (other than, as to the priority of such
security interest, any statutory lien arising by operation of law
after the Closing Date or such Subsequent Transfer Date, as the case
may be, which is prior to such interest);
(iv) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, no such Receivable has been sold, assigned or pledged to
any other Person other than an endorsement to the Servicer for
purposes of servicing or if any such Receivable has been pledged, such
pledge has been released, and immediately prior to the transfer and
assignment contemplated by this Agreement or the Sale Agreement, NAFI
or National Financial Auto Funding Trust II, as applicable, has good
and marketable title to each such Receivable free and clear of any
lien, encumbrance, equity, pledge, charge, claim or security interest
and is the sole owner thereof and has full right to transfer each such
Receivable to National Financial and, upon the transfers pursuant to
Article II or the Sale Agreement, as applicable, National Financial
will have good and marketable title to each such Receivable clear of
any lien, encumbrance, equity, pledge, charge, claim, security
interest or rights of others; the purchase of each such Receivable by
NAFI from a Dealer or Originator was not an extension of financing to
such Dealer or Originator. No Dealer or Originator has a participation
in, or other right to receive, proceeds of any Receivable. None of
NAFI, Funding Trust II, the Master Trust, National Financial or the
Originators has taken any action to convey any right to any Person
that would result in such Person having a right to payments received
under the related insurance policies, Dealer Agreement or Originator
Agreement or to payments due under such Receivable;
<PAGE>
(v) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, no such Receivable is delinquent for more than thirty
days in payment as to any scheduled payment;
(vi) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, there is no lien against any related Financed Vehicle for
delinquent taxes;
(vii) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, there is no right of rescission, offset, defense or
counterclaim to the obligation of the related Obligor to pay the
unpaid principal or interest due under such Receivable; the operation
of the terms of such Receivable or the exercise of any right
thereunder will not render such Receivable unenforceable in whole or
in part or subject to any right of rescission, offset, defense or
counterclaim, and no such right of rescission, offset, defense or
counterclaim has been asserted;
(viii) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, no such Receivable is assumable by another Person in a
manner which would release the Obligor thereon from such Obligor's
obligations to National Financial with respect to such Receivable;
(ix) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, there are no prior liens or claims for work, labor or
material affecting any related Financed Vehicle which are or may
become a lien prior to or equal with the security interest granted by
such Receivable;
(x) each such Receivable, and the sale of the Financed Vehicle
securing such Receivable, where applicable, complied, at the time it
was made and as of the Closing Date or related Subsequent Transfer
Date, as applicable, 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 and loans 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 National Financial will not violate any such laws;
(xi) each such Receivable is a legal, valid and binding obligation of
the Obligor thereunder and is enforceable in accordance with its
terms, except only as such enforcement may be limited by laws
affecting the enforcement of creditors' rights generally whether
enforcement is sought in a proceeding in equity or at law, and all
parties to such Receivable had full legal capacity to execute such
Receivable and all documents related thereto and to grant the security
interest purported to be granted thereby at the time of execution and
grant;
<PAGE>
(xii) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, the terms of each such Receivable have not been impaired,
waived, altered or modified in any respect, except by written
instruments that are part of the Receivable Documents, and no such
Receivable has been satisfied, subordinated or rescinded;
(xiii) at the time of origination of each such Receivable, the
proceeds of such Receivable were fully disbursed, there is no
requirement for future advances thereunder, and all fees and expenses
in connection with the origination of such Receivable have been paid;
(xiv) as of the Closing Date or such Subsequent Transfer Date, as the
case may be, there is no default, breach, violation or event of
acceleration existing under any such Receivable (except payment
delinquencies permitted by subparagraph (v) above) 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 or would otherwise affect the value or marketability of
such contract; and NAFI, Funding Trust II or the Master Trust have not
waived any such default, breach, violation or event of acceleration
and as of the applicable Cut-off Date, the related Financed Vehicle
has not been repossessed;
(xv) at the origination date of each such Receivable, the related
Financed Vehicle was covered by a comprehensive and collision
insurance policy (a) in an amount at least equal to the lesser of (1)
and actual cash value of the related Financed Vehicle or (2) the
unpaid balance owing on such Receivable, less the related Unearned
Financing Charge, (b) naming NAFI as a loss payee and (c) insuring
against loss and damage due to fire, theft, transportation, collision
and other risks generally covered by comprehensive and collision
coverage; each Receivable requires the Obligor to maintain physical
loss and damage insurance, naming NAFI as an additional insured party;
(xvi) each such Receivable was acquired by NAFI from either a Dealer
or an Originator with which it ordinarily does business; such Dealer
or Originator, as applicable, had full right to assign to NAFI such
Receivable and the security interest in the related Financed Vehicle
(and the Dealer that assigned any such Receivable to any such
Originator had full right to assign to such Originator such Receivable
and the security interest in the related Financed Vehicle) and the
Dealer's or Originator's assignment thereof to NAFI is legal, valid
and binding (and any such assignment by any Dealer to any Originator
is legal, valid and binding) and the Master Trust had full right to
assign to NAFI or Funding Trust II, as the case may be, such
Receivable and the security interest in the related Financed Vehicle
and NAFI or Funding Trust II, as the case may be, had full right to
assign to National Financial such Receivable and the security interest
in the related Financed Vehicle and NAFI's or Funding Trust II's
assignment thereof to National Financial is legal, valid and binding;
(xvii) each 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;
<PAGE>
(xviii) scheduled payments under each such Receivable are due monthly
(or, in the case of the first payment, no later than the forty-fifth
day after the date of the Receivable) in substantially equal amounts
to maturity (other than with respect to those Receivables designated
as balloon contracts on the related Receivables Schedule), and will be
sufficient to fully amortize such Receivable at maturity, assuming
that each scheduled payment is made on its Due Date; such scheduled
payments are applicable only to payment of principal and interest on
such Receivable and not to the payment of any insurance premiums
(although the proceeds of the extension of credit on such Receivable
may have been used to pay insurance premiums); the original term to
maturity of such Receivable was not more than 60 months;
(xix) the collection practices used with respect to each such
Receivable have been in all material respects legal, proper, prudent
and customary in the automobile installment sales contract or
installment loan servicing business;
(xx) there is only one original of each such Receivable, the Servicer
or a Sub-Servicer is currently in possession of the Receivable
Documents for such Receivable and there are no custodial agreements in
effect adversely affecting the right of NAFI to make the deliveries
required hereunder on the Closing Date or such Subsequent Transfer
Date, as the case may be;
(xxi) as of the Cut-off Date or Subsequent Cut-off Date, as
applicable, no Obligor was the subject of a current bankruptcy
proceeding;
(xxii) with respect to each Due Period, the aggregate of the interest
due on all the Receivables in such Due Period from scheduled payments
is in excess of the sum of (i) the Servicing Fee due and any fees due
to the Trust Collateral Agent and the Insurer, each in such Due Period
and (ii) the amount of interest payable on the Notes with respect to
such Due Period, in each case assuming that each scheduled payment is
made on its Due Date;
(xxiii) the Receivables constitute "chattel paper" within the meaning
of the UCC as in effect in the applicable jurisdiction, and all
filings (including without limitation, UCC filings) required to be
made and all actions required to be taken or performed by any Person
in any jurisdiction to give National Financial a first priority
perfected lien on, or an ownership interest in the Receivables and the
proceeds thereof and the remaining Trust Property have been made,
taken or performed;
(xxiv) by the Closing Date and prior to each Subsequent Transfer Date,
as applicable, NAFI will have caused the portions of NAFI's servicing
records relating to the Receivables to be clearly and unambiguously
marked to show that the Receivables constitute part of the Trust
Property and are to be owned by the Trust in accordance with the terms
of this Agreement;
(xxv) the computer tape or listing made available by NAFI to the Trust
Collateral Agent on the Closing Date and on each Subsequent Transfer
Date was complete and accurate as of the applicable Cut-off Date, and
includes a description of the same Receivables that are described in
the applicable Receivables Schedule;
<PAGE>
(xxvi) no Receivable was originated in, or is subject to the laws of,
any jurisdiction the laws of which would make unlawful, void or
voidable the sale, transfer and assignment of such Receivable under
this Agreement or the Subsequent Transfer Agreement, as applicable, or
pursuant to transfers of the Notes. National Financial has not entered
into any agreement with any account debtor that prohibits, restricts
or conditions the assignment of any portion of the Receivables;
(xxvii) no selection procedures adverse to the Noteholders or to the
Insurer have been utilized in selecting such Receivable from all other
similar Receivables originated by NAFI; and
(xxviii) as of the Initial Cut-off Date, the weighted average annual
percentage rate, as such term is used with respect to the Federal
Truth-in Lending Act ("APR") of the Initial Receivables was
approximately 19.19% and the weighted average remaining scheduled
maturity on the Initial Receivables was approximately 51.82 months and
the percentage of the aggregate outstanding balance of the Initial
Receivables relating to the financing of used Financed Vehicles was
77.38%. The final scheduled payment date on the Initial Receivable
with the latest maturity is December 15, 2002. Each Receivable
amortizes based on the Simple Interest Method or Actuarial Method and
no Receivable provides for a prepayment penalty.
In the event NAFI has breached any of the foregoing
representations and warranties and National Financial has accepted a retransfer
or is required to accept a retransfer of the affected Receivable pursuant to the
Sale and Servicing Agreement, NAFI shall, upon demand, repurchase such
Receivable from National Financial. In addition, with respect to any Receivable
in respect of which the Title Document was being applied for on the Closing Date
or the applicable Subsequent Transfer Date, as the case may be, if such Title
Document has not been received by National Financial or its transferee within
180 days after the Closing Date or such Subsequent Transfer Date, as the case
may be, and National Financial is required to accept a retransfer of such
Receivable pursuant to the Sale and Servicing Agreement, NAFI shall, upon demand
by National Financial, repurchase such Receivable. Any such repurchases by NAFI
shall be at a repurchase price equal to the Purchase Amount determined in the
manner provided in the Sale and Servicing Agreement. Such repurchase price shall
be paid by NAFI at the direction of National Financial and upon receipt of such
repurchase price, National Financial shall release, or cause to be released, to
NAFI the related Receivable File and National Financial or its transferee shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest in NAFI or its designee any
Receivable released pursuant thereof. Except as expressly provided in the next
sentence, it is understood and agreed that the obligation of NAFI to purchase
any Receivable as to which such a breach has occurred and is continuing as
described above shall constitute the sole remedy respecting such breach
available to National Financial. NAFI shall indemnify, defend and hold National
Financial harmless from and against any and all losses, damages, claims,
expenses and liabilities arising out of or relating to a breach by NAFI of its
representations and warranties in clauses (vii) and (x) of this Section 4.1(b).
<PAGE>
Notwithstanding Section 5.1, it is understood and agreed that
the representations, warranties and covenants set forth in this Section 4.1
shall survive until the date upon which the Trust terminates pursuant to Section
11.1 of the Sale and Servicing Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.1.Term. This Agreement shall commence as of the
Closing Date and shall continue in full force and effect until the close of
business on April 30, 1998.
SECTION 5.2. Notices. All notices, demands and requests that
may be given or that are required to be given hereunder shall be sent by United
States certified mail, postage prepaid, return receipt requested, to the parties
at their respective addresses as follows:
IF TO NAFI: National Auto Finance Company, Inc.
One Park Place
Suite 200
Boca Raton, Florida 33487
Attention: President
Telecopy No.: (800) 787-6232
Confirmation: (800) 999-7535
IF TO NATIONAL FINANCIAL National Financial Auto Funding Trust
One Park Place
Suite 200
Boca Raton, Florida 33487
Attention:
Telecopy No.:
Confirmation: (407) 997-2747
WITH A COPY TO Chase Manhattan Bank Delaware
1201 North Market Street
Wilmington, Delaware 19801
Attn: Corporate Trust Administration
Department
IF TO THE TRUST COLLATERAL AGENT: Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Division
Telecopy No.: (312) 461-3525
Confirmation: (312) 461-4662
<PAGE>
IF TO THE INSURER: Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: NAFI Auto Finance 1998-1 Trust,
5.88% Automobile Receivables-
Backed Notes
Telecopier No.: (212) 339-3518
(212) 339-3529
Confirmation: (212) 836-0100
SECTION 5.3.CHOICE OF 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 HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
SECTION 5.4. Counterparts. This Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
SECTION 5.5. Amendment. This Agreement may be amended from
time to time by NAFI and National Financial to cure any ambiguity, to correct or
supplement any provisions herein which may be inconsistent with any other
provisions herein or therein, or to make any other provisions with respect to
matters or questions arising under this Agreement which shall not be materially
inconsistent with the provisions of this Agreement, provided that such action
shall not, as evidenced by an Opinion of Counsel delivered to the Trust
Collateral Agent, adversely affect in any material respect the interests of the
Noteholders and provided further that such action shall be consented to in
writing by the Insurer (unless an Insurer default shall have occurred and be
continuing).
SECTION 5.6. 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 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 5.7. Assignment. This Agreement may not be assigned by
NAFI or National Financial except as contemplated by this Section and the Sale
and Servicing Agreement; provided however, that simultaneously with the
execution and delivery of this Agreement, National Financial shall assign all of
its right, title and interest under Section 4.1 to the Trust to which NAFI
hereby expressly consents. NAFI agrees to perform its obligations hereunder for
the benefit of the Trust and further agrees that the Trust Collateral Agent or
the Insurer may (but shall have no obligation to) enforce the provisions of
Section 4.1 and exercise the rights of National Financial to enforce the
obligations of NAFI under Section 4.1 on behalf of the Trust Collateral Agent
and the Noteholders without the consent of National Financial.
<PAGE>
SECTION 5.8. Third-Party Beneficiaries. This Agreement will
inure to the benefit of and be binding upon the parties hereto, and shall also
be for the benefit of the Trust Collateral Agent (for the benefit of the
Noteholders) and the Insurer, each of which shall be considered to be
third-party beneficiaries and shall be entitled to rely on and directly enforce
the provisions of this Agreement. Except as otherwise provided in this
Agreement, no other Person will have any right or obligation hereunder. The
Insurer may disclaim any of its rights and powers under this Agreement upon
delivery of a written notice to the Trust Collateral Agent and NAFI.
SECTION 5.9. No Petition: NAFI hereby agrees that it will not
institute against National Financial, or join any other Person instituting
against National Financial, any bankruptcy or insolvency proceeding under any
applicable state or federal law so long as any Note issued pursuant to the
Indenture remains outstanding or there shall have not elapsed one year plus one
day since the date of the final payment on the Notes issued pursuant to the
Indenture. The foregoing shall not limit the right of NAFI to file any claim in
or otherwise take any action with respect to any bankruptcy or insolvency
proceeding that was instituted against National Financial by any Person other
than NAFI.
SECTION 5.10. Limitation of Liability of National Financial
Trustee: Notwithstanding anything contained herein to the contrary, this
Agreement has been executed and delivered by Chase Manhattan Bank Delaware not
in its individual capacity but solely as Trustee and in no event shall Chase
Manhattan Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of National Financial hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of National Financial.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Purchase and Contribution Agreement as of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: Chase Manhattan Bank Delaware, not in its
individual capacity but solely as Trustee of National
Financial Auto Funding Trust,
By: ________________________
Name:
Title:
NATIONAL AUTO FINANCE COMPANY, INC.
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF CONVEYANCE
CONVEYANCE No. ___, dated as of _______________, 19__, by National Auto
Finance Company, Inc., a Delaware corporation ("Originator"), to National
Financial Auto Funding Trust, a Delaware business trust ("National Financial"),
pursuant to the Purchase and Contribution Agreement referred to below.
WITNESSETH:
WHEREAS, Originator and National Financial are parties to the Purchase
and Contribution Agreement, dated as of December 15, 1997 (as such agreement may
have been, or may from time to time be, amended, supplemented or otherwise
modified, the "Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, Originator wishes to sell,
transfer, convey and assign Receivable Assets (as defined in the Purchase
Agreement) to National Financial;
NOW THEREFORE, Originator and National Financial hereby agree as
follows:
1. Defined Terms. All capitalized terms used but not defined
herein shall have meanings ascribed to them in the Purchase Agreement.
"Subsequent Transfer Date" shall mean, with respect to the
Receivable Assets sold hereby, ____________________, 199[ ].
2. Transfer of Receivables. For value received, Originator
hereby sells, transfers, assigns, sets-over and conveys to National Financial,
without recourse except as set forth in the Purchase Agreement, and with the
representations, warranties and covenants set forth in the Purchase Agreement,
on and after the Subsequent Transfer Date, all right, title and interest of
National Financial in, to and under all Subsequent Receivables listed in
Schedule 1 hereto and the Receivable Assets related thereto.
3. Delivery of Receivables Schedule. Originator does hereby
deliver National Financial herewith a Receivables Schedule containing a true and
complete list of each Subsequent Receivable being sold hereby as of the
Subsequent Transfer Date. Such Receivables Schedule is marked as Schedule 1 to
this Conveyance and is hereby incorporated in and made a part of this Conveyance
and the Purchase Agreement.
4. Receivable Files. Originator does hereby deliver to
National Financial or such other Person designated by National Financial the
original motor vehicle retail installment sale contracts and Receivable Files
for each Receivable identified in the Receivables Schedule.
5. Acceptance and Acknowledgment. National Financial hereby
acknowledges its acceptance of all right, title and interest of Originator in,
to and under the Receivables and the other Receivable Assets sold hereby.
Originator further acknowledges that, prior to or simultaneously with the
execution and delivery of this Conveyance the conditions precedent to such sale
set forth in Article III of the Purchase Agreement have been satisfied.
<PAGE>
6. Certification; Representations and Warranties. Originator
hereby certifies to National Financial that all applicable requirements of
Article III of the Purchase Agreement have been fully satisfied and that all
representations and warranties of Originator set forth in Section 4.1(a) of the
Purchase Agreement are true and correct on and as of the date hereof and all
representations and warranties of Originator set forth in Section 4.1(b) of the
Purchase Agreement are true and correct on and as of the date hereof with
respect to the Subsequent Receivables sold hereby. The aggregate outstanding
principal balance of the Subsequent Receivables sold hereby as of the applicable
Cut-off Date is $__________________.
7. The Purchase Agreement. The Purchase Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms, and hereby is ratified and confirmed in all respects.
8. Counterparts. This Conveyance may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument.
<PAGE>
SCHEDULE 1
SCHEDULE OF RECEIVABLES
- --------------------------------------------------------------------------------
ASSIGNMENT AGREEMENT
BETWEEN
BANKERS TRUST COMPANY,
AS TRUSTEE OF THE NATIONAL FINANCIAL
AUTO RECEIVABLES MASTER TRUST
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST II
------------------------
DATED AS OF DECEMBER 15, 1997
- --------------------------------------------------------------------------------
<PAGE>
ASSIGNMENT AGREEMENT
--------------------
ASSIGNMENT AGREEMENT, dated as of December 15, 1997 by and
between NATIONAL FINANCIAL AUTO FUNDING TRUST II, a Delaware business trust
("Funding Trust II"), and BANKERS TRUST COMPANY ("Bankers Trust" or the
"Trustee"), not in its individual capacity but solely as Trustee of the National
Financial Auto Receivables Master Trust (the "Master Trust"), under the Pooling
and Administration Agreement, dated as of December 8, 1994 (the "Pooling and
Administration Agreement"), among Funding Trust II, as Transferor, National Auto
Finance Company, Inc. ("NAFI") (as successor to National Auto Finance Company
L.P.), as Administrator, and Bankers Trust Company, as Trustee.
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants herein contained,
Funding Trust II and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
1.1. Incorporation of Definitions. Capitalized terms used but
----------------------------
not defined herein have the meanings ascribed to them in the Pooling and
Administration Agreement.
1.2. Other Definitions. When used in this Agreement, the
-----------------
following words and phrases shall have the following meanings:
Cut-off Date: As defined in Section 2.1.
Closing Date: January 20, 1998.
Dealer: A dealer who sold a Financed Vehicle and who
originated and assigned the respective Receivable to NAFI or an Originator under
a Dealer Agreement.
Dealer Agreement: Any agreement between NAFI or an Originator,
as applicable, and a Dealer relating to the acquisition of Receivables from a
Dealer by NAFI or an Originator.
Originator: A consumer finance company, depository institution
or other financial institution engaged in the financing of motor vehicle retail
installment sale contracts from which NAFI acquired Receivables; provided,
however, that "Originator" shall not include any Dealer.
Originator Agreement: An agreement pursuant to which NAFI
acquired Receivables from an Originator.
<PAGE>
Outstanding Principal Balance: As of any date and with respect
to any Receivable, the outstanding principal balance of such Receivable as of
such date, which shall be computed by reducing the original principal balance of
such Receivable by the principal portion of each payment received and processed
by the Servicer on or before such date.
Purchase Price: As defined in Section 2.1.
Receivable Assets: The assets described in clauses (i) through
(ix), inclusive, of subsection 2.1 hereof.
Related Security: means, with respect to any Receivable, the
interest of the Trustee in (i) the security interest in the Financed Vehicles
granted by the Obligors of the Receivables and any accessions thereto and (ii)
physical damage, credit life, credit disability or other insurance policies
covering Financed Vehicles or Obligors (including any blanket vendor's single
interest insurance policy).
Receivables Schedule: The schedule of Receivables attached as
Schedule 1 hereto, such schedule identifying each Receivable by name of the
Obligor and setting forth as to each Receivable its Outstanding Principal
Balance as of the Cut-off Date, loan number, interest rate, scheduled monthly
payment of principal and interest, final maturity date and original principal
amount.
ARTICLE II
PURCHASE AND SALE
2.1. Purchase. Subject to and on the terms and conditions set
--------
forth herein, the Trustee hereby sells, transfers, conveys and assigns, on
behalf of the Master Trust, without representation, warranty or recourse, except
as specifically set forth herein all of its right, title and interest in and to
(i) the Receivables identified on the Receivables Schedule attached hereto as
Schedule I, (ii) all monies paid or payable thereunder on or after December 15,
1997 (the "Cut-off Date"), (iii) the Related Security with respect to each such
Receivable, (iv) all proceeds of the foregoing, including all Collections or
Related Security with respect to such Receivables, or other recoveries applied
to repay or discharge any such Receivable received on or after the Cut-off Date
(including net proceeds of sale or other disposition of repossessed Financed
Vehicles that were the subject of any such Receivable) or other collateral or
property of any Obligor or any other party directly or indirectly liable for
payment of such Receivables, (v) all of its right, title and interest in the
Seller Transaction Documents, (vi) all Records relating to any of the foregoing,
(vii) all rights of the Trustee assigned to the Trustee for the benefit of the
Certificateholders against Dealers pursuant to Dealer Agreements and Originators
pursuant to Originator Agreements; (viii) any other Trust Assets relating to the
Receivable Assets and (ix) the proceeds of the foregoing. Funding Trust II
agrees to pay to the Trustee on the Closing Date as the purchase price (the
"Purchase Price") for the Receivable Assets sold hereunder on such date an
amount equal to $63,979,266.49 in
2
<PAGE>
immediately available funds to an account at a bank designated by the Trustee to
Funding Trust II.
2.2. Filings. (a) On or prior to the Closing Date, the Master
-------
Trust shall have filed or shall have caused the filing, in the office of the
Secretary of State of New York, the office of the Secretary of State of Florida
and the office of the Secretary of State of Delaware, (i) a UCC financing
statement or statements, appropriate under the Uniform Commercial Code in effect
in New York, Florida or Delaware to reflect the transfer of the Receivable
Assets from the Trustee to Funding Trust II and to protect Funding Trust II's
interest in the Receivable Assets against all other Persons and (ii) amendments
to, and/or terminations of, UCC financing statements, appropriate under the
Uniform Commercial Code in effect in New York, Florida or Delaware to reflect
the release of any liens of the Master Trust in the Receivable Assets. During
the term of this Agreement, the Trustee shall not change its name, identity or
structure or relocate its chief executive office or principal place of business
without first giving 60 days prior written notice to Funding Trust II and
Financial Security Assurance Inc. ("Financial Security") (for so long as any
policy issued by Financial Security Assurance Inc. is in effect with respect to
any securities issued by Funding Trust II or any trust of which Funding Trust II
is depositor or transferor); provided, however, that Funding Trust II has no
right or power to prohibit a change in the Trustee's name, identity or structure
or, subject to the last sentence of this paragraph, a relocation of, its chief
executive office. If any change in the Trustee's name, identity or structure or
the relocation of its chief executive office or principal place of business
would make any financing or continuation statement or notice of lien filed in
connection with this Agreement seriously misleading within the meaning of
applicable provisions of the UCC or any title statute, Funding Trust II, shall
after the effective date of such change, promptly file or cause to be filed such
amendments as may be required to preserve and protect Funding Trust II's
interest in the Receivable Assets. Funding Trust II hereby directs the Trustee
to deliver cash equal to all such payments described in this Section 2.2(b) to
be delivered to Harris Trust (as defined herein) in its capacity as the Trust
Collateral Agent under the Sale and Servicing Agreement (as defined herein).
(b) On or prior to the Closing Date, the Trustee shall deliver
to Funding Trust II or such other Person as Funding Trust II shall direct cash
equal to all payments received on such Receivables on or after the Cut-off Date
and on or before two Business days prior to the Closing Date. Within two
Business Days after the Closing Date, the Trustee shall deliver to Funding Trust
II or such other Person as Funding Trust II shall direct all other payments
received on such Receivables on or after the Cut-off Date and on or before the
Closing Date.
2.3. No Recourse. The sale and purchase of Receivables and the
-----------
other Receivable Assets under this Agreement shall be without recourse to the
Trustee or the Master Trust.
3
<PAGE>
2.4. True Sales. The Master Trust and Funding Trust II intend
----------
that the transactions contemplated hereby be true sales of the Receivables and
other Receivable Assets by the Trustee to Funding Trust II providing Funding
Trust II with the full benefits of ownership of the Receivables and other
Receivable Assets free and clear of any liens, and neither the Master Trust nor
Funding Trust II intends the transactions contemplated hereby to be, or for any
purpose to be characterized as, a loan from Funding Trust II to the Master
Trust. The Trustee shall reflect sales of the Receivable Assets hereunder on the
books and records maintained by the Trustee with respect to the Master Trust as
sales of assets, and shall treat such sales as sales for all purposes.
2.5. Receipt of Payments after Closing Date. Funding Trust II
--------------------------------------
shall be entitled to all payments received or receivable with respect to any
Receivable sold and conveyed by the Trustee to Funding Trust II hereunder that
are received on and after the Cut-off Date. If the Trustee receives any payment
on a Receivable belonging to Funding Trust II, the Trustee promptly shall, upon
written request, turn such payment over to Harris Trust and Savings Bank
("Harris Trust"), as trustee under the Sale and Servicing Agreement, dated as of
December 15, 1997 (the "Sale and Servicing Agreement"), among National Auto
Finance 1998-1 Trust, National Financial Auto Funding Trust ("Funding Trust I"),
NAFI and Harris Trust and Savings Bank ("Harris Trust").
ARTICLE III
MISCELLANEOUS
3.1. Notices. All notices, demands and requests that may be
-------
given or that are required to be given hereunder shall be sent by United States
certified mail, posting prepaid, return receipt requested, to the parties at
their respective addresses as follows:
If to the Trustee:
Bankers Trust Company
Four Albany Street
New York, New York 10006
Attn: Corporate Trust and Agency Group - Structured Finance
Telecopier No.: (212) 250-6439
Confirmation: (212) 250-6652
If to Funding Trust II:
National Financial Auto Funding Trust II
c/o Chase Manhattan Bank Delaware, as Trustee
1201 N. Market Street
Wilmington, Delaware 19801
Attn: Corporate Trust Administration Department
4
<PAGE>
Telecopier No.: (302) 984-4903
Confirmation: (302) 428-3375
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Re: National Auto Finance 1998-1 Trust, 5.88% Automobile
Receivables-Backed Notes
Telecopier No.: (212) 339-3518,
(212) 339-3529
Confirmation: (212) 826-0100
If to Harris Trust and Savings Bank:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, IL 60606
Attention: Indenture Trust Division
Telecopier: (312) 461-3525
Confirmation: (312) 461-4662
3.2. Choice of Law. This Agreement shall be construed in
-------------
accordance with the laws of the Sate of New York and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.
3.3. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
3.4. Assignment. This Agreement may not be assigned by the
----------
Trustee or Funding Trust II except as contemplated by this Section; provided,
however, that simultaneously with the execution and delivery of this Agreement,
(i) Funding Trust II shall assign all of its right, title and interest hereunder
to Funding Trust I pursuant to that certain Sale Agreement, dated as of December
15, 1997 between Funding Trust II and Funding Trust I, and (ii) Funding Trust I
shall assign all of such right, title and interest to the National Auto Finance
1998-1 Trust pursuant to the Sale and Servicing Agreement, as provided in
Section 2.1 of the Sale and Servicing Agreement, to which the Trustee hereby
expressly consents.
3.5. Third-Party Beneficiaries. This Agreement will inure to
-------------------------
the benefit of and be binding upon the parties hereto and shall also be for the
benefit of Funding Trust I, Harris Trust, for the benefit of the Noteholders,
5
<PAGE>
and the Insurer, each of which shall be considered to the third-party
beneficiaries of this Agreement and shall be entitled to rely upon and directly
enforce the provisions of this Agreement. Except as otherwise provided in this
Agreement, no other Person will have any right or obligation hereunder. The
Insurer may disclaim any of its rights and powers under this Agreement upon
delivery of a written notice to the Trustee and Funding Trust II.
3.6. No Petition. The Trustee hereby agrees not to cause the
-----------
filing of a petition in bankruptcy against Funding Trust II until one year and
one day after the maturity of any securities evidencing a beneficial interest in
or secured by Receivable Assets sold, transferred or otherwise conveyed by the
Trustee to Funding Trust II, NAFI or any affiliate of either.
3.7. Further Assurances. It is the Trustee's intention to
------------------
convey its entire rights, title and interest in the Receivable Assets or other
assets related thereto acquired from Funding Trust II pursuant to the Pooling
and Administration Agreement.
3.8. Limitation of Liability of Funding Trust II Trustee:
---------------------------------------------------
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Chase Manhattan Bank Delaware not in its
individual capacity but solely as trustee and in no event shall Chase Manhattan
Bank Delaware, have any liability for the representations, warranties,
covenants, agreements or other obligations of Funding Trust II hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, as to
all of which recourse shall be had solely to the assets of Funding Trust II.
3.9. Limitation of Liability of Master Trust Trustee:
-----------------------------------------------
Notwithstanding anything contained herein to the contrary, this Agreement has
been executed and delivered by Bankers Trust not in its individual capacity but
solely as trustee and in no event shall Bankers Trust, have any liability for
the representations, warranties, covenants, agreements or other obligations of
the Master Trust hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of Master Trust.
3.10. Amendment. This Agreement may be amended in writing by
---------
the parties hereto with the prior written consent of Financial Security, to cure
any ambiguity or to correct any provisions in this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
NATIONAL FINANCIAL AUTO FUNDING TRUST II
By: CHASE MANHATTAN BANK
DELAWARE, not in its individual capacity,
but solely as trustee of National Financial
Auto Funding Trust II,
By: ______________________________________
Name:
Title:
NATIONAL FINANCIAL AUTO RECEIVABLES MASTER TRUST
By: BANKERS TRUST COMPANY, not in its
individual capacity, but solely as Trustee
of National Financial Auto Receivables
Master Trust
By: ______________________________________
Name:
Title:
7
EXECUTION COPY
INDEMNIFICATION AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
FIRST UNION CAPITAL MARKETS CORP.
Dated as of January 20, 1998
National Auto Finance 1998-1 Trust
5.88% Automobile Receivables-Backed Notes
$85,200,000
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions...................................................1
Section 2. Representations, Warranties and
Agreements of Financial Security...........................4
Section 3. Representations,Warranties and Agreements of the
Underwriter................................................6
Section 4. Indemnification...............................................8
Section 5. Indemnification Procedures....................................9
Section 6. Contribution.................................................10
Section 7. Miscellaneous................................................11
EXHIBIT A Opinion of Assistant General Counsel
<PAGE>
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of January 20, 1998, among FINANCIAL
SECURITY ASSURANCE INC. ("Financial Security"), NATIONAL FINANCIAL AUTO FUNDING
TRUST (the "Company") and FIRST UNION CAPITAL MARKETS CORP. (the "Underwriter"):
Section Definitions. For purposes of this Agreement,
the following terms shall have the meanings provided below:
"Agreement" means this Indemnification Agreement, as the same may be
amended, supplemented, or otherwise modified from time to time in accordance
with the terms hereof.
"Commission" means the SEC Commission.
"Company Party" means any of the Company, its subsidiaries and affiliates
and any trustee, holder of beneficial ownership interest, director, officer,
employee, agent or "controlling person" (as such term is used in the Securities
Act) of any of the foregoing.
"Federal Securities Laws" means the Securities Act, the Securities
Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company
Act of 1940, the Investment Advisers Act of 1940 and the Public Utility Holding
Company Act of 1935, each as amended from time to time, and the rules and
regulations in effect from time to time under such Acts.
"Financial Security Agreements" means this Agreement, the
Spread Account Agreement and the Insurance Agreement.
"Financial Security Information" has the meaning provided in
Section 2(g) hereof.
"Financial Security Party" means any of Financial Security, its parent,
subsidiaries and affiliates, and any shareholder, director, officer, employee,
agent or "controlling person" (as such term is used in the Securities Act) of
any of the foregoing.
"Indemnified Party" means any party entitled to any indemnification
pursuant to Section 4 hereof.
"Indemnifying Party" means any party required to provide indemnification
pursuant to Section 4 hereof.
"Indenture" means the Indenture dated as of December 15, 1997, between
National Auto Finance 1998-1 Trust and Harris Trust
<PAGE>
and Savings Bank, as Indenture Trustee and Trust Collateral Agent.
"Insurance Agreement" means the Insurance and Indemnity Agreement, dated
as of January 20, 1998, among Financial Security, the Trust, the Company and
NAFI, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Losses" means (a) any actual out-of-pocket damages incurred by the party
entitled to indemnification or contribution hereunder, (b) any actual
out-of-pocket costs or expenses incurred by such party, including reasonable
fees or expenses of its counsel and other expenses incurred in connection with
investigating or defending any claim, action or other proceeding which entitle
such party to be indemnified hereunder (subject to the limitations set forth in
Section 5 hereof), to the extent not paid, satisfied or reimbursed from funds
provided by any other Person other than an affiliate of such party (provided
that the foregoing shall not create or imply any obligation to pursue recourse
against any such other Person), plus (c) interest on the amount paid by the
party entitled to indemnification or contribution from the date of such payment
to the date of payment by the party who is obligated to indemnify or contribute
hereunder at the statutory rate applicable to judgments for breach of contract.
"NAFI" means National Auto Finance Company, Inc., a Delaware
corporation.
"Offering Document" means the Prospectus and any other material or
documents delivered by the Underwriter or any Underwriter Party to any Person in
connection with the offer or sale of the Securities.
"Person" means any individual, partnership, joint venture, corporation,
limited liability company, limited liability partnership, trust, unincorporated
organization or other organization or entity (whether governmental or private).
"Policy" means the financial guaranty insurance policy delivered by
Financial Security with respect to the Securities.
"Prospectus" means any prospectus or preliminary prospectus relating to
the Securities included in the Registration Statement or filed with the
Commission (including all documents, if any, incorporated by reference therein
and the information, if any, deemed to be part thereof pursuant to the Rules and
Regulations), as the same may be amended or supplemented from time to time;
provided, however, that if any revised prospectus shall be provided by the
Company for use in connection with the offering
<PAGE>
of the Securities which differs from the Prospectus filed with the Commission
pursuant to Rule 424 of the Securities Act (whether or not such revised
prospectus is required to be filed by the Seller pursuant to Rule 424 of the
Securities Act), the term "Prospectus" shall refer to such revised Prospectus
from and after the time it is first provided to the Underwriter or any
Underwriter Party for such use.
"Registration Statement" means the registration statement on Form S-3 (No.
333-28829) and Form S-3MEF (No. 333-44159) filed pursuant to Rule 462(b) of the
Securities Act including a prospectus and any amendments thereto relating to the
Securities, and any registration statement required to be filed under the
Securities Act or the Rules and Regulations (including all documents, if any,
incorporated by reference therein and the information, if any, deemed to be part
thereof pursuant to the Rules and Regulations), as the same may be amended or
supplemented from time to time.
"Rules and Regulations" means the rules and regulations of
the Commission under the Securities Act.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of December 15, 1997, among the Trust, the Company, NAFI, as Servicer,
and Harris Trust and Savings Bank, not in its individual capacity but solely as
Backup Servicer and Trust Collateral Agent.
"Securities" means the National Auto Finance 1998-1 Trust $85,200,000
5.88% Automobile Receivables-Backed Notes, described in the Offering Document
and issued pursuant to the Indenture and covered by the Policy.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any rule or regulation in effect from time to time under such Act.
"Spread Account Agreement" means the Master Spread Account Agreement dated
as of January 20, 1998, by and among the Company, Financial Security, the
Collateral Agent and the Trustee specified therein, as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Trust" means the National Auto Finance 1998-1 Trust, a Delaware business
trust.
"Underwriter Information" has the meaning provided in
Section 3(c) hereof.
<PAGE>
"Underwriter Party" means any of the Underwriter, its parent, subsidiaries
and affiliates and any shareholder, director, officer, employee, agent or
"controlling person" (as such term is used in the Securities Act) of any of the
foregoing.
"Underwriting Agreement" means the Underwriting Agreement dated as of
January 15, 1998, between the Company and the Underwriter, with respect to the
offer and sale of the Securities, as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
Section Representations, Warranties and Agreements of
Financial Security. Financial Security represents, warrants and
agrees with the parties hereto as follows:
Organization, Etc. Financial Security is a stock insurance company
duly organized, validly existing and authorized to transact financial
guaranty insurance business under the laws of the State of New York.
Authorization, Etc. The Policy and the Financial
Security Agreements have been duly authorized, executed and
delivered by Financial Security.
Validity, Etc. The Policy and the Financial Security Agreements
constitute valid and binding obligations of Financial Security,
enforceable against Financial Security in accordance with their terms,
subject, as to the enforcement of remedies, to bankruptcy, insolvency,
reorganization, rehabilitation, moratorium and other similar laws
affecting the enforceability of creditors' rights generally applicable in
the event of the bankruptcy or insolvency of Financial Security and to the
application of general principles of equity and subject, in the case of
this Agreement, to principles of public policy limiting the right to
enforce the indemnification provisions contained herein.
Exemption From Registration. The Policy is exempt
from registration under the Securities Act.
No Conflicts. Neither the execution or delivery by Financial
Security of the Policy or the Financial Security Agreements, nor the
performance by Financial Security of its obligations thereunder, will
conflict with any provision of the certificate of incorporation or the
bylaws of Financial Security nor result in a breach of, or constitute a
default under, any material agreement or other instrument to which
Financial Security is a party or by which any of its property is bound nor
violate any judgment,
<PAGE>
order or decree applicable to Financial Security of any governmental or
regulatory body, administrative agency, court or arbitrator having
jurisdiction over Financial Security (except that, in the published
opinion of the Commission, the indemnification provisions of this
Agreement, insofar as they relate to indemnification for liabilities
arising under the Securities Act, are against public policy as expressed
in the Securities Act and are therefore unenforceable).
Financial Information. The consolidated balance sheets of
Financial Security as of December 31, 1995 and December 31, 1996 and the
related consolidated statements of income, changes in shareholder's equity
and cash flows for the fiscal years then ended and the interim
consolidated balance sheet of Financial Security as of September 30, 1997,
and the related statements of income, changes in shareholder's equity and
cash flows for the interim period then ended, furnished by Financial
Security to the Underwriter, fairly present in all material respects the
financial condition of Financial Security as of such dates and for such
periods in accordance with generally accepted accounting principles
consistently applied (subject as to interim statements to normal year-end
adjustments) and since the date of the most current interim consolidated
balance sheet referred to above there has been no change in the financial
condition of Financial Security which would materially and adversely
affect its ability to perform its obligations under the Policy.
Financial Security Information. The information in the
Prospectus set forth under the caption "The Insurer", or such additional
information as may be deemed to be included in the Prospectus pursuant to
the second paragraph under the heading "Incorporation of Certain Documents
By Reference" on page S-3 of the Prospectus (as revised from time to time
in accordance with the provisions hereof, the "Financial Security
Information") is limited and does not purport to provide the scope of
disclosure required to be included in a prospectus with respect to a
registrant in connection with the offer and sale of securities of such
registrant registered under the Securities Act. Within such limited scope
of disclosure, however, as of the date of the Prospectus and as of the
date hereof, the Financial Security Information does not contain any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
Additional Information. Financial Security will
furnish to the Underwriter or the Company, upon request of
<PAGE>
the Underwriter or the Company, as the case may be, copies of Financial
Security's most recent financial statements (annual or interim, as the
case may be) which fairly present in all material respects the financial
condition of Financial Security as of the dates and for the periods
indicated, in accordance with generally accepted accounting principles
consistently applied except as noted therein (subject, as to interim
statements, to normal year-end adjustments). In addition, if the delivery
of a Prospectus relating to the Securities is required at any time prior
to the expiration of nine months after the time of issuance of the
Prospectus in connection with the offering or sale of the Securities, the
Company or the Underwriter will notify Financial Security of such
requirement to deliver a Prospectus and Financial Security will promptly
provide the Underwriter and the Company with any revisions to the
Financial Security Information that are in the judgment of Financial
Security necessary to prepare an amended Prospectus or a supplement to the
Prospectus.
Opinion of Counsel. Financial Security will furnish to the
Underwriter and the Company on the closing date for the sale of the
Securities an opinion of its Assistant General Counsel, to the effect set
forth in Exhibit A attached hereto, dated such closing date and addressed
to the Company and the Underwriter.
Consents and Reports of Independent Accountants. Financial
Security will furnish to the Underwriter and the Company, upon request, as
comfort from its independent accountants in respect of its financial
condition, (i) at the expense of the Person specified in the Insurance
Agreement, a copy of the Prospectus, including either a manually signed
consent or a manually signed report of Financial Security's independent
accountants, and (ii) the quarterly review letter by Financial Security's
independent accountants in respect of the most recent interim financial
statements of Financial Security.
Nothing in this Agreement shall be construed as a representation or warranty by
Financial Security concerning the rating of its claims-paying ability by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, or any other rating agency (collectively, the "Rating
Agencies"). The Rating Agencies, in assigning such ratings, take into account
facts and assumptions not described in the Prospectus and the facts and
assumptions considered by the Rating Agencies, and the ratings issued thereby,
are subject to change over time.
<PAGE>
Section Representations, Warranties and Agreements of
the Underwriter. The Underwriter represents, warrants and agrees
with the parties hereto as follows:
Compliance With Laws. The Underwriter will comply in all
material respects with all legal requirements in connection with offers
and sales of the Securities and make such offers and sales in the manner
provided in the Offering Document.
Offering Document. The Underwriter will not use, or distribute
to other broker-dealers for use, any Offering Document in connection with
the offer and sale of the Securities unless such Offering Document
includes such information as has been furnished by Financial Security for
inclusion therein and the information therein concerning Financial
Security has been approved by Financial Security in writing. Financial
Security hereby consents to the information in respect of Financial
Security included in the Prospectus. Each Offering Document will include
the following statement:
"The Policy is not covered by the property/ casualty insurance
security fund specified in Article 76 of the New York Insurance
Law".
Each Offering Document including financial information with respect to
Financial Security prepared in accordance with generally accepted
accounting principles will include the following statement immediately
preceding such financial information:
"The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial
condition and results of operations of an insurance company, for
determining its solvency under the New York Insurance Law, and for
determining whether its financial condition warrants the payment of
a dividend to its stockholders. No consideration is given by the New
York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making
such determinations."
Underwriter Information. All material provided by the
Underwriter for inclusion in the Offering Document (as revised from time
to time, the "Underwriter Information"), insofar as such information
relates to the Underwriter and the manner of offer and sale of the
Securities, is true and correct in all material respects. In respect of
the
<PAGE>
Prospectus, the parties hereto acknowledge and agree that the Underwriter
Information is limited to the following: (i) the fifth paragraph on the
front cover page of the Offering Document concerning market making
activities; (ii) the first sentence of the last paragraph on the front
cover page of the Offering Document concerning the terms of the offering;
(iii) the first paragraph on page S-2 of the Offering Document concerning
market making activities; (iv) the third paragraph on page S-2 of the
Offering Document concerning stabilization activities; and (v) the
information under the caption "Underwriting" in the Offering Document.
Section Indemnification.
Financial Security agrees, upon the terms and subject to the
conditions provided herein, to indemnify, defend and hold harmless each Company
Party and each Underwriter Party against (i) any and all Losses incurred by them
with respect to the offer and sale of the Securities and resulting from
Financial Security's breach of any of its representations, warranties or
agreements set forth in Section 2 hereof and (ii) any and all Losses to which
any Company Party or Underwriter Party may become subject, under the Securities
Act or otherwise, insofar as such Losses arise out of or result from an untrue
statement of a material fact contained in any Offering Document or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or omission was made in the Financial
Security Information included therein in accordance with the provisions hereof.
The Underwriter agrees, upon the terms and subject to the conditions
provided herein, to indemnify, defend and hold harmless each Financial Security
Party and each Company Party against (i) any and all Losses incurred by them
with respect to the offer and sale of the Securities and resulting from the
Underwriter's breach of any of its representations, warranties or agreements set
forth in Section 3 hereof and (ii) any and all Losses to which any Financial
Security Party or Company Party may become subject, under the Securities Act or
otherwise, insofar as such Losses arise out of or result from an untrue
statement of a material fact contained in any Offering Document or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or omission was made in the
Underwriter Information included therein.
Upon the incurrence of any Losses for which a party is
entitled to indemnification hereunder, the Indemnifying Party
<PAGE>
shall reimburse the Indemnified Party promptly upon establishment by the
Indemnified Party to the Indemnifying Party of the Losses incurred.
Section Indemnification Procedures. Except as provided below in Section 6
with respect to contribution, the indemnification provided herein by an
Indemnifying Party shall be the exclusive remedy of any and all Indemnified
Parties for the breach of a representation, warranty or agreement hereunder by
an Indemnifying Party; provided, however, that each Indemnified Party shall be
entitled to pursue any other remedy at law or in equity for any such breach so
long as the damages sought to be recovered shall not exceed the Losses incurred
thereby resulting from such breach. In the event that any action or regulatory
proceeding shall be commenced or claim asserted which may entitle an Indemnified
Party to be indemnified under this Agreement, such party shall give the
Indemnifying Party written or telegraphic notice of such action or claim
reasonably promptly after receipt of written notice thereof. The Indemnifying
Party shall be entitled to participate in and, upon notice to the Indemnified
Party, assume the defense of any such action or claim in reasonable cooperation
with, and with the reasonable cooperation of, the Indemnified Party. The
Indemnified Party shall have the right to employ its own counsel in any such
action in addition to the counsel of the Indemnifying Party, but the fees and
expenses of such separate counsel shall be at the expense of the Indemnified
Party unless (i) the employment of counsel by the Indemnified Party at its
expense have been authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has not in fact employed counsel to assume the defense of
such action or proceeding within a reasonable time after receiving notice of the
commencement of the action or proceeding or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both the
Indemnifying Party and one or more Indemnified Parties, and the Indemnified
Parties shall have been advised by counsel that there may be one or more legal
defenses available to them which are different from or additional to those
available to the Indemnifying Party (it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for all Company Parties, one such
firm for all Underwriter Parties and one such firm for all Financial Security
Parties, as the case may be, which firm shall be designated in writing by the
Company in respect of the Company Parties, by the Underwriter in respect of the
Underwriter Parties and by Financial Security in respect of the Financial
Security Parties), in each of which cases the fees and expenses of counsel will
be at the expense of the
<PAGE>
Indemnifying Party and all such fees and expenses will be reimbursed promptly as
they are incurred. The Indemnifying Party shall not be liable for any settlement
of any such claim or action unless the Indemnifying Party shall have consented
thereto or be in default in its obligations hereunder. Any failure by an
Indemnified Party to comply with the provisions of this Section shall relieve
the Indemnifying Party of liability only if such failure is prejudicial to the
position of the Indemnifying Party and then only to the extent of such
prejudice.
Section Contribution.
To provide for just and equitable contribution if the
indemnification provided by any Indemnifying Party is determined to be
unavailable for any Indemnified Party (other than due to application of this
Section 6), each Indemnifying Party shall contribute to the Losses arising from
any breach of any of its representations, warranties or agreements contained in
this Agreement on the basis of the relative fault of each of the parties as set
forth in Section 6(b) below; provided, however, that an Indemnifying Party shall
in no event be required to contribute to all Indemnified Parties an aggregate
amount in excess of the Losses incurred by such Indemnified Parties resulting
from the breach of representations, warranties or agreements contained in this
Agreement.
The relative fault of each Indemnifying Party, on the one hand, and
of each Indemnified Party, on the other, shall be determined by reference to,
among other things, whether the breach of, or alleged breach of, any
representations, warranties or agreements contained in this Agreement relates to
information supplied by, or action within the control of, the Indemnifying Party
or the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such breach.
The parties agree that Financial Security shall be solely
responsible for the Financial Security Information, the Underwriter shall be
solely responsible for the Underwriter Information and that the balance of each
Offering Document shall be the responsibility of the Company.
Notwithstanding anything in this Section 6 to the contrary, the
Underwriter shall not be required to contribute an amount in excess of the
amount by which the total offering price of the Securities purchased by the
Underwriter exceeds the amount of any damages that such Underwriter has
otherwise been required to pay in respect of any breach by the Underwriter of
its representations or warranties contained in Section 3 hereof.
<PAGE>
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Upon the incurrence of any Losses entitled to contribution
hereunder, the contributor shall reimburse the party entitled to contribution
promptly upon establishment by the party entitled to contribution to the
contributor of the Losses incurred.
Section Miscellaneous.
Notices. All notices and other communications provided for under this
Agreement shall be delivered to the address set forth below or to such other
address as shall be designated by the recipient in a written notice to the other
party or parties hereto:
If to Financial Security:
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President --
Surveillance Department (with a copy to
the attention of the General Counsel)
Re: National Auto Finance 1998-1 Trust,
5.88% Automobile Receivables-Backed
Notes
Confirmation: (212) 826-0100
Telecopy Nos.: (212) 339-3518,
(212) 339-3529 (in each case
in which notice or other communication to
Financial Security refers to an Event of Default,
a claim on the Policy or with respect to which
failure on the part of Financial Security to
respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other
communication should also be sent to the attention
of each of the General Counsel and the
Head-Financial Guaranty Group and each such notice
shall be marked to indicate "URGENT MATERIAL
ENCLOSED.")
<PAGE>
If to National Financial Auto Funding Trust
c/o Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopy No.: (302) 984-4903
Confirmation: (302) 428-3375
with a copy to: Chase Manhattan Bank Delaware
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
Attention: Corporate Trust Administration
Telecopy No.: (718) 242-3529
Confirmation: (718) 242-7283
If to the Underwriter:
First Union Capital Market Corp.
One First Union Center
Charlotte, North Carolina 28288-0610
Attention: Reginald H. Imamura
Telecopy No.: (704) 374-3254
Confirm No.: (704) 374-6501
Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Assignments. This Agreement may not be assigned by any
party without the express written consent of each other party.
Any assignment made in violation of this Agreement shall be null
and void.
Amendments. Amendments of this Agreement shall be in
writing signed by each party hereto.
Survival, Etc. The indemnity and contribution agreements contained in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Indemnifying Party, (ii)
the issuance of the Securities or (iii) any termination of this Agreement or the
Policy. The indemnification provided in this Agreement will be in addition to
any liability which the parties may otherwise
<PAGE>
have and shall in no way limit any obligations of the Company under the
Underwriting Agreement or the Insurance Agreement.
Counterparts. This Agreement may be executed in
counterparts by the parties hereto, and all such counterparts
shall constitute one and the same instrument.
[Remainder of Page Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
FINANCIAL SECURITY ASSURANCE INC.
By:
Name:
Title:
FIRST UNION CAPITAL MARKETS CORP.
By:
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By:
Name:
Title: __________________ of
Chase Manhattan Bank Delaware,
not in its individual capacity,
but solely in its capacity as
trustee for National Financial
Auto Funding Trust
<PAGE>
EXHIBIT A
OPINION OF ASSISTANT GENERAL COUNSEL
Based upon the foregoing, I am of the opinion that:
Financial Security is a stock insurance company duly organized,
validly existing and authorized to transact financial guaranty insurance
business under the laws of the State of New York.
The Policy and the Financial Security Agreements have been duly
authorized, executed and delivered by Financial Security.
The Policy and the Financial Security Agreements constitute valid
and binding obligations of Financial Security, enforceable against Financial
Security in accordance with their terms, subject, as to the enforcement of
remedies, to bankruptcy, insolvency, reorganization, rehabilitation, moratorium
and other similar laws affecting the enforceability of creditors' rights
generally applicable in the event of the bankruptcy or insolvency of Financial
Security and to the application of general principles of equity and subject, in
the case of the Indemnification Agreement, to principles of public policy
limiting the right to enforce the indemnification provisions contained therein
insofar as they relate to indemnification for liabilities arising under
applicable securities laws.
The Policy is exempt from registration under the Securities Act of
1933, as amended (the "Act").
Neither the execution or delivery by Financial Security of the
Policy or the Financial Security Agreements, nor the performance by Financial
Security of its obligations thereunder, will conflict with any provision of the
certificate of incorporation or the bylaws of Financial Security or, to the best
of my knowledge, result in a breach of, or constitute a default under, any
agreement or other instrument to which Financial Security is a party or by which
it or any of its property is bound or, to the best of my knowledge, violate any
judgment, order or decree applicable to Financial Security of any governmental
or regulatory body, administrative agency, court or arbitrator having
jurisdiction over Financial Security (except that in the published opinion of
the Securities and Exchange Commission the indemnification provisions of the
Indemnification Agreement, insofar as they relate to indemnification for
A-1
<PAGE>
liabilities arising under the Act, are against public policy as expressed in the
Act and are therefore unenforceable).
In addition, please be advised that I have reviewed the description of
Financial Security under the caption "The Insurer" in the Prospectus Supplement
dated January 15, 1998, which supplements the Base Prospectus dated July 17,
1997 (the "Offering Document") of the Company with respect to the Securities.
The information provided in the Offering Document with respect to Financial
Security is limited and does not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant under the
Act in connection with the public offer and sale of securities of such
registrant. Within such limited scope of disclosure, however, there has not come
to my attention any information which would cause me to believe that the
description of Financial Security referred to above, as of the date of the
Offering Document, contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading (except that no
opinion is rendered with respect to any financial statements or other financial
information contained or referred to therein).
A-2
FINANCIAL SECURITY ASSURANCE INC.
350 PARK AVENUE
NEW YORK, NEW YORK 10022
September , 1997
National Auto Finance Company, Inc.
One Park Place (Suite 200)
621 N.W. 53rd Street
Boca Raton, Florida 33487
National Financial Auto Funding Trust
c/o The Chase Manhattan Bank Delaware
802 Delaware Avenue
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Re: Insurance and Indemnity Agreement, dated as of November 21,
1995, among Financial Security Assurance Inc. ("Financial
Security"), National Financial Auto Funding Trust (the
"Transferor") and National Auto Finance Company, Inc.
(formerly National Auto Finance Company L.P.) ("NAFI")
Ladies and Gentlemen:
Reference is hereby made to (i) the above-referenced Insurance and
Indemnity Agreement, (ii) the Insurance and Indemnity Agreement, dated as of
November 13, 1996, among Financial Security, the Transferor and NAFI and (iii)
the Insurance and Indemnity Agreement, dated as of July 23, 1997, among
Financial Security, the Transferor, NAFI and National Auto Finance 1997-1 Trust
(as amended, supplemented or otherwise modified as of the date hereof in
accordance with the respective terms thereof, and as the same may be further
amended, supplemented or otherwise modified from time to time in accordance with
the respective terms thereof, the "Series 1995-1 Insurance Agreement", the
"Series 1996-1 Insurance Agreement" and the "Series 1997-1 Insurance Agreement",
respectively). Capitalized terms used herein and not defined herein shall have
the meanings assigned thereto in the Series 1995-1 Insurance Agreement.
Pursuant to Section 5.02(d) of the Series 1995-1 Insurance Agreement,
Financial Security hereby permanently waives any Event of Default under Section
5.01 of the Series 1995-1 Insurance Agreement that shall have occurred prior to
the date hereof and the consequences thereof, including, without limitation, (i)
Financial Security's right to receive the Premium
<PAGE>
Supplement due and payable under the Premium Letter and Section 5.02 of the
Series 1995-1 Insurance Agreement and (ii) the occurrence of an Event of Default
under the Series 1996-1 Insurance Agreement or the Series 1997-1 Insurance
Agreement solely as a result of any such Event of Default under the Series
1995-1 Insurance Agreement. Pursuant to Section 5.02(d) of the Series 1995-1
Insurance Agreement, Financial Security hereby further waives any right that it
may have to collect the Premium Supplement specified in the Premium Letter and
the Series 1995-1 Insurance Agreement as a result of any Event of Default under
the Series 1995-1 Insurance Agreement occurring on any date up through and
including March 31, 1998. The waiver granted by Financial Security in this
paragraph shall extend only to the specific events and occurrences expressly
waived in this paragraph and not to any other similar event or occurrence.
Financial Security hereby reserves all of its rights and remedies, at law,
in equity or otherwise, arising out of or in connection with the documents
referenced herein and all related documents, except for the rights expressly and
specifically waived herein. Financial Security's failure to exercise any right
or remedy (other than rights and remedies expressly and specifically waived)
shall not be construed as a waiver of any such right or remedy.
FINANCIAL SECURITY ASSURANCE INC.
By:
Name:
Title:
cc: The Chase Manhattan Bank Delaware,
as Owner Trustee
c/o The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center
Brooklyn, New York 11242
REFERRAL AGREEMENT
This Referral Agreement ("Agreement") is made as of February 26, 1998,
by and between U.S. Bank, N.A., a national banking association ("Bank") and Auto
Credit Clearinghouse ("ACCH"), a division of National Auto Finance Company,
Inc., a Delaware corporation ("NAFI").
WITNESSETH:
A. WHEREAS, ACCH engages in the business of purchasing, securitizing and
servicing non-prime motor vehicle retail installment sale contracts
originated by automobile dealers and/or banks;
B. WHEREAS, Bank receives credit applications of borrowers from automobile
dealers and finances motor vehicle retail installment sale contracts to
approved borrowers but generally does not finance non-prime motor
vehicle retail installment sale contracts;
B. WHEREAS, Bank desires to introduce ACCH to those Dealers in its trading
area for whom Bank provides consumer financing in exchange for a fee
based on the number of contracts made by ACCH with respect to the
credit applications referred to ACCH by Dealers that Bank refers or
introduces to ACCH; and
D. WHEREAS, ACCH desires to receive such referrals and introductions and
to pay such fee, all on the terms and conditions provided herein.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual agreements and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, hereby agree as follows:
SECTION 1. DEFINITIONS.
-----------
Each of the following capitalized terms shall have the meaning set
forth below for purposes of this Agreement:
(a) "ACCH Program" means the program of ACCH by which ACCH
or any of its Affiliates solicits and evaluates Applications
and provides (or causes to be provided) financing,
constituting Referrals hereunder, to Dealers and their
customers for the purchase of Motor Vehicles, and the
marketing, training and other activities described herein
related to such financing, as such program may be modified
from time to time by ACCH.
<PAGE>
(b) "Affiliate" of a specified Person means any other
Person who (i) directly or indirectly controls, is controlled
by, or is under common control with, such specified Person;
(ii) owns or controls either ten percent (10%) or more of the
outstanding voting stock or other voting equity or beneficial
interests of such specified Person or twenty percent (20%) or
more of the value of the total outstanding stock or other
equity securities of such specified Person determined on a
fully-diluted basis; (iii) is an officer, director, general
partner, trustee, manager, administrator, representative or
agent or owns or controls ten percent (10%) or more of the
outstanding voting interest of such other Person described in
clause (i), (ii) or (iii) of this sentence, except that
neither Bank (or any of its Affiliates) nor ACCH (or any of
its Affiliates) shall be considered an Affiliate of such other
party (or the Affiliates of such other party). For purposes of
the preceding sentence, "control" of a Person means
possession, directly or indirectly (through one or more
intermediaries), of the power to direct or cause the direction
of management and policies of such Person through ownership of
voting securities (or other ownership interest), contract,
voting trust or otherwise.
(c) "Application" means a credit application by a potential
purchaser of a Motor Vehicle that is submitted directly to
ACCH by a Dealer for financing of such Motor Vehicle.
(d) "Business Day" means any day other than Saturday,
Sunday or any other day on which national banking associations
in the State of Florida generally are closed for commercial
banking business.
(e) "Contract" means any non-prime Motor Vehicle retail
installment sale contract originated by a Dealer.
(f) "Dealer" means any Motor Vehicle dealer (1) from whom
Bank now or hereafter purchases Contracts or now or hereafter
receives Applications, (2) which has entered, or hereafter
enters, into a Dealer Agreement with Bank and such Dealer
Agreement has not been canceled, expired by its terms, or
otherwise terminated and (3) which is approved by ACCH as
constituting a "Dealer" under this Agreement and which has
signed a Dealer Agreement with ACCH.
(g) "Dealer Agreement" means a legally valid and binding
written agreement by and between Bank and a Dealer which,
among other things, grants to Bank the right to purchase
Contracts from such Dealer.
(h) "Governmental Authority" means any foreign, federal,
state or local government, political subdivision or
governmental or regulatory authority, agency, board,
commission, instrumentality or court or quasi-governmental
authority.
(i) "Law" or "Laws" means any or all federal, state or
local statutes, laws, codes, ordinances, judicial decisions,
proclamations, interpretive releases, regulations, published
requirements, orders, judgments, decrees and rules of any
Governmental Authority, in each case as amended and in effect
from time to time.
<PAGE>
(j) "Licenses" means all material licenses, permits and
other authorizations issued by any Governmental Authority to
NAFI or ACCH which are used or useful in, or required for
implementation of, the ACCH Program.
(k) "Material Adverse Effect" means, with respect to a
particular Person, a material adverse change, effect or
development (or any change, effect or development that could
reasonably have a material adverse effect) on the assets,
business, revenues, expenses, operations, condition (financial
or otherwise), or prospects or ability to perform under or
with respect to the material contracts (including, for the
parties hereto, this Agreement) of the specified Person.
(l) "Motor Vehicle" means any automobile, sport utility
vehicle or light duty truck.
(m) " Non-Prime Applications" means those Applications that
satisfy, or reasonably appear to satisfy in the good faith
determination of a Dealer, the written credit criteria of ACCH
which is delivered by ACCH to a Dealer pursuant to this
Agreement, as such written credit criteria of ACCH may be
modified by ACCH from time to time in accordance with this
Agreement.
(n) "Person" means an individual, corporation, association,
partnership, joint venture, trust, estate, limited liability
company, limited liability partnership, Governmental Authority
or other entity or organization.
(o) "Referral" means any Contract which is actually funded
by ACCH with respect to which an Application was referred to
ACCH by a Dealer for such Contract.
SECTION 2. REFERRALS.
---------
Subject to the terms and conditions set forth in this Agreement, (i)
Bank shall encourage its Dealers to refer to ACCH all Non-Prime Applications, as
soon as possible after such applications are received by such Dealers, and (ii)
ACCH shall pay to Bank the amounts set forth in the attached Referral Fees
Payment Schedule, attached hereto as Schedule 1 for each Referral made which is
actually closed and funded by ACCH.
Notwithstanding anything to the contrary set forth in this Agreement,
ACCH may in its sole and absolute discretion choose to reject or not accept any
particular Application or Referral, and nothing in this Agreement shall be
construed to impose any funding requirement on ACCH with respect to any
Application or Referral.
SECTION 3. PURCHASE OF CONTRACTS.
---------------------
The parties hereto intend that all Contracts purchased with respect to
a Referral shall be made by ACCH and purchased directly by ACCH from the Dealers
or the Dealers' customers, as the case may be, and shall not be refinanced or
purchased from Bank or any of its Affiliates, or in any way be characterized as
being refinanced or purchased from Bank or any of its Affiliates, unless
otherwise authorized by ACCH.
<PAGE>
SECTION 4. NO RECOURSE.
-----------
All Referrals and any Contracts purchased by ACCH or any of its
Affiliates shall be without recourse to Bank or any of its Affiliates, and Bank
and its Affiliates shall not have any obligation or liability that is in any way
related to such Contracts; provided, however, that the parties hereto shall be
liable to each other for breach of their respective representations, warranties,
covenants and indemnities under the terms of this Agreement; provided, further,
that the obligations of Bank under this Agreement shall not constitute recourse
to Bank for the credit risk of any Contract purchased by ACCH or any Affiliate
of ACCH.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF ACCH.
--------------------------------------
ACCH represents and warrants to Bank as follows:
(a) Organization and Standing. ACCH is a division of
National Auto Finance Company, Inc., a publicly held company
duly organized, validly existing and in good standing under
the laws of the State of Delaware, and duly qualified in each
jurisdiction where the conduct of the ACCH Program requires
such qualification.
(b) Authorization and Binding Obligation. ACCH has the full
power and authority to execute and deliver this Agreement and
to perform and comply with all terms, covenants and conditions
to be performed and complied with by ACCH hereunder. The
execution, delivery and performance of this Agreement by ACCH
has been duly and validly authorized by all necessary action
on the part of ACCH. This Agreement has been duly and validly
executed and delivered by ACCH and constitutes a legal, valid
and binding agreement of ACCH enforceable against ACCH in
accordance with its respective terms, except as the same may
be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and related court decisions
of general applicability relating to or affecting creditors'
rights generally and by the application of general principles
of equity.
(c) Consents and Approvals; No Violation.
There is no requirement applicable to ACCH (that has
not been previously satisfied) to make any material filing
with, or to obtain any material permit, authorization, consent
or approval of, any Governmental Authority or other Person in
connection with the ACCH Program.
The execution, delivery and performance of this
Agreement by ACCH will not (i) violate, conflict with or
result in any breach of any provision of the organizational
documents of ACCH, (ii) violate, conflict with or result in a
breach or default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, deed of
trust, agreement, indenture, lease or other instrument or
obligation to which ACCH is a party or by which any of its
assets may be bound, or (iii) violate or conflict with, in any
material respect, any Law, order, writ, injunction, rule or
decree applicable to ACCH or any of its assets.
<PAGE>
(d) Governmental Authorizations. All authorizations,
consents, orders and approvals of, or other action by, any
Governmental Authority that are required to be obtained by
ACCH, and all notices to and filing with any Governmental
Authority that are required to be made by ACCH, including in
the case of each of the foregoing those pertaining to the ACCH
Program and the execution of this Agreement, have been
obtained or made and are in full force and effect, except
where the failure to obtain or to make any such authorization,
consent order, approval, notice or filing, individually or in
the aggregate for all such failures, would not have a Material
Adverse Effect on ACCH. ACCH, as a division of National Auto
Finance Company, Inc., operates under the authority of the
Licenses, none of which is subject to any restriction or
condition which could materially adversely affect the ACCH
Program. The Licenses are valid for the full term thereof, are
in good standing and full force and effect and are not subject
to any liens, encumbrances, charges or other claims.
(e) Compliance with Laws. The operations of the ACCH
Program are in compliance in all respects with all Licenses
and all applicable Laws, except to the extent that any such
non- compliance, individually or in the aggregate, would not
have a Material Adverse Effect on ACCH or the ACCH Program.
(f) Litigation. Except in the ordinary course of the
recovery of obligations of third parties to ACCH, no action,
suit, litigation, arbitration, dispute, proceeding,
governmental investigation or governmental audit is pending
against, or to the knowledge of ACCH is threatened against,
ACCH or any of its assets or businesses that is reasonably
likely to have a Material Adverse Effect on the obligations of
ACCH contemplated by this Agreement.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BANK.
--------------------------------------
Bank represents and warrants to ACCH as follows:
(a) Organization and Standing. Bank is a national banking
association duly organized, validly existing and in good
standing under the laws of the United States.
(b) Authorization and Binding Obligation. Bank has full
corporate power and authority to execute and deliver this
Agreement and to perform and comply with all terms, covenants
and conditions to be performed and complied with by it
hereunder. The execution, delivery and performance of this
Agreement by Bank have been duly and validly authorized by all
necessary corporate action on the part of Bank. This Agreement
has been duly and validly executed and delivered by Bank and
constitutes a legal, valid and binding agreement of Bank,
enforceable against Bank in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and related
court decisions of general applicability relating to or
affecting creditors' rights generally and by the application
of general principles of equity.
<PAGE>
(c) Consents and Approvals; No Violation.
There is no requirement applicable to Bank (that has
not been previously satisfied) to make any material filing
with, or to obtain any material permit, authorization, consent
or approval of, any Governmental Authority or other Person in
connection with the performance of the Bank's obligations set
forth in this Agreement.
The execution, delivery and performance of this
Agreement by Bank will not (i) violate, conflict with or
result in any breach of any provision of the organizational
documents of Bank, (ii) violate, conflict with or result in a
breach or default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, deed of
trust, agreement, indenture, lease or other instrument or
obligation to which Bank is a party or by which any of its
assets may be bound, or (iii) violate or conflict with, in any
material respect, any Law, order, writ, injunction, rule or
decree applicable to Bank or any of its assets.
(d) Governmental Authorizations. All authorizations,
consents, orders and approvals of, or other action by, any
Governmental Authority that are required to be obtained by
Bank, and all notices to and filing with any Governmental
Authority that are required to be made by Bank, including in
the case of each of the foregoing those pertaining to the
execution, delivery and performance of this Agreement, have
been obtained or made and are in full force and effect, except
where the failure to obtain or to make any such authorization,
consent order, approval, notice or filing, individually or in
the aggregate for all such failures, would not have a Material
Adverse Effect on Bank.
(e) Compliance with Laws. The execution and delivery of
this Agreement and the performance by Bank of its obligations
under this Agreement do not violate in any respects any
applicable Laws, except to the extent that any such violation,
individually or in the aggregate, would not have a Material
Adverse Effect on Bank.
(f) Litigation. No action, suit, litigation, arbitration,
dispute, proceeding, governmental investigation or
governmental audit is pending against, or to the knowledge of
Bank is threatened against, Bank or any of its assets or
businesses that is reasonably likely to have a Material
Adverse Effect on the obligations of Bank contemplated by this
Agreement.
(g) Dealers and Dealer Agreements. The receipt by Bank from
ACCH of a referral fee pursuant to the terms of this Agreement
with respect to each Referral constitutes, and shall
constitute, an express representation and warranty by Bank to
ACCH that the Dealer relating to such Referral satisfies each
of the conditions of a "Dealer" (as such conditions are set
forth in the definition of such term in this Agreement) as of
the date such Referral actually closed and was funded by ACCH.
SECTION 7. COVENANTS OF ACCH.
-----------------
<PAGE>
So long as this Agreement remains in effect, ACCH shall perform and
comply with the covenants contained in this Section.
(a) Payment of Referral Fees. On or before the twentieth
(20th) day of each calendar month for the preceding calendar
month during the term of this Agreement, ACCH shall pay to
Bank the referral fees payable to the Bank for the previous
calendar month in accordance with the terms of this Agreement
and the Referral Fees Payment Schedule set forth on Schedule 1
attached hereto.
(b) Credit Criteria. ACCH shall deliver to Bank and to
Dealers the written credit criteria of ACCH which Dealers
shall utilize in determining whether a particular application
constitutes a Non-Prime Application. ACCH reserves the right
to modify and amend, from time to time, the written credit
criteria of ACCH by giving written notice to Bank and to
Dealers, which modified written credit criteria shall be
effective one Business Day after receipt by Bank and a
particular Dealer.
(c) Reports. ACCH shall maintain true and complete books
and records of account and shall comply with the following
delivery and notice requirements:
(i) ACCH shall maintain and implement,
or cause to be maintained and implemented,
administrative and operating procedures (including
records evidencing its Contracts and all Applications
reviewed by it) and shall keep and maintain, or cause
to be kept and maintained, all documents, books,
records, and other information which, in the
reasonable determination of Bank, are necessary or
advisable to monitor the results of the ACCH Program.
(ii)Each calendar month, ACCH shall
furnish to Bank, for each Dealer Bank refers to ACCH,
(a) the number of Applications delivered to ACCH for
the previous calendar month , (b) the disposition of
the Applications for the previous calendar month, (c)
details of funded Contracts, including dollars
booked, and (d) the number of Referrals occurring in
the previous calendar month.
(d) Inspection. At all reasonable times after written
notice within normal business hours, ACCH shall permit any
authorized representatives designated by Bank to visit and
inspect, conduct accounting reviews of, any of the properties
of ACCH and their books and records solely relating to the
ACCH Program, and to take abstracts therefrom and make copies
thereof, and to discuss ACCH's business, financial condition
and operations with the management and independent accountants
of ACCH, at Bank's sole cost and expense; provided, however,
that neither Bank nor any of its representatives shall conduct
any such inspection more than semi- annually.
(e) Compliance with Laws. ACCH shall comply in all respect
with all Licenses and all applicable Laws (including, without
limitation, all applicable commercial/consumer Laws), except
to the extent that any such non-compliance, individually or in
the aggregate, would not have a Material Adverse Effect on
ACCH or the ACCH Program.
<PAGE>
SECTION 8. COVENANTS OF BANK.
-----------------
So long as this Agreement remains in effect, Bank shall perform and
comply with the covenants contained in this Section.
(a) Referral of Applications. Bank shall request that its
Dealers promptly refer to ACCH all Applications as soon as
possible after such Applications are received by such Dealer.
(b) Marketing. Bank shall use commercially reasonable
efforts to market the ACCH Program as part of, and in
connection with, the Bank's general marketing efforts to
Dealers and in connection with the marketing efforts of ACCH.
Without limiting the foregoing, the Bank shall cause its sales
representatives to introduce ACCH and the ACCH Program to each
of the Dealers in good standing with the Bank on or before 180
days after the date of this Agreement.
(c) Records and Reports. Bank shall furnish to ACCH such
information concerning Dealer financial and business affairs
(including without limitation sufficient information to verify
the representation and warranty of Bank set forth in Section
6(g) of this Agreement) as ACCH may request.
(d) Inspection. At all reasonable times after written
notice, the Bank shall permit any authorized representatives
designated by ACCH to visit and inspect, conduct accounting
reviews of, any of the properties of the Bank and its books
and records with respect to the Bank's obligations and
representations under this Agreement and to take abstracts
therefrom and make copies thereof, and to discuss Bank
affairs, finances and accounts with the management, employees
and independent accountants of Bank, at ACCH's sole cost and
expense; provided, however, that neither ACCH nor any of its
representatives shall conduct any such inspection more than
semi-annually.
(e) Compliance with Laws. Bank shall comply in all respect
with all applicable Laws (including, without limitation, all
applicable commercial/consumer Laws) with respect to the
performance of Bank's obligations under this Agreement, except
to the extent that any such non-compliance, individually or in
the aggregate, would not have a Material Adverse Effect on
Bank.
<PAGE>
SECTION 9. JOINT COVENANTS OF BANK AND ACCH.
--------------------------------
So long as this Agreement remains in effect, Bank and ACCH shall each
use commercially reasonable efforts to cooperate in performing and complying
with the covenants contained in this Section.
(a) Plan. Bank and ACCH shall determine a plan for phased
implementation of the ACCH Program to Dealers in good standing
with Bank on or before 180 days of the date of this Agreement.
(b) Priority Order of Dealers. Bank and ACCH shall
determine the order of priority of Dealers to whom Bank sales
representatives should be introduced.
(c) Marketing. Bank and ACCH shall develop, market and
implement incentive programs, special promotions and related
sales and marketing devices, as appropriate, relating to the
ACCH Program.
(d) Confidentiality. The parties hereto acknowledge that
they have had, and may in the future have, access to certain
confidential and proprietary information of the other in
connection with or related to the ACCH Program or related to
the respective parties more generally, and such information
constitutes valuable, special and unique property of the
parties and shall be deemed to be confidential. This
information may only be used in the provision of services
under this Agreement. The parties hereto agree that they will
not, for any reason or purpose whatsoever, use or allow to be
used any such information or reveal or disclose any such
information to any Person other than the parties hereto and
those agents, employees and representatives thereof to the
extent that access to such information is necessary for a
particular agent, employee and representative to perform such
functions contemplated by this Agreement (who shall also agree
not to disclose such information except as permitted by this
Section 9(d), except (i) as expressly consented to by all of
the other parties, (ii) as required by Law, or (iii) is or
becomes generally available to the public under circumstances
which do not involve a breach of the terms hereof. Without
limiting the generality of the foregoing provisions of this
Section 9(d), except as required by Law, no party hereto shall
issue a press release or make other public (or private)
disclosure regarding the ACCH Program arising out of this
Agreement without the written consent of the other parties
hereto, which written consent shall not be unreasonably
withheld.
SECTION 10. TERMINATION OF AGREEMENT.
------------------------
(a) Termination. The term (the "Term") of this Agreement
shall be for an initial period of two (2) years from the date
hereof, automatically renewing for successive one-year terms
thereafter unless written notice of such non-renewal shall be
given by either party to the other at least sixty days prior
to the expiration of the then-current Term, except that this
Agreement shall be terminated prior thereto upon the happening
of any of the following events:
<PAGE>
(i) at any time by mutual written
consent of Bank and ACCH;
(ii)at the Bank's election, if ACCH is
in default, breach or noncompliance in any respect of
its representations, warranties, covenants or
agreements under this Agreement and ACCH fails to
cure such default, breach or noncompliance after the
expiration of thirty (30) days after written notice
is received by ACCH from Bank;
(iii) at ACCH's election, if Bank is in
default, breach or noncompliance in any respect of
its representations, warranties, covenants or
agreements under this Agreement and Bank fails to
cure such default, breach or noncompliance after the
expiration of thirty (30) days after written notice
is received by Bank from ACCH;
(iv)after the expiration of 180 days
after the date of this Agreement, by either ACCH or
Bank by giving written notice to the other party,
provided that such termination shall not be effective
until the expiration of ninety (90) days after the
date of such written notice of termination; or
(v) if either party makes an assignment
for the benefit of creditors or admits in writing its
inability pay its debts when due, or if any
liquidation, dissolution, bankruptcy, reorganization,
insolvency, or other proceeding for the relief of
financially distressed debtors is commenced by or
against such party, or a receiver, liquidator,
custodian or trustee is appointed for such party or a
substantial part of such party's assets (but if any
of the foregoing occurs involuntarily, dissolution
shall not occur unless the same is not dismissed,
stayed or discharged within ninety (90) days), or if
an offer for relief is entered against such party
under Title 11 of the United States Code.
(b) Procedure and Effect of Termination. In the event of
termination of this Agreement by either or both of Bank and/or
ACCH pursuant to this Section (except for termination as a
result of the expiration of the Term, in which case this
Agreement shall terminate without any further action), prompt
written notice thereof shall forthwith be given to the other
party and this Agreement shall terminate without further
action by either party hereto; provided, however, that the
obligations of ACCH to make payments for Referrals made during
the previous month as required by Section 7 and to make such
reports regarding the previous month as required by Section 7
shall survive. If this Agreement is terminated as provided in
this Section 10, all written information received by a party
hereto with respect to the business of the other party or its
Affiliates or divisions (other than information which is a
matter of public knowledge at the time of disclosure to the
other party or which has been disclosed to the general public
by mutual agreement of the parties or which is required to be
filed as public information with any Governmental Authority)
shall not at any time be used for the advantage of, or
disclosed to third parties by, such party for any reason
whatsoever.
Notwithstanding anything to the contrary in this
Agreement, if either party is in default, breach or
noncompliance in any material respect of its representations,
warranties, covenants or agreements under this Agreement (and
<PAGE>
such party fails to cure such default, breach or noncompliance
within the cure period set forth in this Section 10), then and
in that event, the other party shall have the right to seek
all remedies available to it as provided hereunder or at law
or equity.
In addition to such continuing obligations described
above in this Section 10(b), the termination of this Agreement
shall not discharge any party hereto from any obligation which
it owes to the other party immediately prior to or as a result
of such termination.
SECTION 11. INDEMNIFICATION.
---------------
(a) ACCH Indemnification of Bank. ACCH shall indemnify and
hold harmless Bank, each of its successors and all partners,
owners, officers, directors, shareholders, employees and
agents of Bank and their respective Affiliates from and
against any loss, liability, expense, claim, damage or injury
suffered or sustained by reason of any acts, omissions or
alleged acts or omissions of ACCH and its Affiliates pursuant
to this Agreement arising out of or based on the arrangement
created by this Agreement and the activities of any such
Persons taken pursuant thereto, including, without limitation,
actions against Bank related to the Contracts, fees charged in
connection with the Contracts, the Applications or any
policies or procedures related to the Contracts or
Applications, including any judgment, award, settlement,
reasonable attorneys' fees and other costs or expense incurred
in connection with the defense of any actual or threatened
action, proceeding or claim or if any party to a Referral of
an Application alleges any actual or threatened action,
proceeding or claim against Bank alleging that the execution
of this Agreement as of the date first above written is in
violation of any state or federal statutes, laws or
regulations affecting the validity of this Agreement;
provided, however, that no indemnification shall be required
under this Section 11 if such acts, omissions or alleged acts
or omissions constitute violations of Law (unless such
violations of Law arose from acts or omissions of ACCH),
fraud, gross negligence or willful misconduct by Bank or its
Affiliates; and provided, further, that no indemnification
shall be required for any liabilities, cost or expense of Bank
and its Affiliates with respect to any federal, state or local
income or franchise taxes (or any interest or penalties with
respect thereto) required to be paid by Bank or any of its
Affiliates in connection herewith to any taxing authority. Any
indemnification under this Section 11 shall survive the
termination of this Agreement.
(b) Bank Indemnification of ACCH. Bank shall indemnify and
hold harmless ACCH, each of its successors and all partners,
owners, officers, directors, shareholders, employees and
agents of ACCH and their respective Affiliates from and
against any loss, liability, expense, claim, damage or injury
suffered or sustained by reason of any acts, omissions or
alleged acts or omissions of Bank and its Affiliates pursuant
to this Agreement arising out of or based on the arrangement
created by this Agreement and the activities of any such
Persons taken pursuant thereto, including, without limitation,
actions against ACCH related to the Contracts, the
Applications or any policies or procedures related to the
Contracts or Applications, including any judgment, award,
settlement, reasonable attorneys' fees and other costs or
expense incurred in connection with the defense of any actual
or threatened action, proceeding or claim or if any party to a
Referral of an Application by Bank alleges that the execution
of this Agreement as of the date first above written is in
violation of any state or federal statutes, laws or
regulations affecting the validity of the Agreement; provided,
however, that no indemnification shall be required under this
Section 11 if such acts,
<PAGE>
omissions or alleged acts or omissions constitute violations
of Law, fraud, gross negligence or willful misconduct by
ACCH or its Affiliates; and provided, further, that no
indemnification shall be required for any liabilities, costs
or expense of ACCH and its Affiliates with respect to any
federal, state or local income or franchise taxes (or any
interest or penalties with respect thereto) required to be
paid by ACCH or any of its Affiliates in connection herewith
to any taxing authority. Any indemnification under this
Section 11 shall survive the termination of this Agreement.
SECTION 12. ASSIGNMENT.
----------
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either party without the
prior written consent of the other.
SECTION 13. GENERAL.
-------
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect
of the subject matters hereof. This Agreement supersedes all
prior negotiations, agreements and understandings between the
parties with respect to the subject matters hereof and all
letters of intent and other writings relating to such
negotiations, agreements and understandings.
(b) Notices. Any notice, demand or request required or
permitted to be given under the provisions of this Agreement
shall be in writing and delivered personally, by facsimile,
reputable overnight courier service or by registered or
certified mail to the following addresses, or to such other
address as any party may request by notifying the other
parties hereto:
To Bank:
U.S. Bank, N.A.
Dealer Financial Services
Mail Stop MPFP 1403
601 Second Avenue South
Minneapolis, MN 55402-4302 Telephone: (612) 973-3481
Attention: David J.Herpers Facsimile: (612) 973-4436
To ACCH:
Auto Credit Clearinghouse
621 N.W. 53rd Street, Suite 200
Boca Raton, Florida 33487 Telephone: (800) 999-7535
Attention: David B. Hammer Facsimile: (800) 436-4178
<PAGE>
(c) Waiver. The failure of any party at any time to insist
upon strict performance of any promise, agreement, or
understanding set forth in this Agreement shall not be
construed as a waiver or relinquishment of the right to insist
upon strict performance of the same or any other promise,
agreement, or understanding at a future time.
(d) Rights of Third Parties. Nothing herein shall be
construed to be to the benefit of or enforceable by any Person
other than the parties hereto.
(e) Waiver of Trial by Jury. To the maximum extent
permitted by law, the parties hereby waive any right that they
may have to a trial by jury of any dispute (whether a claim in
tort, contract, equity or otherwise) arising under or relating
to this Agreement, and agree that any such dispute shall be
tried before a judge sitting without a jury.
(f) Damages. The extent of any liability to either party
under this Agreement shall not exceed the amount of the
consideration and referral fees received by the Bank under
this Agreement. Furthermore, incidental, consequential, and
punitive damages shall be prohibited.
(g) Legal Fees and Expenses. Should any of the parties
hereto institute any action or proceeding in court to enforce
any provision hereof or for damages by reason of any alleged
breach of any provision of this Agreement or for any other
judicial remedy, the prevailing party shall be entitled to
receive from the losing party all reasonable attorneys' fees
and all court costs in connection with said proceeding, except
that this Section 13(g) shall not apply in the context of an
indemnification under either Section 11 or 13(o). Except as
otherwise expressly provided in this Agreement, each party
will bear its respective expenses incurred in connection with
the preparation, execution, and performance thereby, including
all fees and expenses of agents, representatives, counsel and
accountants.
(h) Severability. If any provision of this Agreement or its
application to any party of circumstances shall be determined
by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement,
or the application of such provision to Persons or
circumstances other than those as to which it is so determined
invalid or unenforceable, shall not be affected thereby, and
each provision hereof shall be valid and shall be enforced to
the fullest extent permitted by law.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF MINNESOTA (WITHOUT REGARD TO ITS LAWS
PERTAINING TO CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING
BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT,
PERFORMANCE AND REMEDIES.
(j) Amendment and Modification. This Agreement may be
amended, modified or supplemented only by written agreement of
Bank and ACCH and their respective successors or assigns,
provided that this Section 13(j) may not be amended in any
circumstance.
<PAGE>
(k) Headings. The headings are for convenience only and
shall not affect the meaning or construction of this
Agreement.
(l) No Partnership. The parties hereto do not intend by
this Agreement to create a joint venture, partnership or other
entity or any agency or representative relationship between or
among the parties, and no party hereto shall make any
representations (written or otherwise) that implies or
suggests that any such relationship exists.
(m) Arbitration. The term "disputes" includes, without
limitation, any disagreements between the parties pertaining
to this Agreement. If the parties hereto are unable to resolve
their disputes by negotiation, the parties hereto agree to
resolve their disputes by Arbitration. Either party may
commence Arbitration by sending a written Demand For
Arbitration to the American Arbitration Association ("AAA") by
registered or certified mail to the other party and to AAA, as
Arbitrator. The Demand For Arbitration must contain a
description of the dispute, the amount involved, and the
remedy sought. The Arbitrator must be an individual possessing
a current valid bar license and must be experienced in
automobile finance matters. The Arbitrator shall be selected
by agreement of the parties from lists supplied by AAA. If the
parties hereto are unable to agree, AAA will provide the names
of three (3) qualified Arbitrators, and each party shall
strike one (1) name. The remaining Arbitrator shall serve as
the Arbitrator in the Arbitration proceedings. The Arbitration
shall be conducted in a mutually agreeable location in
accordance with the Rules promulgated by AAA. The Arbitration
shall be conducted with the widest rights of discovery as
provided in applicable law by all parties, and each party
shall have the right to cross-examine the opposing party's
witnesses, either through legal counsel, expert witnesses or
both. As part of the Arbitrator's decision, the Arbitrator
shall allocate the costs of Arbitration, including fees of
attorneys and experts as he or she deems fair and equitable in
light of all relevant circumstances, including the costs of
in-house legal services provided on behalf of ACCH or Bank.
The decision of the Arbitrator shall be final, binding and
conclusive on all parties. The only ground for appeal shall be
that the Arbitrator committed an error or errors of law and
those grounds permitted for an appeal of a final arbitration
award under applicable law.
(n) Time of Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of
the essence.
(o) No Brokers. Each of ACCH and Bank hereby represent and
warrant to the other that it has not employed any agents,
finders, brokers or other such parties in connection with this
transaction. Each party hereby agrees to indemnify, defend and
hold the other harmless from and against any and all claims,
causes of action, losses, costs, expenses, damages or
liabilities, including reasonable attorneys' fees, court costs
and disbursements, which the other may sustain, incur or be
exposed to by reason of any claim or claims of all agents,
finders, brokers or other such parties claiming fees,
<PAGE>
commissions or other compensation arising out of the acts or
omissions of the indemnifying party or claiming by, through or
under such indemnifying party. This indemnification is in
addition to and not in lieu of the indemnification set forth
in Section 11.
(p) Further Assurances. The parties agree (i) to furnish
upon request to each other such further information, (ii) to
execute and deliver to each other such other documents
reasonable acceptable to such party, and (iii) to do such
other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this
Agreement and the documents referred to in each of such
agreements.
(q) Counterparts; Facsimile Signatures. This Agreement may
be executed in counterparts, each of which, when so executed,
shall be deemed an original, and all such counterparts
together shall constitute one and the same instrument. Both
parties agree to accept a facsimile signature on this
Agreement as an execution signature.
IN WITNESS WHEREOF, the parties hereto have caused this Referral
Agreement to be signed by their duly authorized officers as of the date first
above written.
Auto Credit Clearinghouse, a division of
NATIONAL AUTO FINANCE COMPANY, INC.
By:
----------------------------
Name:
---------------------------
Title:
---------------------------
U.S. BANK, N.A.
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE>
Schedule 1
PROPOSED REFERRAL FEES PAYMENT SCHEDULE
between
Auto Credit Clearinghouse, a Division of National Auto
Finance Company, Inc. ("ACCH")
and
U.S. Bank, N.A.
C. In any calendar month during the Term of the Referral Agreement, in the
event that ACCH actually closes and funds less than 51 Referrals in
such calendar month, then ACCH shall pay to Bank the sum of $175 per
Referral in such calendar month, which payment shall be made as set
forth in the Referral Agreement.
o In any calendar month during the Term of the Referral
Agreement, in the event that ACCH actually closes and funds
less than 51 Referrals with a funding ratio (contracts funded
to applications processed) of 10% or greater, ACCH shall pay
to Bank an additional sum of $25 per Referral, and if 20% or
greater, ACCH shall pay to Bank an additional sum of $25.
D. In any calendar month during the Term of the Referral Agreement, in the
event that ACCH actually closes and funds greater than 50 and less than
101 Referrals in such calendar month, then ACCH shall pay to Bank the
sum of $200 per Referral in such calendar month, which payment shall be
made as set forth in the Referral Agreement.
o In any calendar month during the Term of the Referral
Agreement, in the event that ACCH actually closes and funds
greater than 50 and less than 101 Referrals with a funding
ratio (contracts funded to applications processed) of 10% or
greater, ACCH shall pay to Bank an additional sum of $25 per
Referral, and if 20% or greater, ACCH shall pay to Bank an
additional sum of $25.
E. In any calendar month during the Term of the Referral Agreement, in the
event that ACCH actually closes and funds greater than 100 and less
than 151 Referrals in such calendar month, then ACCH shall pay to Bank
the sum of $225 per Referral in such calendar month, which payment
shall be made as set forth in the Referral Agreement.
o In any calendar month during the Term of the Referral
Agreement, in the event that ACCH actually closes and funds
greater than 100 and less than 151 Referrals with a funding
ratio (contracts funded to applications processed) of 10% or
greater, ACCH shall pay to Bank an additional sum of $25 per
Referral, and if 20% or greater, ACCH shall pay to Bank an
additional sum of $25.
<PAGE>
F. In any calendar month during the Term of the Referral Agreement, in the
event that ACCH actually closes and funds greater than 150 Referrals in
such calendar month, then ACCH shall pay to Bank the sum of $275 per
Referral in such calendar month, which payment shall be made as set
forth in the Referral Agreement.
o In any calendar month during the Term of the Referral
Agreement, in the event that ACCH actually closes and funds
greater than 150 Referrals with a funding ratio (contracts
funded to applications processed) of 10% or greater, ACCH
shall pay to Bank an additional sum of $50 per Referral, and
if 20% or greater, ACCH shall pay to Bank an additional sum of
$25.
EXHIBIT 11
NATIONAL AUTO FINANCE COMPANY, INC.
Computation of Earnings per Common Share
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Average number of common shares outstanding-basic...................... 7,087
Pro forma shares outstanding........................................... -- 4,230
Common equivalent shares outstanding:
Stock options and warrants............................................. -- --
Total common and common equivalent shares outstanding-diluted.......... 7,087 4,230
Net income (loss)before extraordinary item............................. $ (17,867) $ 2,802
Extraordinary item..................................................... (720) --
----- -----
Net income (loss)...................................................... $ (18,587) $ 2,802
======== =====
Loss per share before extraordinary item............................... $ (2.52) $ --
====== =====
Extraordinary item..................................................... $ (.10) $
===== =====
- --
Loss per share......................................................... $ (2.62) $ --
====== =====
Pro forma earnings per share........................................... $ 0.66
=====
</TABLE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
National Auto Finance Company, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-23649) on Form S-8 of National Auto Finance Company, Inc. and subsidiaries
of our report dated April 13, 1998, relating to the consolidated balance sheets
of National Auto Finance Company, Inc. and subsidiaries as of December 31, 1997,
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, which report appears in the December 31, 1997, annual report
on Form 10-K of National Auto Finance Company, Inc. and subsidiaries.
Our report dated April 15, 1998 contains an explanatory paragraph that states
that the Company has suffered losses from operations, experienced an Insurance
Agreement Event of Default with respect to its securitizations, and at December
31, 1997 was in violation of various covenants related to its borrowings, which
raise substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
Our report also refers to the adoption of the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," in 1997.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
April 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,467
<SECURITIES> 0
<RECEIVABLES> 31,569
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,036
<PP&E> 2,665
<DEPRECIATION> (403)
<TOTAL-ASSETS> 64,875
<CURRENT-LIABILITIES> 3,481
<BONDS> 38,100
2,336
0
<COMMON> 90
<OTHER-SE> 20,868
<TOTAL-LIABILITY-AND-EQUITY> 64,875
<SALES> 0
<TOTAL-REVENUES> 4,145
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,638
<INCOME-PRETAX> (17,719)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,719)
<DISCONTINUED> 0
<EXTRAORDINARY> (720)
<CHANGES> 0
<NET-INCOME> (18,587)
<EPS-PRIMARY> (2.62)
<EPS-DILUTED> (2.62)
</TABLE>
