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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, 1999
[ ] 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.
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(Exact Name of Registrant as Specified in its Charter)
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Delaware 65-0688619
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10302 Deerwood Park Blvd. Suite 100 Jacksonville, Florida 32256
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (904) 996-2500
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 requirements for
the past 90 days. Yes [X] No [ ]
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. Yes [X] No [ ]
The aggregate market value on April 12, 2000 (based on the $ .38 closing price
on the OTC Bulletin Board on that date) of the common equity held by
non-affiliates of the registrant was $1,048,500. The number of shares of the
registrant's Common Stock outstanding on April 21, 2000 was 17,280,762.
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FORWARD-LOOKING STATEMENTS
When used in this Annual Report on Form 10-K or future filings by the
Company 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.
CURRENT
National Auto Finance Company, Inc. ("NAFI" or the "Company") is a
specialty consumer finance company that has, since February 2000, focused its
business strategy on performing a wide range of loan portfolio services for
third parties in the non-prime auto loan financing industry including, but not
limited to, loan product marketing, loan underwriting, collections, customer
service, asset remarketing, and litigation handling, in return for both
origination and servicing fees.
In furtherance of such strategy, on February 4, 2000, the Company entered
into a Contract Sale Agreement and a Servicing Agreement with Nuvell Credit
Corporation ("Nuvell") (collectively, the "Nuvell Agreements" or the Nuvell Flow
Program"), whereby the Company, in return for origination fees, has agreed to
originate non-prime retail motor vehicle installment sale loans exclusively for
the account of Nuvell. The Company retains servicing of all such loans in return
for servicing fees, for the term of the Nuvell Agreements and any extension
thereof. The Company originates and services loans under the Nuvell Flow Program
in the same manner as it has historically conducted its business operations.
The Nuvell Agreements, initially scheduled to expire on May 31, 2000, were
renewed and extended through December 31, 2000, by the mutual consent of both
the Company and Nuvell. During the course of negotiating the Nuvell Agreements,
the Company and Nuvell had, and continue to have very preliminary and limited
discussions regarding the potential acquisition by Nuvell of the operational
assets of the Company and its personnel including, in particular, the assets and
personnel comprising the Company's loan origination and servicing capabilities,
but there can be no assurance that such discussions will continue or if they do
continue, that they will lead to a transaction. In the event that the Nuvell
Agreements are not extended beyond December 31, 2000 or that no other
transaction arises between Nuvell and the Company, the Company will immediately
seek to enter into relationships similar to those represented by the Nuvell Flow
Program with other third-party auto finance companies.
Under the Contract Sale Agreement with Nuvell, NAFI markets its loan
financing products to its auto dealer network through its team of sales
representatives, underwrites and documents loans through its credit underwriting
and loan contracting departments and submits such contracted loans to Nuvell for
final approval before funding with Nuvell's funds. Loans are originated by the
Company under the Nuvell Flow Program "without recourse" (i.e., the Company does
not assume or retain the credit risk with respect to any loan it originates and
assigns to Nuvell) except to the extent specifically provided for in the Nuvell
Agreements which include standard representations, warranties, covenants and
indemnification provisions normally associated with such programs, including for
example, representation and warranties relating to compliance with applicable
laws and regulations, perfection of security interests in collateral and absence
of fraud in the loan origination process. Under the Servicing Agreement, funded
loans are then boarded onto NAFI's servicing system for servicing and
collections for the benefit of Nuvell.
Under the Nuvell Flow Program, the Company currently originates loans on
automobiles up to five model years old with fewer than 75,000 odometer miles and
depending on model year, finances loans having maximum terms of 72 months, with
a shorter loan term for older model-year automobiles.
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Experienced management and field sales employees, who are located in key
geographic regions, lead the Company's direct marketing strategy. 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
Nuvell'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 believes that a Dealer's decision to finance the automobile purchase
through 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.
The loans originated and serviced under the Nuvell Flow Program are
supported by NAFI's Consumer Loan Asset Backed Security System ("CLASS"), a
consumer finance software system owned by NAFI composed of separate modules
integrating loan origination, loan servicing, operational accounting, portfolio
performance analysis and loan securitization. The Company's computer systems
provide the Company with the ability to track all Loan details and identify
trends among customers. This information provides risk management analysis
capabilities, thereby refining the credit underwriting process and thereby
reducing future defaults.
The Company historically funded its purchases of loans primarily through a
two-step asset securitization program consisting of (i) the securitized
warehousing of all of its loans through daily sales to a bankruptcy-remote
master trust (the "Master Trust") financed by purchases of "B Certificate"
interests in such trust by First Union National Bank ("First Union") (the
"Master Trust 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 Securitization"), thereby creating renewed availability of capital
from the Master Trust Securitization Credit Facility.
Specifically, using the Master Trust Securitization Credit Facility, the
Company sold loans on a daily basis to National Financial Auto Funding Trust II
("Funding Trust II"), a special-purpose subsidiary, which then sold 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 had issued two classes
of investor certificates: "Class B Certificates," which were 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
provided 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 owned 100% of the outstanding Class B Certificates in
connection with its role as lender under the Master Trust Securitization Credit
Facility. Collectively, the restricted cash account and the Class C Certificate
portion of loan principal that collateralized were the Master Trust were
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 Company's balance sheet as Retained Interest in
Securitizations. See Note 13 of Notes to Financial Statements - Related Party
Transactions, for a discussion of relationships with First Union, and Note 14 of
Notes to Financial Statements for a discussion of Subsequent Events.
On February 22, 2000, Funding Trust II defaulted on its obligation to
deposit approximately $5 million in cash collateral to the Master Trust
Over-Collateralization Account, as required under the Master Trust
Securitization Credit Facility, thereby giving rise to First Union's decision to
terminate future funding availability under the facility and to commence
amortizing the outstanding amounts owed to First Union under the facility.
In conjunction with such default, First Union agreed to waive until April
21, 2000 certain rights to liquidate the portfolio of approximately $58.9
million of auto loans that secure its loans to Funding Trust II, thereby
permitting the Company time to pursue various strategic options, including a
sale of such portfolio. On April 5, 2000, Funding Trust II, as Seller, the
Company, as Guarantor, and Nuvell entered into a Sale and Purchase Agreement
(the "Sale Agreement") whereby a substantial number of the loans previously sold
to the Master Trust under the Master Trust Securitization Credit Facility in the
approximate amount of $47 million were sold by Funding Trust II to Nuvell after
such loans had been acquired by Funding Trust II from the Master Trust by an
Assignment Agreement dated as of April 5, 2000. The Company, as Guarantor under
the Sale Agreement, agreed to guarantee Funding Trust II's prompt and
unconditional performance of every obligation to be performed by Funding Trust
II under such agreement including the granting by Funding Trust II and the
Company to Nuvell of representations, warranties and covenants customarily
included in like and similar agreements, and in the case of approximately 400
loans of 3,502 loans sold by Funding Trust II to Nuvell, the obligation to
repurchase any loan involving an obligor who has failed to pay at least the
first three scheduled monthly payments, prior to the time such loan becomes 45
or more days delinquent. The Company, pursuant to the Sale Agreement, will
retain servicing of substantially all of such loans under the terms and
provisions of the Servicing Agreement. Approximately $43.9 million of proceeds
from the sale of such loans were then used to pay in full the Class B
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Certificates held by First Union. (See Note 4) The Company anticipates to
receive additional cash from the transaction and release of funds previously
required to be held in reserve of approximately $6.0 million, which will be used
for general corporate purposes, including the possible payment of certain debt
of the Company. In related developments, First Union terminated its commitment
to purchase up to $20 million of subordinated asset-backed debt securities in
connection with the Company's future Permanent Securitizations and converted to
a 48 month term loan (requiring equal monthly principal payments) $2.5 million
outstanding at March 21, 2000 under a revolving working capital facility secured
by the Company's ESRs.
HISTORICAL
NAFI has historically been in the business of originating, financing and
servicing non-prime auto loans through a network of manufacturer-franchised auto
dealers ("Dealers") in the sale of new and used autos. Through its loan
financing activities, the Company has provided indirect financing to non-prime
and sub-prime consumers ("Non-Prime Consumers"), i.e. consumers with limited
financial resources and/or past credit problems who, because of such credit
histories, are generally unable to finance their auto purchases through more
traditional sources such as banks and credit unions.
During fiscal 1999 and up to the execution of the Nuvell Agreements, the
Company's primary business strategy was 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 and (ii) continuing
to implement its existing, and developing new, strategic referral and marketing
alliances ("Strategic Alliances"). Early in Fiscal 1999, the Company
discontinued purchasing Non-Prime Consumer loans from third-party originators,
such as consumer finance companies and other financial institutions. The Company
ceased originating loans for its own account on February 23, 2000. See Note 14
of Notes to Financial Statements - Subsequent Events.
DEALER RELATIONSHIPS
As of December 31, 1999, the Company had active contractual relationships
with over 1,200 Dealers located in 35 states. The Company focuses on developing
relationships with well-established Dealers. The vast majority of the Company's
contractual relationships are with manufacturer-franchised Dealers, rather than
independent Dealers.
Each Dealer doing business with the Company enters into a written
agreement with the Company that governs origination of loans from the Dealer (a
"Dealer Agreement"). Although these agreements do not obligate a Dealer to sell
or NAFI to finance any particular loan, the Dealer Agreement sets forth the
terms upon which approved loans will be financed by the Company. Additionally,
these agreements contain representations and warranties given by the Dealer to
be made with respect to each loan financed by the Company, each automobile that
serves as collateral for the loan (e.g., that it is properly registered and
designates the Company, as agent for Nuvell as first lienholder), and each
loan's compliance with certain laws and regulations. Dealer Agreements generally
provide that the loans are assigned to the Company without recourse 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 any particular Dealer if the Company discovers
material misrepresentations with respect to any loan, unusual repossession
experience or other factors that might indicate fraudulent conduct.
Historically, Dealers prefer financing sources that: (i) provide
value-added products and services designed to increase sales; (ii) maintain
regular contact with Dealer finance departments; (iii) communicate credit
decisions in a timely manner; (iv) have consistent underwriting standards; (v)
fund loan originations quickly; and (vi) offer a competitive price to originate
the loan. The Company seeks to meet these needs while taking efforts to ensure
that the delinquency and loss experience of the loans it finances remain at
acceptable levels.
PRODUCTS AND SERVICES
In an effort to create and maintain a strong Dealer network, the Company
provides an array of products and services. The Company's products offered to
Dealers generally consist of loan programs. For example, under the Nuvell Flow
Program, the Company currently originates loans on automobiles that are up to
five model years old with fewer than 75,000 odometer miles and, depending on the
model year, finances loans having a maximum term of 72 months, with a shorter
loan term 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 acquire the loan from the Dealer (the "Dealer Discount").
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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 Nuvell'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 by offering 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 auto purchases.
The Company regularly reviews its products and services in order to
respond to changing market conditions in the Non-Prime Consumer market.
MARKETING STRATEGY
General
The Company's current strategy to grow profitable volume includes
marketing the Company's products and services to an increasing number of Dealers
throughout specific geographic regions in the United States through its Dealer
Relations Managers; and maximizing its existing, and developing new, Strategic
Alliances.
Direct Dealer Marketing
Experienced management and field sales employees, who are located in key
geographic regions, lead the Company's direct marketing strategy. 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
Nuvell'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 loan applications to the Company. 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 54.7% of its loan volume for the year ended
December 31, 1999 from Direct Dealer originations, which excludes Strategic
Alliance originations.
Strategic Alliance Marketing
The Company historically used Strategic Alliances to increase the number
of loans it originated 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 offered these financial institutions and Dealer
groups the opportunity to expand their product offerings and to earn fees based
on the number of loans that were originated by the Company as a result of the
alliance.
During Fiscal 1999 and prior to implementation of the Nuvell Flow Program,
senior management of the Company sought 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 provided
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 expected the financial
institution's or Dealer group's sales personnel to support or supplement the
Company's direct marketing efforts.
In April 1996, the Company entered into its first Strategic Alliance with
First Union, the Company's first Strategic Alliance. The First Union Strategic
Alliance provided for (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 Union Auto Finance had an existing relationship, and
(ii) exclusive referral by First Union Auto Finance to the Company of all
applications for loans received from Dealers that fell below certain established
credit guidelines. In consideration for these services, First Union received a
fee on each loan financed by the Company as a result of the First Union
Strategic Alliance.
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Pursuant to the referral agreement executed in conjunction with such alliance,
funded loan referrals were without recourse to First Union. The First Union
Strategic Alliance significantly enhanced the Company's ability to further its
market penetration and increase the size of its Dealer base. For the year ended
December 31, 1999, approximately 43.5% of the loans the Company purchased were
attributable to Direct Dealer originations established as a result of the First
Union Strategic Alliance. Another 1.3% of the loans the Company purchased was
attributable to an alliance relationship with another financial institution.
In March 1999, First Union announced publicly that it was exiting the
indirect auto finance business due to realigned business strategies. As a
result, the Company's Strategic Alliance with First Union was terminated. The
Company, nonetheless, continued the relationships it established with, and
continues to actively service the First Union-related Dealers. The Company,
however, is no longer obligated to pay to First Union referral fees related to
future business obtained through those Dealers.
Portfolio Acquisition Program
To enhance the Company's growth and as a natural extension of its lines of
business, the Company purchased from time to time Non-Prime Consumer loans
meeting the Company's portfolio acquisition underwriting guidelines from
Third-Party Originators. Purchasing selected loans from Third-Party Originators
enabled 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 had the opportunity to acquire loans with six-month or longer payment
histories, reducing the Company's exposure to early loan defaults. Although the
purchase of loans from Third-Party Originators was a significant component of
the Company's overall business strategy in Fiscal 1998, the Company effectively
discontinued the Portfolio Acquisition Program in April 1999 as such purchases
aggregated $1.0 million in 1999.
Client Services
The Company has established an experienced portfolio servicing management
team and invested substantial resources in an advanced servicing system software
and hardware system for use in servicing its Servicing Portfolio. Having refined
its processes over the past year, the Company has been marketing a wide range of
portfolio services for third parties in the non-prime auto loan financing
industry including, but not limited to, loan product marketing, loan
underwriting, collections, customer service, asset remarketing and litigation
handling. The Company's marketing team plans to target financial institutions
seeking a stronger, cost-effective servicing solution for improved portfolio
performance. In October 1999, the Company entered into a servicing agreement
with Atlantic Coast Federal Credit Union ("Atlantic") whereby the Company agreed
to perform certain servicing and collection support services for certain credit
categories of Atlantic's automobile loan portfolio.
THE LOAN PURCHASE PROCESS FROM DEALERS
The Company originates loans directly from Dealers and has never made
loans directly to purchasers of automobiles. To be eligible for purchase by the
Company, a loan must have been originated by a Dealer that entered into a Dealer
Agreement. When a retail automobile buyer elects to obtain financing from a
Dealer, the Dealer takes loan application from such buyer for submission to its
financing sources. Typically, a Dealer will submit the buyer's credit
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 loans typically within 24 hours of receipt of all
required documentation.
Upon receipt of a credit 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 scoring model and
verifies the borrower's employment, residence and automobile insurance history.
If a Company loan officer determines that the credit application meets Nuvell's
underwriting criteria subject to further information or with modifications to
the originally proposed loan terms, the Company may request and review further
information and supporting documentation before it decides to finance a loan.
When presented with a credit application, the Company typically notifies the
Dealer within 75 minutes whether or not it intends to finance 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 credit underwriting process.
Typically, once an application is approved by Nuvell or, if approved
conditionally, upon fulfillment and receipt of required stipulations, Nuvell
funds the loan. The Dealer then assigns the loan to the Company, and the Company
finances the loan and then records its lien on the vehicle as agent for Nuvell.
The Company then commences servicing the loan. Under the Nuvell Flow Program,
the Company immediately assigns the loan to Nuvell without recourse.
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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 for loans originated by the Company, including
pursuant to the Nuvell Flow Program, 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 of an auto manufacturer 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 such as a personal bankruptcy. To finance a late-model or
older used automobile purchase, this borrower will generally not
qualify for a loan from a captive finance subsidiary or a bank and
must use an independent finance company.
"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.
Credit Evaluation Procedures
The Company has historically applied, and under the Nuvell Flow Program,
continues to apply uniform underwriting standards to originating loans. These
standards have been developed and refined over the course of management's years
of experience in the non-prime auto finance industry. The two most important
criteria the Company uses in evaluating a loan are the applicant's
creditworthiness and the automobile's collateral value. Dealers submit all
customer credit applications to the Company's headquarters in Jacksonville,
Florida, for consideration. The Company utilizes a Fair Issacs credit scoring
system 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 year, make and model 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 and compliance with applicable
provisions of the Nuvell Agreements.
In addition to the applicant's credit score, the Company considers
relevant information about the automobile to be purchased. The Company does not
finance automobiles that are more than five model years old or that have in
excess of 75,000 odometer miles. The maximum term of any loan purchased by the
Company other than under the Nuvell Flow Program was 60 months, and for loans
originated under such Program is 72 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 and in the case of
loans originated under the Nuvell Flow Program, with Nuvell's prior written
consent. Each loan 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. Historically, the Company has
continually reviewed and enhanced its underwriting criteria in order to evaluate
effectively the creditworthiness of Non-Prime
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Consumers and the adequacy of the financed automobile as security for a loan.
Under the Nuvell Flow Program, the Company assigns loans to Nuvell without
recourse. 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
During the year ended December 31, 1999, the Company reviewed 69,945 loan
applications, of which 29.6% were approved or conditionally approved and 6.55%
were funded. Conditionally approved applications were applications by Non-Prime
Consumers whose underlying credit were generally acceptable to the Company but
with respect to which the Company required a modification of terms (typically
monthly payment levels) prior to final credit approval.
Portfolio Acquisition Underwriting
The Company's Portfolio Acquisition Program sought to establish on-going
relationships with Third-Party Originators from which the Company may have
purchased select portions of their loan portfolio. The Company considered the
most important factor in establishing such a relationship to be the Third-Party
Originator's underwriting criteria. The Company focused on purchasing loans from
a Third-Party Originator whose credit scoring and other underwriting guidelines
produced borrowers whose credit characteristics matched those of the Company's
Dealer-originated borrowers as closely as possible.
Management valued each prospective loan portfolio based on a pricing
model, which estimated the value of the loans in the portfolio given certain
assumptions (e.g., the discount to the face value of the loan). The Company
normally acquired portfolios at a discount, although in some instances, because
of the high quality of the portfolio, it paid face value for a portfolio.
Management did 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 have slightly exceeded the face value of the purchased
loans. The Company's expenses necessary to generate Portfolio Acquisition
Program loans, however, were generally lower than those incurred to generate
loans through Direct Dealer Originations or Strategic Alliances.
The Company has not pursued Portfolio Acquisitions since April 1999, and
does not intend to do so in the foreseeable future.
Contract Servicing and Administration
Prior to July 1997, the Company 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 department.
On June 19, 1998, the Company converted its Servicing Portfolio computer
data from its outside servicer's computer systems to the CLASS System. As a
result, the Company is now performing all collection functions with respect to
its Servicing Portfolio.
Management Information Systems
As referred to above, the Company has installed CLASS. CLASS is consumer
finance software system composed of separate modules integrating loan
origination, loan servicing, operational accounting, portfolio performance
analysis and loan securitization. The Company's computer systems provide the
Company with the ability to track all loan details and identify trends among
customers. This information provides risk management analysis capabilities,
thereby refining the credit underwriting process and mitigating the risk of
loans purchased from unacceptably higher risk customers.
- 8 -
<PAGE> 9
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.
<TABLE>
<CAPTION>
1996 1997 1998
------- ----------------------------------- ------------------------------------
As of Dec. Mar. June Sep. Dec. Mar. June Sep. Dec.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumulative
number of
loans
purchased......... 10,675 13,553 17,382 21,589 26,078 30,165 32,741 33,054 33,466
Cumulative
average loan
amount
funded (in
thousands)........ $11,999 $12,026 $11,826 $11,842 $11,925 $11,882 $11,974 $11,986 $11,996
Weighted
average initial
annual
percentage
rate.............. 18.67% 18.80% 18.97% 19.04% 19.01% 19.05% 19.01% 19.09% 19.09%
Weighted
average initial
term
(months).......... 51.7 53.6 53.3 53.3 53.4 53.4 54.1 54.7 54.8
Cumulative
average initial
yield............. 21.80% 21.51% 21.25% 21.06% 20.87% 20.77% 20.77% 20.79% 20.81%
<CAPTION>
1999
------------------------------------
As of Mar. June Sep. Dec.
<S> <C> <C> <C> <C>
Cumulative
number of
loans
purchased......... 34,483 35,545 36,893 38,145
Cumulative
average loan
amount
funded (in
thousands)........ $12,037 $12,074 $12,146 $12,218
Weighted
average initial
annual
percentage
rate.............. 19.11% 19.02% 18.94% 18.88%
Weighted
average initial
term
(months).......... 55.1 55.5 56.1
56.71
Cumulative
average initial
yield............. 20.78% 20.74% 20.71% 20.69%
</TABLE>
The change in weighted average initial annual percentage rate over the
periods shown are due to changes in the product mix offered by the Company and
the states where such products are offered. Consumer finance laws of certain
states allow for varying percentage rates. The cumulative average initial yield
has decreased over the periods shown relative to changes in the product mix
offered by the Company. Certain of the Company's products have historically
carried varying degrees of dealer discount, which has impacted the yield as
shown. The increase in weighted average initial term is due to longer term
products being made available by the Company.
Geographic Distribution of Loans
As of December 31, 1999, the Company purchased loans originated from
Dealers in 44 states and the aggregate loan balance of the six states having the
largest concentrations of business of the Company totaled 79% of the Servicing
Portfolio compared to 76% of the Servicing Portfolio as of December 31, 1998. In
1999, the Company focused primarily on increasing its volume of business in the
states in which it then operated.
The list below indicates the geographic distribution of loans outstanding
as of December 31, 1999 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>
North Carolina............................ $ 42,662 23.17% 4,158
Georgia................................... 39,462 21.43 4,411
South Carolina............................ 20,546 11.16 1,994
Texas..................................... 16,569 9.00 1,530
California................................ 13,032 7.08 1,659
Florida................................... 12,906 7.01 1,669
Virginia.................................. 7,790 4.23 906
Illinois.................................. 5,239 2.85 469
Tennessee................................. 5,068 2.75 554
Maryland.................................. 3,721 2.02 410
All other states (1)...................... 17,148 9.30 2,079
-------- ------ -------
Total................................ $184,143 100.00% 19,839
======== ====== =======
</TABLE>
- ------------------------
(1) No state other than those listed represents more than 2% of the Servicing
Portfolio.
- 9 -
<PAGE> 10
Securitization Program
The Company historically funded its purchases of loans primarily through a
two-step asset securitization program consisting of (i) the securitized
warehousing of all of its loans through daily sales to the Master Trust financed
by purchases of B Certificate interests in such trust by First Union in
connection with the Master Trust Securitization Credit Facility, followed by
(ii) the transfer of such warehoused loans from time to time by the Master Trust
to a Permanent Securitization, thereby creating renewed availability of capital
from the Master Trust Securitization Credit Facility.
Specifically, using the Master Trust Securitization Credit Facility, the
Company sold loans on a daily basis to Funding Trust II, which then sold 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, issued
two classes of investor certificates: the "Class B Certificates," which were
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 provided 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 owned 100% of the outstanding Class
B Certificates in connection with its role as lender under the Master Trust
Securitization Credit Facility. Collectively, the restricted cash account and
the Class C Certificate portion of loan principal that collateralized the Master
Trust were 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 Company's balance sheet as Retained Interest in
Securitizations. See Note 13 of Notes to Financial Statements - Related Party
Transactions, for a discussion of relationships with First Union, and Note 14 of
Notes to Financial Statements for a discussion of Subsequent Events.
On February 22, 2000, National Financial Auto Funding Trust II defaulted
on its obligation to deposit approximately $5 million in cash collateral to the
Master Trust Over-Collateralization Account, as required under the Master Trust
Securitization Credit Facility, thereby giving rise to First Union's decision to
terminate future funding availability under the facility and to commence
amortizing the outstanding amounts owed to First Union under the facility.
In conjunction with such default, First Union agreed to waive until April
21, 2000 certain rights to liquidate the portfolio of approximately $58.9
million of auto loans that secure its loans to Funding Trust II, thereby
permitting the Company time to pursue various strategic options, including a
sale of such portfolio. On March 30, 2000, Funding Trust II, as Seller, the
Company, as Guarantor, and Nuvell entered into the Sale Agreement whereby a
substantial number of the loans previously sold to the Master Trust under the
Master Trust Securitization Credit Facility in the approximate amount of $47
million were sold by Funding Trust II to Nuvell after such loans had been
acquired by Funding Trust II from the Master Trust by an Assignment Agreement
dated as of April 5, 2000. The Company, pursuant to the Sale Agreement, will
retain servicing of substantially all of such loans under the terms and
provisions of the Servicing Agreement. Approximately $43.9 million of the
proceeds from the sale of such loans were then used to pay in full the Class B
Certificates held by First Union. (See Note 4 of Notes to Financial
Statements - Debt) The Company anticipates to receive additional cash from the
transaction and release of funds previously required to be held in reserve of
approximately $6.0 million, which will be used for general corporate purposes,
including the possible payment of certain of the debt of the Company. In related
developments, First Union terminated its commitment to purchase up to $20
million of subordinated asset-backed debt securities in connection with the
Company's future Permanent Securitizations and converted to a 48 month term loan
(requiring equal monthly principal payments) of $2.5 million outstanding under a
revolving working capital facility secured by the Company's ESRs.
Since the Company's inception through termination of funding availability
through the Master Trust Securitization Credit Facility on February 23, 2000,
the Master Trust transferred an aggregate of $337.4 million of its receivables
through Permanent Securitizations effected pursuant to two private placements
and three public offerings of asset-backed securities. Payment of principal and
interest on $300.4 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 ("Moody's"), respectively. The
proceeds of each Permanent Securitization transaction were applied by the Master
Trust to repay 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.
- 10 -
<PAGE> 11
The Company was initially appointed and continues to act as master
servicer for the loans sold to each of the trusts (the "Securitization Trusts")
formed as a result of the Permanent Securitization transitions mentioned above.
As master servicer the Company is eligible to receive monthly fees at base rates
of 2.0% to 3.0% 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 loans sold to the Permanent Securitization Trusts (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. Historically, the Company's Permanent Securitizations
have been credit enhanced by FSA, the financial guaranty insurer. The insurance
agreements generally provide that the Company is not entitled to receive excess
cash flows unless the loans in the pool meet certain performance requirements.
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 consumer
finance companies, commercial banks, insurance companies, 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 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.
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,
1999, the Company maintained contractual relationships with Dealers located in
35 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 business operations in 18
of the 35 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, state, and in the case of the Navajo Nation, Indian
reservation consumer protection laws in certain Southwestern States, and related
regulations impose substantive disclosure requirements upon lenders and
servicers involved in automobile financing. Such federal laws and regulations
include the Truth-in-Lending Act and Regulation Z, promulgated thereunder by the
Federal Reserve Board, the Equal Credit Opportunity Act and Regulation B, also
promulgated thereunder by the Federal Reserve Board, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Federal Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, the Soldiers' and Sailors' Civil
Relief Act and similar state and local collection acts, including the Navajo
Nation Consumer Unfair Practices 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 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, 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 with such laws and regulations. In addition, certain states
impose plain-language restrictions and disclosure requirements on the textual
provisions of automobile retail installment sales contracts and related
documents in the context of
- 11 -
<PAGE> 12
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 comply with such requirements.
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 seek recoveries from, or assert defenses against, the
Company if such laws have been violated.
In the event of default by an obligor, the Company possesses all the
remedies of a secured party under respective state variations of 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 repossess.
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 amount of any such judgment such as an
amount not in excess of the initial sale price of the automobile. Certain state
laws require the secured party to remit the surplus to any holder of a
subordinate 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 automobile.
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.
Employees
At December 31, 1999, the Company had 173 full and part-time employees in
the following areas: executive/administration (13), sales (21), finance (11),
originations (29), MIS (14) and servicing (85), none of whom was represented by
a union.
ITEM 2. PROPERTIES.
The Company's principal executive offices, where all loan origination,
servicing and collection functions are conducted and managed, are located at
10302 Deerwood Park Boulevard, Suite 100, Jacksonville, Florida 32256. The
Company currently leases approximately 44,000 square feet of office space at
such location. The Company believes its properties are adequate for its
currently anticipated future growth.
ITEM 3. LEGAL PROCEEDINGS.
On October 22, 1998, Pearl Peckerman, I.R.A., on behalf of herself and all
others similarly situated, filed a putative class-action complaint (the
"Peckerman Complaint") in the United States District Court for the Southern
District of Florida against the Company and certain current and former officers
and directors of the Company, as well as the co-lead underwriters of the
Company's initial public offering. On December 4, 1998, Harvey Rooks, Rachel
Rooks and Joyce Bornstein, on behalf of themselves and all others similarly
situated, filed a putative class action complaint (the "Rooks Complaint") in the
United States District Court for the Southern District of Florida against the
Company and certain current and former officers and directors of the Company, as
well as the co-lead underwriters of the Company's initial public offering.
- 12 -
<PAGE> 13
On February 5, 1999, the United States District Court for the Southern
District of Florida ordered that these actions be consolidated. Thereafter, on
July 29, 1999, the plaintiffs filed an amended and consolidated class-action
complaint (the "Amended and Consolidated Complaint") styled In re National Auto
Finance Company, Inc. Securities Litigation, Case Number 98-8767-CIV-Hurley.
The individual lead plaintiffs (the "Lead Plaintiffs") in the Amended and
Consolidated Complaint are Pearl Peckerman, Harvey Rooks, Rachel Rooks, Joyce
Bornstein, Emanuel Androulidakis, Frank Rosetti, Thomas R. Bopp, Noel V.
Brodtman, Jr., Susan H. Jacobsen, Leonard R. Carothers, Fred Gaunce, Duane
Morris, Ralph Casey, Hiram Graham, and Vance Prigge. In addition, the action was
instituted on behalf of a putative class of plaintiffs consisting of those
persons who purchased or otherwise acquired stock of the Company between January
29, 1997 and April 15, 1998 inclusive, excluding the Company, its subsidiaries
and affiliates, the individual defendants, members of the immediate families of
each of the individual defendants, and the successors and assigns of any
defendant. Other than the Company, the defendants to the action are: Gary L.
Shapiro, Keith B. Stein, Roy E. Tipton, Kevin G. Adams, Edgar A. Otto, Peter
Offerman, Morgan M. Schussler, Steven L. Gurba, and the co-lead underwriters of
the Company's January 1997 initial public offering, Raymond James & Associates,
Inc. and Cruttenden Roth, Inc., (collectively, "the Underwriter Defendants').
The Amended and Consolidated Complaint sets forth allegations surrounding
the Company's 1997 restated financial statements, the interpretation of FASB No.
125 and the relationship between the Company and its prior outside service
provider, Omni Financial Services of America, Inc. The plaintiffs' allegations
of liability are based on various theories of recovery, including alleged
violations of Section 11, 12(a)(2), 15 and 20(a) of the Securities Act of 1933,
as amended, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of
1934, as amended. The plaintiffs are seeking compensatory damages as the court
deems appropriate.
The Company acknowledged its contracted obligation to indemnify the
Underwriter Defendants pursuant to the underwriting agreement entered into with
the Company in connection with its initial public offering with respect to their
legal and other costs incurred in this litigation, including but not limited to
any potential judgment against them.
On September 13, 1999, the Lead Plaintiffs filed a motion for class action
certification. Also, on September 13, 1999, the Underwriter Defendants filed a
motion to dismiss the Amended and Consolidated Complaint. On September 20, 1999,
the Company, as well as certain other individual defendants, and Gary L.
Shapiro, individually, filed a motion to dismiss Lead Plaintiffs' Amended and
Consolidated Complaint. In conjunction with such motions, the Company, as well
as certain other individual defendants, filed a request for oral argument.
Litigation is subject to many uncertainties, and it is possible that the
above action could be decided unfavorably. The Company has entered into
discussions in an attempt to settle the pending litigation if it is in the best
interests of the Company's stockholders to do so, but can give no assurance that
such negotiations will result in settlement. Management is presently unable to
make a meaningful estimate of the amount or range of loss that could result from
an unfavorable outcome or settlement of the pending litigation. It is possible
that the Company's business, volume, results of operations, cash flows or
financial position could be materially affected by an unfavorable outcome or
settlement of the pending litigation.
The Company has a directors' and officers' liability insurance policy that
applies to this litigation with a liability limit of $5 million; and two excess
policies with liability limits of $2 million and $3 million, respectively. Each
insurer has raised certain coverage defenses or denied coverage. The Company has
engaged in and will continue to pursue appropriate strategies to protect and
preserve its claims of full coverage under all such policies.
- 13 -
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted during 1999 to a vote of security
holders, through the solicitation of proxies or otherwise:
(a) The regular annual meeting of stockholders of National Auto Finance
Company, Inc. was held on September 14, 1999.
(b) Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitations. All of management's nominees
for directors were elected.
(c) The following items were submitted to a vote of security holders as
follows:
(1) Amendment to Certificate of Incorporation.
To increase the number of authorized shares of the Company's
Common Stock from twenty million (20,000,000) to forty-four
million (44,000,000).
<TABLE>
<S> <C>
FOR 11,111,361
AGAINST 57,225
ABSTAIN 36,600
</TABLE>
(2) Election of two (2) person as Class II directors of National
Auto Finance Company, Inc. for terms expiring at the 2001
annual meeting of stockholders and election of two (2) persons
as Class III directors thereof for terms expiring at the 2002
annual meeting of stockholders.
<TABLE>
<CAPTION>
Class II FOR WITHHELD
---------------- ---------- --------
<S> <C> <C>
Robert R. Gould 11,153,911 54,275
David Benson 11,154,411 53,775
Class III
----------------
Joseph P. Donlan 11,154,411 53,775
David W. Young 11,154,411 53,775
</TABLE>
(3) AMENDMENT TO THE 1996 SHARE INCENTIVE PLAN.
To increase the number of shares of Common Stock available for
the grant of options, stock appreciation rights, stock awards,
performance awards and stock units (collectively, the
"Benefits") from five hundred thousand (500,000) to four
million (4,000,000) and to increase the maximum number of
shares of Common Stock which may be granted to any individual
participant under the 1996 Share Incentive Plan (the "1996
Plan") to two million (2,000,000).
<TABLE>
<S> <C>
FOR 9,237,093
AGAINST 79,125
ABSTAIN 20,600
</TABLE>
(4) APPOINTMENT OF INDEPENDENT AUDITORS.
To ratify the selection of BDO Seidman, LLP as independent
auditors to audit the Company's financial statements for the
year ending December 31, 1999.
<TABLE>
<S> <C>
FOR 11,191,636
AGAINST 13,250
ABSTAIN 3,300
</TABLE>
- 14 -
<PAGE> 15
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"), under the symbol "NAFI."
On August 12, 1998, NASDAQ advised the Company that unless the closing bid
price of the Company's Common Stock allowed for the maintenance of a greater
than $5 million public float, for at least 10 consecutive trading days during
the period ending on November 13, 1998, the Company's Common Stock would be
delisted on November 17, 1998. Further, on September 2, 1998, NASDAQ advised the
Company that if the Company's Common Stock did not trade at a minimum bid price
of $1.00 for a minimum of ten consecutive trading days, by December 1, 1998, the
Company's Common Stock would be delisted on December 3, 1998. Such delisting was
delayed until January 21, 1999, when the Company appeared before the NASDAQ
Listing Qualifications Panel ("Panel") to permit the Company the opportunity to
provide details of its business plan and restructuring, in furtherance of a
request for additional time to enable the Company to reestablish compliance with
the NASDAQ listing requirements. The Company was notified on March 9, 1999 of
the Panel's determination to delist the Company's Common Stock securities from
NASDAQ effective as of the close of business on March 9, 1999. The delisted
Common Stock shares were immediately eligible for trading on the OTC Bulletin
Board and are so traded today.
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, 1999:
<TABLE>
<CAPTION>
Common Stock Market Prices
--------------------------------------------
1999 1st Q 2nd Q 3rd Q 4th Q
------ ----- ----- -----
<S> <C> <C> <C> <C>
High $ .44 $ .34 $ .44 $ .84
Low $ .09 $ .09 $ .25 $ .25
1998 1st Q 2nd Q 3rd Q 4th Q
------ ----- ----- -----
High $4.25 $3.38 $1.13 $0.31
Low $2.00 $0.75 $0.25 $0.06
1997 1st Q* 2nd Q 3rd Q 4th Q
------ ----- ----- -----
High $9.88 $7.63 $7.50 $7.50
Low $7.00 $5.50 $6.13 $2.38
</TABLE>
*January 30 - March 31, 1997
(b) Holders.
As of December 31, 1999, there were approximately 63 registered holders of
the Common Stock.
(c) Dividends.
The Company has never paid cash dividends on its Common Stock and
currently has no intention of paying cash dividends on the Common Stock.
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.
- 15 -
<PAGE> 16
(d) Recent sales of unregistered securities.
On April 7, 1999, pursuant to the Company's comprehensive financial
restructuring (the "Restructuring") (see Note 5 of Notes to Financial Statements
- - Comprehensive Financial Restructuring), 7,071,429 shares of Common Stock were
issued to The Progressive Investment Company, Inc., and PC Investment Company,
its affiliate, (together "Progressive") The 1818 Mezzanine Fund, L.P. (the "1818
Fund"), The Structured Finance High Yield Fund, LLC ("SFHY") and Manufacturers
Life Insurance Company (U.S.A.) ("ManuLife") (collectively, the "Senior
Subordinate Noteholders") as consideration for waivers and amendments granted to
the Company, and 1,178,571 additional shares of Common Stock were issued to
those Noteholders that also purchased Common Stock of the Company at the time of
their debt investment, in exchange for the execution and delivery of full and
complete releases of any claims arising by virtue of those Noteholders' equity
investment.
ITEM 6. SELECTED FINANCIAL DATA.
The income statement data for the years ended December 31, 1999, 1998,
1997, 1996 and 1995 and the balance sheet data as of December 31, 1999, 1998,
1997, 1996 and 1995 are derived from, and are qualified by reference to, the
audited financial statements of the Company (and from inception through January
29, 1997, it's 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 Financial Statements and notes
thereto included elsewhere in this Form 10-K.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)
- 16 -
<PAGE> 17
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
----------- ---------- ---------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Securitization related income (loss) $ 7,630 $ (13,531) $ (323) $ 13,564 7,367(1)
Servicing income 5,719 6,424 3,437 866 219
Interest income 1,443 2,399 817 258 11
Other income 716 377 214 103 214(3)
----------- ---------- ---------- -------- --------
Total revenue 15,508 (4,331) 4,145 14,791 7,811
----------- ---------- ---------- -------- --------
Servicing expenses 3,285 6,262 5,944 1,291 371
Interest expense 8,489 8,417 1,638 1,204 498
Salaries and employee benefits 5,087 7,705 6,346 3,634 1,666
Direct loan acquisition expenses 914 1,520 3,591 1,924(2) 562(2)
Depreciation and amortization 1,679 802 743 492 183
Other operating expenses 5,624 4,544 3,602 1,755(2) 1,250(2)
----------- ---------- ---------- -------- --------
Total expenses 25,078 29,250 21,864 10,300 4,530
----------- ---------- ---------- -------- --------
Income (loss) before income taxes and
extraordinary item (9,570) (33,581) (17,719) 4,491 3,281
Income taxes -- -- -- -- --
----------- ---------- ---------- -------- --------
Income (loss) before extraordinary item (9,570) (33,581) (17,719) 4,491 3,281
Extraordinary loss -- -- (720) -- --
----------- ---------- ---------- -------- --------
Net income before preferred stock
dividends (9,570) (33,581) (18,439) 4,491 3,281
Preferred stock dividends (160) (160) (148) -- --
----------- ---------- ---------- -------- --------
Net income (loss) applicable to common
stockholders $ (9,730) $ (33,741) $ (18,587) $ 4,491 $ 3,281
=========== ========== ========== ======== ========
PER SHARE DATA:
Loss per common share before extraordinary
item -- basic and diluted $ (.64) $ (3.73) (2.52)
Extraordinary item -- -- (0.10)
----------- ---------- ----------
Loss per common share -- basic and diluted $ (.64) $ (3.73) $ (2.62)
=========== ========== ==========
Weighted average shares outstanding --
basic and diluted 15,110,899 9,031,000 7,087,000
=========== =========== ==========
PRO FORMA SHARE DATA (UNAUDITED):
Income (loss) 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 SHARE:
Basic and diluted $ 0.66 0.52(5)
======== ========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (6)
Basic and diluted 4,230 4,230
======== ========
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
<CAPTION>
Year Ended December 31,
(dollars in thousands)
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash $ 3,576 $ 9,540 $ 26,647 $ 5,066 $ 824
Retained interest in securitizations 35,058 34,117 31,569 23,404 10,313
Total assets 48,776 50,732 64,875 31,201 12,003
Senior Subordinated Notes 56,395 53,578 34,546 12,000 --
Junior Subordinated Notes 2,181 1,940 1,940 7,122 7,457
Total debt 58,576 55,518 36,486 19,122 7,457
Total liabilities 64,481 59,096 41,581 21,650 8,556
Mandatorily Redeemable Preferred Stock 2,576 2,415 2,336 -- --
Partners' preferred equity -- -- -- 2,295 482
Partners' equity -- -- -- 7,256 2,965
Stockholders' equity (capital deficit) $ (18,281) $ (10,779) $ 20,958 $ -- $ --
OTHER DATA:
Number of loans purchased during year 4,683 7,388 15,403 6,789 3,586
Principal balance of loans purchased
during year $ 67,743 $ 95,911 $ 187,383 $ 84,981 $ 45,972
Cumulative number of loans purchased 38,145 33,466 26,078 10,675 3,886
Cumulative principal balance of loans
purchased $ 483,442 $ 415,709 $ 322,156 $ 134,773 $ 49,792
Number of outstanding loans at end of
year 19,526 21,795 20,886 9,063 3,586
Principal balance of the Servicing
Portfolio at end of year $ 180,677 $ 211,686 $ 226,846 $ 102,852 $ 43,145
Delinquencies as a percentage of the
Servicing Portfolio (7) 8.73% 7.65% 9.75% 7.95% 5.45%
Repossession inventory as a percentage
of the Servicing Portfolio (8) 1.70% 1.74% 2.18% 2.20% 1.28%
Net chargeoffs during the year
as a percentage of the
average Servicing Portfolio (9) 7.45% 7.85% 6.34% 4.17% 2.76%
</TABLE>
(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, the Master Trust accounts for all reserves as loans were
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 years
ended December 31, 1998 and 1997. The number of shares utilized represents
the number of shares granted to the Company's predecessor, National Auto
Finance Company LP 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-off includes the remaining principal balance of loans written
off, after the application of the net proceeds from the liquidation of the
repossessed automobiles.
- 18 -
<PAGE> 19
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
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 specialty consumer finance company that has, since
February 2000, focused its business strategy on performing a wide range of loan
portfolio services for third parties in the non-prime auto loan financing
industry including, but not limited to, loan product marketing, loan
underwriting, collections, customer service, asset remarketing, and litigation
handling, in return for both origination and servicing fees.
The Company projects through the Nuvell Flow Program and scheduled cash
releases from the Retained Interest in Securitizations, sufficient cash flow to
operate over the next twelve months.
The Company historically funded 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 to the Master Trust
followed by (ii) the transfer of such warehoused loans from time to time by the
Master Trust 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 moneys 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 and other 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"). Pursuant to SFAS No. 125,
the Company periodically measures the fair value of its Retained Interest in
Securitizations based upon the performance of its loan portfolio. As a result,
during the fourth quarter of fiscal 1998 the Company increased the cumulative
net loss estimate from 12.88% applied during and as of the first, second and
third quarters of fiscal year 1998 to 14.00% for the years ended December 31,
1998 and 1999. The increase in the cumulative net loss estimate resulted
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 loss timing, compared to the rates of such items estimated in
earlier periods. These factors were impacted significantly as a result of the
Company's conversion of its loan servicing to an in-house servicing platform in
June of 1998. Performance trends for the year ended December 31, 1999 indicate
that the negative impact of the immediate post conversion period has stabilized.
These changes are a significant factor in the securitization income realized by
the Company for the year ended December 31, 1999. See "Results of Operations."
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. 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.
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. 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 flow thereafter will be released to
the Company on a monthly basis. Any remaining cash in the Cash
- 19 -
<PAGE> 20
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 actual loss and prepayment
experience of the Servicing Portfolio. See Note 3 of the Notes to Financial
Statements - Retained Interest in Securitizations.
The table below sets forth-certain information relating to the Company's loan
purchasing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
------- -------- --------
(dollars in thousands, except number of loans)
<S> <C> <C> <C>
Number of loans purchased ............................. 4,683 7,388 15,403
Principal balance of loans purchased .................. $67,743 $ 95,911 $187,383
Principal amount of loans funded (1) .................. 64,480 90,490 182,900
Securitization related income (loss), net of
writedown of retained interest in
securitizations, if any ......................... 7,630 (13,531) (323)
Servicing income ...................................... 5,719 6,424 3,437
</TABLE>
- ------------------------
(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.
Results of Operations
The Company reported a net loss applicable to common stockholders of $9.7
million for the year ended December 31, 1999, compared to a $33.8 million net
loss for the year ended December 31, 1998 and a $18.6 million net loss for the
year ended December 31, 1997. The reduction in net loss in 1999 is primarily the
result of a stabilized loan portfolio, a relatively accurate prediction of the
prepayment and defaults that would occur in 1999 by the December 31, 1998
valuation of the ESR's (see "Securitization Related Income Loss"), and a related
decrease in "Average Servicing Portfolio" for the year ended December 31, 1999.
The net loss in 1998 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 increased
cumulative net loss estimate from 12.88% applied during and as of the first
three quarters of fiscal year 1998 to 14.00% during and as of the fourth quarter
ended December 31, 1998; and (b) start-up and duplicative expenses, associated
with the Company's transition from an outside servicer to in-house servicing,
including the opening of its service center in Jacksonville, Florida.
Securitization Related Income (Loss)
For the year ended December 31, 1999, the Company recognized
securitization related income of $7.6 million, which includes a $2.1 million
writedown of Retained Interest in Securitizations resulting from the sale of
approximately $47 million of Master Trust loans on April 5, 2000 (See Note 14 of
the Notes to Financial Statements -- Subsequent Events)), compared to a "net
securitization related" loss of $13.5 million for the year ended December 31,
1998 (due to a 1998 $23.1 million writedown of Retained Interest in
Securitizations resulting from the reasons described in "Overall-Revenues"
above) and a net securitization related loss of $323,000 for the year ended 1997
(due to an increase in estimated cumulative net losses from 7% in 1996 to 12.88%
in 1997 and an increase in the discount rate applied to present value the
Company's Retained Interest in Securitizations from 11% in 1996 to 14% in 1997).
The Company's loan purchasing volume decreased significantly during the second
half of 1998 and first half of 1999 as the Restructuring was being completed.
See Note 5 of Notes to Financial Statements - Comprehensive Financial
Restructuring. In the second half of 1999, the Company sought to re-establish
its loan purchasing volume at a deliberate pace with emphasis on more stringent
credit and collateral standards. The Company purchased 4,683 loans, having a
principal balance of $64.5 million, during the year ended December 31, 1999,
compared to 7,388 loans, having a principal balance of $95.9 million, for the
year ended December 31, 1998 and 15,403 loans having a principal balance of
$187.4 million for the year ended December 31, 1997. These loan purchases
consisted of 4,596 loans purchased from Dealers ($66.7 million principal
balance) and 87 loans purchased from Third-Party Originators ($1.0 million
principal balance) during the year ended December 31, 1999. This compares to
5,348 loans purchased from Dealers ($74.6 million principal balance) and 2,029
loans purchased from Third-Party Originators ($21.3 million principal balance)
during the year ended December 31, 1998 and 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.
- 20 -
<PAGE> 21
The Company's gain on sale model includes an estimated cumulative net loss
factor 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 Securitization ("ESR"). Included in reported securitization
related income of $7.6 million for the year ended December 31, 1999 was
approximately $1.3 million related to a net increase in the valuation of the
ESR's. The adjustment resulted from lower default rates and securitization fees
during the year ended December 31, 1999 than previously estimated. In 1998, the
servicing of the Company's Servicing Portfolio experienced significant
disruption resulting from the conversion from an out-sourced servicer to an
in-house servicing platform on June 19, 1998. The Company believes that the
conversion and resulting servicing disruption is largely responsible for the
increase in delinquency and net loss experience of the Servicing Portfolio
throughout the year ended December 31, 1998. In response thereto, the Company's
estimates for loan loss factor was increased from 12.88% applied during and as
of the first three quarters of fiscal year 1998 to 14.00% during and as of the
fourth quarter ended December 31, 1998 and for the year ended December 31, 1999.
The Company initiated servicing for loans more than 30 days past due in July
1997, and initiated servicing of the entire Servicing Portfolio on October 1,
1997. See discussion of delinquency rates under "Loan Loss and Delinquency
Experience."
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
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.
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% to 3.0% 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, 1999, 1998, and 1997 was $5.7 million, $6.4 million and
$3.4, respectively. The decrease in servicing income in 1999 as compared to 1998
was attributable to the decrease in the outstanding Servicing Portfolio balance
during the year ended December 31, 1999.
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, 1999, 1998 and 1997 was $2.1 million,
$2.8 million and $1.0, respectively. The decrease in other income in 1999 as
compared to 1998, was primarily the result of a decrease in operating cash
invested in money market accounts. The increase in other income in 1998 as
compared to 1997 was primarily attributable to interest earned on the
outstanding cash spread account balances and operating cash invested in money
market accounts.
Total Expenses
The Company reported total expenses for the years ended December 31, 1999,
1998 and 1997 of $25.1 million, $29.3 million and $21.9 million, respectively.
These expenses consisted primarily of interest expense on long-term
indebtedness, including the Company's Senior Subordinated Notes, salaries and
employee benefits, servicing expenses and direct loan acquisition expenses.
Total expenses, as a percentage of the average principal balance of the
Servicing Portfolio, decreased from 13.1% as of December 31, 1998 to 12.9% as of
December 31, 1999.
Total servicing expenses for the years ended December 31, 1999, 1998
and 1997 were $3.3 million, $6.3 million and $5.9 million, respectively.
Servicing expenses were significantly lower during the year ended December 31,
1999 as compared to the year ended December 31, 1998 due to the Company
incurring both internal servicing expenses and external servicing expenses paid
as fees to an outside servicer in 1998 during a transitional phase during which
the Company implemented a transition from the outside servicer to in-house
servicing. Such transition period, occurred through the conversion date of June
19, 1998. Additionally, the Company further reduced its servicing expense
structure during the year ended December 31, 1999. The Company's Servicing
Portfolio decreased from a $226.8 million Servicing Portfolio, representing
20,886 outstanding loans as of December 31, 1997, to a $211.8 million Servicing
Portfolio, representing 21,795 outstanding loans, as of December 31, 1998 and a
$180.7 million Servicing Portfolio, representing 19,526 outstanding loans, as of
December 31, 1999.
- 21 -
<PAGE> 22
Interest expense for the years ended December 31, 1999, 1998 and 1997 was
$8.5 million, $8.4 million and $1.6 million, respectively. The increase in
interest expense for each year resulted from the increasing outstanding
long-term debt balances of the Company, including in particular the Senior
Subordinated Notes.
Salaries and employee benefits for the years ended December 31, 1999, 1998
and 1997 were approximately $5.1 million, $7.7 million and $6.3 million,
respectively. These expenses were lower during the year ended December 31, 1999
as compared to the year ended December 31, 1998 due to the Company reducing its
staffing levels during the year ended December 31, 1999. During the year ended
December 31, 1998, the Company incurred duplicative salaries and benefits
expenses associated with its servicing conversion and phased move of sales,
originations and corporate support staff from Boca Raton, Florida to
Jacksonville, Florida. The increase in expense in 1998 as compared to 1997
resulted from the increase in the number of full-time employees, from 90 as of
December 31, 1997 to 159 as of December 31, 1998. These expenses consisted
primarily of salaries and wages, performance incentives, employee benefits and
payroll taxes. The Company 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, 1999,
1998 and 1997 were $.9 million, $1.5 million and $3.6 million, respectively.
These expenses consisted primarily of Dealer incentive payments, fees paid to
Strategic Alliance partners, broker fees, credit information fees and telephone
expenses. The expenses declined primarily as a result of the decrease in the
volume of loans acquired by the Company for the year ended December 31, 1999 as
compared to the year ended December 31, 1998 and the cessation of the First
Union Strategic Alliance in April 1999.
Other operating expenses for the years ended December 31, 1999, 1998, and
1997 were $5.6 million, $4.5 million and $3.6 million, respectively. These
expenses consisted primarily of telecommunications, travel, professional fees,
insurance expenses, MIS expenses, incremental rent and travel. Additionally,
other expenses include an adjustment to reflect a cumulative change in
accounting principle. Balances representing $474,144 of start-up costs were
written off in accordance with adoption of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" for the year ended December 31,
1998. These costs had been capitalized in conjunction with the Company
establishing its servicing center facility in Jacksonville, Florida.
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 Company
generally charges 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
uncollectible.
The following table summarizes the Company's loan loss experience:
<TABLE>
<CAPTION>
As of December 31
---------------------------------------------------------
1999 1998 1997 1996
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Average Servicing Portfolio during period ............. $ 194,485 $ 219,266 $ 158,737 $ 69,025
========= ========= ========= =========
Gross charge-off ...................................... 27,171 28,852 17,355 6,313
Liquidation proceeds from repossessed assets .......... (12,679) (11,633) (7,294) (3,435)
--------- --------- --------- ---------
Net charge-off ........................................ $ 14,492 $ 17,219 $ 10,061 $ 2,878
========= ========= ========= =========
Net charge-off as a percentage of average Servicing
Portfolio ......................................... 7.45% 7.85% 6.34% 4.17%
========= ========= ========= =========
</TABLE>
During June 1998, the Company converted its Servicing Portfolio computer
data from its outside servicer's computer system to an internal system. As a
result, since October 1998 the Company has been performing all collection
functions with respect to its Servicing Portfolio. After conversion, the Company
experienced an increase in the delinquency of its portfolio that occurred in or
about August 1998. Since initiating collections on its own internal servicing
system in June 1998, the resulting percentage of the outstanding principal
balance of loans that were more than 30 days past due decreased to approximately
7.65% of the Company's Servicing Portfolio as of December 31, 1998, from a high
of 11.5% as of July 31, 1998, and was approximately 8.73% as of December 31,
1999. The increase of delinquencies as a percentage of the outstanding principal
balance of the Servicing Portfolio in 1999 was primarily due to the decrease of
the size of the Servicing Portfolio compared to 1998.
- 22 -
<PAGE> 23
The securitization income 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) 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.
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 tenth day following the due date. The
following table summarizes the delinquency and repossession experience with
respect to the Servicing Portfolio:
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------
1999 1998 1997 1996
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Period of delinquency
31 to 60 days ...................................... $ 9,062 $10,577 $14,316 $ 6,104
61 to 90 days ...................................... 3,347 3,160 3,458 1,596
91 days or more .................................... 3,672 2,452 4,343 487
------- ------- ------- -------
Total delinquencies (1) ............................... $16,081 $16,189 $22,117 $ 8,187
======= ======= ======= =======
Total delinquencies as a percentage of the
Servicing Portfolio ................................ 8.73% 7.65% 9.75% 7.95%
Principal balance of loans related to repossession
inventory .......................................... $ 3,121 $ 3,692 $ 4,935 $ 2,266
Repossession inventory as a percentage of the
Servicing Portfolio ................................ 1.70% 1.74% 2.18% 2.20%
</TABLE>
(1) Total delinquencies include loans delinquent in payments more than thirty
days, loans in bankruptcy, and loans related to repossession inventory.
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,
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 monthly 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.
- 23 -
<PAGE> 24
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following table summarizes the vintage static pools of the Company's
Servicing Portfolio for all loans purchased by the Company from inception
through the period ending December 31, 1999, and includes loss data through
December 31, 1999:
<TABLE>
<CAPTION>
4Q 94 1Q 95 2Q 95 3Q 95 4Q 95 1Q 96 2Q 96 3Q 96 4Q 96 1Q 97
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <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%
2 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% 0.06% 0.05% 0.00% 0.00% 0.04% 0.00% 0.00%
4 0.05% 0.04% 0.00% 0.14% 0.25% 0.09% 0.03% 0.04% 0.01% 0.04%
5 0.31% 0.14% 0.29% 0.41% 0.48% 0.26% 0.28% 0.33% 0.08% 0.25%
6 0.47% 0.30% 0.92% 0.80% 0.86% 0.49% 0.62% 0.70% 0.69% 0.70%
7 0.51% 0.71% 1.62% 1.64% 1.27% 0.90% 1.10% 1.18% 1.25% 1.43%
8 1.08% 1.25% 2.05% 2.02% 1.69% 1.23% 2.06% 1.71% 1.85% 1.94%
9 1.36% 1.55% 2.39% 2.42% 2.21% 1.95% 2.70% 2.68% 2.50% 2.60%
10 1.75% 2.13% 2.72% 2.60% 2.46% 2.14% 3.37% 3.31% 3.27% 3.08%
11 1.75% 2.52% 3.30% 3.02% 2.84% 2.72% 4.29% 3.88% 3.77% 3.51%
12 3.12% 3.09% 3.44% 3.58% 3.33% 3.26% 5.20% 4.34% 4.12% 3.87%
13 3.21% 3.64% 3.71% 3.92% 3.97% 3.72% 5.55% 5.08% 4.57% 4.49%
14 3.80% 4.04% 4.21% 4.04% 4.28% 4.18% 6.13% 5.53% 4.97% 5.08%
15 4.45% 4.25% 4.31% 4.51% 5.07% 4.90% 6.52% 6.01% 5.46% 5.65%
16 4.55% 4.34% 4.53% 4.88% 5.09% 5.11% 6.78% 6.57% 5.94% 6.34%
17 4.91% 4.88% 4.92% 5.27% 5.65% 6.16% 7.16% 6.87% 6.40% 6.82%
18 4.91% 4.98% 5.54% 5.62% 5.96% 6.59% 7.67% 7.35% 7.17% 7.39%
19 5.05% 5.28% 5.96% 6.16% 6.61% 7.01% 8.00% 8.14% 7.78% 7.79%
20 5.05% 5.80% 6.18% 6.63% 6.78% 7.28% 8.14% 8.59% 8.25% 8.05%
21 5.79% 6.03% 6.55% 6.75% 7.15% 7.56% 8.66% 9.12% 8.66% 8.40%
22 5.79% 6.33% 7.33% 6.88% 7.42% 8.00% 9.09% 9.75% 9.05% 8.78%
23 6.20% 6.62% 7.88% 7.44% 7.99% 8.25% 9.81% 10.03% 9.23% 9.28%
24 6.80% 6.91% 8.30% 7.93% 8.21% 8.41% 10.17% 10.36% 9.43% 9.68%
25 6.99% 7.48% 8.59% 8.37% 8.46% 8.67% 10.68% 10.88% 9.67% 10.12%
26 7.49% 7.58% 8.73% 8.54% 8.77% 9.01% 11.22% 11.13% 10.02% 10.52%
27 8.06% 8.20% 9.16% 8.70% 8.98% 9.36% 11.50% 11.40% 10.35% 10.83%
28 8.23% 8.76% 9.34% 8.82% 9.35% 9.57% 11.61% 11.72% 10.80% 11.36%
29 9.07% 9.49% 9.36% 8.89% 9.97% 9.84% 11.71% 11.86% 11.25% 11.68%
30 9.17% 9.54% 9.39% 9.21% 10.16% 10.09% 11.88% 12.19% 11.42% 12.18%
31 9.71% 9.81% 9.82% 9.84% 10.61% 10.37% 12.56% 12.34% 11.78% 12.52%
32 9.99% 9.97% 9.82% 10.11% 10.74% 10.48% 12.77% 12.58% 11.94% 12.81%
33 10.47% 10.07% 10.11% 10.26% 11.09% 10.61% 12.85% 12.72% 12.19% 13.06%
34 11.44% 10.12% 10.52% 10.67% 11.28% 10.83% 13.10% 12.93% 12.48% 13.25%
35 11.48% 10.31% 10.58% 10.85% 11.33% 11.09% 13.38% 13.14% 12.75%
36 11.81% 10.55% 10.76% 10.89% 11.51% 11.20% 13.51% 13.37% 13.00%
37 11.86% 10.83% 10.88% 11.15% 11.70% 11.37% 13.77% 13.60% 13.21%
38 11.86% 11.01% 11.06% 11.22% 11.85% 11.50% 14.15% 13.76%
39 12.37% 11.19% 11.13% 11.37% 11.94% 11.79% 14.29% 13.95%
40 12.42% 11.47% 11.19% 11.46% 11.97% 11.88% 14.57% 14.11%
41 12.42% 11.62% 11.25% 11.78% 12.01% 11.99% 14.70%
42 12.57% 11.95% 11.30% 11.87% 12.08% 12.17% 14.80%
43 12.57% 12.00% 11.49% 12.01% 12.32% 12.34% 14.86%
44 12.71% 12.04% 11.54% 12.08% 12.39% 12.43%
45 12.71% 12.08% 11.75% 12.24% 12.46% 12.52%
46 12.75% 12.12% 11.82% 12.26% 12.50% 12.57%
47 12.79% 12.18% 12.04% 12.35% 12.55%
48 12.97% 12.28% 12.09% 12.42% 12.55%
49 12.97% 12.28% 12.09% 12.42% 12.63%
50 13.10% 12.28% 12.09% 12.45%
51 13.10% 12.45% 12.16% 12.57%
52 13.15% 12.52% 12.28% 12.66%
53 13.15% 12.65% 12.36%
54 13.15% 12.66% 12.36%
55 13.15% 12.68% 12.36%
56 13.15% 12.69%
57 13.17% 12.69%
58 13.18% 12.73%
59 13.38%
60 13.43%
</TABLE>
- 24 -
<PAGE> 25
NATIONAL AUTO FINANCE COMPANY, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 1999
<TABLE>
<CAPTION>
2Q 97 3Q 97 4Q 97 1Q 98 2Q 98 3Q 98 4Q 98 1Q 99 2Q 99 3Q 99 4Q 99
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <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%
2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3 0.00% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
4 0.22% 0.04% 0.01% 0.02% 0.00% 0.00% 0.07% 0.00% 0.18% 0.10%
5 0.66% 0.18% 0.14% 0.08% 0.13% 0.01% 0.16% 0.08% 0.47%
6 1.31% 0.42% 0.42% 0.29% 0.35% 0.81% 0.56% 0.46% 0.82%
7 2.11% 0.88% 0.74% 0.61% 0.65% 0.97% 0.99% 0.93% 1.39%
8 2.56% 1.21% 1.29% 0.84% 0.82% 2.10% 1.41% 1.19%
9 2.99% 1.60% 1.68% 1.16% 1.62% 2.40% 1.86% 1.51%
10 3.71% 2.30% 2.09% 1.78% 2.03% 2.79% 2.09% 2.02%
11 4.28% 2.78% 2.41% 2.28% 2.76% 3.20% 2.20%
12 5.05% 3.45% 2.76% 2.76% 3.09% 4.06% 2.93%
13 5.91% 3.87% 3.25% 3.25% 3.83% 4.26% 3.10%
14 6.50% 4.18% 3.68% 3.67% 4.39% 4.45%
15 6.96% 4.54% 4.14% 4.24% 5.09% 4.69%
16 7.42% 5.24% 4.68% 4.83% 5.56% 5.55%
17 7.63% 5.74% 5.02% 5.13% 6.06%
18 7.93% 6.28% 5.42% 5.57% 6.55%
19 8.48% 6.91% 5.93% 6.01% 7.00%
20 9.01% 7.45% 6.28% 6.48%
21 9.28% 7.88% 6.84% 6.77%
22 9.73% 8.40% 7.19% 7.09%
23 10.00% 8.73% 7.47%
24 10.31% 9.12% 7.75%
25 10.79% 9.55% 8.06%
26 11.04% 9.97%
27 11.35% 10.25%
28 11.75% 10.45%
29 12.05%
30 12.40%
31 12.72%
</TABLE>
- 25 -
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
General
Since inception, the Company has funded its operations and the growth of
its loan purchasing activities primarily through five sources of capital: (i)
proceeds from securitization transactions; (ii) cash flows from servicing fees;
(iii) proceeds from the issuance of indebtedness; (iv) capital contributions of
certain affiliates of the Company; and (v) proceeds from the Company's Initial
Public Offering and subsequent private sales of Common Stock. On February 4,
2000, the Company entered into the Nuvell Agreements whereby the Company, with
funds made available by Nuvell, originates loans exclusively for the benefit of
Nuvell. See Note 14 of Notes to Financial Statements - Subsequent Events.
Under the Nuvell Flow Program, loan originations are funded with capital
provided by Nuvell. Prior to implementation of the Nuvell Flow Program, the
Company's primary uses of cash were 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 decreased by $24.2 million to $9.6
million for year ended December 31, 1999 from $33.8 million for the year ended
December 31, 1998, principally due to reduced origination volume and a resulting
reduction in credit enhancement requirements of the Company's securitization
facilities, release of previously trapped excess cash spread from the trusts
under agreements with FSA, reduction in interest paid on Senior Subordinated
Notes (See Note 5 of Notes to Financial Statements - Comprehensive Financial
Restructuring) and the reduced net loss from operations as discussed in "Results
of Operations".
Net cash used in investing activities was $908,000 and $1.5 million in
fiscal year 1999 and 1998. This cash was principally related to purchases of
furniture and equipment for the Company's service center in 1999 and 1998.
Net cash provided by financing activities decreased by $13.9 million to
$4.5 million for the year ended December 31, 1999 from $18.4 million for the
year ended December 31, 1998. Net cash provided by financing activities for the
year ended December 31, 1998 was primarily the result of the proceeds received
from the March Private Placement of $20 million of Senior Subordinated Notes.
During the year ended December 31, 1999, the Company was required to
maintain a minimum equity position in the Master Trust of 19.0% to 24.0% of the
net serviced receivables or 3.0 times net losses, whichever was greater. This
minimum equity position consists of cash invested by the Company and
over-collateralization in the form of the Company owning certain interests in
the principal balance of loans. As of December 31, 1999, the Company had a
25.71% equity investment in the Master Trust.
As of December 31, 1999, the Company retained approximately $35.1 million
of Retained Interest in Securitizations, representing 72% of the total assets of
the Company. The value of these assets, representing the net present value of
future cash flows to the Company, would be reduced in the event of a future
material increase in loan losses or prepayment experience relative to the
amounts previously estimated by the Company.
As of December 31, 1999, the principal amount owed by the Company on the
Senior Subordinated Notes was $61.7 million and the principal amount owed by the
Company on the Junior Subordinated Notes was approximately $2.2 million. The
Senior Subordinated Notes, which mature on December 2004, bear interest at
11.875% per annum until December 22, 2000, 12.875% per annum for the period from
December 22, 2000 until December 21, 2001, 13.875% per annum for the period from
December 22, 2001 until December 21, 2002, and 14.875% per annum thereafter,
with interest payable quarterly. See Note 4 of the Notes to Financial Statements
- - Debt for further discussion of the Company's various debt facilities. See also
Note 5 of the Notes to Financial Statements - Comprehensive Financial
Restructuring.
SENIOR SUBORDINATED NOTES
On April 7, 1999, the Company completed a comprehensive financial
restructuring (the "Restructuring"), including its Senior Subordinated Notes and
resolved certain other issues with its Senior Subordinated Noteholders. More
specifically, the agreements and transactions with the Senior Subordinated
Noteholders provide for and include, among other things: (1) the waiver of the
past defaults and breaches of covenants, representations and warranties, if any,
made in connection with the Senior Subordinated Notes; (2) the elimination of
the previously existing Net Worth Covenant; (3) the establishment of a new
covenant requiring that on a quarterly basis, the Company's net return on assets
invested in loan receivables, expressed as a percentage, exceed pre-established
quarterly goals (the "Return on Assets Covenant"); the first quarterly
measurement period for this covenant began as of the quarter ending September
30, 1999; (4) the granting to the Company of the option to pay during the
two-year period ending March 31, 2001 fifty percent (50%) of the interest owed
on the Senior Subordinated Notes
- 26 -
<PAGE> 27
(and the interest on such interest) through the issuance of the Convertible
Senior Subordinated Notes; (5) the issuance to the Senior Subordinated
Noteholders of 7,071,429 shares of Common Stock as consideration for the waivers
and amendments granted to the Company; (6) the issuance to those Noteholders
that also purchased Common Stock of the Company at the time of their debt
investment of an additional 1,178,571 shares of additional Common Stock in
exchange for the execution and delivery of full and complete releases of any
claims arising by virtue of those Noteholders' equity investment; and (7) the
execution and delivery of full and complete releases by and among the Company,
the Noteholders and affiliates of and other parties related to each of such
parties. In addition, the Senior Subordinated Noteholders were granted the right
to designate three additional persons to the Board of Directors of the Company,
increasing to six seats their total number of Board representatives, thereby
giving them majority control of the Board.
First Union
Until termination of funding availability under the Master Trust
Securitization Credit Facility on February 23, 2000 (See Note 14 of Notes to
Financial Statements - Subsequent Events) the Company sold loans that it had
purchased from Dealers on a daily basis to a special-purpose subsidiary, which
then sold 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 has issued two classes of investor certificates: "Class B Certificates,"
which were 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 provided 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 owned 100% of the outstanding
Class B Certificates until paid in full on April 5, 2000 (See Note 14 of the
Financial Statements - Subsequent Events). Collectively, the restricted cash
account and the Class C Certificate portion of loan principal
(Over-Collateralization Accounts, which are held by the Company) 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."
Periodically the Master Trust transferred loans and Spread Account
balances to Permanent Securitizations in exchange for cash, which was used to
repay the Class B Certificates. Debt securities representing interests in the
Permanent Securitizations were 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. Pursuant to the Restructuring described
above, the Company entered into several loan facilities and arrangements with
First Union. As described in Note 5 of Notes to Financial Statements -
Comprehensive Financial Restructuring, the restructured agreements with First
Union provided for and include, among other things: (1) the extension of the
Company's warehouse line for an additional two years (through March 31, 2001)
and an increase in the amount the Company may borrow under such facility from
$75 million to $85 million; (2) the commitment by First Union to purchase up to
$20 million of subordinated asset-backed debt securities in connection with the
Company's securitizations; and (3) a revolving credit facility enabling the
Company to borrow up to $8 million for working capital purposes secured by the
Company's Retained Interest in Securitizations.
On February 22, 2000, Funding Trust II, defaulted on its obligation to
deposit approximately $5 million in cash collateral to the Master Trust
Over-Collateralization Account, as required under the Master Trust
Securitization Credit Facility, thereby giving rise to First Union's decision to
terminate future funding availability under the facility and to commence
amortizing the outstanding amounts owed to First Union under the facility.
In conjunction with such default, First Union agreed to waive until April
21, 2000 certain rights to liquidate the portfolio of approximately $58.9
million of auto loans that secure its loans to Funding Trust II, thereby
permitting the Company time to pursue various strategic options, including a
sale of such portfolio. On March 30, 2000, Funding Trust II, as Seller, the
Company, as Guarantor, and Nuvell entered into the Sale Agreement whereby a
substantial number of the loans previously sold to the Master Trust under the
Master Trust Securitization Credit Facility in the approximate amount of $47
million were sold by Funding Trust II to Nuvell after such loans had been
acquired by Funding Trust II from the Master Trust by an Assignment Agreement
dated as of April 5, 2000. The Company, pursuant to the Sale Agreement, will
retain servicing of substantially all of such loans under the terms and
provisions of the Servicing Agreement. Approximately $43.9 million of the
proceeds from the sale of such loans were then used to pay in full the Class B
Certificates held by First Union. (See Note 4) The Company anticipates to
receive additional cash from the transaction and release of funds previously
required to be held in reserve of approximately $6.0 million, which will be used
for general corporate purposes, including the possible payment of certain of the
debt of the Company. In related developments, First Union terminated its
commitment to purchase up to $20 million of subordinated asset-backed debt
securities in connection with the Company's future Permanent Securitizations and
converted to a 48 month term loan (requiring equal monthly principal payments)
of $2.5 million outstanding under a revolving working capital facility secured
by the Company's ERSs. See Note 14 of Notes to Financial Statements - Subsequent
Events
- 27 -
<PAGE> 28
FSA
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
Permanent Securitization trusts and the extension of the Nuvell Agreements which
require the mutual consent of both parties (See Note 14 of Notes to Financial
Statements - Subsequent Events). 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 were
funded initially out of beginning deposits and are funded thereafter with excess
cash flow from the loan pool. During each month, excess cash flow available 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.
Under the financing structures the Company used for its Permanent
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 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 an 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.
Since completion of the Restructuring, under the terms of the Company's
insurance agreements with FSA, upon the occurrence of a Permanent Securitization
failing to meet portfolio performance tests (an "Insurance Agreement Event of
Default"), the Company would be in default under such insurance agreements. 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.
Pursuant to the Restructuring, certain of the terms of the insurance
guarantee arrangements with FSA were modified. The agreements and transactions
with FSA provide for and include, among other things: (1) the resetting of the
cash spread accounts in each of the Company's then existing term asset-backed
securitizations that have been guaranteed by FSA to 11% of the outstanding
principal balance of the receivables in each of such securitizations for the
remaining term of such securitizations; (2) the elimination of all portfolio
performance maintenance requirements that, if otherwise violated, would have
resulted in the trapping of cash flows to over fund such cash spread accounts;
(3) the resetting of the portfolio performance requirements that, if violated,
would constitute a default under the insurance guaranty agreements issued by
FSA, to levels that are commensurate to the Company's expected future portfolio
performance in each of such securitizations; and (4) waiver of all past breaches
and defaults of portfolio performance requirements, the result of which is to
enable the Company to resume the receipt of excess cash flow under each of the
Company's term asset-backed securitizations guaranteed by FSA. As a result of
amended agreements with FSA entered into on April 7, 1999, going forward the
Company will be subject to only Insurance Agreement default tests as shown
below. The following table shows the performance tests (three month rolling
average) as of December 31, 1999:
<TABLE>
<CAPTION>
Delinquency Test Default Test Loss Test
------------------- ------------------- -------------------
Actual Insurance Actual Insurance Actual Insurance
------ --------- ------ --------- ------ ---------
<C> <C> <C> <C> <C> <C> <C>
95-1 9.55% 12.00% 12.05% 25.00% 11.47% 14.00%
96-1 10.02% 12.00% 12.59% 25.00% 10.56% 14.00%
97-1 11.13% 12.00% 15.97% 25.00% 10.44% 14.00%
98-1 9.84 % 12.00% 15.69% 25.00% 10.07% 13.00%
99-1 6.30% 12.00% 8.00% 25.00% 2.30% 13.00%
</TABLE>
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, if such events of default occur, waivers will be
available. If the Company's Servicing Portfolio does not meet such performance
requirements, the future 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
- 28 -
<PAGE> 29
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. See Note 5 of the Notes to Financial Statements - Comprehensive
Financial Restructuring.
The Company as servicer, is required per the trust agreements to have the
books and records of the trusts audited on or before March 30, 2000. The Company
anticipates the audit to be completed in the near future and does not anticipate
problems stemming from the late filing.
Going Concern
The Company has suffered significant losses from operations during 1999,
1998 and 1997, has a capital deficiency as of December 31, 1999 and its Master
Securitization Credit Facility has been terminated. Such matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in the following
paragraphs.
While the Company's business has historically required substantial cash to
support the funding of Cash Spread Accounts for its securitizations, issuance
costs of its securitizations, operating expenses, tax payments, debt service and
other cash requirements. These cash requirements increase as the number of loans
purchased, securitized, and serviced by the Company increase. Historically, the
Company has operated on a negative operating cash flow basis. 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's current business strategy for future growth is
to focus on originating loans for other consumer finance companies, such as
Nuvell, on a service retained basis in return for both origination and
servicing fee income, rather than dedicating capital resources, particularly
cash, to originate loans for its own account and/or in anticipation of engaging
in periodic asset-backed securitization transactions.
In furtherance of such strategy, on February 4, 2000, the Company entered
into the Nuvell Agreements whereby the Company, in return for origination fees,
has agreed to originate non-prime retail motor vehicle installment sale loans
exclusively for the account of Nuvell. The Company retains servicing of all such
loans in return for servicing fees, for the term of the Nuvell Agreements and
any extension thereof. The Company originates and services loans under the
Nuvell Flow Program in the same manner as it has historically conducted its
business operations.
The Nuvell Agreements, initially scheduled to expire on May 31,, 2000,
were renewed and extended through December 31, 2000, by the mutual consent of
both the Company and Nuvell. During the course of negotiating the Nuvell
Agreements, the Company and Nuvell had, and continue to have very preliminary
and limited discussions regarding the potential acquisition by Nuvell of the
operational assets of the Company and its personnel including, in particular,
the assets and personnel comprising the Company's loan origination and servicing
capabilities, but there can be no assurance that such discussions will continue
or if they do continue, that they will lead to a transaction. In the event that
the Nuvell Agreements are not renewed or that no other transaction arises
between Nuvell and the Company, the Company will immediately seek to enter into
relationships similar to those represented by the Nuvell Flow Program with other
third-party auto finance companies.
Further, pursuant to the Company's current business strategy, the Company
projects over the next 12 months an increase in cash flow over 1999. The Company
projects through the Nuvell Flow Program and scheduled cash releases from the
Retained Interest in Securitizations, sufficient cash flow to operate over the
next twelve months. Although there can be no assurance that the Company will
successfully execute this business plan, both the Nuvell Flow Program and the
business plan were designed and implemented to enable the Company, among other
things, to increase its cash flow and further stabilize its financial condition.
In conjunction with the Company's comprehensive financial restructuring,
the Senior Subordinated Noteholders waived the previously existing Net Worth
Covenant and established the Return on Assets Covenant requiring that, on a
quarterly basis, the Company's net return on assets invested in loan
receivables, expressed as a percentage, exceed pre-established quarterly goals
(the first quarterly measurement period (the "Measurement Period") for such
covenant began as of the quarter ended September 30, 1999). The Company failed
to comply with the Return on Assets Covenant for the Measurement Periods ended
September 31, 1999 and December 31, 1999. The Senior Subordinated Noteholders
waived compliance with such covenant for both Measurement Periods. As a result
of the Company's adoption of a new business plan as implemented by the Nuvell
Flow Program, the Company anticipates that it will fail to comply with such
covenant for future Measurement Periods. The Company expects, but can give no
assurance, that the Senior Subordinated Noteholders will continue to waive
compliance with such covenant for future Measurement Periods.
- 29 -
<PAGE> 30
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.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 as delayed by SFAS No. 137
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The SFAS is effective for periods beginning after June 15,
2000, and is not expected to have a significant impact on the Company's
financial statements.
- 30 -
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Certified Public Accountants ............................................. 32
Balance Sheets as of December 31, 1999 and 1998.................................................. 34
Statements of Operations For the Years Ended December 31, 1999, 1998 and 1997.................... 35
Statements of Stockholders' Equity (Capital Deficit) For the Years Ended December 31, 1999, 1998
and 1997..................................................................................... 36
Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997.................... 38
Notes to Financial Statements.................................................................... 40
</TABLE>
- 31 -
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Auto Finance Company, Inc.
Jacksonville, Florida
We have audited the accompanying balance sheets of National Auto Finance
Company, Inc. as of December 31, 1999 and 1998 and the related statements of
operations, stockholders' equity (capital deficit), and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Auto Finance Company,
Inc. at December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, in 1999 and 1998 the Company suffered a loss from
operations, and has a capital deficiency. Such matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 15. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
West Palm Beach, Florida BDO SEIDMAN LLP
April 7, 2000
- 32 -
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Auto Finance Company, Inc.
We have audited the accompanying consolidated balance sheet of National Auto
Finance Company, Inc. and subsidiaries (formerly National Auto Finance Company,
L.P. and subsidiaries) as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the two 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.
We believe that our audit provides a reasonable basis for our opinion.
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 the consolidated results of their operations and their cash flows for each
of the years in the two 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.
/s/ KPMG LLP
April 15, 1998
- 33 -
<PAGE> 34
NATIONAL AUTO FINANCE COMPANY, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,576 $ 9,540
Retained interest in securitizations, at estimated fair value (Note 3) 35,058 34,117
Furniture, fixtures and equipment, net of accumulated
depreciation of $1,872 and $1,065 3,377 3,277
Deferred financing costs 4,117 2,759
Other assets 2,648 1,039
-------- --------
Total assets $ 48,776 $ 50,732
======== ========
LIABILITIES:
Accounts payable and accrued expenses $ 1,357 $ 2,444
Accrued interest payable-related parties 986 117
Junior Subordinated Notes-related parties (Note 13) 2,181 1,940
Senior Subordinated Notes (Note 4) 56,395 53,578
Notes payable (Note 4) 3,562 1,017
-------- --------
Total liabilities 64,481 59,096
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
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 (Note 6) 2,576 2,415
CAPITAL DEFICIT:
Common Stock -$0.01 par value; 44,000,000 shares authorized;
17,280,762 and 9,030,762 shares outstanding, respectively (Note 6) 173 90
Paid-in-capital 38,246 36,261
Accumulated deficit (56,700) (47,130)
-------- --------
Total capital deficit (18,281) (10,779)
-------- --------
Total liabilities, mandatorily redeemable preferred stock and
capital deficit $ 48,776 $ 50,732
======== ========
</TABLE>
See accompanying notes to the financial statements.
- 34 -
<PAGE> 35
NATIONAL AUTO FINANCE COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Securitization related income (loss) (Note 3) $ 7,630 $(13,531) $ (323)
Servicing income 5,719 6,424 3,437
Interest income 1,443 2,399 817
Other income 716 377 214
-------- -------- --------
Total revenue 15,508 (4,331) 4,145
-------- -------- --------
EXPENSES:
Servicing 3,285 6,262 5,944
Interest 8,489 8,417 1,638
Salaries and employee benefits 5,087 7,705 6,346
Direct loan acquisition expenses 914 1,520 3,591
Depreciation and amortization 1,679 802 743
Other operating expenses (Note 7) 5,624 4,544 3,602
-------- -------- --------
Total expenses 25,078 29,250 21,864
-------- -------- --------
Loss before extraordinary item (9,570) (33,581) (17,719)
Extraordinary loss due to early extinguishment of debt -- -- (720)
-------- -------- --------
Net loss before preferred stock dividends (9,570) (33,581) (18,439)
Preferred stock dividends (160) (160) (148)
-------- -------- --------
Net loss applicable to Common Stockholders $ (9,730) $(33,741) $(18,587)
======== ======== ========
PER SHARE DATA: (NOTE 2)
Loss per common share before extraordinary item - basic and
diluted $ (.64) $ (3.73) $ (2.52)
Extraordinary loss
-- -- (0.10)
-------- -------- --------
Loss per common share- basic and diluted $ (.64) $ (3.73) $ (2.62)
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 15,111 9,031 7,087
======== ======== ========
</TABLE>
See accompanying notes to the financial statements.
- 35 -
<PAGE> 36
NATIONAL AUTO FINANCE COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<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, 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 Common Stock
in connection with reorganization on
January 29, 1997 (Note 1) 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 (Note 4) 5 164 -- -- 169
Issuance of 2,300,000 shares of Common Stock
in initial public offering, net of costs (Note 1) 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 (Note 4) 19 9,138 -- -- 9,157
Issuance of 1,038,924 Warrants to purchase
Common Stock in connection with the
issuance of Senior Subordinated Notes (Note 4) -- 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) -- 20,958
</TABLE>
(1) $2,295 of such amount was attributed to mandatorily redeemable preferred
stock.
See accompanying notes to the financial statements.
- 36 -
<PAGE> 37
NATIONAL AUTO FINANCE COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
(CONCLUDED)
<TABLE>
<CAPTION>
Equity of
Common Paid-in Accumulated Predecessor
Stock Capital Deficit Entity Total
-------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of 593,671 Warrants to purchase
Common Stock in connection with the
issuance of Senior Subordinated Notes (Note 4) -- 2,004 -- -- 2,004
Dividends on mandatorily redeemable preferred stock -- (160) -- -- (160)
Net loss for year ending December 31, 1998 -- -- (33,581) -- (33,581)
-------- -------- --------- --------- ---------
Balance as of December 31, 1998 90 36,261 (47,130) -- (10,779)
Issuance of 8,250,000 Shares of Common Stock 83 2,145 -- -- 2,228
Dividends on mandatorily redeemable preferred stock -- (160) -- -- (160)
Net loss for year ending December 31, 1999 -- -- (9,570) -- (9,570)
-------- -------- --------- --------- ---------
Balance as of December 31, 1999 $ 173 $ 38,246 $ (56,700) $ -- $ (18,281)
======== ======== ========= ========= =========
</TABLE>
See accompanying notes to the financial statements.
- 37 -
<PAGE> 38
NATIONAL AUTO FINANCE COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,570) $ (33,581) $ (18,439)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Securitization related income (7,630) 13,531 323
Depreciation expense 810 802 223
Purchases of loans held for sale (67,743) (95,911) (187,383)
Proceeds from transfer of loans to Master Trust 67,743 95,911 187,383
Cash flows from Retained Interest released to Company 16,348 12,160 10,095
Cash deposits to Spread Accounts (9,658) (28,329) (18,564)
Amortization and write-off of deferred financing costs 869 567 1,024
Amortization of Warrants 1,070 1,036 --
Amortization of deferred placement costs -- -- 254
Changes in other assets and liabilities:
Other assets (1,609) 998 (1,516)
Accounts payable and accrued expenses (1,087) (998) 1,489
Accrued interest payable-related parties 869 75 (105)
Accrued interest payable-Senior Subordinated Notes
and other notes -- -- (157)
--------- --------- ---------
Net cash used in operating activities (9,588) (33,739) (25,373)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed assets purchased (908) (1,543) (1,524)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Junior Subordinated Notes-related parties 240 -- --
Principal payments on Junior Subordinated Notes-related parties -- -- (5,182)
Proceeds from notes payable 3,000 81 1,018
Proceeds from Senior Subordinated Notes 1,747 19,031 37,834
Principal payments on Notes Payable (455) (677) --
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)
Payment of Mandatorily Redeemable Preferred Stock dividends -- (80) (107)
Proceeds from initial public offering -- -- 17,615
Proceeds from issuance of Common Stock, net -- -- 9,157
--------- --------- ---------
Net cash provided by financing activities 4,532 18,355 48,298
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (5,964) (16,927) 21,401
Cash and cash equivalents at beginning of year 9,540 26,467 5,066
--------- --------- ---------
Cash and cash equivalents at end of year $ 3,576 $ 9,540 $ 26,467
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 4,580 $ 6,921 $ 1,656
========= ========= =========
</TABLE>
See accompanying notes to the financial statements
- 38 -
<PAGE> 39
NATIONAL AUTO FINANCE COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
(CONCLUDED)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
NON-CASH FINANCING ACTIVITIES:
Offering costs deferred in 1997 transferred to paid-in capital in 1998 $ -- $ -- $ 775
Accrued dividends on mandatorily redeemable preferred stock 160 160 41
Conversion of deferred interest on Senior Subordinated Notes to Common
Stock and paid-in capital -- -- 169
Conversion of predecessor entity capital to Mandatorily Redeemable Preferred Stock -- -- 2,295
Conversion of predecessor entity capital to Common Stock and
paid-in capital -- -- 7,225
Deferred income taxes from reorganization considered reduction in paid-in capital -- -- 5,416
Income earned in 1998 prior to reorganization included in
paid-in capital -- -- 526
Issuance of 1,038,924 warrants in conjunction with Senior Subordinated -- -- 5,454
Notes considered paid-in-capital
Issuance of 593,671 warrants in conjunction with Senior Subordinated -- 2,004 --
Notes considered paid-in-capital
Issuance of 8,250,000 Shares of Common Stock to Senior Subordinated
Noteholders 2,228 -- --
Conversion of accrued interest on Senior Subordinated Notes into
Senior Subordinated Notes -- -- 2,689
</TABLE>
See accompanying notes to the financial statements
- 39 -
<PAGE> 40
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business
National Auto Finance Company, Inc. (the "Company") is a specialty
consumer finance company historically engaged in the business of
purchasing, financing, securitizing and servicing loans originated
primarily by manufacturer-franchised dealers ("Dealers") in the sale
of new and used automobiles. The Company is located in Jacksonville,
Florida. Through its loan purchases, the Company provides indirect
financing to non-prime consumers ("Consumers"). The Company serves as
a source of financing for Dealers, allowing them to sell automobiles
to Consumers who otherwise might not qualify under underwriting
criteria required by more traditional sources such as commercial
banks. On February 4, 2000, the Company entered into the Nuvell
Agreements, (See Note 14) whereby the Company agreed to originate
loans exclusively for the benefit of Nuvell through the Company's
existing Dealer network and immediately, as such loans are accepted
and funded by Nuvell, assign such loans to Nuvell. The Company
retains servicing of all such loans for the term of the Nuvell
Agreements and any extension of such Agreements negotiated between
the Company and Nuvell.
National Auto Finance Company, LP, 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 financial statements reflect the operations of the
National Auto Partnership and subsidiaries for an
approximate one-month period of January 1997 and National
Auto Finance Company, Inc. and subsidiaries for the eleven
months ended December 31,1997. All significant
intercompany accounts and transactions have been
eliminated in consolidation. As the Company has no
subsidiaries as of December 31, 1998 and 1999, such
financial statements are not consolidated.
(ii) Cash and Cash Equivalents
The Company considers money market funds and all other
highly liquid debt instruments purchased with an original
maturity of three months or less 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.
- 40 -
<PAGE> 41
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(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.
Until availability of access to funds through the Master
Securitization Credit Facility was terminated on February
23, 2000 (see Note 14), loans purchased by the Company
were 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
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."
The Retained Interest in Securitizations is classified as
a trading security for financial reporting purposes with
changes in the estimated 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 Overcollateralization 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 (Excess Spread Receivables ("ESRs") and
Cash Spread Accounts) and accordingly, the Company has
determined the estimated fair value of the Retained
Interest in Securitizations at December 31, 1999 and 1998
by the following process:
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 net losses, prepayments and
normal principal and interest amortization (cash-in).
2. The Company has calculated the timing, amount of the
total remaining principal, and interest to be paid to
the securitization trusts' investors given the
assumptions noted above and the contractual
requirements of each securitization trust.
3. The Company has estimated the total amount to be paid
by each securitization trust for any 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
flows to determine the estimated Excess Spread
Receivable (ESR) for each month.
- 41 -
<PAGE> 42
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. The Company has estimated the required Cash Spread
Account balance. See Note 3 for the securitization
trusts 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 trusts.
7. The estimated fair value of cash-out over the
remaining life of the securitization trusts 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 estimated fair value of cash-out for the
securitization trusts were compared to the Retained
Interest in Securitizations for the securitization
trusts. Adjustments to estimated fair value are
charged to securitization related income (loss).
(v) Deferred Financing Costs
Costs incurred in connection with certain borrowings are
capitalized and are 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 method of accounting
prescribed by Accounting Principles Board ("APB") Opinion
No. 25.
(vii) Income Taxes
Subsequent to the reorganization on January 1997 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.
(ix) 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 includes salaries and other costs associated with
the Company's service center.
- 42 -
<PAGE> 43
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(x) 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 in the near term and could be significant.
(xi) Reclassifications
Certain reclassifications have been made to 1997 and 1998
amounts to conform to the 1999 presentation.
(c) New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 as delayed
by SFAS No. 137 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The SFAS is
effective for periods beginning after June 15, 2000, and is not
expected to have a significant impact on the Company's financial
statements.
(2) LOSS PER COMMON SHARE (EPS)
Loss per common share for 1999 is calculated as follows:
<TABLE>
<CAPTION>
Weighted Average
----------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(in thousands, except per share amount)
<S> <C> <C> <C>
Loss before preferred stock dividends $ (9,570) 15,111 $ (.63)
Preferred stock dividends (160) 15,111 (.01)
-------- ------
Net loss applicable to Common Stockholders $ (9,730) 15,111 $ (.64)
======== ======
</TABLE>
Loss per common share for 1998 is calculated as follows:
<TABLE>
<CAPTION>
Weighted Average
----------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
(in thousands, except per share amount)
<S> <C> <C> <C>
Loss before preferred stock dividends $ (33,581) 9,031 (3.71)
Preferred stock dividends (160) 9,031 (.02)
--------- -------
Net loss applicable to Common Stockholders $ (33,741) 9,031 $ (3.73)
========= =======
</TABLE>
Inclusion of 2,402,090 and 388,000 options and 1,632,594 and
1,632,594 warrants outstanding at December 31, 1999 and 1998 respectively,
would have an antidilutive effect on the net loss per share for the years
ending December 31, 1999 and 1998 for diluted EPS, thus, such Common Stock
equivalents are excluded from the calculation.
- 43 -
<PAGE> 44
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(3) RETAINED INTEREST IN SECURITIZATIONS
Retained Interest in Securitizations was $35.1 million and $34.1 million
at December 31, 1999 and 1998 respectively. During 1998, the Company
reduced the carrying value of Retained Interest in Securitizations by
$23.1 million.
Assumptions used to value the Retained Interests in Securitizations at
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Weighted average cumulative net loss rate 14.00% 14.00%
Weighted average cumulative prepayment rate 22.60% 21.40%
Discount rate 14.00% 14.00%
Level of required Cash Spread Account 8% to 11% 11.00%
Rate of interest on Cash Spread Account 4.90% 4.85%
Weighted average interest rate on loans 18.88% 19.35%
Weighted average yield on bonds and notes
held by securitization investors 6.59% 6.12%
</TABLE>
Until termination of capital availability under the Master Trust
Securitization Credit Facility on February 23, 2000, (see Note 14) the
Company funded loans primarily through a two-step asset securitization
program consisting of (i) the securitized warehousing of all of its loans
through daily sales to bankruptcy-remote Master Trust financed by
purchases of "B Certificate" interests in such Trust by the First Union
Master Trust Securitization Credit Facility, followed by (ii) the transfer
of such warehoused loans from time to time by the Master Trust to a
Permanent Securitization, thereby creating additional availability of
capital from the Master Trust Securitization Credit Facility.
Until availability of access to funds through the Master Trust
Securitization Credit Faculty was terminated on February 23, 2000 (See
Note 14), the Company sold loans that it purchased from Dealers on a daily
basis to a special-purpose subsidiary, which then sold the loans to the
Master Trust in exchange for cash and certain residual interests in future
excess cash flows from the Master Trust. Prior to payment in full of the
Class B Certificates, the Master Trust had issued two classes of investor
certificates: "Class B Certificates," which were 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 had owned 100%
of the outstanding Class B Certificates and the Company indirectly owns
100% of the Class C Certificates. Collectively, the Cash Spread Accounts
and the Class C Certificate portion of loan principal
(Over-Collateralization Accounts), are held by the Company to
collateralize the Master Trust. The Spread Accounts and Excess Spread
Receivables ("ESR") are reflected collectively on the balance sheet as a
part of "Retained Interest in Securitizations."
Periodically the Master Trust transferred 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 loans 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.
In September 1999, the National Auto Finance 1999-1 Trust (the
"1999-1 Trust") was formed and the Master Trust refinanced approximately
$60 million of its receivables in a private placement of asset-back
securities through their transfer by the Master Trust to the 1999-1 Trust,
as part of a Permanent Securitization. Securities were issued to Pruco
Life Insurance Company, Pruco Life Insurance Company of New Jersey, The
Prudential Insurance Company of America and First Union in the amounts of
$10.5 million, $7.9 million, $29.6 million and $3 million, respectively.
Payment of principal of, and interest on, the collective $48 million of
the securities issued to Prudential related entities in that transaction
is insured by a payment guarantee by FSA, and such securities are rated
AAA and Aaa by Standards & Poor's Rating Service and Moody's Investor
Service, Inc., respectively. The proceeds of that Permanent Securitization
transaction were used by the Master Trust to repay a portion of the then
outstanding balance of the Class B Certificates.
- 44 -
<PAGE> 45
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Since such time, the Master Trust had 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.
Under the financing structures the Company has used to date for its
securitizations, certain excess cash flows generated by the loans are
retained in the Cash Spread Accounts within the securitization trusts to
provide liquidity and credit enhancement. While the specific terms and
mechanics of the Cash 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 the Overcollateralization
Accounts, have been attained and/or the delinquency or losses related to
the loans in the pool are below certain predetermined levels.
Additionally, effective as of the Restructuring date (See Note 5 of Notes
to Financial Statements - Comprehensive Financial Restructuring), the
Company is required to maintain a minimum equity position in the Revolving
Securitization of 24.0% of the net serviced receivables in the Master
Trust, or 3.0 times net losses, whichever is greater. This minimum equity
position currently consists of cash invested by the Company and
overcollateralization in the form of the discount from the face amount of
a loan at which the Company is willing to purchase the loan from an
automobile dealer ("Dealer Discount") related to the principal balance of
loans. As of December 31, 1999 and 1998, the Company had a 25.71% and
14.00% minimum equity position investment in the Revolving Securitization.
See Note 5. As of February 22, 2000 the Company was in default of the
required minimum equity position. See Note 14.
Since the completion of the Restructuring, under the terms of the
Company's insurance agreements with FSA, upon the occurrence of a
Permanent Securitization failing to meet portfolio performance tests (an
"Insurance Agreement Event of Default"), the Company would be in default
under such insurance agreements. 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. See Note 5.
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 Insurance Agreement
Events of Default in the future, or if such events of default occur,
waivers will be available. If the Company's Servicing Portfolio does not
meet such performance requirements, the future 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.
See Note 5.
- 45 -
<PAGE> 46
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
During the years ended December 31, 1999, 1998 and 1997 the following
activity took place with respect to securitizations:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
(dollars in thousands)
<S> <C> <C> <C>
Principal balance of loans purchased $ 67,743 $ 95,911 $ 187,383
========= ========= ==========
Weighted average coupon rate on loans purchased
during the period 18.88% 19.35% 19.24%
========= ========= ==========
</TABLE>
(4) DEBT
Notes payable at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Revolving $1.5 million line of credit with First Union dated
August 25, 1997; matures March, 2001; interest payable
monthly at LIBOR + 2.5% (See Note 13) $ 368 $ 734
Revolving $8.0 million credit facility with First Union
(See Notes 5 and 14) 3,000 --
Other 194 283
------- -------
$ 3,562 $ 1,017
======= =======
</TABLE>
In March 1998, the Company completed a private placement (the "March
Private Placement") of $20 million principal amount of Senior Subordinated
Notes with detachable Warrants under terms similar to that of the December
Private Placement. In December 1997, the Company completed a private
placement (the "December Private Placement") of $10 million of the
Company's Common Stock, $.01 per value ("Common Stock") and $40 million
principal amount of Senior Subordinated Notes with detachable warrants to
purchase Common Stock ("Warrants"). The December Private Placement of the
$10 million in Common Stock resulted in the issuance of 1,904,762 shares
of the Company's Common Stock at $5.25 per share. Additionally, a
representative of each of two of the Senior Subordinated Noteholders who
were also stock purchasers was elected to the Company's Board of
Directors.
In connection with the December Private Placement and the March Private
Placement, the Company issued an aggregate of 1,632,685 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 the December Private Placement
and $3.37 for the March Private Placement, for a total of $7.5 million.
Such amount is recorded as a discount to the related debt, as 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 balance of the Senior Subordinated Notes payable was $56.4 and $53.6
million as of December 31, 1999 and December 31, 1998, respectively. Such
amounts are shown net of discounts of $5.3 million and $6.4 million
respectively. The principal amount of the aggregate $61.7 million of
Senior Subordinated Notes is due in December 2004 and bears interest at
11.875% per annum until December 21, 2000, 12.875% per annum for the
period from December 22, 2000 until December 21, 2001, 13.875% per annum
for the period from December 22, 2001 until December 21, 2002, and 14.875%
per annum thereafter, with interest payable quarterly.
Until the completion of the Restructuring (see Note 5), the Company was in
violation of the Minimum Consolidated Net Worth and Adjusted Interest
Expense covenants contained in the Securities Purchase Agreements pursuant
to which it issued the $60,000,000 aggregate principal amount of Senior
Subordinated Notes. The Minimum Consolidated Net
- 46 -
<PAGE> 47
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Worth covenant required 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 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 required 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 December 1997, in connection with the consummation of the December
Private Placement (as described above), the Company repaid the $12,000,000
senior subordinated notes held by J.P. Morgan Investment Management, Inc.
on behalf of certain institutional investors (the "Morgan Notes"). 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.
See Note 13 for a description of Junior Subordinated Notes.
Convertible Senior Subordinated Promissory Notes in the principal amount
of approximately $900,000 were issued on each of July 1, October 1, 1999
and January 1, 2000 in lieu of the payment of cash interest. See Note 5
for a discussion of the impact of the comprehensive financial
restructuring on the Senior Subordinated Debt.
(5) COMPREHENSIVE FINANCIAL RESTRUCTURING
On April 7, 1999, the Company completed a comprehensive financial
restructuring (the "Restructuring") of its Senior Subordinated and Junior
Subordinated Notes, resolved certain other issues with its Senior
Subordinated Noteholders and Junior Subordinated Noteholders, entered into
several loan facilities and arrangements with First Union, and modified
certain of the terms of the insurance guarantee arrangements with FSA,
related to the Company's securitized asset-backed bonds.
Senior Subordinated Notes
The agreements and transactions with the Senior Subordinated Noteholders
provide for and include, among other things: (1) the waiver of the past
defaults and breaches of covenants, representations and warranties, if
any, made in connection with the Senior Subordinated Notes; (2) the
waiving of the previously existing Net Worth Covenant; (3) the
establishment of a new covenant requiring that, on a quarterly basis, the
Company's net return on assets invested in loan receivables, expressed as
a percentage, exceed pre-established quarterly goals (the "Return on
Assets Covenant"); the first quarterly measurement period for this
covenant begins as of the quarter ending September 30, 1999, (See Note
15); (4) the granting to the Company of the option to pay during the
two-year period ending March 31, 2001 fifty percent (50%) of the interest
owed on the Senior Subordinated Notes (and the interest on such interest)
through the issuance of additional Senior Subordinated Notes, convertible
into Common Stock at the conversion price of $.75 per share (the
"Convertible Senior Subordinated Promissory Notes"); (5) the issuance to
the Senior Subordinated Noteholders of 7,071,429 shares of Common Stock as
consideration for the waivers and amendments granted to the Company; (6)
the issuance to those Noteholders that also purchased Common Stock of the
Company at the time of their debt investment 1,178,571 additional shares
of Common Stock in exchange for the execution and delivery of full and
complete releases of any claims arising by virtue of those Noteholders'
equity investment; and (7) the execution and delivery of full and complete
releases by and among the Company, the Noteholders and affiliates of and
other parties related to each of such parties. In addition, the Senior
Subordinated Noteholders were granted the right to name three additional
persons to the Board of Directors of the Company, increasing to six seats
their total number of Board representatives, thereby giving them majority
control of the Board. The Company capitalized deferred financing costs of
$2,227,500 associated with the issuance of the 7,071,429 and 1,178,571
shares issued to the Senior Noteholders. These costs are being amortized
over the remaining term of the Senior Subordinated Notes. During 1999, the
Company issued approximately $2.7 million of Senior Subordinated Notes in
payment of accrued interest (as described in (4) of this paragraph).
- 47 -
<PAGE> 48
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
First Union
Until February 22, 2000 (see Note 14) the agreements and transactions with
First Union provided for and included, among other things: (1) the
extension of the Master Trust warehouse line for an additional two years
(through March 31, 2001) and an increase in the amount the
Master Trust could borrow under such facility from $75 million to $85
million; the interest rate for this facility was established at LIBOR +
1.5%; (2) the commitment by First Union to purchase up to $20 million of
subordinated asset-backed debt securities in connection with the Company's
securitizations; the interest rate for this commitment was established at
LIBOR + 5%; (3) a revolving credit facility enabling the Company to borrow
up to $8 million for working capital purposes, secured by the Company's
Residual Interest in Securitizations; the interest rate for this facility
was established at LIBOR + 5%; and (4) waiver of violations of certain
covenants with respect to the Master Trust, specifically, the covenant
that the Master Trust maintain certain interest rate hedging agreements
and covenants related to allowable repossession and recovery limits.
Junior Subordinated Notes
The agreements and transactions with the Junior Subordinated Noteholders
provide for and include, among other things: (1) the waiver of the past
defaults and breaches under the Junior Subordinated Notes; (2) the
granting to the Company of the option to pay during the period ending
January 31, 2002 up to one hundred percent (100%) of the interest owed on
the Junior Subordinated Notes (and the interest on such interest) through
the issuance of additional
Junior Subordinated Notes that are convertible into Common Stock at the
conversion price of $.75 per share (the "Junior Convertible Subordinated
Notes"); (3) the granting to the designees of the Senior Subordinated
Noteholders to the Company's Board of Directors an irrevocable proxy to
vote the 4,230,000 shares of Common Stock held by National Auto Finance
Company, LP (a limited partnership controlled by certain of the Junior
Noteholders) in all matters as to which such shares are entitled to vote;
(4) the execution and delivery of full and complete releases by and among
the Company, the Senior Subordinated Noteholders, the Junior Subordinated
Noteholders, National Auto Finance Company, LP, their respective officers,
directors, affiliates, and other parties related to each of such parties;
and (5) the granting of a covenant not to sue in the future by the Junior
Subordinated Noteholders, National Auto Finance Company, LP, and
affiliates of and other parties related to each of such parties in favor
of the Company, the Senior Subordinated Noteholders, their respective
officers, directors, affiliates, and other parties related to both such
parties.
FSA
The agreements and transactions with FSA provide for and include, among
other things: (1) the resetting of the cash spread accounts in each of the
Company's then existing term asset-backed securitizations that have been
guaranteed by FSA to 11% of the outstanding principal balance of the
receivables in each of such securitizations for the remaining term of such
securitizations; (2) the elimination of all portfolio performance
maintenance requirements that, if otherwise violated, would have resulted
in the trapping of cash flows to overfund such cash spread accounts; (3)
the resetting of the portfolio performance requirements that, if violated,
would constitute a default under the insurance guaranty agreements issued
by FSA, to levels that are commensurate to the Company's expected future
portfolio performance in each of such securitizations; and (4) the waiver
of all past breaches and defaults of portfolio performance requirements,
the result of which is to enable the Company to resume the receipt of
excess cash flow under each of the Company's term asset-backed
securitizations that have been guaranteed by FSA. The following table
shows the performance tests (three month rolling average) as of December
31, 1999:
<TABLE>
<CAPTION>
Delinquency Test Default Test Loss Test
------------------- ------------------- -------------------
Actual Insurance Actual Insurance Actual Insurance
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
95-1 9.55% 12.00% 12.05% 25.00% 11.47% 14.00%
96-1 10.02% 12.00% 12.59% 25.00% 10.56% 14.00%
97-1 11.13% 12.00% 15.97% 25.00% 10.44% 14.00%
98-1 9.84% 12.00% 15.69% 25.00% 10.07% 13.00%
99-1 6.30% 12.00% 8.00% 25.00% 2.30% 13.00%
</TABLE>
- 48 -
<PAGE> 49
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(6) DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 44,000,000 shares
of Common Stock and 1,000,000 shares of preferred stock, par value $0.01
per share, issuable in series (the "Preferred Stock").
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 for such purpose, 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 with mandatorily redemption at stated
value in January 2005. The Company has accrued approximately $281,000 and
$120,000 in preferred stock dividends as of December 31, 1999 and 1998,
which are included in the balance sheet category Mandatorily Redeemable
Preferred Stock. The Company paid approximately $0 and $80,000 in
preferred stock dividends during the years ended December 31, 1999 and
1998. Due to its losses, the Company has ceased paying quarterly
dividends.
- 49 -
<PAGE> 50
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(7) OTHER OPERATING EXPENSES
Other operating expenses for the years ended December 31, consisted of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Professional fees............ $ 893 $ 1,186 $ 1,037
Rent......................... 698 785 367
Travel and entertainment..... 307 311 387
Management fees.............. -- 225 540
Other........................ 3,726 2,037 1,271
------- ------- -------
$ 5,624 $ 4,544 $ 3,602
======= ======= =======
</TABLE>
Management fees represent fees paid to National Financial Companies LLC
for operational, legal, administrative and other services provided to the
Company and its predecessors under a management agreement that was
terminated in June 1998.
Other includes an adjustment to reflect a cumulative change in accounting
principle. Balances representing $474,144 for 1998 of start-up cost were
written off in accordance with adoption of AICPA Statement of Position
98-5, "Reporting on the Costs of Start-up Activities." These costs had
been capitalized in conjunction with the Company establishing a servicing
center facility in Jacksonville, Florida.
(8) COMMITMENTS AND CONTINGENCIES
Future minimum rental payments under various office and equipment leases
as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending Operating
December 31, Leases
------------ ---------
(in thousands)
<S> <C>
2000 ..................................... 836
2001 ..................................... 860
2002 ..................................... 762
2003 ..................................... 359
-------
$ 2,817
=======
</TABLE>
Rent expense under operating leases was $698,000, $785,000 and $367,000 in
1999, 1998 and 1997, respectively.
On October 22, 1998, Pearl Peckerman, I.R.A., on behalf of herself and all
others similarly situated, filed a putative class-action complaint (the
"Peckerman Complaint") in the United States District Court for the Southern
District of Florida against the Company and certain current and former
officers and directors of the Company, as well as the co-lead underwriters
of the Company's initial public offering. On December 4, 1998, Harvey
Rooks, Rachel Rooks and Joyce Bornstein, on behalf of themselves and all
others similarly situated, filed a putative class action complaint (the
"Rooks Complaint") in the United States District Court for the Southern
District of Florida against the Company and certain current and former
officers and directors of the Company, as well as the co-lead underwriters
of the Company's initial public offering.
On February 5, 1999, the United States District Court for the Southern
District of Florida ordered that these actions be consolidated. Thereafter,
on July 29, 1999, the plaintiffs filed an amended and consolidated
class-action complaint (the "Amended and Consolidated Complaint") styled In
re National Auto Finance Company, Inc. Securities Litigation, Case Number
98-8767-CIV-Hurley.
The individual lead plaintiffs (the "Lead Plaintiffs") in the Amended and
Consolidated Complaint are Pearl Peckerman, Harvey Rooks, Rachel Rooks,
Joyce Bornstein, Emanuel Androulidakis, Frank Rosetti, Thomas R. Bopp, Noel
V.
- 50 -
<PAGE> 51
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Brodtman, Jr., Susan H. Jacobsen, Leonard R. Carothers, Fred Gaunce, Duane
Morris, Ralph Casey, Hiram Graham, and Vance Prigge. In addition, the
action was instituted on behalf of a putative class of plaintiffs
consisting of those persons who purchased or otherwise acquired stock of
the Company between January 29, 1997 and April 15, 1998 inclusive,
excluding the Company, its subsidiaries and affiliates, the individual
defendants, members of the immediate families of each of the individual
defendants, and the successors and assigns of any defendant. Other than the
Company, the defendants to the action are: Gary L. Shapiro, Keith B. Stein,
Roy E. Tipton, Kevin G. Adams, Edgar A. Otto, Peter Offerman, Morgan M.
Schussler, Steven L. Gurba, and the co-lead underwriters of the Company's
January 1997 initial public offering, Raymond James & Associates, Inc. and
Cruttenden Roth, Inc.
The Amended and Consolidated Complaint sets forth allegations surrounding
the Company's 1997 restated financial statements, the interpretation of
FASB No. 125 and the relationship between the Company and its prior outside
service provider, Omni Financial Services of America, Inc. The plaintiffs'
allegations of liability are based on various theories of recovery,
including alleged violations of Section 11, 12(a)(2), 15 and 20(a) of the
Securities Act of 1933, as amended, and Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934, as amended. The plaintiffs are seeking
compensatory damages, as the court deems appropriate.
The Company acknowledged its contracted obligation to indemnify Raymond
James, Inc., and Cruttenden Roth, Inc., (collectively, "the Underwriter
Defendants') pursuant to the underwriting agreement entered into with the
Company in connection with its initial public offering with respect to
their legal and other costs incurred in this litigation, including but not
limited to any potential judgment against them.
On September 13, 1999, the Lead Plaintiffs filed a motion for class action
certification. Also, on September 13, 1999, the Underwriter Defendants
filed a motion to dismiss the Amended and Consolidated Complaint. On
September 20, 1999, the Company, as well as certain other individual
defendants, and Gary L. Shapiro, individually, filed a motion to dismiss
Lead Plaintiffs' Amended and Consolidated Complaint. In conjunction with
such motions, the Company, as well as certain other individual defendants,
filed a request for oral argument.
Litigation is subject to many uncertainties, and it is possible that the
above action could be decided unfavorably. The Company has entered into
discussions in an attempt to settle the pending litigation if it is in the
best interests of the Company's stockholders to do so, but can give no
assurance that such negotiations will result in settlement. Management is
presently unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome or settlement of the
pending litigation. It is possible that the Company's business, volume,
results of operations, cash flows or financial position could be materially
affected by an unfavorable outcome or settlement of the pending litigation.
The Company has directors' and officers' liability insurance policies that
apply to this litigation with a liability limit of $5 million; two excess
policies with liability limits of $2 million and $3 million, respectively.
Each insurer has raised certain coverage defenses or denied coverage. The
Company has engaged, and will continue to pursue appropriate strategies to
protect and preserve its claims of full coverage under all such policies.
The Company employs its executives pursuant to employment agreements with
terms ranging from two to three years. The agreements provide for salary
and incentive compensation including bonuses and stock option grants.
The employment agreements provide for minimum compensation of $1.1 million
in each of 1999 and 2000 and $326,000 in 2001.
Pursuant to a registration rights agreement with the Company, First Union's
partnership interest (See Note 13 of Notes to Financial Statements -
Related Party Transactions) 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, Ironbrand
Capital, LLC, a wholly-owned subsidiary of First Union (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.
- 51 -
<PAGE> 52
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 each. 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.
(9) INCOME TAXES
The Company had no current income tax provision in 1999 and 1998 due to its
losses 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 in
1996.
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
Pro forma income tax adjustments
(unaudited)
Federal.............................. $ 1,527
State and local...................... 162
--------
1,689
========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities as of December 31
were:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
DEFERRED TAX ASSETS (IN THOUSANDS):
Securitized assets sold for financial statement
purposes, financed for income tax purposes $ 15,710 13,518
Net operating loss carryforward 6,789 6,160
--------- -------
Total gross deferred asset 22,489 19,678
Less valuation allowance (22,489) (19,678)
--------- -------
Total deferred tax assets -- --
--------- -------
DEFERRED TAX LIABILITIES:
Other -- --
--------- -------
Net deferred tax asset $ -- --
========= =======
</TABLE>
As of December 31, 1999, the Company had a $18.0 million net operating loss
for income tax purposes, of which $5.7 million will expire in 2012, $1.5
million will expire in 2018 and $10.8 million will expire in 2019. Due to
the uncertainty of the realization of the net deferred tax assets, the
Company has established a 100% valuation allowance. The change in
ownership in 1999 represents an over fifty percent change in ownership,
net operating losses occurring prior to the change will be severely
limited.
- 52 -
<PAGE> 53
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The actual provision for income taxes for 1999, 1998 and pro forma income
taxes for 1997 differ from the amounts computed by applying federal
statutory rates to income before income taxes and extraordinary item due
to:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Provision (benefit) computed at
federal statutory rate of 34%............. $ (3,294) $ (11,418) $ (6,269)
State income taxes, net of federal
tax benefit............................... (353) (1,219) (669)
Change in deferred tax asset valuation
allowance................................. 3,647 12,637 1,457
Deferred income liability recorded in
conjunction with the reorganization.... -- -- 5,416
Other....................................... -- -- 65
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
</TABLE>
(10) 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 1,000
hours per year, are eligible to participate in the Plan once they have
completed three months of continuous service.
Participating employees may contribute up to 15% of their 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
approximately $46,000, $101,000 and $75,000 in 1999, 1998 and 1997,
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.
(11) STOCK OPTION PLAN
In 1996, the Board of Directors of the Company adopted the 1996 Share
Incentive Plan (the "Plan"). The 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 4,000,000 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).
- 53 -
<PAGE> 54
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
As of December 31, 1999, outstanding stock options with respect to shares
of Common Stock under the Plan where held by the Company's directors,
officers and employees. The strike price of these options approximates the
fair market value at the date of grant. Employee stock options vest
one-third immediately and one-third in each of the following two years,
respectively; and director stock options vest immediately. All stock
options expire 10 years from the date of grant.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- ------------------------ ---------------------------- --------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 262,500 $ 3.61 217,500 $ 3.89
Granted 2,139,590 .24 45,000 2.25
Exercised -- -- -- --
Forfeited/Canceled 232,107 2.56 -- --
--------- -------
Outstanding at end of year 2,169,983 $ .24 262,500 $ 3.61
========= ========= ======= =========
Exercisable at end of year 879,315 $ 1.11 208,333 $ 3.39
========= ========= ======= =========
Weighted average fair market value
of options granted during year $ .15 $ 1.45
========= =========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<S> <C>
Range of exercise price............................ $ .23 - .4375
Options outstanding................................ 2,169,983
Weighted average remaining
contractual life in years.......................... 9.04
Weighted average exercise price.................... $ .24
Options exercisable
December 31, 1999.................................. 879,315
Weighted average exercise price.................... $ 1.11
</TABLE>
SFAS no. 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net loss and loss per
share as if compensation cost for the Company's employee stock option plans
had been determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value of each
option at the grant date by using the Black-Scholes option pricing model
with the following weighted-average assumptions used for grants in 1999 and
1998, expected volatility ranging from 45.5% to 46.9% and risk-free
interest rates ranging from 5.31% to 6.63% and a zero percent dividend
yield.
Under accounting provisions of SFAS 123 the Company's net loss per share
would have been increased to the pro forma information indicated below:
<TABLE>
Years ended December 31, 1999 1998
------------------------ ---- ----
(In thousands, except per share data)
<S> <C> <C>
Net loss applicable to Common
Stockholders as reported................. $ (9,730) $ (33,741)
Pro forma................................ (9,960) (33,997)
Loss per share - basic and
diluted as reported...................... $ (.64) $ (3.73)
Pro forma................................ (.66) (3.76)
</TABLE>
- 54 -
<PAGE> 55
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The Company and certain of its executive officers executed employment
agreements in which the Company agreed to grant such executive officers as
a group an aggregate of up to 2,196,292 incentive stock options of the
Company's Common Stock, ratified by the Company's Board of Directors and
stockholder approval on June 13, 1999 to amend the Company's existing
stock option plan to increase the number of authorized shares of Common
Stock reserved for future issuance of such shares upon exercise of such
incentive stock options and the filing with the Securities and Exchange
Commission of appropriate amendments to the existing Registration
Statement on Form S-8 or in the alternative adoption of a new incentive
stock option plan and the filing with the Securities and Exchange
Commission of an additional Registration Statement on Form S-8.
Accordingly, these option shares are not included above.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
o The carrying amounts of cash and cash equivalents have approximate
fair value because of the short maturity of these instruments.
o Retained Interest in Securitizations is stated at estimated fair
value.
o The fair value of the Junior Subordinated Notes is determined as the
present value of expected future cash flows discounted at an
interest rate for such borrowing that is based on a spread above the
actual yield on Senior Notes. The fair value, calculated on such
basis, was $1,773,000 and $1,546,000 at December 31, 1999 and 1998,
respectively. Book value of such debt was $2,181,000 and $1,940,000
at December 31, 1999 and 1998, respectively.
o 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.
(13) RELATED PARTY TRANSACTIONS
National Financial Companies LLC ("NFC")
The Company was previously party to a management agreement and a service
agreement pursuant to which NFC provided operational, financial, legal,
accounting, management, advisory and other administrative services
relating to the management, business operations, assets and interests of
the Company. This agreement was terminated in June 1998. Amounts paid to
NFC pursuant to such agreements were $289,000 and $884,000 in 1998 and
1997, respectively; $333,000 of the amount paid in 1997 was for services
as described in the following paragraph. Gary L. Shapiro, the former
Chairman and Chief Executive Officer of the Company, is the Chairman and
Chief Executive Officer and a principal owner of NFC and National Auto
Finance Corporation ("National Auto"), the general partner of the National
Auto Partnership. National Auto Partnership owns a 22.1% beneficial
interest in the Company. Keith B. Stein, Chairman of the Board and Chief
Executive Officer, was formerly a managing director of NFC.
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 such offering.
During 1998, NFC acquired a controlling interest in BNI, Inc. BNI was the
vendor for the Company's loan servicing software and hardware system. The
Company paid BNI $859,000 and $644,000 in 1998 and 1997 for this system.
- 55 -
<PAGE> 56
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Junior Subordinated Notes
The Junior Subordinated Notes are payable to certain affiliates of the
Company on January 31, 2002, and accrue interest at eight percent (8%) per
annum. Such debt is subordinated to all other debt of the Company.
Interest expense recognized for this debt for the years ended December 31,
1999, 1998, and 1997 was $168,000, $155,000 and $201,000 respectively.
Senior Subordinated Notes
As discussed in Note 4 of Notes to Financial Statements - Debt, in
conjunction with the issuance of the Senior Subordinated Notes and Common
Stock in December, 1997, representatives of each of the stock purchasers,
who were also lenders of Senior Subordinated Notes, were elected to the
Board of Directors. As discussed in Note 5, the Senior Subordinated
Noteholders were granted the right to designate three additional
representatives to the Board in conjunction with the Company's
Restructuring.
FIRST UNION
Until March 1999, the Company was party to an agreement with First Union
and certain of its affiliates (the "First Union Strategic Alliance")
whereby First Union received a fee from the Company for each purchase of a
loan through a dealer relationship established as a result of the First
Union Strategic Alliance. Fees paid to First Union under this arrangement
were approximately $23,000, $247,000 and $400,000 in 1999, 1998 and 1997,
respectively.
For the years ended December 31, 1999, 1998 and 1997 approximately 43%,
44%, and 43% of the loans the Company purchased were attributable to
Dealers established through the First Union Strategic Alliance.
First Union has also served as underwriting and placement agent related to
the Company's past securitizations. Underwriting fees paid and expense
reimbursements related to securitizations was approximately $425,000 in
1997.
First Union also had owned 100% of the Class B or Senior Certificates
related to the Master Trust until such Certificates were paid in full by
proceeds from the sale of loans to Nuvell. See Note 14. Such investment
aggregated $43.3 million and $69 million at December 31, 1999 and 1998.
First Union acted as placement agent related to the December 1997 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 4, the Company has a note payable
to First Union with outstanding balances of $368,000 and $735,000 as of
December 31, 1999 and 1998, respectively, related to equipment financing.
Also described in Note 4, as of the year ended December 31, 1999, the
Company has a note payable (related to the revolving credit facility) of
$3.0 million.
A subsidiary of First Union is a limited partner of the National Auto
Partnership and holds a vested limited, minority interest in the National
Auto Partnership.
See Note 3 for related party transaction with Prudential Insurance Company
of North America and affiliates related to 1999-1 Securitization.
(14) SUBSEQUENT EVENTS
On February 4, 2000, the Company and Nuvell Credit Corporation ("Nuvell")
entered into agreements whereby the Company, in return for origination
fees, agreed to originate loans exclusively for the benefit of Nuvell
through its existing Dealer Network and immediately assign such contracts
to Nuvell. The Company will retain servicing of all such loans assigned to
Nuvell in return for servicing fees. The Nuvell agreements were extended
from May 31, 2000 through December 31, 2000 and are subject to further
extension upon mutual consent of both parties.
- 56 -
<PAGE> 57
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
On February 22, 2000, National Financial Auto Funding Trust II ("Funding
Trust II"), a special purpose wholly-owned subsidiary of NAFI, defaulted
in its obligation to deposit approximately $5 million in cash collateral
to the Master Trust Over-Collateralization Account, as required under the
Master Trust Securitization Credit Facility, thereby giving rise to First
Union's decision to terminate future funding availability under the
facility and to commence amortizing the outstanding amounts owed to First
Union under the facility.
In conjunction with such default, First Union agreed to waive until April
21, 2000 certain rights to liquidate the portfolio of approximately $58.9
million of auto loans that secure its loans to Funding Trust II, thereby
permitting the Company time to pursue various strategic options, including
a sale of such portfolio. On April 5, 2000, Funding Trust II, the Company,
and Nuvell entered into a Sale and Purchase Agreement (the "Sale
Agreement") whereby a substantial number of the loans previously sold to
the Master Trust under the Master Trust Securitization Credit Facility in
the approximate amount of $47 million were sold by Funding Trust II to
Nuvell after such loans had been acquired by Funding Trust II from the
Master Trust by an Assignment Agreement dated as of April 5, 2000. The
Company, pursuant to the Sale Agreement, will retain servicing of
substantially all of such loans under the terms and provisions of the
Servicing Agreement. Approximately $43.9 million of the proceeds from the
sale of such loans were then used to pay in full the Class B Certificates
held by First Union (Note 4). The Company anticipates to receive
additional cash from the transaction and release of funds previously
required to be held in reserve of approximately $6.0 million, which will
be used for general corporate purposes, including the possible payment of
certain of the debt of the Company. In related developments, First Union
terminated its commitment to purchase up to $20 million of subordinated
asset-backed debt securities in connection with the Company's future
Permanent Securitizations and converted to a 48 month term loan (requiring
equal monthly principal payments) $3 million outstanding under a revolving
working capital facility secured by the Company's ESRs.
(15) LIQUIDITY AND GOING CONCERN
The Company has suffered significant losses from operations during 1999,
1998 and 1997, has a capital deficiency as of December 31, 1999 and its
Master Trust Securitization Credit Facility has been terminated. Such
matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are
described in the following paragraphs.
The Company's business has historically required substantial cash to
support the funding of Cash Spread Accounts for its securitizations,
issuance costs of its securitizations, operating expenses, tax payments,
debt service and other cash requirements. These cash requirements increase
as the number of loans purchased, securitized, and serviced by the Company
increase. Historically, the Company has operated on a negative operating
cash flow basis. 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's current business strategy for future growth is to focus on
originating loans for other consumer finance companies, such as Nuvell, on
a service retained basis in return for both origination and servicing fee
income, rather than dedicating capital resources, particularly cash, to
originate loans for its own account and/or in anticipation of engaging in
periodic asset-backed securitization transactions.
In furtherance of such strategy, on February 4, 2000, the Company entered
into the Nuvell Agreements whereby the Company, in return for origination
fees, has agreed to originate non-prime retail motor vehicle installment
sale loans exclusively for the account of Nuvell. The Company retains
servicing of all such loans in return for servicing fees, for the term of
the Nuvell Agreements and any extension thereof. The Company originates
and services loans under the Nuvell Flow Program in the same manner as it
has historically conducted its business operations.
The Nuvell Agreements, initially scheduled to expire on May 31, 2000, were
renewed and extended through December 31, 2000, by the mutual consent of
both the Company and Nuvell. During the course of negotiating the Nuvell
Agreements, the Company and Nuvell had, and continue to have very
preliminary and limited discussions regarding the potential acquisition by
Nuvell of the operational assets of the Company and its personnel
including, in particular, the assets and personnel comprising the
Company's loan origination and servicing capabilities, but there can be no
assurance that such discussions will continue or if they do continue, that
they will lead to a transaction. In the event that the Nuvell
- 57 -
<PAGE> 58
NATIONAL AUTO FINANCE COMPANY, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Agreements are not renewed or that no other transaction arises between
Nuvell and the Company, the Company will immediately seek to enter into
relationships similar to those represented by the Nuvell Flow Program with
other third-party auto finance companies.
Further, pursuant to the Company's current business strategy, the Company
projects over the next 12 months an increase in cash flow over 1999. The
Company projects through the Nuvell Flow Program and Scheduled Cash
releases from the Retained Interest in Securitizations, sufficient cash
flow to operate over the next twelve months. Although there can be no
assurance that the Company will successfully execute this business plan,
both the Nuvell Flow Program and the business plan were designed and
implemented to enable the Company, among other things, to increase its
cash flow and further stabilize its financial condition.
- 58 -
<PAGE> 59
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning the executive officers and directors of the
Company as of February 29, 2000 is set forth below:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Keith B. Stein............. 42 Chairman of the Board and Chief Executive
Officer
William G. Magro........... 50 President and Chief Operating Officer
Brent E. Wombolt........... 41 Senior Vice President, Operations and
Loan Originations
Stephen R. Veth............ 51 Vice President, Secretary and General
Counsel
Brian W. Thompson.......... 38 Vice President, Finance and Accounting,
Treasurer
James E. Shuler............ 39 Vice President, Sales and Marketing
Joseph Glick............... 37 Vice President, Collections and Customer
Service
Frank A. Florio............ 48 Vice President, Information Systems
Robert R. Gould............ 40 Director
David Benson............... 41 Director
Joseph P. Donlan........... 53 Director
David W. Young............. 56 Director
Evelyn Erb ................ 41 Director
Peter Offermann............ 55 Director
</TABLE>
Keith B. Stein has been the Chairman of the Board of the Company since June
1999 and the Chief Executive Officer of the Company since May 1998; was Vice
Chairman, Treasurer and a Director of the Company since January 1997; and held
other senior executive positions with the Company since 1994. 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 and management business, since September 1996.
William G. Magro was promoted to President in May 1999 and has been the
Chief Operating Officer of the Company since January 1998, Executive Vice
President of the Company from October 1994 to May 1999, and was President of the
financial services division of the Company from September 1997 to June 1998. Mr.
Magro served from January 1985 to August 1994 as Director of Collection and
Client Services for Omni Financial Services of America ("OFSA"). Mr. Magro
served from January 1972 to December 1984 as a Collection Supervisor and a
Dealer Relations Supervisor at General Motors.
Brent E. Wombolt was promoted to Senior Vice President, Operations and Loan
Originations in May 1999 and was a Vice President of the Company from February
1998 to May 1999, and an Assistant Vice President 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.
Stephen R. Veth has been the Vice President, Secretary and General Counsel
for the Company since March 1999. Mr. Veth served as Vice President and Legal
Counsel of First Street Mortgage Corporation from September 1997 to December
1998. Mr. Veth was General Counsel of EquiCredit Corporation from July 1990 to
August 1997.
Brian W. Thompson was promoted to Vice President of the Company in December
1999 and was Controller since August 15, 1998. Mr. Thompson served as Vice
President, Finance for EquiCredit Corporation from May 19, 1996 to August of
1998. Mr. Thompson served as Audit Supervisor with Barnett Bank from March 1995
to May 1996. Prior to that time, Mr. Thompson was employed by Deloitte & Touche,
as a Senior Accountant from January 1990 to March 1995.
James E. Shuler has been Vice President of the Company since February 1998
and from May 1996 to February 1998 held various positions with the Company. Mr.
Shuler was employed by Greentree Financial Corporation, a consumer finance
company, as a Collection Manager from March 1995 to May 1996. Prior to that
time, Mr. Shuler was employed by TransSouth Financial Services, also a consumer
finance company, as a Branch Manager from September 1994 to March 1995. Mr.
Shuler held various positions with OFSA from August 1988 to September 1994.
- 59 -
<PAGE> 60
Joesph P. Glick has been Vice President of the Company since March 1999,
Assistant Vice President from August 1998 to March 1999, and from January 1997
to August 1998 held various positions with the Company. From October 1995 to
January 1997, Mr. Glick was involved in residential construction, and held
several positions with OFSA from September 1988 to October 1995.
Frank A. Florio was promoted to Vice President in May 1999, and was an
Assistant Vice President of the Company from February 1998 to May 1999. Prior to
that time, Mr. Florio held the senior-most position in the Company's information
systems department since his employment with the Company in April 1997. Mr.
Florio held a position with Queue Systems from June 1992 through March 1997.
Robert R. Gould is a partner of Brown Brothers Harriman & Co. ("BBH&Co."),
where he began his career in 1981 as a commercial banker providing lending and
advisory services to small to medium sized companies. Beginning in 1988, Mr.
Gould became engaged exclusively in the firm's selection and monitoring of
equity investments on behalf of the 1818 Equity Funds and in providing merger
and acquisition advisory services to domestic and foreign companies. In 1996, he
co-founded the 1818 Fund, a $250 million private equity fund. Mr. Gould became a
General Partner of BBH&Co. in 1996. Mr. Gould is a director of Irving Tanning
Company, DB Companies, Inc., Robert F. Driver Company, Flents Products Company,
Inc. and Magnetic Analysis Corporation.
David Benson has served since 1997 as a Portfolio Manager of Progressive
Capital Management Corp., a wholly-owned subsidiary of the Progressive
Corporation. Prior to that time, Mr. Benson served as Managing Director of Tokai
Securities from 1996 to 1997, where he engaged in proprietary trading in global
credit and currency markets. From 1985 to 1996, Mr. Benson served as Senior Vice
President and Head Trader for Aubrey G. Lanston and Co., primarily dealing in
U.S. Treasury Bonds.
Joseph P. Donlan has held a number of positions with BBH&Co. since 1970,
and is currently co-manager of the 1818 Fund, which he co-founded in 1996. Prior
to his current position, Mr. Donlan was the Manager of BBH&Co.'s US Banking
Department, with responsibility for managing five banking groups engaged in
international trade finance, domestic commercial finance, financial advisory
service and private placement activities.
David W. Young was the Chief Investment Officer of the Progressive
Corporation, a $6.5 billion property and casualty company from June 1995 until
January 1999 when he resigned to pursue other interests. Prior to that time, Mr.
Young served as Senior Managing Director of Progressive Partners, an affiliate
of the Progressive Corporation, 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.
Evelyn Erb has served since 1989 as a Portfolio Manager for Progressive
Capital Management Corp., a wholly- owned subsidiary of the Progressive
Corporation. Prior to such position, she spent 4 years with Goldman Sachs.
Peter Offermann served as Executive Vice President and Chief Financial
Officer of TLC Beatrice International Holdings, Inc., a food manufacturing and
distribution business from January 1995 to August 1999. 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 Managing
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and any persons who own more than ten percent
of the Company's Common Stock to file reports of initial ownership of the
Company" Common Stock and subsequent changes in that ownership with the
Securities and Exchange Commission. Officers, directors and greater than
ten-percent beneficial owners are also required to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon a review of the
copies of the forms furnished to the Company, or written representations from
certain reporting persons, Forms 5 were filed by all executive officers and
Messrs. Offermann and Young. The Company believes that during Fiscal 1999, all
Section 16(a) filing requirements were met with the exception of late filings of
Form 3 by Stephen R. Veth, Frank A. Florio and Joseph P. Glick. In addition,
Manufacturers Life Insurance Company (USA) tendered no filings of Schedule 13-d
in Fiscal 1999.
- 60 -
<PAGE> 61
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 currently set at not less than four directors. The directors are
divided into three classes. The initial term of office of the Class I Directors
will expire at the Annual Meeting of the Company's stockholders in 2000. The
initial term of office of the Class II directors was to expire at the Annual
Meeting of the Company's stockholders in 1998. Roy Tipton, former President of
the Company, and Stephen Gurba, who comprised all the Class II Directors, both
resigned from the Board of Directors during calendar year 1998 and the Company
did not have an Annual Meeting in 1998. The Board did not fill the vacancies
created by their resignations until the election by the Board of Evelyn Erb and
David Benson of Progressive, and Robert Gould, of the 1818 Fund, in connection
with completion of the Restructuring. The initial term of office of the Class
III Directors expired at the Annual Meeting of the Company's stockholders on
September 14, 1999.
The number of Class I Directors currently is set at three; the Class I
Directors are Keith Stein, Chairman of the Board of Directors and Chief
Executive Officer of the Company, Peter Offermann, and Evelyn Erb. Ms. Erb was
elected by the Board of Directors on May 12, 1999, to fill the vacancy created
by the resignation of Mr. Shapiro as a Class I Director in December 1998. The
number of Class II Directors currently is set at three, one seat of which is
vacant; the Class II Directors are David Benson and Robert Gould. The number of
Class III Directors currently is set at three, one seat of which is vacant; the
Class III Directors are Joseph Donlan of the 1818 Fund and David Young. Mr.
Donlan and Mr. Young were named to the Company's Board of Directors in December
1997 in connection with the completion of the Company's $50,000,000 private
placement of Senior Subordinated Notes and equity in December 1997.
At the Annual Meeting of the Company's stockholders on September 14, 1999,
Messrs. Gould and Benson were elected for two (rather than three) year terms as
Class II Directors until the 2001 Annual Meeting of Stockholders in order to
establish a consistent three year term for each respective class of directors on
a rotating basis at succeeding annual stockholder meetings of the Company in
compliance with the Company's Certificate of Incorporation and By-laws. At the
same Meeting, Messrs. Young and Donlan were elected as Class III Directors until
the 2002 Annual Meeting of Stockholders. The other three directors (Messrs.
Stein and Offermann and Ms. Erb) will continue in office as Class I Directors.
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 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. In conjunction with the Company's Restructuring,
the Senior Subordinated Noteholders were granted the right to name three
additional persons to the Board of Directors of the Company, increasing to six
seats their total number of Board representatives, thereby giving them majority
control of the Board. Messrs. Gould, Donlan, and Benson, and Ms. Erb hold four
of such six seats, leaving two seats available for election of additional Board
representatives of the Senior Subordinated Noteholders. Mr. Morgan M. Schuessler
resigned as a director in April 1999.
- 61 -
<PAGE> 62
EXECUTIVE COMPENSATION
The following table sets forth information concerning total compensation
earned by or paid to the Company's Chief Executive Officer, and the four other
most highly compensated executive officers of the Company employed as of
December 31, 1999 (the "named Executive Officers"), during Fiscal 1999, 1998 and
1997 for services rendered to the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities
Underlying All Other
Name and Principal Position Year(1) Salary(1) Bonus(1) Options/SARs(8) Compensation($)
<S> <C> <C> <C> <C> <C>
Keith B. Stein (2) 1999 $ 308,021 $ 184,797 906,161 4,800(3)
Chairman and Chief Executive 1998 257,808 150,000 85,000 --
Officer 1997 -- 75,000 37,500 --
William G. Magro 1999 214,284 131,308 426,429 4,800(4)
President and 1998 173,748 90,000 30,000 121,749(4)
Chief Operating Officer 1997 130,000 55,000 35,000 31,290(4)
Brent E. Wombolt (5) 1999 136,685 60,632 133,259 4,800(3)
Senior Vice President, Operations 1998 121,288 20,000 7,500 4,186(3)
and Loan Originations 1997 78,751 40,000 15,000 481(3)
James E. Shuler (6) 1999 124,196 35,797 106,607 1,625(3)
Vice President, Sales and 1998 95,790 31,500 -- 1,662(3)
Marketing 1997 88,338 17,573 -- 1,462(3)
Frank A. Florio (7) 1999 106,959 38,374 106,607 1,275(3)
Vice President, Information 1998 89,929 -- -- 100(3)
Technology 1997 49,135 -- -- --
</TABLE>
- -----------------
(1) Bonuses for certain members of senior management for services rendered in
a given year were finally determined by the Compensation Committee of the
Board pursuant to guidelines established in such executives' employment
agreements. These bonuses were paid by the end of March of the year
following the year to which such bonuses relate. See "Employment
Agreements." "Salary" includes additional miscellaneous compensation in
the form of car allowances.
(2) Mr. Stein was Vice Chairman, Chief Executive Officer, Treasurer and
Director until his election as Chief Executive Officer in May 1998 and
Chairman of the Board in June 1999. No compensation was received directly
from the Company in 1997 and 1996. The Company, however, paid fees and
costs to National Financial Companies, LLC ("NFC"), pursuant to management
and service agreements, for the rendering of various services in support
of the Company's operations. Mr. Stein was formerly a Managing Director of
NFC.
(3) Includes contributions made by the Company in accordance with the
Company's 401(k) Plan.
(4) Mr. Magro was Executive Vice President and Chief Operating Officer until
his election as President and Chief Operating Officer in May 1999.
Includes (i) contributions made by the Company in accordance with the
Company's 401(k) Plan of $4,057, $1,213, and $87.50 in 1998, 1997 and 1996
respectively, (ii) forgiveness of indebtedness of $40,854 in 1998, and
(iii) $76,838, $30,077 and $11,041 for relocation expenses paid in 1998,
1997 and 1996, respectively.
(5) Mr. Wombolt was promoted to Senior Vice President, Operations, and Loan
Originations in May 1999.
(6) Mr. Shuler has been an executive officer of the Company in his present
capacity since February 1998.
(7) Mr. Florio was promoted to his current position in May 1999.
(8) Number of shares of Common Stock, par value $.01 per share, of the
Company, underlying options.
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<PAGE> 63
No stock appreciation rights were awarded to, earned by, or paid to the named
Executive Officers during the fiscal year ended December 31, 1999.
Director Compensation
Keith B. Stein, the sole director who is also an employee of the Company,
receives no extra compensation or retainer fees for his service as a member of
the Board of Directors or any committee thereof. Each independent non-employee
director of the Company receives an annual retainer of $10,000 and $1,000 for
each meeting of the Board of Directors attended in person and $500 for each
meeting of the Board of Directors attended telephonically, 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 1996 Plan in order to provide such directors an
opportunity to acquire a proprietary interest in the Company through 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 stock options is equal to or greater than the fair
market value of such Common Stock on the date of grant. These stock options are
fully exercisable on the first anniversary of the date of grant.
Employment Agreements
The Company employs each of Keith B. Stein, Chairman and Chief Executive
Officer, William G. Magro, President and Chief Operating Officer, Brent E.
Wombolt, Senior Vice President, Operations and Loan Originations, James E.
Shuler, Vice President, Sales and Marketing, and Frank A. Florio, Vice
President, Information Technology (individually an "Executive" and collectively,
the "Executives"), pursuant to employment agreements effective as of June 1,
1998, June 1, 1998 (as amended and restated) August 1, 1998, August 1, 1998 (as
amended and restated), and April 10,1997 respectively. The term of Mr. Stein's
agreement will end on June 1, 2001, the term of Mr. Magro's agreement will end
on May 31, 2001, the term of Mr. Wombolt's agreement will end on February 28,
2001, and the term of Mr. Shuler's agreement will end on February 28, 2001
unless sooner terminated pursuant to the terms of each respective agreement. Mr.
Florio's employment agreement terminates on June 1, 2001.
Mr. Stein's employment agreement provides for an annual base salary of
$300,000, with such amount to be reviewed annually by the Compensation
Committee. Mr. Stein's base salary was increased to $321,000 for 2000. Mr. Stein
was paid an incentive bonus in January 1999 with respect to Fiscal 1998 of
$150,000, pursuant to the terms of his employment agreement. Mr. Stein may
receive from the Company an incentive bonus in each year of his employment under
such agreement, the amount of which is payable on or before March 31 of the year
following the year to which such bonus relates. Pursuant to an Executive
Incentive Bonus Program adopted by the Board of Directors for Fiscal 1999 (the
"1999 Bonus Program"), Mr. Stein was paid incentive bonus in January 2000 for
Fiscal 1999 of $184,797 based upon the Company achieving certain pre-established
performance goals.
Mr. Magro's annual base salary was $140,000 from January 1, 1998 through
May 31, 1998, and from the effective date of his agreement to May 31, 1999 was
$180,000 and will be (i) no less than $192,600 from June 1, 1999 through May 31,
2000, and (ii) no less than $206,082 from June 1, 2000 through May 31, 2001. Any
increase in Mr. Magro's annual base salary in excess of seven percent (7%) for
such periods will be determined by the Compensation Committee. Mr. Magro was
paid in January 1999 an incentive bonus with respect to Fiscal 1998 of $90,000,
equal to 50% of his 1998 annual base salary, and will receive from the Company
an incentive bonus in each year of his employment agreement of not less than
fifty percent (50%). The incentive bonus for Fiscal 1999 was based upon the 1999
Bonus Program and resulted in Mr. Magro receiving a bonus of $131,308 in January
2000.
Mr. Wombolt's annual base salary was $112,350 from March 1, 1998 through
January 4, 1999, and from January 5, 1999 through May 10, 1999 was $121,056, and
from May 11, 1999 through January 3, 2000 was $133,161 and from January 4, 2000
to January 4, 2001 is $142,483. Any increase in Mr. Wombolt's annual salary in
excess of seven percent (7%) for Fiscal 2001 and thereafter will be determined
by the Compensation Committee. Mr. Wombolt was paid in January 2000 an incentive
bonus with respect to Fiscal 1999 of $60,632 based upon the 1999 Bonus Program,
and will receive from the Company an incentive bonus in each remaining year of
his employment agreement of not less than thirty percent (30%) of his annual
base salary.
Mr. Shuler's annual base salary was $105,000 from March 1, 1998 through
January 4, 1999 and from January 5, 1999 through February 1, 1999 was $113,106,
and from February 2, 1999 through January 3, 2000 was $119,817, and from January
4, 2000 through February 29, 2001 is $128,204. Any increase in Mr. Shuler's
annual base salary in excess of seven percent (7%) for Fiscal 2001 and
thereafter will be determined by the Compensation Committee. Mr. Shuler was paid
in January 2000 an incentive bonus with respect to Fiscal 1999 of $35,374 based
upon the 1999 Bonus Program, and will receive from the
- 63 -
<PAGE> 64
Company an incentive bonus in each remaining year of his employment agreement of
not less than thirty percent (30%) of his annual base salary.
Mr. Florio's annual base salary was $95,768 from January 4, 1999 to May 10,
1999 and from May 11, 1999 to December 31, 1999 was $105,345. Mr. Florio's
annual base salary for 2000 is $112,720.11. Any increase in Mr. Florio's annual
base salary in excess seven percent (7%) for Fiscal 2001 and thereafter will be
determined by the Compensation Committee. Mr. Florio was paid in January 2000 an
incentive bonus with respect to Fiscal 1999 of $38,374 based upon the 1999 Bonus
Program, and will receive from the Company an incentive bonus in each year of
his employment with the Company of not less than 40% of his annual base salary.
Pursuant to their employment agreements, each of the Executives may
participate in any stock option and benefit plans adopted by the Company or its
successors. In addition, Messrs. Stein, Magro, Wombolt and Shuler agreed to
maintain the confidentiality of the Company's proprietary information and
agreed, during the term of each of their respective agreements, not to compete
directly or indirectly with the business of the Company.
The employment agreement of each of Messrs. Stein, Magro, Wombolt, Shuler,
and Florio may be terminated by the Company due to such Executive's disability
or death, and either without "Cause" or for "Cause" (as defined in the
employment agreements). In the event that an Executive is terminated without
"Cause," he will be entitled to receive all accrued but 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
case of Messrs. Stein and Magro, and for a six-month period for Messrs. Wombolt,
Shuler and Florio. Each of the Executives may also terminate his employment for
Good Reason (as defined in the employment agreements). In such event, each of
the Executives will be entitled to receive all accrued but unpaid base salary,
benefits and other compensation.
In the event Mr. Stein terminates his employment with the Company for "Good
Reason" or is terminated by the Company without "Cause" (as such terms are
defined in his employment agreement), he will be entitled to receive a severance
payment equal to (i) $680,000 plus (ii) his target incentive bonus for the year
of such termination pro-rated for the number of days during such year in which
he was employed up to the date of termination. If Mr. Stein is terminated for
any reason within 120 days following a "Change in Control" (as such term is
defined in his employment agreement), he will be entitled to receive a severance
payment equal to the amount described in clause (ii) above plus $980,000.
Option Grants
The following table sets forth stock options granted in Fiscal 1999 to
each of the Company's Executives named in the Summary Compensation Table who
held office as of December 31, 1999. The Company did not issue any stock
appreciation rights. The table also sets forth the hypothetical gains that would
exist for the options at the end of their ten-year terms for the Executives
named in the Summary Compensation Table at assumed compound rates of stock
appreciation of 5% and 10%. The actual future value of the options will depend
on the market value of the Company's Common Stock.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Percent
of Total
Number of Options/
Securities SARs Potential Realizable Value
Underlying Granted to Exercise at Assumed Annual Rates
Options/ Employees or Base of Stock Price Appreciation
SARs in Fiscal Price Expiration For Option Term(a)
Name Granted(#) Year ($/Sh) Date 5% ($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Keith B. Stein 906,161 43.0% $ .23(b) 2009 $ 131,072 $ 332,163
William G. Magro 426,429 20.0% .23 2009 $ 61,681 $ 156,312
Brent Wombolt 133,259 6.3% .23 2009 $ 19,275 $ 48,848
James A. Shuler 106,607 5.0% .23 2009 $ 15,420 $ 39,078
Frank A. Florio 106,607 5.0% .23 2009 $ 15,420 $ 39,078
</TABLE>
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<PAGE> 65
(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.
(b) Mr. Stein's stock options became fully vested in June 1999 pursuant to
applicable provisions of his employment agreement contingent upon the
successful consummation of the Restructuring.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
There were no shares acquired on exercise of stock options and no aggregate
gains realized upon exercise in 1999 by the Company's named Executive Officers.
The following table sets forth the number of shares covered by exercisable and
unexercisable options held by such Executives on December 31, 1999 and the
aggregate gains that would have been realized had these options been exercised
on December 31, 1999, even though these stock options were not exercised on
December 31, 1999. The Company did not issue stock appreciation rights.
FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options/SARs at FY- Money Options/SAR at Fiscal
End (#) Year End(a)($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Keith B. Stein 1,028,661 -- $ 288,025 $ --
William G. Magro 197,143 294,286 55,200 82,400
Brent Wombolt 64,419 91,340 18,037 25,575
James A. Shuler 55,535 73,572 15,550 20,600
Frank A. Florio 35,535 71,072 9,950 19,900
</TABLE>
(a) As of December 31, 1999, the market stock price of the Company's Common
Stock was $.28.
Report on Repricing of Stock Options
On June 3, 1999 (the "Repricing Date"), in light of the significant
challenges facing the Company and the need to retain key executives and
directors and to strengthen the mutuality of interests between such persons and
the Company's stockholders, the Board of Directors approved the Compensation
Committee's repricing of options then outstanding granted to executive officers
and certain directors under the 1996 Plan, to an exercise price of $.23 per
share, which was the fair market value of the Company's Common Stock immediately
after the Restructuring Date as determined by the Board of Directors. In the
Compensation Committee's view, the repricing was in the best interest of the
Company and its stockholders and provided performance and retention incentives
to key executives, whose efforts are essential for the Company's continual
progress to achieve profitability. No other material terms of the options were
revised. Options held by Mr. Offermann and Mr. Young, non-employee directors,
were also repriced in the same manner as the stock options of the Company's
executive officers.
- 65 -
<PAGE> 66
The following table contains information concerning the repricing with respect
to the named executive officers and directors:
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Length Of
Market Original
Number of Price Of Exercise Option Term
Securities Stock At Price At Remaining At
Underlying Time Of Time Of Date Of
Options/SARs Repricing Or Repricing Or New Repricing Or
Repriced Or Amendment Amendment Exercise Amendment
Name Date Amended ($) ($) Price ($) (Years)
- ---- ---- ------------ ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith Stein June 3, 1999 85,000 $.23 $2.25 $.23 8.66
June 3, 1999 22,500 $.23 $5.25 $.23 7.91
June 3, 1999 15,000 $.23 $5.25 $.23 8.33
William Magro June 3, 1999 35,000 $.23 $5.25 $.23 7.91
June 3, 1999 30,000 $.23 $2.25 $.23 9.33
Brent Wombolt June 3, 1999 15,000 $.23 $5.25 $.23 8.00
June 3, 1999 7,500 $.23 $2.25 $.23 8.66
James Shuler June 3, 1999 15,000 $.23 $5.25 $.23 8.00
June 3, 1999 7,500 $.23 $2.25 $.23 8.66
Peter Offermann June 3, 1999 5,000 $.23 $5.25 $.23 7.91
June 3, 1999 5,000 $.23 $5.25 $.23 8.25
David Young June 3, 1999 10,000 $.23 $5.25 $.23 8.50
</TABLE>
Compensation Committee: Board of Directors:
David W. Young Keith B. Stein David Benson
Peter Offermann Peter Offermann Robert Gould
Joseph Donlan Joseph P. Donlan Evelyn Erb
Evelyn Erb David W. Young
Stock Options Granted in 1999
In conjunction with employment agreements that the Company's executive
officers executed during 1998, contingent upon the Restructuring and promotions
of certain non-executive officers to executive officers, the Company granted
such executive officers as a group an aggregate of 1,892,277 stock options of
the Company's Common Stock, 1,420,898 of which the Company believes qualify as
incentive stock options.
- 66 -
<PAGE> 67
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 February 29, 2000, 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.
<TABLE>
<CAPTION>
Number of
Name and Address of Beneficial Owner Shares(1) Percent(1)
- ------------------------------------ --------- ----------
<S> <C> <C>
National Auto Finance Company, L.P. (2) .............................. 4,230,000 24.48%
Via Mizner Financial Plaza, Suite 200
700 South Federal Highway 33432
Boca Raton, Florida
The Progressive Entities(3) .......................................... 8,950,212 48.42%
3 Parklands Drive
Darien, Connecticut 06820
The 1818 Mezzanine Fund, L.P. (4) .................................... 8,730,714 46.78%
59 Wall Street
New York, New York 10005
The Structured Finance High Yield Fund, LLC (5) ...................... 8,376,259 43.92%
One Gateway Center
Newark, New Jersey 07102
Manufacturers Life Insurance Company (USA) (6) ...................... 6,256,862 34.54%
45 Milk Street, Suite 600
Boston, Massachusetts 02109
Robert R. Gould (7) .................................................. 8,730,714 46.78%
Brown Brothers
63 Wall Street, 7th Floor
New York, New York 10005
Evelyn Erb (8) ....................................................... 8,950,212 48.42%
Progressive Capital Markets
3 Parklands Drive
Darien CT 06820
David Benson (9) ..................................................... 8,950,212 48.42%
Progressive Capital Markets
3 Parklands Drive
Darien CT 06820
Joseph P. Donlan (10) ................................................ 8,730,714 46.78%
Brown Brothers
63 Wall Street, 7th Floor
New York, New York 10005
Peter O. Offermann ................................................... 20,000 *
David W. Young ....................................................... 35,000 *
Keith B. Stein (11) ................................................. 1,028,661 5.61%
William B. Magro ..................................................... 207,143 *
Brent E. Wombolt ..................................................... 66,919 *
James E. Shuler ...................................................... 58,035 *
Frank A. Florio ...................................................... 35,535 *
All directors and executive officers as a group (13 persons) ......... 21,190,716 88.05%
</TABLE>
- ------------------
(1) Unless otherwise indicated, the named entities either have sole or shared
voting and investment power with respect to the shares shown for them.
Percentage ownership is based on 17,280,762 shares outstanding as of
February 29, 2000. Includes shares of Common Stock subject to options
granted under the Company's 1996 Plan, warrants issued to the Senior
Subordinated Noteholders and stock issuable upon the conversion of
Convertible Senior Subordinated Promissory Notes, in each case exercisable
within 60 days of December 31, 1999 are deemed outstanding for computing
the beneficial ownership percentage of the person, group of persons or
entities holding such options, warrants or Convertible Senior Subordinated
Promissory Notes, but are not deemed outstanding for computing the
beneficial ownership
- 67 -
<PAGE> 68
percentage of any other person. Unless otherwise indicated, 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., 10302 Deerwood
Park Blvd. Suite 100, Jacksonville FL 32256.
(2) The General Partner holds a 1% general partner interest in the
Partnership. The Partners of the Partnership include, among others, the
First Union Partner, Keith B. Stein, the Chairman and Chief Executive
Officer of the Company, and William G. Magro, the President and Chief
Operating Officer of the Company. The remaining Partners of the
Partnership hold the balance of the limited partner economic interests,
including certain of the Junior Subordinated Noteholders; one of the
largest such holders is Gary Shapiro, the former Chairman and Chief
Executive Officer of the Company. Except for the First Union Partner, each
Partner of the Partnership has the right to vote on certain matters
specified in the partnership agreement commensurate with each such
Partner's respective economic limited partner interest. In accordance with
the partnership agreement, the consent of the First Union Partner is
generally required before the Partnership may take certain fundamental
actions. Pursuant to the Restructuring, the Partnership has granted an
irrevocable proxy to the Board designees of the Senior Subordinated
Noteholders to vote the 4,230,000 shares of Common Stock held by the
Partnership in all matters as to which such shares are entitled to vote.
Each of Messrs. Stein and Magro disclaims beneficial ownership of the
shares owned by the Partnership.
(3) Includes 3,520,000 shares of the Company's Common Stock over which
Progressive shares voting and dispositive power with the Progressive
Corporation, Progressive Casualty Insurance Company, and PCI, its
affiliates (collectively, the "Progressive Entities"). Also includes an
aggregate of $627,442 principal amount of Convertible Senior Subordinated
Promissory Notes (which are convertible, at the rate of $.75 per share,
into 836,589 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.
Also includes 4,230,000 shares of Common Stock held by the Partnership
over which the Progressive Entities share voting power with the other
Senior Subordinated Noteholders.
(4) Includes 3,119,047 shares of the Company's Common Stock held by the 1818
Fund. Also includes an aggregate of $717,073 principal amount of
Convertible Senior Subordinated Promissory Notes (which are convertible,
at the rate of $.75 per share, into 956,097 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. Also includes 4,230,000 shares of Common Stock
held by the Partnership over which the 1818 Fund shares voting power with
the other Senior Subordinated Noteholders. Also includes, in the case of
Joseph Donlan, an affiliate of the 1818 Fund, 10,000 shares of the
Company's Common Stock that he may purchase pursuant to stock options
granted him under the 1996 Plan.
(5) Includes 2,357,143 shares of the Company's Common Stock held by SFHY. Also
includes an aggregate of $896,345 principal amount of Convertible Senior
Subordinated Promissory Notes (which are convertible, at the rate of $.75
per share, into 1,195,126 shares of the Company's Common Stock), and
warrants to purchase 593,761 shares of the Company's Common Stock at $0.01
per share. Also includes 4,230,000 shares of the Company's Common Stock
held by the Partnership, over which SFHY shares voting power with the
other Senior Subordinated Noteholders.
(6) Includes 1,178,572 shares over which ManuLife holds voting and dispositive
power. Also includes an aggregate of $448,170 principal amount of
Convertible Senior Subordinated Promissory Notes held by Gerlach & Co., as
Nominee for ManuLife (which are convertible, at the rate of $.75 per
share, into 597,560 shares of the Company's Common Stock), and warrants to
purchase 259,730 shares of the Company's Common Stock at $0.01 per share.
Also includes 4,230,000 shares of the Company's Common Stock held by the
Partnership over which ManuLife shares voting power with the other Senior
Subordinated Noteholders.
(7) Mr. Gould is a director of the Company and Co-manager of the 1818 Fund,
which beneficially owns 8,730,714 shares of the Company's Common Stock.
(8) Mrs. Erb is a director of the Company and a Portfolio Manager for
Progressive Capital Management Corp., affiliate of the Progressive
Entities, which beneficially owns 8,950,212 shares of the Company's Common
Stock.
(9) Mr. Benson is a director of the Company and a Portfolio Manager for
Progressive Capital Management Corp., an affiliate of the Progressive
Entities, which beneficially own 8,950,212 shares of the Company's Common
Stock.
(10) Mr. Donlan is a director of the Company and a Co-manager of the 1818 Fund
which beneficially owns 8,730,714 shares of the Company's Common Stock,
including 10,000 shares that he may purchase pursuant to stock options
granted him under the 1996 Plan.
(10) Includes 1,028,661 shares of the Company's Common Stock Mr. Stein may
purchase pursuant to stock options granted him under the 1996 Plan.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
The Company, from time to time, has entered into transactions with certain
of its principals and 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.
FIRST UNION
Lending
Securitization Program. During Fiscal 1999 through February 23, 2000, the
Company funded its purchases of loans primarily through a two-step asset
securitization program consisting of (i) the securitized warehousing of all of
its loans through daily sales to a bankruptcy-remote master trust financed by a
$85,000,000 revolving credit facility with First Union, followed by (ii) the
transfer of such warehoused loans from time to time by the Master Trust to a
discrete trust, thereby creating renewed availability of capital from the Master
Trust. On February 23, 2000, funding availability under the Master Trust was
terminated by agreement between the Company and First Union. See Note 14 of
Notes to Financial Statement- Subsequent Events. First Union was the sole holder
of the Class B Certificates until such certificates were paid in full on April
5, 2000. See Note 14 of Notes to Financial Statement- Subsequent Events.
Placement Agent and Underwriting
First Union Capital Markets Corp. ("FUCMC"), a wholly owned subsidiary of
First Union Corporation, served as placement agent for the Company's Senior
Subordinated Notes. FUCMC has also privately placed and acted as underwriter for
public offerings of asset-backed securities of the Company in connection with
the Company's securitization transactions and may 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 Partnership.
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.
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, is below that which is necessary to accomplish the purposes of such
offering and in the best interests of the Company. Furthermore, if the
contemplated offering is to be 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 piggy-back
registration rights will be reduced pro rata to the extent necessary to comply
with the underwriter's recommendations.
First Union Partner
The First Union Partner is a limited partner of the Partnership (see
footnote (2) to Principal Stockholders).
First Union Strategic Alliance
In March 1999, First Union announced publicly that it was exiting the
indirect auto finance business due to realigned business strategies. As a
result, the Company's referral agreement, which established a loan origination
alliance with First Union, has been terminated. The Company continued the
relationships with Dealers established by the alliance. The Company is not,
however, obligated to continue to pay to First Union referral fees related to
business obtained through those dealers.
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SENIOR SUBORDINATED NOTES
General
In December 1997, the Company completed the private placement of $10
million in Common Stock and $40 million principal amount of Senior Subordinated
Notes with detachable warrants (the "December Private Placement"). 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% in year five and 14.875% in
years six and seven. The Senior Subordinated Notes and warrants were purchased
by the 1818 Fund, Progressive and ManuLife. In March 1998, the Company completed
a private placement (the "March Private Placement") of $20 million principal
amount of Senior Subordinated Notes to SFHY with detachable warrants under terms
similar to that of the December Private Placement. In connection with the
December Private Placement and the March Private Placement, the Company issued
an aggregate of 1,632,594 detachable warrants with a ten year life, exercisable
into Common Stock of the Company at $0.01 per share.
Registration Rights
Pursuant to a registration rights agreement, the Company has granted the
1818 Fund, Progressive, ManuLife, FSA and others certain rights with respect to
the registration under the Securities Act of Common Stock held by each. 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 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 such parties, 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 to be registered exceeds
the number of securities that can be sold in such offering within an acceptable
price range.
JUNIOR SUBORDINATED NOTES
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 its 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. During January and April 1998, the Company paid the
Junior Subordinated Noteholders interest totaling $77,406. No payments of
principal or interest have been paid since that date. As of December 31, 1998,
the Company owed approximately $2.1 million (including $117,000 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 was previously party to a management agreement and a service
agreement pursuant to which NFC provided operational, financial, legal,
accounting, management, advisory and other administrative services relating to
the management, business operations, assets and interests of the Company. These
agreements were terminated in June 1998. Amounts paid to NFC pursuant to such
agreements were $289,000, $884,000 and $603,000 in 1998, 1997 and 1996,
respectively. Gary L. Shapiro, the former Chairman and Chief Executive Officer
of the Company is the Chairman and Chief Executive Officer and a principal owner
of NFC. Keith B. Stein, Chairman of the Board and Chief Executive Officer of the
Company, was formerly a managing director of NFC.
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The General Partner holds a 1% interest in the Partnership. A majority of
the outstanding capital stock of the General Partner is owned collectively by
Messrs. Shapiro and Otto. The limited partners of the Partnership include, among
others, S Associates, O Associates, the First Union Partner, Keith B. Stein, Roy
E. Tipton, William G. Magro and Kevin G. Adams. Messrs. Stein and Magro hold
minimal minority limited partner interests of the Partnership. Mr. Shapiro, who
was formerly 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 Partnership hold the balance of the limited partner economic interests.
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, the Company forgave $40,854 of
the loan in Fiscal 1998 and reimbursed Mr. Magro for his personal tax liability
associated with the forgiven loan amount in such year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
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)
3.1-2 Amendment to the Company's Certificate of Incorporation. (5)*
3.2 By-laws of the Company.(1)
4.1 Specimen Certificate of Common Stock.(4)
4.2 Promissory Note, dated October 31, 1994, payable by National Auto
Finance Company LP to the order of Gary L. Shapiro.(1)
4.2-1 Amended and Restated Promissory Note, dated as of January 3, 1997,
payable by National Auto Finance LP to the order of Gary L. Shapiro.(3)
4.3 Promissory Note, dated October 6, 1994, payable by National Auto
Finance Company LP to the order of Edgar A. Otto.(1)
4.3-1 Amended and Restated Promissory Note, dated as of January 3, 1997,
payable by National Auto Finance Company LP to the order of Edgar A.
Otto.(3)
4.4 Promissory Note, dated November 8, 1994, payable by National Auto
Finance Company LP to the order of Stephen L. Gurba.(1)
4.4-1 Amended and Restated Promissory Note, dated as of January 3, 1997,
payable by national Auto Finance Company LP to the order of Stephen L.
Gurba.(3)
4.5 Promissory Note, dated March 27, 1995, payable by National Auto Finance
Company LP to the order of Nova Financial Corporation.(1)
4.5-1 Amended and Restated Promissory Note, dated as of January 3, 1997,
payable by National Auto Finance Company LP to the order of Nova
Financial Corporation.(3)
4.6 Promissory Note, dated May 1, 1995, payable by National Auto Finance
Company LP to the order of Nova Corporation.(1)
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4.6-1 Amended and Restated Promissory Note, dated as of January 3, 1997,
payable by National Auto Finance Company LP 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,
LP, PC Investment Company, Progressive Investment Company, Inc., and
Manufacturers Life Insurance Company (U.S.A.) dated December 22,
1997.(7)
4.7-1 Waiver 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, LP, PC Investment Company, Progressive Investment
Company, Inc. and Manufacturers Life Insurance Company.(7)
4.8 Form of Senior Subordinated Promissory Note issued pursuant to the
Securities Purchase Agreement.(7)
4.9 Form of Warrant to Purchase Shares of Common Stock of National Auto
Finance Company, Inc. issued pursuant to the Securities Purchase
Agreement.(7)
4.10 Agreement, dated March 27, 1998, by and between National Auto Finance
Company, Inc. and The Structured Finance High Yield Fund, LLC.(7)
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.(7)
4.12 Warrant, issued March 27, 1998, executed by National Auto Finance
Company, Inc.(7)
10.1 Second Amended and Restated Agreement of Limited Partnership of
National Auto Finance Company LP, 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)
10.1-1 First Amendment to Second Amended and Restated Partnership Agreement,
dated December 1, 1996.(3)
10.2 1996 Share Incentive Plan.(3)
10.2-1 Company's 1996 Share Incentive Plan, as amended.(5)*
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.(7)
10.5 [Intentionally Omitted]
10.5-1 [Intentionally Omitted]
10.6 [Intentionally Omitted]
10.7 [Intentionally Omitted]
10.8 Receivables Purchase Agreement, dated as of December 8, 1994, by and
between National Auto Finance Company LP, as Seller, and NAFCO Funding
Trust, as Purchaser.(1)
10.9 Promissory Note, dated December 8, 1994, payable by NAFCO Funding Trust
to the order of National Auto Finance Company LP(1)
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10.10 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 LP, 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 LP, as the Administrator, and Bankers Trust
Company, as Trustee.(7)
10.11 Series 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
LP, as the Administrator, and Bankers Trust Company, as Trustee.(1)
10.12 Trust Agreement, dated as of October 5, 1994, between National Auto
Finance Corporation and Bankers Trust.(1)
10.13 First Amendment and Restated Trust Agreement of NAFCO Funding Trust,
dated as of December 8, 1994, between National Auto Finance Company LP,
as Depositor, The Chase Manhattan Bank (USA), as Owner Trustee and Gary
L. Shapiro and Edgar A. Otto, as Co-Trustees.(1)
10.14 Amended and Restated Servicing Agreement, dated as of December 5, 1994,
by and between World Omni Financial Corp. and National Auto Finance
Company LP(1)
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 LP(7)
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
LP(7)
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.(7)
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.(7*
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 LP, 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 LP (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.(7)
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.(7)
10.15 Certificate Purchase Agreement, dated as of December 8, 1994, among
NAFI Funding Trust, National Auto Finance Company LP, as Initial
Administrator and First Union National Bank of North Carolina.(1)
10.16 [Intentionally Omitted]
10.16-1 First Amendment of Management Agreement, dated as of January 1, 1996,
by and between National Auto Finance Company LP, Auto Credit
Clearinghouse LP and National Auto Finance Corporation.(1)
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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, LP and National Financial
Companies LLC.(7)
10.17 [Intentionally Omitted]
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)
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.(7)
10.18 Pooling and Servicing Agreement, dated as of October 1, 1995, by and
among National Financial Auto Funding Trust, as Transferor, National
Auto Finance Company LP, as Master Servicer, and Harris Trust and
Savings Bank, as Trustee.(1)
10.19 Assignment Agreement, dated as of October 1, 1995, between Bankers
Trust Company, as Trustee, and National Financial Auto Funding
Trust.(1)
10.20 Transfer Agreement No. 1, dated as of October 1, 1995, between National
Financial Auto Funding Trust and Harris Trust and Savings Bank.(1)
10.21 Insurance and Indemnity Agreement, dated as of November 21, 1995, among
Financial Security Assurance, Inc., National Financial Auto Funding
Trust and National Auto Finance Company LP(1)
10.22 Indemnification Agreement, dated as of November 21, 1995, among
Financial Security Assurance Inc., National Financial Auto Funding
Trust and First Union Capital Markets Corp.(1)
10.23 Master 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)
10.24 Financial 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 Harris Trust and Savings
Bank, as trustee for the benefit of the Certificate Holders.(1)
10.25 Custodial Agreement, dated as of November 21, 1995, by and between Omni
Financial Services of America, Inc., as custodian, and National Auto
Finance Company LP, as Master Servicer.(1)
10.26 Amendment, 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 LP, 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)
10.28 Assignment and Assumption Agreement, dated as of October 7, 1996,
between National Auto Finance Company, Inc. and National Auto Finance
Company LP(1)
10.29 Pooling and Servicing Agreement, dated as of October 21, 1996, by and
among National Financial Auto Funding Trust, as Transferor, National
Auto Finance Company LP, as Servicer, and Harris Trust and Savings
Bank, as Trustee.(2)
10.30 Purchase and Contribution Agreement, dated as of October 21, 1996, by
and between National Auto Finance Company LP and National Financial
Auto Funding Trust.(2)
10.31 Assignment Agreement, dated as of October 21, 1996, between Bankers
Trust Company and National Financial Auto Funding Trust II.(2)
10.32 Master 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)
10.33 Insurance and Indemnity Agreement, dated as of November 13, 1996, among
Financial Security Assurance Inc., National Financial Auto Funding
Trust and National Auto Finance Company LP(2)
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10.34 Sale Agreement, dated as of October 21, 1996, by and between National
Financial Auto Funding Trust and National Financial Auto Funding Trust
II.(2)
10.35 Transfer 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)
10.36 Form of Financial Guaranty Insurance Policy issued by Financial
Security Assurance Inc.(2)
10.37 Lease Agreement, dated as of June 16, 1997, by and between CTC
Investments II Limited and National Auto Finance Company, Inc.(7)
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.(7)
10.38 Referral Agreement, dated as of April 15, 1996, by and between First
Union National Bank of North Carolina and Auto Credit Clearinghouse
LP(4)
10.39 Trust Agreement, dated as of July 21, 1997, between National Financial
Auto Funding Trust and Wilmington Trust Company, as trustee.(7)
10.40 Indenture, dated as of June 29, 1997, by and between National Auto
Finance 1997-1 Trust and Harris Trust and Savings Bank as Trustee.(7)
10.41 Sale 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.(7)
10.42 Financial Guaranty Insurance Policy, dated as of July 23, 1997,
delivered by Financial Security Assurance, Inc.(7)
10.43 Purchase and Contribution Agreement, dated June 29, 1997, by and
between National Auto Finance Company, Inc. and National Financial Auto
Funding Trust.(7)
10.44 Sale Agreement, dated as of June 29, 1997, by and between National
Financial Auto Funding Trust II and National Financial Auto Funding
Trust.(7)
10.45 Indemnification 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.(7)
10.46 Amendment 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.(7)
10.47 Amendment 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.(7)
10.48 Amendment 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.(7)
10.49 Investment Agreement dated as of October 1, 1997 by and between
National Auto Finance Company, Inc. and FSA Portfolio Management,
Inc.(7)
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10.50 Revolving 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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
10.51 Trademark 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.(7)
10.52 Pledge Agreement made as of September 29, 1997 by and among National
Auto Finance Company, Inc., National Chartered Auto Corporation and
BankBoston, N.A.(7)
10.53 Note dated as of September 29, 1997 payable by National Auto Finance
Company, Inc. to BankBoston, N.A., as agent.(7)
10.54 [Intentionally Omitted]
10.55 [Intentionally Omitted]
10.56 [Intentionally Omitted]
10.57 Lease Agreement dated April 8, 1996, by and between CanPro Investments
Ltd. and National Auto Financial Corporation or its assignee Auto
Credit Clearinghouse.(7)
10.58 Software License, Support and Usage Agreement dated as of February 14,
1997 by and between BNI, Inc. and National Auto Finance Company LP(7)
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 LP(7)
10.59 Software Sublicense, Support and Usage Agreement dated as of February
17, 1997, by and between Pinnacle Portfolio Services LLC and National
Auto Finance Company, Inc.(7)
10.60 Consent 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.(7)
10.61 Security 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.(7)
10.62 [Intentionally Omitted.]
10.63 Amendment, 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 LP, and
Harris Trust and Savings Bank, as trustee.(7)
10.64 Waiver letter of Financial Assurance Inc., dated as of September 25,
1997, to National Auto Finance Company, Inc. and National Financial
Auto Funding Trust.(7)
- 76 -
<PAGE> 77
10.65 [Intentionally Omitted.]
10.66 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.(7)
10.67 Master 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.(7)
10.68 Custodial 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.(7)
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.(7)
10.70 Security Agreement, dated as of August 25, 1997, delivered by National
Auto Finance Company, Inc. to First Union National Bank.(7)
10.71 Loan Agreement, dated as of August 25, 1997, by and between First Union
National Bank and National Auto Finance Company, Inc.(7)
10.72 Voting Agreement by and among The 1818 Mezzanine Fund, LP, PC
Investment Company, Progressive Investment Company, Inc. and National
Auto Finance Company, L.P dated December 22, 1997.(7)
10.73 Restated Registration Rights Agreement, dated March 27, 1998, by and
among National Auto Finance Company, Inc. and Certain Investors.(7)
10.74 Junior Subordination Agreement, dated as of March 27, 1998, among
BankBoston, N.A., The 1818 Mezzanine Fund, LP, 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.(7)
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.(7)
10.76 Sale 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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
10.81 Trust Agreement, dated as of December 15, 1997, between National
Financial Auto Funding Trust and Wilmington Trust Company.(7)
10.82 Purchase and Contribution Agreement, dated December 15, 1997, by and
between National Auto Finance Company, Inc. and National Financial Auto
Funding Trust.(7)
10.83 Assignment Agreement, dated as of December 15, 1997, between Bankers
Trust Company and National Financial Auto Funding Trust II.(7)
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.(7)
- 77 -
<PAGE> 78
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.(7)
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.(7)
10.87 Restructuring Agreement, dated as of April 7, 1999 by and among the
Company, National Auto Finance Company, L.P., National Auto Finance
Corporation, The 1818 Mezzanine Fund, L.P., PC Investment Company,
Progressive Investment Company, Inc. Manufacturers Life Insurance
Company (U.S.A.), and The Structured Finance High Yield Fund, LLC.(6)
10.88 Revolving Credit, Term Loan and Security Agreement dated as of March
31, 1999 by and among National Auto Funding Trust, the Company and
First Union National Bank.(6)
10.89 Note Exchange Agreement dated as of April 7, 1999 by and among the
Company, Nova Financial Corporation, Nova Corporation, Stephen L.
Gurba, Edgar Otto and Gary L. Shapiro.(6)
10.90 Amended and Restated Junior Subordination Agreement, dated as of April
7, 1999 among The 1818 Mezzanine Fund, L.P., PC Investment Company,
Manufacturers Life Insurance Company (U.S.A.), The Structured Finance
High Yield Fund, and others, and the Company.(6)
10.91 Release and Consent Not to Sue, dated as of April 7, 1999 by National
Auto Finance Company L.P., National Auto Finance Corporation, Nova
Financial Corporation, Nova Corporation, Gary L. Shapiro, Edgar A.
Otto, and Stephen L. Gurba for itself or himself and on behalf of
others, releasing the Company and others from certain claims, etc. (6)
10.92 Release dated as of April 7, 1999 by The 1818 Mezzanine Fund, L.P., PC
Investment Company, Progressive Investment Company, Inc., Manufacturers
Life Insurance Company (U.S.A.), and The Structured Finance High Yield
Fund, LLC for itself and other named Releasors releasing the Company
and other named Releasees. (6)
10.93 Amended and Restated Pooling and Administration Agreement, dated as of
December 8, 1994 and restated in its entirety as of April 7, 1999 by
and among National Financial Auto Funding Trust II, the Company and
Bankers Trust Company.(6)
10.94 Amendment One to Back-up Servicing Agreement, dated as of March 31,
1999 by and among CSC Logic/MSA LLP, the Company, First Union National
Bank and Bankers Trust, as trustee and National Financial Auto Funding
Trust II.(6)
10.95 Consent and Amendment, dated as of March 31, 1999 by and among National
Financial Auto Funding Trust II, the Company, First Union National Bank
and Bankers Trust Company, as trustee.(6)
10.96 Reissuance of Series 1994-R class B Certificate registered in the name
of First Union National Bank as owner of a fractional undivided
interest in the National Financial Auto Receivables Master Trust.(6)
10.97 Certificate Agreement, dated as of March 31, 1999 between National
Chartered Auto Corporation and the Company.(6)
10.98 Consent and Amendment, dated as of March 31, 1999 to the Pooling and
Servicing Agreement dated as of October 1, 1995, and the Pooling and
Servicing Agreement, dated as of October 21, 1996 each among National
Financial Auto Funding Trust, the Company, and Harris Trust and Savings
Bank, as trustee. (6)
10.99 National Auto Finance Company, Inc. Owner Trustee and National
Financial Auto Funding Trust Indenture Trustee Irrevocable Instruction
Letter dated as of March 31, 1999 addressed to Wilmington Trust
Company, as Owner Trustee, Harris Trust and Savings Bank, as Trustee,
and Chase Manhattan Bank Delaware, as Trustee, each as trustee to
various trusts.(6)
10.100 Amendment to Trust Agreement dated as of March 31, 1999 of the First
Amended and Restated Trust Agreement dated as of December 8, 1994 among
the Company, Chase Manhattan Bank Delaware, as Trustee and certain
other Co-Trustees.(6)
- 78 -
<PAGE> 79
10.101 Agreement for Monitoring and Back-up Servicing, dated as of March 31,
1999 among the Company, CSC Logic/MSA LLP and Financial Security
Assurance Inc.(6)
10.102 Amendment to Custodian Agreement, dated as of March 31, 1999 to the
Custodian Agreement, dated as of October 15, 1998, by and among Harris
Trust and Savings Bank as Custodian, the Company as Administrator and
Harris Trust and Savings Bank as trustee of various trusts.(6)
10.103 Supplement to Back-up Servicing Agreement, dated as of March 31, 1999
by and among National Auto Funding Trust, the Company and Harris Trust
and Savings Bank to the Back-up Servicing Agreement dated as of March
31, 1999.(6)
10.104 Agreement and Amendment, dated as of March 31, 1999 among Financial
Security Assurance Inc., National Financial Auto Funding Trust, the
Company, National Auto Finance 1997-1 Trust and National Auto Finance
1998-1 Trust to Insurance and Indemnity Agreements dated as of November
21, 1995, November 13, 1996, July 23, 1997 and January 20, 1998 in each
case among Financial Security Assurance Inc., National Financial Auto
Funding Trust and the Company and with respect to the Insurance and
Indemnity Agreement dated as of July 23, 1997, also among National Auto
Finance 1997-1 Trust and with respect to the Insurance and Indemnity
Agreement dated as of January 20, 1998 also among National Auto Finance
1998-1 Trust.(6)
10.105 Agreement and Amendment dated as of March 31, 1999 among Financial
Security Assurance Inc., National Financial Auto Funding Trust, Harris
Trust and Savings Bank, to Series 1996-1 Supplement, Series 1997-1
Supplement and Series 1998-1 Supplement each dated as of March 31, 1998
to the First Amended and Restated Master Spread Account Agreement dated
as of March 31, 1998.(6)
10.106 Insurance and Indemnity Agreement, dated as of September 1, 1999 among
Financial Security Assurance Inc., National Auto Finance 1999-1 Trust,
National Financial Auto Funding Trust and the Company.(5)*
10.107 Indemnification Agreement, dated as of September 1, 1999 between
Financial Security Assurance, Inc. and National Financial Auto Funding
Trust.(5)*
10.108 Indenture, dated as of September 1, 1999, by and between National Auto
Finance 1999-1 Trust and Harris Trust and Savings Bank as Trustee.(5)*
10.109 Sale and Servicing Agreement, dated as of September 1, 1999, by and
among National Auto Finance 1999-1 Trust, as Seller, National Financial
Auto Finance 1999-1 Trust, the Company as Servicer, and Harris Trust
and Savings Bank as Trust Collateral Agent and Back-up Servicer.(5)*
10.110 Sale Agreement, dated as of September 1, 1999 between National
Financial Auto Funding Trust II and National Financial Auto Funding
Trust.(5)*
10.111 Custodial Agreement, dated as of September 1, 1999 between Harris Trust
and Saving Bank as Custodian and as Trustee and Trust Collateral Agent
and the Company.(5)*
10.112 Trust Agreement, dated as of September 1, 1999, between National Auto
Funding Trust and Wilmington Trust Company as Owner Trustee.(5)*
10.113 Amended and Restated Trust Agreement dated as of September 1, 1999
between National Financial Auto Funding Trust and Wilmington Trust
Company as Owner Trustee.(5)*
10.114 Assignment Agreement dated as of September 1, 1999, between Bankers
Trust Company and National Auto Financial Funding Trust II.(5)*
10.115 Series 1999-1 Supplement dated as of September 1, 1999 to the First
Amended and Restated Master Spread Account Agreement dated as of March
31, 1998 among National Financial Auto Funding Trust, Financial
Security Assurance, Inc., and Harris Trust and Savings Bank, as Trustee
and Collateral Agent.(5)*
10.116 Agreement for Monitoring and Back-up Servicing, dated as of September
1, 1999, among the Company, CSC Logic/MSA LLP d/b/a Loan Servicing
Enterprise and Financial Security Assurance.(5)*
10.117 Supplement to Back-up Servicing Agreement, dated as of September 1,
1999 among National Financial Auto Funding Trust, the Company and
Harris Trust and Savings Bank to the Back-up Servicing Agreement dated
as of March 31, 1998.(5)*
- 79 -
<PAGE> 80
10.118 Amendment Number 1 to the Amended and Restated Pooling and
Administration Agreement, dated as of May 1999, among National
Financial Auto Funding Trust II, the Company and Bankers Trust Company
as Trustee.(5)*
10.119 Amendment Number 2 to the Amended and Restated Pooling and
Administration Agreement, dated as of September 21, 1999 among National
Financial Auto Funding Trust II, the Company and Bankers Trust Company
as Trustee.(5)*
10.120 Amendment Number 3 to the Amended and Restated Pooling and
Administration Agreement dated as of September 24, 1999 among National
Financial Auto Funding Trust II, the Company and Bankers Trust Company,
as Trustee.(5)*
10.121 Referral Agreement, dated as of September 22, 1999, by and between the
Company and Atlantic Coast Federal Credit Union.(5)*
10.122 First Amendment to Revolving Credit, Term Loan and Security Agreement,
dated as of September 23, 1999 among National Financial Auto Funding
Trust, the Company, and First Union National Bank.(5)*
10.123 Servicing Agreement, dated as of October 20, 1999, by and between the
Company and Atlantic Coast Federal Credit Union.(5)*
10.124 Wavier, effective as of September 30, 1999 of The 1818 Mezzanine Fund,
L.P., PC Investment Company, Progressive Investment Company, Inc.,
Manufacturers Life Insurance Company (U.S.A.), and The Structured
Finance High Yield Fund, L.L.C., for the benefit of the Company. (5)*
10.125 Contract Sale Agreement, dated as of February 4, 2000, by and between
the Company and Nuvell Credit Corporation redesignated from Exhibit
10.109 filed as an Exhibit to the Company's Form 8-K filed on February
14, 2000.(5)*
10.126 Servicing Agreement, dated as of February 4, 2000, by and between the
Company and Nuvell Credit Corporation redesignated from Exhibit 10.110
filed as an Exhibit to the Company's Form 8-K filed on February 14,
2000.(5)*
10.127 Amendment Number 4 to the Amended and Restated Pooling and
Administration Agreement, dated as of February 22, 2000 among National
Financial Auto Funding Trust II, the Company, and Bankers Trust Company
as Trustee.(5)*
10.128 Second Amendment to Revolving Credit, Term Loan and Security Agreement,
dated as of February 22, 2000 among National Financial Auto Funding
Trust, the Company and First Union National Bank.(5)*
10.129 Letter Agreement with respect to the B Note Commitment Letter dated as
of February 22, 2000 by and between First Union National Bank and the
Company.(5)*
10.130 Wavier, effective as of December 31, 1999 of The 1818 Mezzanine Fund,
L.P., PC Investment Company, Progressive Investment Company, Inc.,
Manufacturers Life Insurance Company (U.S.A.), and The Structured
Finance High Yield Fund, L.L.C., for the benefit of the Company. (5)*
10.131 First Amendment to Contract Sale Agreement effective as of February 29,
2000, by and between the Company and Nuvell Credit Corporation. (5)*
10.132 Sale and Purchase Agreement dated as of March 30, 2000 by and between
the Company as Guarantor, National Financial Auto Funding Trust II as
Seller, and Nuvell Credit Corporation as Purchaser. (5)*
10.133 Amendment No. 1 to Sale and Purchase Agreement effective as of April 5,
2000 by and between Nuvell Credit Corporation as Purchaser and National
Financial Auto Funding Trust II as Seller and the Company as Guarantor.
10.134 Amendment No. 2 to Contract Sale Agreement and Amendment No. 1 to
Servicing Agreement dated as of April 7, 2000 by and between the
Company and Nuvell.
11.1 Earnings Per Share (5)
23.1 Consent of BDO Seidman, LLP (5)*
23.2 Consent of KPMG Peat Marwick LLP (5)*
- 80 -
<PAGE> 81
23.3 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.
(6) Incorporated by reference to the Company's Form 10-K/A filed with the
Commission on August 24, 1999.
(7) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997 filed with the Securities and Exchange Commission on May 1,
1998.
Reports on Form 8-K
On March 10, 1999, the Company filed a Form 8-K announcing that it had been
notified by the Nasdaq Stock Market Inc. that the Company's Common Stock has
been delisted from trading on the Nasdaq National Market, effective as of the
close of business on March 9, 1999. Nasdaq informed the Company that it has been
delisted for failure to comply with both the public float and minimum bid price
requirements.
On April 13, 1999, the Company filed a Form 8-K announcing it that it has
completed a financial restructuring of its Senior Subordinated and Junior
Subordinated Notes, resolved certain other issues with its Senior Subordinated
Noteholders and Junior Subordinated Noteholders, entered into several loan
facilities and arrangements with First Union National Bank, and modified certain
of the terms of the insurance guarantee arrangements with Financial Security
Assurance, the Company's bond insurer, related to the Company's securitized
asset-backed bonds.
On May 18, 1999, the Company filed an 8-K Form announcing the filing of its 1998
Annual Report on Form 10-K which reflected a loss of $33.7 million or $(3.73)
per share for the year ended December 31, 1998, as compared to a loss of $18.6
million or $(2.62) per share for the year ended December 31, 1997, and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, which
reflected a loss of $1.8 million or $(0.20) per share for the quarter as
compared to a loss of $5.2 million or $(0.57) per share for the quarter ended
March 31, 1998. The 1999 first quarter loss was primarily due to decreased
revenues resulting from the continued curtailment of origination volume in the
quarter.
On June 17, 1999, the Company filed a Form 8-K announcing Keith B. Stein had
been named Chairman of the Board, in addition to his role as Chief Executive
Officer of the Company and the promotions of William B. Magro to President, in
addition to his role as Chief Operating Officer. The Company also announced the
promotion of Brent Wombolt to Senior Vice President-Operations and Originations,
from Vice President and Frank Florio to Vice President- Management Information
Systems, from Assistant Vice President. The Company also announced that it
scheduled its annual meeting of the Company's stockholders for the year ended
December 31, 1998.
- 81 -
<PAGE> 82
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.
Date: March 22, 2000 By: /s/ KEITH B. STEIN
-------------------------------------
Name: Keith B. Stein
Title: Chairman of the Board and
Chief Executive Officer
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.
<TABLE>
<S> <C> <C>
/s/ Keith B. Stein Chief Executive Officer Date: March 22, 2000
- ------------------------------------ (principal executive officer)
Keith B. Stein
/s/ Brian W. Thompson Vice President, Finance, and Date: March 22, 2000
- ------------------------------------ Accounting, Treasurer (principal
Brian Thompson accounting and financial officer)
/s/ Joseph P. Donlan Director Date: March 22, 2000
- ------------------------------------
Joseph P. Donlan
/s/ Peter Offermann Director Date: March 22, 2000
-----------------------------------
Peter Offermann
/s/ David W. Young Director Date: March 22, 2000
- ------------------------------------
David W. Young
/s/ David Benson Director Date: March 17, 2000
- -----------------------------------------
David Benson
/s/ Evelyn Erb Director Date: March 17, 2000
- -----------------------------------------
Evelyn Erb
/s/ Robert R. Gould Director Date: March 22, 2000
- -----------------------------------------
Robert R. Gould
</TABLE>
- 82 -
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1-2 Amendment to the Company's Certificate of Incorporation.
10.2-1 Company's 1996 Share Incentive Plan, as amended.
10.106 Insurance and Indemnity Agreement, dated as of September 1, 1999
among Financial Security Assurance Inc., National Auto Finance
1999-1 Trust, National Financial Auto Funding Trust and the
Company.
10.107 Indemnification Agreement, dated as of September 1, 1999 between
Financial Security Assurance, Inc. and National Financial Auto
Funding Trust.
10.108 Indenture, dated as of September 1, 1999, by and between
National Auto Finance 1999-1 Trust and Harris Trust and Savings
Bank as Trustee.
10.109 Sale and Servicing Agreement, dated as of September 1, 1999, by
and among National Auto Finance 1999-1 Trust, as Seller, National
Financial Auto Finance 1999-1 Trust, the Company as Servicer, and
Harris Trust and Savings Bank as Trust Collateral Agent and
Back-up Servicer.
10.110 Sale Agreement, dated as of September 1, 1999 between National
Financial Auto Funding Trust II and National Financial Auto
Funding Trust.
10.111 Custodial Agreement, dated as of September 1, 1999 between Harris
Trust and Saving Bank as Custodian and as Trustee and Trust
Collateral Agent and the Company.
10.112 Trust Agreement, dated as of September 1, 1999, between National
Auto Funding Trust and Wilmington Trust Company as Owner Trustee.
10.113 Amended and Restated Trust Agreement dated as of September 1,
1999 between National Financial Auto Funding Trust and Wilmington
Trust Company as Owner Trustee.
10.114 Assignment Agreement dated as of September 1, 1999, between
Bankers Trust Company and National Auto Financial Funding
Trust II.
10.115 Series 1999-1 Supplement dated as of September 1, 1999 to the
First Amended and Restated Master Spread Account Agreement dated
as of March 31, 1998 among National Financial Auto Funding Trust,
Financial Security Assurance, Inc., and Harris Trust and Savings
Bank, as Trustee and Collateral Agent.
10.116 Agreement for Monitoring and Back-up Servicing, dated as of
September 1, 1999, among the Company, CSC Logic/MSA LLP d/b/a
Loan Servicing Enterprise and Financial Security Assurance.
10.117 Supplement to Back-up Servicing Agreement, dated as of
September 1, 1999 among National Financial Auto Funding Trust,
the Company and Harris Trust and Savings Bank to the Back-up
Servicing Agreement dated as of March 31, 1998.
10.118 Amendment Number 1 to the Amended and Restated Pooling and
Administration Agreement, dated as of May 1999, among National
Financial Auto Funding Trust II, the Company and Bankers Trust
Company as Trustee.
10.119 Amendment Number 2 to the Amended and Restated Pooling and
Administration Agreement, dated as of September 21, 1999 among
National Financial Auto Funding Trust II, the Company and Bankers
Trust Company as Trustee.
</TABLE>
<PAGE> 84
<TABLE>
<S> <C>
10.120 Amendment Number 3 to the Amended and Restated Pooling and
Administration Agreement dated as of September 24, 1999 among
National Financial Auto Funding Trust II, the Company and Bankers
Trust Company, as Trustee.
10.121 Referral Agreement, dated as of September 22, 1999, by and
between the Company and Atlantic Coast Federal Credit Union.
10.122 First Amendment to Revolving Credit, Term Loan and Security
Agreement, dated as of September 23, 1999 among National
Financial Auto Funding Trust, the Company, and First Union
National Bank.
10.123 Servicing Agreement, dated as of October 20, 1999, by and
between the Company and Atlantic Coast Federal Credit Union.
10.124 Wavier, effective as of September 30, 1999 of the 1818 Mezzanine
Fund, L.P., PC Investment Company, Progressive Investment
Company, Inc., Manufacturers Life Insurance Company (U.S.A.), and
The Structured Finance High Yield Fund, L.L.C., for the benefit
of the Company.
10.125 Contract Sale Agreement, dated as of February 4, 2000, by and
between the Company and NuVell Credit Corporation redesignated
from Exhibit 10.109 filed as an Exhibit to the Company's Form
8-K filed on February 14, 2000.
10.126 Servicing Agreement, dated as of February 4, 2000, by and
between the Company and NuVell Credit Corporation redesignated
from Exhibit 10.110 filed as an Exhibit to the Company's
Form 8-K filed on February 14, 2000.
10.127 Amendment Number 4 to the Amended and Restated Pooling and
Administration Agreement, dated as of February 22, 2000 among
National Financial Auto Funding Trust II, the Company, and
Bankers Trust Company as Trustee.
10.128 Second Amendment to Revolving Credit, Term Loan and Security
Agreement, dated as of February 22, 2000 among National Financial
Auto Funding Trust, the Company and First Union National Bank.
10.129 Letter Agreement with respect to the B Note Commitment Letter
dated as of February 22, 2000 by and between First Union National
Bank and the Company.
10.130 Wavier, effective as of December 31, 1999 of the 1818 Mezzanine
Fund, L.P., PC Investment Company, Progressive Investment
Company, Inc., Manufacturers Life Insurance Company (U.S.A.), and
The Structured Finance High Yield Fund, L.L.C., for the benefit
of the Company.
10.131 First Amendment to Contract Sale Agreement effective as of
February 29, 2000, by and between the Company and Nuvell Credit
Corporation.
10.132 Sale and Purchase Agreement dated as of March 30, 2000 by and
between the Company as Guarantor, National Financial Auto Funding
Trust II as Seller, and Nuvell Credit Corporation as Purchaser.
10.133 Amendment No. 1 to Sale and Purchase Agreement effective as of
April 5, 2000 by and between Nuvell Credit Corporation as
Purchaser and National Financial Auto Funding Trust II as Seller
and the Company as Guarantor.
10.134 Amendment No. 2 to Contract Sale Agreement and Amendment No. 1
to Servicing Agreement dated as of April 7, 2000 by and Between
the Company and Nuvell.
11.1 Earnings Per Share
23.1 Consent of BDO Seidman, LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1-2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
National Auto Finance Company, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of National Auto
Finance Company, Inc. be amended by changing the Fourth Section thereof
so that, as amended, said Section shall be and read as follows:
FOURTH: (A) The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 45,000,000
shares ("Capital Stock"), consisting of 44,000,000 shares of common
stock, par value $0.01 per share ("Common Stock"), and 1,000,000 shares
of preferred stock, par value $0.01 per share ("Preferred Stock").
SECOND: That by a duly called meeting pursuant to Section 222 of the
General Corporation Law of the State of Delaware and vote of a majority of
stockholders, the stockholders have given written approval to said amendment in
accordance with applicable provisions of Section 242 of the General Corporation
Law of the State of Delaware.
<PAGE> 2
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 222 and 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said National Auto Finance Company, Inc. has caused
this certificate to be signed by Stephen R. Veth, its Vice President, Secretary
and General Counsel, this 23rd day of September, 1999.
National Auto Finance Company, Inc.
By /s/ STEPHEN R. VETH
---------------------------------------
Stephen R. Veth
Vice President, Secretary and
General Counsel
2
<PAGE> 1
EXHIBIT 10.2-1
NATIONAL AUTO FINANCE COMPANY, INC.
1996 SHARE INCENTIVE PLAN
1. PURPOSE. The National Auto Finance Company, Inc. 1996 Share
Incentive Plan (the "Plan") is intended to provide incentives which will
attract, retain and motivate highly competent persons as executive management,
employees and directors of National Auto Finance Company, Inc. (the "Company")
and of any parent or subsidiary now existing or hereafter formed or acquired,
by providing them opportunities to acquire shares of the common stock, par
value $.01 per share, of the Company ("Common Stock") or to receive monetary
payments based on the value of such shares pursuant to the Benefits (as defined
below) described herein. Furthermore, the Plan is intended to assist in
aligning the interests of the Company's executive management, employees and
directors to those of its stockholders.
2. ADMINISTRATION.
(a) The Plan will be administered by the Board of Directors of the
Company (the "Board of Directors") or, if the Board of Directors so determines,
by a committee appointed by the Board of Directors from among its members (such
committee administering the Plan being hereinafter referred to as the
"Committee"; and the Board of Directors or the Committee administering the
Plan, as the case may be, being hereinafter referred to as the "Plan
Administrator"). In the event the Board of Directors designates a Committee to
administer the Plan, the Committee (which may include members of the
compensation committee of the Board of Directors, if any) shall be comprised
solely of not less than two members who shall be (i) "Non-Employee Directors"
within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
(ii) unless otherwise determined by the Board of Directors, "outside directors"
within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan Administrator is authorized, subject to the
provisions of the Plan, to establish such rules and regulations as it deems
necessary for the proper administration of the Plan and to make such
determinations and interpretations and to take such action in connection with
the Plan and any Benefits (as defined below) granted hereunder as it deems
necessary or advisable. All determinations and interpretations made by the Plan
Administrator shall be binding and conclusive on all participants and their
legal representatives. No member of the Board of the Directors, no member of
the Committee and no employee of the Company shall be liable for any act or
failure to act hereunder, except in circumstances involving his or her bad
faith, gross negligence or willful misconduct, or for any act or failure to act
hereunder by any other member or employee or by any agent to whom duties in
connection with the administration of this Plan have been delegated. The
Company shall indemnify members of the Plan Administrator and any agent of the
Plan Administrator who is an
<PAGE> 2
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employee of the Company, against any and all liabilities or expenses to which
they may be subjected by reason of any act or failure to act with respect to
their duties on behalf of the Plan, except in circumstances involving such
person's bad faith, gross negligence or willful misconduct.
(b) The Plan Administrator may delegate to one or more of its members,
or to one or more agents, such administrative duties as it may deem advisable,
and the Plan Administrator, or any person to whom it has delegated duties as
aforesaid, may employ one or more persons to render advice with respect to any
responsibility the Plan Administrator or such person may have under the Plan.
The Plan Administrator may employ such legal or other counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion or computation received from any such counsel, consultant or
agent. Expenses incurred by the Plan Administrator in the engagement of such
counsel, consultant or agent shall be paid by the Company, or the subsidiary
whose employees have benefited from the Plan, as determined by the Plan
Administrator.
3. PARTICIPANTS. Participants will consist of such executive
management, employees and directors of the Company and of any parent or
subsidiary of the Company as the Plan Administrator in its sole discretion
determines to be significantly responsible for the success and future growth
and profitability of the Company and whom the Plan Administrator may designate
from time to time to receive Benefits under the Plan. Designation of a
participant in any year shall not require the Plan Administrator to designate
such person to receive a Benefit in any other year or, once designated, to
receive the same type or amount of Benefit as granted to the participant in any
other year. The Plan Administrator shall consider such factors as it deems
pertinent in selecting participants and in determining the type and amount of
their respective Benefits.
4. TYPE OF BENEFITS. Benefits under the Plan may be granted in any one
or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards and (e) Stock Units (each as described below,
and collectively, the "Benefits"). Stock Awards, Performance Awards and Stock
Units may, as determined by the Plan Administrator in its discretion,
constitute Performance-Based Awards, as described in Section 11 below. Benefits
shall be evidenced by agreements (which need not be identical) in such forms as
the Plan Administrator may from time to time approve; provided, however, that
in the event of any conflict between the provisions of the Plan and any such
agreements, the provisions of the Plan shall prevail.
5. COMMON STOCK AVAILABLE UNDER THE PLAN. The aggregate number of
shares of Common Stock that may be subject to Benefits, including Stock
Options, granted under this Plan shall be 4,000,000 shares of Common Stock,
which may be authorized and unissued or treasury shares, subject to any
adjustments made in accordance with Section 12 hereof. The maximum number of
shares of Common Stock with respect to which Benefits may be granted to any
individual participant under the
<PAGE> 3
-3-
Plan shall be 2,000,000. Other than those shares of Common Stock subject to
Benefits that are cancelled or terminated as a result of the Plan
Administrator's exercise of its discretion with respect to Performance-Based
Awards as provided for in Section 11, any shares of Common Stock subject to a
Stock Option or Stock Appreciation Right which for any reason is cancelled or
terminated without having been exercised, any shares subject to Stock Awards,
Performance Awards or Stock Units which are forfeited, any shares subject to
Performance Awards settled in cash or any shares delivered to the Company as
part of full payment for the exercise of a Stock Option or Stock Appreciation
Right shall again be available for Benefits under the Plan. The preceding
sentence shall apply only for purposes of determining the aggregate number of
shares of Common Stock subject to Benefits.
6. STOCK OPTIONS. Stock Options will consist of awards from the
Company that will enable the holder to purchase a specific number of shares of
Common Stock, at set terms and at a fixed purchase price. Stock Options may be
"incentive stock options" ("Incentive Stock Options"), within the meaning of
Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Plan Administrator will have
the authority to grant any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with
or without Stock Appreciation Rights). Each Stock Option shall be subject to
such terms and conditions consistent with the Plan as the Committee may impose
from time to time, subject to the following limitations:
(a) EXERCISE PRICE. Each Stock Option granted hereunder shall
have such per-share exercise price as the Plan Administrator may
determine at the date of grant; provided, however, subject to
subsection (d) below, that the per-share exercise price shall not be
less than 100% of the Fair Market Value (as defined below) of the
Common Stock on the date the option is granted.
(b) PAYMENT OF EXERCISE PRICE. The option exercise price may
be paid in cash or, in the discretion of the Plan Administrator
determined at the date of grant and set forth in the option agreement,
by the delivery of shares of Common Stock of the Company then owned by
the participant, by the withholding of shares of Common Stock for
which a Stock Option is exercisable, or by a combination of these
methods. In the discretion of the Plan Administrator determined at the
date of grant and set forth in such option agreement, payment may also
be made by delivering a properly executed exercise notice to the
Company together with a copy of irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds
to pay the exercise price. To facilitate the foregoing, the Company
may enter into agreements for coordinated procedures with one or more
brokerage firms. The Plan Administrator may prescribe any other method
of paying the exercise price that it determines to be consistent with
applicable law and the purpose of the Plan, including, without
limitation, in lieu of the exercise of a Stock Option by delivery of
shares of Common Stock of the Company then
<PAGE> 4
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owned by a participant, providing the Company with a notarized
statement attesting to the number of shares owned, where upon
verification by the Company, the Company would issue to the
participant only the number of incremental shares to which the
participant is entitled upon exercise of the Stock Option. In
determining which methods a participant may utilize to pay the
exercise price, the Plan Administrator may consider such factors as
it determines are appropriate.
(c) EXERCISE PERIOD. Stock Options granted under the Plan
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Plan Administrator;
provided, however, that no Stock Option shall be exercisable later
than ten years after the date it is granted. All Stock Options shall
terminate at such earlier times and upon such conditions or
circumstances as the Plan Administrator shall in its discretion set
forth in such option agreement at the date of grant.
(d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock
Options may be granted only to participants who are employees of the
Company or a parent or subsidiary of the Company at the date of grant.
The aggregate market value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a participant during any
calendar year (under all option plans of the Company) shall not exceed
$100,000. For purposes of the preceding sentence, Incentive Stock
Options will be taken into account in the order in which they are
granted. Incentive Stock Options may not be granted to any participant
who, at the time of grant, owns stock possessing (after the
application of the attribution rules of Section 424(d) of the Code)
more than 10% of the total combined voting power of all outstanding
classes of stock of the Company or any subsidiary of the Company,
unless the option price is fixed at not less than 110% of the Fair
Market Value of the Common Stock on the date of grant and the exercise
of such option is prohibited by its terms after the expiration of five
years from the date of grant of such option. Notwithstanding anything
to the contrary contained herein, no Incentive Stock Option may be
exercised later than ten years after the date it is granted.
7. STOCK APPRECIATION RIGHTS. The Plan Administrator may, in its
discretion, grant Stock Appreciation Rights to the holders of any Stock Options
granted hereunder. In addition, Stock Appreciation Rights may be granted
independently of, and without relation to, options. A Stock Appreciation Right
means a right to receive a payment, in case, Common Stock or a combination
thereof, in an amount equal to the excess of (x) the Fair Market Value, or
other specified valuation, of a specific number of shares of Common Stock on
the date the right is exercised over (y) the Fair Market Value, or other
specified valuation (which shall be no less than the Fair Market Value), of
such shares of Common Stock on the date the right is granted, all as determined
by the Plan Administrator; provided, however, that if a Stock Appreciation
Right is granted
<PAGE> 5
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retroactively in tandem with or in substitution for a Stock Option, the
designated Fair Market Value in the award agreement may be the Fair Market Value
on the date such Stock Option was granted. Each Stock Appreciation Right shall
be subject to such terms and conditions as the Committee shall impose from time
to time.
8. STOCK AWARDS. The Plan Administrator may, in its discretion, grant
Stock Awards (which may include mandatory payment of bonus incentive
compensation in stock) consisting of Common Stock issued or transferred to
participants with or without other payments therefor as additional compensation
for services to the Company. Stock Awards may be subject to such terms and
conditions as the Plan Administrator determines appropriate, including, without
limitation, restrictions on the sale or other disposition of such shares, the
right of the Company to reacquire such shares for no consideration upon
termination of the participant's employment within specified periods, and may
constitute Performance-Based Awards, as described below. The Plan Administrator
may require the participant to deliver a duly signed stock power, endorsed in
blank, relating to the Common Stock covered by such an Award. The Plan
Administrator may also require that the stock certificates evidencing such
shares be held in custody or bear restrictive legends until the restrictions
thereon shall lapsed. The Stock Award shall specify whether the participant
shall have, with respect to the shares of Common Stock subject to a Stock
Award, all of the rights of a holder of shares of Common Stock of the Company,
including the right to receive dividends and to vote the shares.
9. PERFORMANCE AWARDS.
(a) Performance Awards may be granted to participants at any time and
from time to time, as shall be determined by the Plan Administrator.
Performance Awards may, as determined by the Plan Administrator in its sole
discretion, constitute Performance-Based Awards. The Plan Administrator shall
have complete discretion in determining the number, amount and timing of awards
granted to each participant. Such Performance Awards may be in the form of
shares of Common Stock or Stock Units. Performance Awards may be awarded as
short-term or long-term incentives. With respect to those Performance Awards
that are intended to constitute Performance-Based Awards, the Plan
Administrator shall set performance targets at its discretion which, depending
on the extent to which they are met, will determine the number and/or value of
Performance Awards that will be paid out to the participants, and may attach to
such Performance Awards one or more restrictions. Performance targets may be
based upon, without limitation, Company-wide, divisional and/or individual
performance.
(b) With respect to those Performance Awards that are not intended to
constitute Performance-Based Awards, the Plan Administrator shall have the
authority at any time to make adjustments to performance targets for any
outstanding Performance Awards which the Plan Administrator deems necessary or
desirable at the
<PAGE> 6
-6-
time of establishment of goals the Plan Administrator shall have precluded its
authority to make such adjustments.
(c) Payment of earned Performance Awards shall be made in accordance
with terms and conditions prescribed or authorized by the Plan Administrator.
The participant may elect to defer, or the Plan Administrator may require or
permit the deferral of, the receipt of Performance Awards upon such terms as
the Plan Administrator deems appropriate.
10. STOCK UNITS.
(a) The Plan Administrator may, in its discretion, grant Stock Units
to participants hereunder. Stock Units may, as determined by the Plan
Administrator in its sole discretion, constitute Performance-Based Awards. The
Plan Administrator shall determine the criteria for the vesting of Stock Units.
A Stock Unit granted by the Plan Administrator shall provide for payment in
shares of Common Stock at such time as the award agreement shall specify.
Shares of Common Stock issued pursuant to this Section 10 may be issued with or
without other payments therefor as may be required by applicable law or such
other consideration as may be determined by the Committee. The Plan
Administrator shall determine whether a participant granted a Stock Unit shall
be entitled to a Dividend Equivalent Right (as defined below).
(b) Upon vesting of a Stock Unit, unless the Plan Administrator has
determined to defer payment with respect to such unit or a Participant has
elected to defer payment under subsection (c) below, shares of Common Stock
representing the Stock Units shall be distributed to the participant unless the
Plan Administrator, with the consent of the participant, provides for the
payment of the Stock Units in cash or partly in cash and partly in shares of
Common Stock equal to the value of the shares of Common Stock which would
otherwise be distributed to the participant.
(c) Prior to the year with respect to which a Stock Unit may vest, the
participant may elect not to receive Common Stock upon the vesting of such
Stock Unit and for the Company to continue to maintain the Stock Unit on its
books of account. In such event, the value of a Stock Unit shall be payable in
shares of Common Stock pursuant to the agreement of deferral.
(d) A "Stock Unit" means an account representing one share of Common
Stock. A "Dividend Equivalent Right" means the right to receive the amount of
any dividend paid on the share of Common Stock underlying a Stock Unit, which
shall be payable in cash or in the form of additional Stock Units.
11. PERFORMANCE-BASED AWARDS. Certain Benefits granted under the Plan
may be granted in a manner such that the Benefits qualify for the performance
based compensation exemption of Section 162(m) of the Code ("Performance-Based
Awards"). As determined by the Plan Administrator in its sole discretion,
either the granting or vesting of such Performance-Based Awards are to be based
upon one or
<PAGE> 7
-7-
more of the following factors: net sales, pretax income before allocation of
corporate overhead and bonus, budget, earnings per share, net income, division,
group or corporate financial goals, return on stockholders' equity, return on
assets, attainment of strategic and operational initiatives, appreciation in
and/or maintenance of the price of the Common Stock or any other
publicly-traded securities of the Company, market share, gross profits,
earnings before interest and taxes, earnings before interest, taxes, dividends
and amortization, economic value-added models and comparisons with various
stock market indices, reductions in costs or any combination of the foregoing.
With respect to Performance-Based Awards, (i) the Plan Administrator shall
establish in writing (x) the objective performance-based goals applicable to a
given period and (y) the individual employees or class of employees to which
such performance-based goals apply no later than 90 days after the commencement
of such fiscal period (but in no event after 25% of such period has elapsed)
and (ii) no Performance-Based Awards shall be payable to or vest with respect
to, as the case may be, any participant for a given fiscal period until the
Plan Administrator certifies in writing that the objective performance goals
(and any other material terms) applicable to such period have been satisfied.
With respect to any benefits intended to qualify as Performance-Based Awards,
after establishment of a performance goal, the Plan Administrator shall not
revise such performance goal or increase the amount of compensation payable
thereunder (as determined in accordance with Section 162(m) of the Code) upon
the attainment of such performance goal. Notwithstanding the preceding
sentence, the Plan Administrator may reduce or eliminate the number of shares
of Common Stock or cash granted or the number of shares of Common Stock vested
upon the attainment of such performance goal.
12. ADJUSTMENT PROVISIONS; CHANGE IN CONTROL.
(a) If there shall be any change in the Common Stock of the Company,
through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Company, an adjustment shall be made to each outstanding Stock Option and
Stock Appreciation Right such that each such Stock Option and Stock
Appreciation Right shall thereafter be exercisable for such securities, cash
and/or other property as would have been received in respect of the Common
Stock subject to such Stock Option or Stock Appreciation Right had such Stock
Option or Stock Appreciation Right been exercised in full immediately prior to
such change or distribution, and such an adjustment shall be made successively
each time any such change shall occur. In addition, in the event of any such
change or distribution, in order to prevent dilution or enlargement of
participants' rights under the Plan, the Plan Administrator will have authority
to adjust, in an equitable manner, the number and kind of shares that may be
issued under the Plan, the number and kind of shares subject to outstanding
Benefits, the exercise price applicable to outstanding Benefits, and the Fair
Market Value of the Common Stock and other value determinations applicable to
outstanding Benefits. Appropriate adjustments may also be made by the Plan
<PAGE> 8
-8-
Administrator in the terms of any Benefits under the Plan to reflect such
changes or distributions and to modify any other terms of outstanding Benefits
on an equitable basis, including modifications of performance targets and
changes in the length of performance periods. In addition, other than with
respect to Stock Options, Stock Appreciation Rights and other awards intended
to constitute Performance-Based Awards, the Plan Administrator is authorized to
make adjustments to the terms and conditions of, and the criteria included in,
Benefits in recognition of unusual or nonrecurring events affecting the Company
or the financial statements of the Company, or in response to changes in
applicable laws, regulations, or accounting principles. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive Stock Option
shall comply with the rules of Section 424(a) of the Code, and (ii) in no event
shall any adjustment be made which would render any Incentive Stock Option
granted hereunder other than an incentive stock option for purposes of Section
422 of the Code.
(b) Notwithstanding any other provision of this Plan, if there is a
Change in Control of the Company, all then outstanding Stock Options and Stock
Appreciation Rights shall immediately become exercisable. For purposes of this
Section 12(b), a "Change in Control" of the Company shall be deemed to have
occurred upon any of the following events:
(i) A persons or entity or group of persons or entities,
acting in concert, shall become the direct or indirect beneficial
owner (within the meaning of Rule 13d-3 of the Exchange Act) or
securities of the Company representing fifty percent (50%) or more of
the combined voting power of the issued and outstanding common stock
of the Company (a "Significant Owner"), unless such shares are
originally issued to such Significant Owner by the Company; or
(ii) The majority of the Company's Board of Directors is no
longer comprised of the incumbent directors who constitute the Board
of Directors on the Effective Date (as hereinafter defined) and any
other individual(s) who becomes a director subsequent to the date of
this Agreement whose initial election or nomination for election as a
director, as the case may be, was approved by at least a majority of
the directors who comprised the incumbent directors as of the date of
such election or nomination; or
(iii) The Company's Common Stock shall cease to be publicly
traded; or
(iv) A sale of all or substantially all of the assets of the
Company; or
(v) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of
any event described in clause (ii) or (iii) above, and such
transaction shall have been consummated.
<PAGE> 9
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The Plan Administrator, in its discretion, may determine that, upon
the occurrence of a Change in Control of the Company, each Stock Option and
Stock Appreciation Right outstanding hereunder shall terminate within a
specified number of days after notice to the holder, and such holder shall
receive, with respect to each share of Common Stock subject to such Stock
Option or Stock Appreciation Right, an amount equal to the excess of the Fair
Market Value of such shares of Common Stock immediately prior to the occurrence
of such Change in Control over the exercise price per share of such Stock
Option or Stock Appreciation Right; such amount to be payable in cash, in one
or more kinds of property (including the property, if any, payable in the
transaction) or in a combination thereof, as the Plan Administrator, in its
discretion, shall determine. The provisions set forth in the preceding sentence
shall be inapplicable to a Stock Option or Stock Appreciation Right granted
within six (6) months before the occurrence of a Change in Control if the
holder of such Stock Option or Stock Appreciation Right is subject to the
reporting requirements of Section 16(a) of the Exchange Act and no exception
from liability under Section 16(b) of the Exchange Act is otherwise available
to such holder.
13. TRANSFERABILITY. Each Benefit granted under the Plan to a
participant shall not be transferable otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during the participant's
lifetime, only by the participant. In the event of the death of a participant,
each Stock Option or Stock Appreciation Right theretofore granted to him or her
shall be exercisable during such period after his or her death as the Plan
Administrator shall in its discretion set forth in such option agreement or
right agreement at the date of grant and then only by the executor or
administrator of the estate of the deceased participant or the person or
persons to whom the deceased participant's rights under the Stock Option or
Stock Appreciation Right shall pass by will or the laws of descent and
distribution. Notwithstanding the foregoing, at the discretion of the Plan
Administrator, an award of a Benefit other than an Incentive Stock Option may
permit the transferability of a Benefit by a participant solely to members of
the participant's immediate family or trusts or family partnerships for the
benefit of such persons, subject to any restriction included in the award of
the Benefit.
14. OTHER PROVISIONS. The award of any Benefit under the Plan may also
be subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Plan Administrator determines at the
date of grant, appropriate, including, without limitation, for the installment
purchase of Common Stock under Stock Options, for the installment exercise of
Stock Appreciation Rights, to assist the participant in financing the
acquisition of Common Stock, for the forfeiture of, or restrictions on resale
or other disposition of, Common Stock acquired under any form of Benefit, for
the acceleration of exercisability or vesting of Benefits in the event of a
change in control of the Company, for the payment of the value of Benefits to
participants in the event of a change in control of the Company, or to comply
with federal and state securities laws, or understandings or conditions as to
the participant's relationship with the Company in addition to those
specifically provided for under the Plan.
<PAGE> 10
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15. FAIR MARKET VALUE. For purposes of this Plan and any Benefits
awarded hereunder, Fair Market Value shall be the Closing price of the
Company's Common Stock on the date of calculation (or on the last preceding
trading date if Common Stock was not traded on such date) if the Company's
Common Stock is readily tradable on a national securities exchange or other
market system, and if the Company's Common Stock is not readily tradable, Fair
Market Value shall mean the amount determined in good faith by the Plan
Administrator as the fair market value of the Common Stock of the Company.
16. WITHHOLDING. All payments or distributions of Benefits made
pursuant to the Plan shall be net of any amounts required to be withheld
pursuant to applicable federal, state and local tax withholding requirements.
If the Company proposes or is required to distribute Common Stock pursuant to
the Plan, it may require the recipient to remit to it or to the corporation
that employs such recipient an amount sufficient to satisfy such tax
withholding requirements prior to the delivery of any certificates for such
Common Stock. In lieu thereof, the Company or the employing corporation shall
have the right to withhold the amount of such taxes from any other sums due or
to become due from such corporation to the recipient as the Plan Administrator
shall prescribe. The Plan Administrator may, in its discretion and subject to
such rules as it may adopt (including any as may be required to satisfy
applicable tax and/or non-tax regulatory requirements), permit an optionee or
award or right holder to pay all or a portion of the federal, state and local
withholding taxes arising in connection with any Benefit consisting of shares
of Common Stock by electing to have the Company withhold shares of Common Stock
having a Fair Market Value equal to the amount of tax to be withheld, such tax
calculated at rates required by statute or regulation.
17. TENURE. A participant's right, if any, to continue to serve the
Company as a director, officer, employee, or otherwise, shall not be enlarged
or otherwise affected by his or her designation as a participant under the
Plan.
18. UNFUNDED PLAN. Participants shall have no right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations under the Plan. Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Company and
any participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be
paid from the general funds of the Company and no special or separate fund
shall be paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to assure
payment of such amounts except as expressly set forth in the Plan. The Plan is
not intended to be subject to the Employee Retirement Income Security Act of
1974, as amended.
<PAGE> 11
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19. NO FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued or delivered pursuant to the Plan or any Benefit. The Plan
Administrator shall determine whether cash, or Benefits, or other property
shall be issued or paid in lieu of fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
20. DURATION, AMENDMENT AND TERMINATION. No Benefit shall be granted
more than ten years after the Effective Date; provided, however, that the terms
and conditions applicable to any Benefit granted prior to such date may
thereafter be amended or modified by mutual agreement between the Company and
the participant or such other persons as may then have an interest therein.
Also, by mutual agreement between the Company and a participant hereunder,
under this Plan or under any other present or future plan of the Company,
Benefits may be granted to such participant in substitution and exchange for,
and in cancellation of, any Benefits previously granted such participant under
this Plan, or any other present or future plan of the Company. The Board of
Directors may amend the Plan from time to time or suspend or terminate the Plan
at any time. However, no action authorized by this Section 20 shall reduce the
amount of any existing Benefit or change the terms and conditions thereof
without the participant's consent. No amendment of the Plan shall, without
approval of the stockholders of the Company, (i) increase the total number of
shares which may be issued under the Plan or the maximum number of shares with
respect to Stock Options, Stock Appreciation Rights and other Benefits that may
be granted to any individual under the Plan or (ii) modify the requirements as
to eligibility for Benefits under the Plan; provided, however, that no
amendment may be made without approval of the stockholders of the Company if
the amendment will disqualify any Incentive Stock Options granted hereunder.
21. GOVERNING LAW. This Plan, Benefits granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).
22. EFFECTIVE DATE. (a) the Plan shall be effective as of November 20,
1996, the date on which the Plan was adopted by the Board of Directors and
approved by the stockholders of the Company (the "Effective Date").
(b) This Plan shall terminate on November 19, 2006 (unless sooner
terminated by the Board of Directors).
<PAGE> 1
EXHIBIT 10.106
INSURANCE AND INDEMNITY AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
NATIONAL AUTO FINANCE 1999-1 TRUST,
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
NATIONAL AUTO FINANCE COMPANY, INC.,
Dated as of September 1, 1999
National Auto Finance 1999-1 Trust
7.26% Class A Automobile Receivables-Backed Notes
$48,000,000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article I. DEFINITIONS.......................................................................2
Section 1.01. Definitions......................................................................2
Article II. REPRESENTATIONS, WARRANTIES AND COVENANTS.........................................2
Section 2.01. Representations and Warranties of the Trust......................................2
Section 2.02. Affirmative Covenants of the Trust...............................................6
Section 2.03. Negative Covenants of the Trust.................................................12
Section 2.04. Representations and Warranties of NAFI and the Transferor.......................14
Section 2.05. Affirmative Covenants of NAFI and the Transferor................................20
Section 2.06. Negative Covenants of NAFI and the Transferor...................................28
Section 2.07. Representations and Warranties of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II...................31
Section 2.08. Affirmative Covenants of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II........................32
Section 2.09. Negative Covenants of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II........................33
Article III. THE POLICY; REIMBURSEMENT; INDEMNIFICATION.......................................34
Section 3.01. Issuance of the Policy..........................................................34
Section 3.02. Payment of Fees and Premium.....................................................34
Section 3.03. Reimbursement Obligation........................................................35
Section 3.04. Indemnification.................................................................36
Section 3.05. Subrogation.....................................................................38
Article IV. FURTHER AGREEMENTS...............................................................39
Section 4.01. Effective Date; Term of Agreement...............................................39
Section 4.02. Further Assurances and Corrective Instruments...................................39
Section 4.03. Obligation Absolute.............................................................39
Section 4.04. Assignments; Reinsurance; Third-Party Rights....................................41
Section 4.05. Liability of Financial Security.................................................41
Article V. EVENTS OF DEFAULT; REMEDIES......................................................42
Section 5.01. Events of Default...............................................................42
Section 5.02. Remedies; Waivers...............................................................45
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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PAGE
<S> <C>
Article VI. MISCELLANEOUS....................................................................46
Section 6.01. Amendments, Etc.................................................................46
Section 6.02. Notices.........................................................................46
Section 6.03. Payment Procedure...............................................................47
Section 6.04. Severability....................................................................48
Section 6.05. Governing Law...................................................................48
Section 6.06. Consent to Jurisdiction.........................................................48
Section 6.07. Consent of Financial Security...................................................49
Section 6.08. Counterparts....................................................................49
Section 6.09. Trial by Jury Waived............................................................49
Section 6.10. Limited Liability...............................................................50
Section 6.11. Entire Agreement................................................................50
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
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ii
<PAGE> 4
EXHIBIT 10.106
INSURANCE AND INDEMNITY AGREEMENT
INSURANCE AND INDEMNITY AGREEMENT dated as of September 1,
1999 by and among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"),
NATIONAL AUTO FINANCE 1999-1 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 Receivables and certain
other property related thereto to Funding Trust II pursuant to the
Assignment Agreement and will simultaneously release its liens on such
Receivables and such other property related thereto, (ii) Funding Trust
II will simultaneously sell all of its right, title and interest in and
to the Receivables and such other property related thereto to the
Transferor pursuant to the Sale Agreement, and will simultaneously
release its liens on such Receivables and such other property related
thereto, and (iii) the Transferor will simultaneously sell all of its
right, title and interest in and to the Receivables and such other
property related thereto to the Trust pursuant to the Sale and
Servicing Agreement.
B. The Trust will issue the Securities and the Class B Notes
pursuant to the Indenture and the Certificate 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 applicable
bankruptcy law) upon the terms and subject to the conditions provided
herein.
C. NAFI and/or Funding Trust II and/or the Transferor and/or
any other Affiliate of NAFI has previously entered, and 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 has sold, pledged or otherwise transferred, and
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 has issued policies, and
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.
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D. 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 1.01. Definitions. Capitalized terms used herein shall have the
meanings provided in Appendix I hereto unless the context otherwise requires.
Unless otherwise defined in this Insurance Agreement, 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 1999-1.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of the Trust. The Trust
represents, warrants and covenants, as of the date hereof and as of the Date of
Issuance, 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.
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(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 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 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, 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 and the Class B Notes; 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 Certificate, when executed, authenticated and
delivered in accordance with the Trust Agreement, will be validly
issued and outstanding and entitled to the
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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
has no duties under ERISA.
(h) 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 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, the Class B Notes and the issuance of the Certificate,
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 NOTE INSURER", and the
financial statements of Financial Security attached thereto as Exhibit
[ ]. 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
Agreement or
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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, the Class B Notes and the Certificate, 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, 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 other Person and will have full right,
power and lawful authority to pledge such Other Trust Property pursuant
to the Indenture. The Indenture constitutes a valid pledge of the
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<PAGE> 9
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
Distribution Account, the Class A Note Distribution Account and the
Class B 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 2.02. 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:
(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,
the Class B Notes and the Certificate 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.
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(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
(in the case of clause (i), (ii) and (iii) to the extent any such
financial statements or reports are 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
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.
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(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 (x) 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 and (y) on each April 5, July 5,
October 5, and January 5 (in each case, the next Business Day, if such
day is not a Business Day), if the financial statements required
pursuant to Section 2.02(b)(ii) hereof are not being delivered, a
certificate signed by an officer of the Trust stating that:
(i) a review of the Trust's performance under the
Transaction Documents during such period or the quarter ending March
31, June 30, September 30 and December 31, as applicable, 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, if any and 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
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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.
(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 Class B Notes, the Certificate, 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.
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(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, 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 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 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 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
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.
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(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.
(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.
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(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 and shall deliver to
Financial Security copies of all filings required to be made pursuant
to such laws no later than 5 business days after such filings were
made.
(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) Notice of Default. In the event any notice is delivered to
the Trust under Section 5.01(d) concerning a failure in the performance
or observance of any covenant or agreement on the part of the
Transferor, the Servicer or NAFI, the Trust shall promptly deliver a
copy of such notice to NAFI, the Transferor, the Servicer and Financial
Security.
Section 2.03. 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:
(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 Trust Collateral Agent, the
Certificateholders, the holders of Securities, the Class B Notes or
Financial Security, (ii) result in a Material Adverse Change in respect
of the
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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, permit to become effective, 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 approved the form of
such waiver, amendment or modification and 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 written 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, 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 expressly permitted 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.
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(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.
Section 2.04. Representations and Warranties of NAFI and the
Transferor. NAFI represents, warrants and covenants, as of the date hereof and
the Date of Issuance, with respect to the Transferor and otherwise as follows,
and the Transferor represents, warrants and covenants, as of the date hereof and
the Date of Issuance 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 (corporate and otherwise) 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 (corporate and otherwise)
and do not require any additional approvals or consents or other action
(corporate or otherwise) by or any notice to or filing with any Person.
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(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,
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. Except as set forth in the Sale and
Servicing Agreement and in any schedule thereto, 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, could
reasonably be expected to 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 and
the Class B Notes, 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,
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insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general equitable principles. The
Certificate, 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 Class B Notes, and the issuance of the Certificate,
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
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<PAGE> 20
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 NOTE INSURER" and the
financial statements of Financial Security attached thereto as Exhibit
[ ]. 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.
(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, National Auto Finance 1997-1 Trust and
National Auto Finance 1998-1 Trust of a Series, the Transferor is not
engaged in any business transactions with NAFI or any of its
Affiliates.
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(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
consideration for such Receivables and related Other Trust Property.
The amount of consideration being received by the Master Trust upon the
sale of the 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
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 received by NAFI upon the transfer of the Receivables and
related Other Trust Property to Funding Trust II constituted reasonably
equivalent value and fair consideration for such Receivables and
related Other Trust Property. Neither (i) the Master Trust, with
respect to the Receivables and related Other Trust Property transferred
by it to Funding Trust II nor (ii) Funding Trust II, with respect to
the 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 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 and the Class B Notes , as provided in
the Transaction Documents, with any intent to hinder, delay or defraud
any of the Transferor's creditors.
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(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 Receivables
and related Other Trust Property by the Transferor to the
Trust pursuant to the Sale and Servicing Agreement on the
Closing 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 Receivables and related Other Trust Property
to the Trust, 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 Class A Note
Distribution Account, the Class B 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 Trustee Collateral Agent's first priority Lien on and security
interest in the Collateral as against any third parties.
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(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 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.
(t) Taxes. Each of NAFI and the Transferor, and each of their
respective Subsidiaries, has 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, the Class B Notes and the Certificate have been paid or
shall have been paid at or prior to the Date of Issuance.
Section 2.05. 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:
(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, the Class B Notes and the
Certificate 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 the Transferor,
shall clearly reflect therein the transfer of the Receivables and
related Other Trust Property 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
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
Receivables to the Transferor. Each of NAFI and the Transferor shall
furnish or cause to be furnished to Financial Security:
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(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 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.
(iii) Accountants' Reports. 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 Class B Notes, the Certificate, the Receivables and the
Other Trust Property, the obligations of NAFI or of the Transferor
under the Transaction Documents, the Transaction and 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
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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.
(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.
(vi) Subject to Section 2.05(l) hereof, 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 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
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(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 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
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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.
(i) Disclosure Document. (1) Each Offering Document 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 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.
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(2) Each Offering Document delivered 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 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
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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.
(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) Registration Statements for the Securities. Each of NAFI
and the Transferor shall (i) provide Financial Security with written
notice at least 30 days prior to the filing of any registration
statement relating to the Securities, the Class B Notes or the
Certificate, (ii) provide Financial Security with a copy of such
registration statement to be filed at least 15 days prior to such
filing, (iii) prior to such filing, obtain the written consent of
Financial Security with respect to the filing of such registration
statement and (iv) provide Financial Security with any opinions of
counsel as Financial Security may request in connection with the
registration of the Securities, the Class B Notes or the Certificate
under the Securities Act, which opinions shall be addressed to
Financial Security and shall be in form and substance satisfactory to
Financial Security.
(m) 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.
(n) 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, (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.
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(o) Notice of Default. In the event any notice is delivered to
the Transferor under Section 5.01(d) concerning a failure in the
performance or observance of any covenant or agreement on the part of
the Servicer, NAFI or the Trust, the Transferor shall immediately
deliver such notice to the Servicer, Financial Security, the Trust and
NAFI.
(p) ERISA. NAFI shall give Financial Security prompt notice of
each of the following events (but in no event more than 30 days after
the occurrence of the event): (i) an Accumulated Funding Deficiency,
(ii) the failure to make a required contribution to a Plan or
Multiemployer Plan, (iii) a Reportable Event, (iv) any action by a
Commonly Controlled Entity to terminate any Plan or withdraw from any
Multiemployer Plan, (v) any action by the PBGC to terminate or appoint
a trustee to administer a Plan, (vi) the reorganization of insolvency
of any Multiemployer Plan and (vii) an aggregate Underfunding for all
Underfunded Plans in excess of $100,000. In addition, NAFI shall
promptly (but in no case more than 30 days following issuance or
receipt by the 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 of the events described in the
preceding sentence or the underfunded status, termination or possible
termination of a Plan or Multiemployer Plan.
(q) Systems Protection. NAFI has taken, or will by September
30, 1999, use its best efforts to take, and will by January 1, 2000
take, all actions necessary and appropriate to prevent any material
problems in its computer systems, auto-dialer system, or other data
processing or information management systems arising from or in
connection with the advent of calendar year 2000, and will provide
Financial Security, with reasonable promptness upon request, such
reports and other information as may be requested by Financial Security
from time to time evidencing the actions taken or to be taken as
aforesaid.
(r) Securities Laws. The Trust and NAFI 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
Securities 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 in respect of the Trust, the
Transferor, NAFI or any Receivable.
(s) NAFI shall within 30 days of the Closing Date, amend all
Securitization Agreements with respect to which Financial Security has
issued a financial guaranty insurance policy to conform to the
provisions of Section 4.16 of the Sale and Servicing Agreement.
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Section 2.06. 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 existence of any Lien on, or Restriction on Transferability of, 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 holders of the Class B Notes, 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, permit to become effective, (to the
extent they have the ability to do so) 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 unless Financial Security shall have approved the form of
such waiver, amendment or modification and consented thereto in
writing.
(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.
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(e) Creation of Indebtedness; Guarantees. Other than as
expressly 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.
(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
(i) 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,
(ii) transfer all or any material portion of its assets to any Person
or (iii) liquidate or dissolve.
(i) Other Activities. The Transferor shall not:
(i) sell, transfer, exchange or otherwise dispose of
any of its assets except as expressly permitted under the Transaction
Documents and under the Transferor's certificate of trust and trust
agreement; 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 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,
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<PAGE> 33
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 Certificate.
(i) None of the Transferor, NAFI or the Transferor
will permit or allow the sale, transfer, assignment, conveyance or
pledge of, the Certificate at any time subsequent to the Date of
Issuance to any Transferee, that is an Affiliate of NAFI or the
Transferor, unless, NAFI and the Transferor shall have received the
prior written consent of Financial Security and, (I) such Transferee is
structured as a special purpose bankruptcy remote entity and such
entity is acceptable to Financial Security, (II) prior to such sale,
transfer, assignment, conveyance or pledge, NAFI and the Transferor
deliver to Financial Security an Opinion of Counsel 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 (a) the Transferor and NAFI, (b) such Transferee and
NAFI and (c) such Transferee and its parent entity (if such parent
entity is not NAFI) and (III) such Transferee agrees to comply with the
restrictions contained in this Section 2.6(m)(i) and to adhere to such
restrictions for the benefit of Financial Security.
(ii) The Transferor shall not sell, transfer, assign,
convey or pledge, and neither NAFI nor the Transferor will 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 the Transferor or NAFI, unless the
Transferor shall have received the prior written consent of Financial
Security and, (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
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<PAGE> 34
to the extent of amounts, if any, received by the Transferor pursuant
to Section 3.03(b) of the Spread Account Agreement and Section 5.7 of
the Sale and Servicing Agreement.
(iii) Notwithstanding clauses (i) and (ii) above,
neither the Transferor nor NAFI shall sell, transfer, assign, convey or
pledge, and neither the Transferor nor NAFI will permit or allow the
sale of, any of the Class B Notes to NAFI or to the Transferor.
(iv) Notwithstanding anything contained herein to the
contrary, any transfer of the Certificate shall also comply with the
provisions of Section 3.4 of the Trust Agreement that sets forth
certain conditions to a transfer of the Certificate.
(n) Neither NAFI nor the Transferor shall terminate or
designate, or consent to the termination or designation of, the
Transferor Owner Trustee or any Independent Co-Trustee (as defined in
the Transferor Trust Agreement) under the Transferor Trust Agreement or
any successor to any of such Persons without the prior written consent
of Financial Security thereto."
Section 2.07. 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 and as of the
Date of Issuance, 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 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
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 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
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 Receivables and related Other Trust Property by the
Master Trust to Funding Trust II or (ii) the transfer of the
Receivables and
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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.
(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 2.08. 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
and security interest of (i) the Master Trust in
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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 2.09. 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 Trust Collateral Agent, 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 3.01. 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 3.02. 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 and as set forth on the Premium 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 and as set forth
in the Premium Letter.
(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, NAFI. 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. NAFI 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 NAFI.
(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
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
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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 3.03. 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), 3.03(b) (other than in respect of
amounts due from NAFI), 3.03(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 3.03(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;
(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 Custodian, the Trust Collateral Agent, the Backup
Servicer, 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 Custodian, the Trust
Collateral Agent, the Backup Servicer, 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
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(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, and (vii) 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.
All such amounts are to be immediately due and payable without
demand, in full, without any requirement on the part of Financial
Security to seek reimbursement of such amounts from any other source of
reimbursement or indemnity or to allocate such amount to any other
transaction that may have benefited from the expenditure of such
amounts.
Section 3.04. 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
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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, the Class B Notes or
the Certificate;
(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 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 NOTE INSURER" and the financial
statements of Financial Security attached thereto as Exhibit [ ].
(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
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<PAGE> 41
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.
(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 3.05. 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
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<PAGE> 42
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 4.01. 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 4.02. Further Assurances and Corrective Instruments. To the
extent permitted by law, each of the Trust, the Transferor, and NAFI agrees that
it will, from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements hereto and such further
instruments as Financial Security may reasonably request and as may be required
in Financial Security's reasonable judgment to effectuate the intention of or
facilitate the performance of this Insurance Agreement and the intent of the
parties hereto.
Section 4.03. 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:
(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 or the Trust to
receive the proceeds from the sale of the Securities;
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<PAGE> 43
(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 payment by Financial Security under the
Policy against presentation of a certificate or other document which
does not strictly comply with the terms of the Policy; or
(viii) 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 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 4.04. Assignments; Reinsurance; Third-Party Rights. This
Insurance Agreement shall be a continuing obligation of the parties hereto and
shall be binding
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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.
(a) 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.
(b) 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.
(c) 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 Notes 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 Notes 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 4.05. 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.
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ARTICLE V.
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(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, Funding Trust II, the Master
Trust 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, Funding Trust II,
the Master Trust 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 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 the Transferor under
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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, the Average Delinquency Ratio
shall have been equal to or greater than 12.00%;
(g) as of any Reporting Date, the Average Default Rate is
equal to or greater than 25.00%;
(h) as of any Reporting Date, the Average Net Loss Rate is
equal to or greater than 13.00%;
(i) the Trust becomes taxable as an association (or publicly
traded partnership) or 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 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) on any Payment Date, the sum of Available Amount with
respect to such Distribution Date and the amounts available in the
Series 1999-1 Spread Account (prior to withdrawals therefrom in
accordance with the terms of the
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Spread Account Agreement and prior to any deposits into such Spread
Account from Spread Accounts, if any, related to any other Series (as
defined in the Spread Account Agreement)) is less than the sum of
amounts payable on such Distribution Date pursuant to clauses (i)
through (vi) of Section 5.7(a) of the Sale and Servicing Agreement;
(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(n) 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(n) by the Date of Issuance to such filing
service for prompt filing in the appropriate jurisdictions;
(o) the Securities or the Class B 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 Securities, the holders of the Class B Notes or
Financial Security;
(p) any event of default under NAFI's Restructuring Agreement,
Junior Subordination Agreement, or the Revolving Credit Facility and a
party has exercised any of its remedies thereunder; and
(q) (i) NAFI shall fail to file (or cause to be filed) in the
aggregate jurisdiction(s) within 2 Business Days of the Closing Date
UCC-3 termination statements with respect to the security interest of
the Master Trust (or any other Person) in the Receivables and (ii) NAFI
shall fail to (A) file (or cause to be filed) or (B) provide to
Financial Security written evidence of filing acceptable to Financial
Security, in each case within 5 Business Days of the Closing Date,
UCC-3 termination statements with respect to the security interest of
the Master Trust (or any other Person) in any pools of Receivables (as
defined in the related Securitization Agreements) in connection with
NAFI's 1996-1, 1997-1 and 1998-1 securitization transactions.
Section 5.02. 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:
(i) declare all or a portion of the Premium
Supplement that has accrued or will accrue payable, and the same shall
thereupon (A) be immediately due and payable to the extent then accrued
and (B) become immediately due and payable upon accrual to the extent
accruing thereafter, 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
Person entitled to exercise the rights of the Controlling Party under
the Transaction Documents,
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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 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.
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Article VI.
MISCELLANEOUS
Section 6.01. 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 6.02. 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 (with telephonic confirmation of receipt if telecopied) to the
recipient as follows:
<TABLE>
<S> <C>
(a) To Financial Security: Financial Security Assurance Inc. 350 Park Avenue New York, NY 10022 Attention:
Transaction Oversight Department (with a copy to the General Counsel) Re:
National Auto Finance 1999-1 Trust, $48,000,000 7.26% Class A 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.")
(b) To the Transferor: National Financial Auto
Funding Trust
c/o Chase Manhattan Bank
Delaware
1201 Market Street
Wilmington, Delaware 19801
</TABLE>
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<PAGE> 50
<TABLE>
<S> <C>
Attention: Corporate Trust
Administration
Telecopy No: (302) 984-4903
Confirmation: (302) 428-3375
(c) To NAFI: National Auto Finance Company, Inc.
10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32256
Attention: President
Telecopy No: (904) 996-2575
Confirmation: (904) 996-2500
(d) To the Trust: National Auto Finance 1999-1 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
</TABLE>
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 6.03. 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 12:00 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.
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Section 6.04. 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 6.05. 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 6.06. Governing Law. THIS INSURANCE AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAW PROVISIONS THEREIN.
Section 6.07. 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/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,
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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.
(a) 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.
(b) 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.
(c) 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 6.08. 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 6.09. 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
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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.
It is expressly understood and agreed by the parties hereto
that (a) this Insurance Agreement is executed and delivered by Wilmington Trust
Company, not individually or personally but solely as trustee of the Trust, in
the exercise of the powers and authority conferred and vested in it under the
Trust Agreement, (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 of binding only the Trust and (c) 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
undertaken by the Trust under this Insurance Agreement or the other Transaction
Documents.
It is expressly understood and agreed by the parties hereto
that (a) this Insurance Agreement is executed and delivered by Chase Manhattan
Bank Delaware, not individually or personally but solely as trustee of the
Trust, in the exercise of the powers and authority conferred and vested in it
under the Trust Agreement, (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 Chase Manhattan Bank
Delaware, but is made and intended for the purpose of binding only the Trust and
(c) under no circumstances shall Chase Manhattan Bank Delaware, 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 undertaken by the Trust under this Insurance Agreement or the
other Transaction Documents.
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Section 6.12. 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: /s/ AUTHORIZED SIGNATURE
------------------------------------
Name:
Title:
NATIONAL AUTO FINANCE 1999-1 TRUST
By: Wilmington Trust Company, not
in its individual capacity, but
solely in its capacity as owner
trustee for National Auto Finance
Trust 1999-1 Trust
By: /s/ PATRICIA A. EVANS
------------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: Chase Manhattan Bank
Delaware, not in its individual
capacity, but solely in its
capacity as owner trustee for
National Financial Auto
Funding Trust
By: /s/ DENIS KELLY
------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ STEPHEN R. VETH
------------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary
and General Counsel
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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 September 1, 1999, 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.
"Backup Servicing Agreement" means the Backup Servicing
Agreement, dated as of March 31, 1998, among the Transferor, NAFI and Harris
Trust and Savings Bank, in its capacities as Trustee and Standby Servicer under
the Pooling and Servicing Agreements (as defined in such Backup Servicing
Agreement) and Trustee and Backup Servicer under the Sale and Servicing
Agreements (as defined in such Backup Servicing Agreement), as the same may be
amended, amended and restated, supplemented or otherwise modified or substituted
or replaced 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 the Asset Backed Certificate issued and
executed by the Trust and authenticated by the Owner Trustee, in substantially
the form set forth in Exhibit A to 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.
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"Custodian Agreement" means the Custodial Agreement, dated as
of September 1, 1999, between NAFI and Harris Trust and Savings Bank as
custodian, as the same may be amended, 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, 1998 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 June 30,
1999 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.
"Indenture" means the Indenture, dated as of September 1,
1999, between National Auto Finance 1999-1 Trust and Harris Trust 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.
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"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 August 3, 1999,
from NAFI to Financial Security.
"Initial Purchase Agreement" means the Class A Note Purchase
Agreement, dated as of September 1, 1999, among the 1999-1 Trust, NAFI, Funding
Trust, and the Initial Purchasers.
"Initial Purchasers" mean Prudential Insurance Company of
America, Pruco Life Insurance Company and Pruco Life Insurance Company of New
Jersey.
"Insurance Agreement" means this Insurance and Indemnity
Agreement dated as of September 1, 1999, 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), (m), (o), (p) and (q) 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.
"Junior Subordination Agreement" means the Amended and
Restated Junior Subordination Agreement, dated as of April 7, 1999, by and among
NAFI, The 1818 Mezzanine Fund, L.P., PC Investment Company, Manufacturers Life
Insurance Company, The Structured Finance High Yield Fund, LLC, Nova Financial
Corporation, Nova Corporation, Stephen L. Gurba, Edgar A. Otto and Gary Shapiro.
"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
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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 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 Funding Trust II 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) a material adverse
change in 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.
"National Auto Finance 1998-1 Trust" means the National Auto
Finance 1998-1 Trust.
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"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 Offering Memorandum dated
September 24, 1999, in respect of the Securities and the Class B Notes and any
amendment or supplement thereto and any other offering document of the
Transferor or an Affiliate thereof in respect of the Securities or the Class B
Notes that makes reference to the Policy.
"Other Trust Property" means the Trust Property and the
property and proceeds conveyed by the Transferor to the Trust pursuant to
Section 2.1 of the Sale and Servicing Agreement exclusive of the Policy.
"Owner Trust Estate" has the meaning provided in the Trust
Agreement.
"Owner Trustee" means Wilmington Trust Company, as owner
trustee, not in its individual capacity but solely 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(e) of this Insurance Agreement and the Premium Supplement, if any.
"Premium Letter" means the side letter dated September 1,
1999, 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(e) 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
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the terms set forth in the Premium Letter and payable upon and in accordance
with a declaration under Section 5.02(a)(i) 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.
"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.
"Receivables" has the meaning provided in the Sale and
Servicing 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.
"Restructuring Agreement" means the Restructuring Agreement
dated as of April 7, 1999 by and among National Auto Finance Company, Inc. (the
"Company"), National Auto Finance Company, L.P., National Auto Finance
Corporation, the Partners, The 1818 Mezzanine Fund, L.P., PC Investment Company,
Progressive Investment Company, Inc., Manufacturers Life Insurance Company and
The Structured Finance High Yield Fund, LLC.
"Revolving Credit Facility" means the Revolving Credit, Term
Loan and Security Agreement dated as of March 31, 1999.
"Sale Agreement" means the Sale Agreement, dated as of
September 1, 1999, 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 September 1, 1999, among the Trust, the Transferor, the
Servicer, the Backup Servicer and the Trust Collateral Agent, as the same may be
amended,
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amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Securities" means the $48,000,000 of National Auto Finance
1999-1 Trust, 7.26% Class A 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 C of the Introductory Statements to this Insurance Agreement.
"Series 1999-1" means the Series issued on the date hereof
pursuant to the Indenture.
"Series 1999-1 Supplement" means the Series 1999-1 Supplement
to the Spread Account Agreement.
"Series of Securities" or "Series" means Series 1999-1 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 C 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 September 1, 1999, 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 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.
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"Spread Account" means the "Series 1999-1 Spread Account", as
such term is defined in Series 1999-1 Supplement.
"Spread Account Agreement" means the Amended and Restated
Master Spread Account Agreement, dated as of March 31, 1998 among the
Transferor, the Collateral Agent named therein and Financial Security as the
same has been previously supplemented and as it may be further 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.
"Supplement to the Backup Servicing Agreement" means the
Supplement to the Backup Servicing Agreement, dated as of September 1, 1999, by
and among the Transferor, NAFI and the Backup Servicer.
"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 the transactions contemplated by the
Transaction Documents, including the transactions described in the Offering
Document.
"Transaction Documents" means the Securities, the Certificate,
this Insurance Agreement, the Lockbox Agreement, the Custodian Agreement, the
Sale and Servicing Agreement, the Indenture, the Premium Letter, the
Indemnification Agreement, any Sub-Servicing Agreement, the Inducement Letter,
the Sale Agreement, the Assignment Agreement, the Servicer Termination Side
Letter, the Initial Purchase Agreement, the Spread Account Agreement, Series
1999-1 Supplement, the Backup Servicing Agreement, the Supplement to the Backup
Servicing Agreement, the Transferor Trust Agreement, the certificate of trust of
the Trust and the Trust Agreement and any other financing document executed in
connection with Series 1999-1
"Transferor" means National Financial Auto Funding Trust, a
business trust formed by NAFI under the laws of the State of Delaware.
"Transferor Owner Trustee" means Chase Manhattan Bank
Delaware, a Delaware banking corporation, not in its individual capacity but
solely in its capacity as
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the owner trustee under the Transferor Trust Agreement, and any successor
thereto in such capacity.
"Transferor Trust Agreement" means the First Amended and
Restated Trust Agreement dated as of December 8, 1994, among NAFI, as depositor,
the Transferor Owner Trustee, the persons identified therein as the Co-Trustees,
and the other persons party thereto, as amended by Amendments to Trust
Agreements, dated as of October 1, 1997, and Amendment No. 2 to First Amended
and Restated Trust Agreement, dated as of March 31, 1998, in each case among
NAFI, the Transferor Owner Trustee, the persons identified therein as the
Co-Trustees, and the other persons party thereto, if any, as the same may be
further amended and restated, amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
"Trigger Event" has the meaning provided in the Series 1999-1
Supplement.
"Trust" means the trust created under the Trust Agreement.
"Trust Accounts" means the Collection Account, the
Distribution Account, the Class A Note Distribution Account, the Class B Note
Distribution Account and the Lockbox Account.
"Trust Agreement" means the Amended and Restated Trust
Agreement, dated as of September 1, 1999, 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.
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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, the Class B Notes and the
Certificate, 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,
Funding Trust II, the Owner Trustee, the Trust Collateral Agent, the Indenture
Trustee and NAFI, respectively, certifying the name and signatures of the
officers of the Funding Trust II, 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
A-1
<PAGE> 66
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 Initial Purchase Agreement. All
conditions in the Initial Purchase Agreement to the Initial Purchasers'
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 Receivables Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the
Receivables 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.
A-2
<PAGE> 67
(m) Perfection Certificate. A duly authorized officer of NAFI shall
have executed and delivered to Financial Security on or prior to the Closing
Date a certificate in the form attached as Exhibit B hereto, which shall contain
the representation of NAFI that each of the financing statements listed in the
schedule attached thereto have, or in the case of any such financing statement
on Form UCC-3 or UCC-2 within 2 Business Days after the Closing Date will be,
filed in the applicable filing office and jurisdiction, bearing (as applicable)
the applicable filing index number, specified in such schedule with respect to
such financing statement.
(n) No Default. No Default or Event of Default shall have occurred.
(o) 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 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.
(p) 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.
A-3
<PAGE> 68
ANNEX I
TO
INSURANCE AND INDEMNITY AGREEMENT
FORM OF FINANCIAL GUARANTY INSURANCE POLICY
A-1
<PAGE> 69
EXHIBIT-B
OFFICER'S CERTIFICATE
Reference is made to the Sale and Servicing Agreement, dated as of
September 1, 1999 (the "Securitization Agreement"), among National Auto Finance
Trust 1999-1, as Issuer, National Auto Funding Trust, as Seller, National Auto
Finance Company Inc. ("NAFI"), in its individual capacity and as Servicer and
Harris Trust and Savings Bank, as Back-up Servicer and Trust Collateral Agent
(capitalized terms used and not defined herein having the meanings assigned
thereto in the Securitization Agreement). The undersigned, hereby certifies that
he is the Chairman of the Board and CEO of NAFI, and that, as such, is
authorized to deliver this certificate on behalf of NAFI and further certifies
that the financing statements listed in Schedule 1 attached hereto represent all
of the Uniform Commercial Code financing statements that have been, as of the
Closing Date, filed in connection with the execution and delivery of the
Securitization Agreement and the other Transaction Documents, and that each such
financing statement has been filed in the filing office and jurisdiction,
bearing (as applicable) the filing index number, specified in such schedule with
respect to such financing statement.
[remainder of page intentionally left blank]
Exhibit B-1
<PAGE> 70
IN WITNESS WHEREOF, I have hereunto set my hands this ___th day of
September __, 1999.
NATIONAL AUTO FINANCE
COMPANY, INC.
By:
---------------------------------------
Name:
Title:
Exhibit B-2
<PAGE> 71
SCHEDULE 1
Schedule of Filings
Exhibit B-3
<PAGE> 72
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, the Class B Notes and
the Certificate 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) none of the Transferor, NAFI, the Trust or the Trust
Estate is required to be registered under the Investment Company Act;
and
(C) 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 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 Funding Trust II to the
Transferor, and not as a borrowing by or Funding Trust II, as applicable, or a
relationship of joint ownership, partnership, joint venture or similar
arrangement; and (D) 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;
Appendix A-1
<PAGE> 73
(v) a title and perfection opinion with respect to the Financed
Vehicles from California, Georgia, South Carolina 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;
(ix) the Offering Document does not contain any untrue statement of a
material fact or limit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading;
(x) in the event that the transfer of the Receivables and the Other
Trust Property to the Trust is not characterized as a sale by a court of
competent jurisdiction, such court would characterize such transfer as a grant
of a security interest to the Trust in the Receivables and the Other Trust
Property, which security interest has been perfected as a first priority
security interest; and
(xi) such other opinions as Financial Security shall request.
Appendix A-2
<PAGE> 1
EXHIBIT 10.107
INDEMNIFICATION AGREEMENT
between
FINANCIAL SECURITY ASSURANCE INC.,
and
NATIONAL FINANCIAL AUTO FUNDING TRUST
Dated as of September 1, 1999
National Auto Finance 1999-1 Trust
$48,000,000 7.26% Class A Automobile Receivables-Backed Notes
<PAGE> 2
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of September 1, 1999, between
FINANCIAL SECURITY ASSURANCE INC. ("Financial Security") and NATIONAL FINANCIAL
AUTO FUNDING TRUST (the "Company"),
Section 1. Definitions. Unless otherwise defined in this Agreement, all terms
defined in the Sale and Servicing Agreement shall have the same meanings in this
Agreement. 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 Securities and Exchange Commission.
"Company Party" means any of the Company, its parent, 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, the Spread Account Agreement Supplement 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 3 hereof.
"Indemnifying Party" means any party required to provide
indemnification pursuant to Section 3 hereof.
<PAGE> 3
"Indenture" means the Indenture dated as of September 1, 1999, between
National Auto Finance 1999-1 Trust and Harris Trust and Savings Bank, as
Indenture Trustee and Trust Collateral Agent, as the same may be amended and
supplemented from time to time in accordance with its terms.
"Insurance Agreement" means the Insurance and Indemnity Agreement,
dated as of September 1, 1999, 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 Offering Memorandum and any other
material or documents delivered by the Company to any Person in connection with
the offer or sale of the Securities.
"Offering Memorandum" means the Offering Memorandum dated as of
September 24, 1999 relating to the Securities and any amendment or supplement
thereto.
"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.
"Rule 144A Information" means any information provided to any holder or
prospective purchaser of the Notes, pursuant to Section 11.11 of the Indenture.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of September 1, 1999, 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.
2
<PAGE> 4
"Securities" means the National Auto Finance 1999-1 Trust $48,000,000
7.26% Class A 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 First Amended and Restated Master
Spread Account Agreement dated as of March 31, 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.
"Spread Account Agreement Supplement" means the Series 1999-1
Supplement, dated as of September 1, 1999 to the Spread Account Agreement among
the Company, Financial Security, the Collateral Agent and the Trustee specified
therein.
"Trust" means the National Auto Finance 1999-1 Trust, a Delaware
business trust.
Section 2. Representations, Warranties and Agreements of Financial Security.
Financial Security represents, warrants and agrees with the parties hereto as
follows:
(a) 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.
(b) Authorization, Etc. The Policy and the Financial Security
Agreements have been duly authorized, executed and delivered by Financial
Security.
(c) 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.
(d) Exemption From Registration. The Policy is exempt from registration
under the Securities Act.
(e) 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
3
<PAGE> 5
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, 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).
(f) Financial Information. The consolidated balance sheets of Financial
Security as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder equity and cash flows
for the fiscal years then ended and the interim consolidated balance sheet of
Financial Security as of June 30, 1999, and the related statements of income,
changes in shareholder equity and cash flows for the interim period then ended,
furnished by Financial Security to the Company, 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.
(g) Financial Security Information. The information in the Offering
Memorandum set forth under the caption "The Note Insurer", (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 an Offering Memorandum 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 such Offering Memorandum and as of the closing date,
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.
(h) Additional Information. Financial Security will furnish to the
Company, upon request of 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 an Offering Memorandum relating to
the Securities is required at any time prior to the expiration of nine months
after the time of issuance of the Offering Memorandum in connection with the
offering or sale of the Securities, the Company will notify Financial Security
of such requirement to deliver an Offering Memorandum and Financial Security
will promptly provide the Company with any revisions to the Financial Security
Information that are in the judgment of
4
<PAGE> 6
Financial Security necessary to prepare an amended Offering Memorandum or a
supplement to the Offering Memorandum.
(i) Opinion of Counsel. Financial Security will furnish to 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.
(j) Consents and Reports of Independent Accountants. Financial Security
will furnish to 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 Offering Memorandum,
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 insurance financial strength by
Moody's Investors Service, Inc. or its insurer financial strength by 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 Offering Memorandum and the facts and assumptions considered by the Rating
Agencies, and the ratings issued thereby, are subject to change over time.
Section 3. Indemnification.
(a) Financial Security agrees, upon the terms and subject to the
conditions provided herein, to indemnify, defend and hold harmless 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 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 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.
(b) Upon the incurrence of any Losses for which a party is entitled to
indemnification hereunder, the Indemnifying Party shall reimburse the
Indemnified Party promptly upon establishment by the Indemnified Party to the
Indemnifying Party of the Losses incurred.
5
<PAGE> 7
Section 4. Indemnification Procedures. Except as provided below in Section 5
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 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 the Indemnified Party 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 all the Company 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
and by Financial Security in respect of the Financial Security Parties. 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.
6
<PAGE> 8
Section 5. Contribution.
(a) 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 5), 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 5(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.
(b) 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.
(c) The parties agree that Financial Security shall be solely
responsible for the Financial Security Information, and that the balance of the
Offering Document shall be the responsibility of the Company.
(d) 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.
(e) 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 6. Miscellaneous.
(a) 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:
7
<PAGE> 9
If to Financial Security: Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attention: Senior Vice President -
Transaction Oversight (with a copy to the
attention of the General Counsel)
Re: National Auto Finance 1999-1 Trust,
$48,000,000 7.26% Class A 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.")
If to the Company: 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
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8
<PAGE> 10
(c) 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.
(d) Amendments. Amendments of this Agreement shall be in writing signed
by each party hereto.
(e) 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 have and shall in
no way limit any obligations of the Company under the Underwriting Agreement or
the Insurance Agreement.
(f) Counterparts. This Agreement may be executed in counterparts by the
parties hereto, and all such counterparts shall constitute one and the same
instrument.
(g) Limitation of Liability. It is expressly understood and agreed by
the parties hereto that (a) this Agreement is executed and delivered by Chase
Manhattan Bank Delaware, not individually or personally but solely as trustee of
the Trust, in the exercise of the powers and authority conferred and vested in
it under the Trust Agreement, (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 Chase Manhattan Bank
Delaware, but is made and intended for the purpose of binding only the Trust and
(c) under no circumstances shall Chase Manhattan Bank Delaware, 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 undertaken by the Trust under this Agreement or the other
Transaction Documents.
[Remainder of Page Intentionally Blank]
9
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be duly executed and delivered as of the date first above written.
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ AUTHORIZED SIGNATURE
---------------------------------------------
Name:
Title:
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By: CHASE MANHATTAN BANK
DELAWARE, not in its individual capacity,
but solely as owner trustee for National
Financial Auto Funding Trust
By: /s/ DENIS KELLY
---------------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
<PAGE> 12
EXHIBIT A
OPINION OF ASSISTANT GENERAL COUNSEL
Based upon the foregoing, I am of the opinion that:
1. 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.
2. The Policy and the Financial Security Agreements have been duly
authorized, executed and delivered by Financial Security.
3. 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.
4. The Policy is exempt from registration under the Securities Act of
1933, as amended (the "Act").
5. 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
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 Offering Memorandum
dated September 24, 1999, (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
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included in an Offering Memorandum 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).
2
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TABLE OF CONTENTS
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Page
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Section 1. Definitions.................................................................................1
Section 2. Representations, Warranties and Agreements of Financial Security............................3
Section 3. Representations, Warranties and Agreements of the Company...................................6
Section 4. Indemnification.............................................................................6
Section 5. Indemnification Procedures..................................................................7
Section 6. Contribution................................................................................8
Section 7. Miscellaneous...............................................................................9
EXHIBIT A Opinion of Assistant General Counsel
</TABLE>
<PAGE> 1
EXHIBIT 10.108
EXECUTION COPY
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NATIONAL AUTO FINANCE 1999-1 TRUST
7.26% Class A Automobile Receivables - Backed Notes
11.13% Class B Automobile Receivables - Backed Notes
----------------------------------
INDENTURE
Dated as of September 1, 1999
----------------------------------
HARRIS TRUST AND SAVINGS BANK
Indenture Trustee and Trust Collateral Agent
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<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
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Section 1.1 Definitions .................................................................. 2
Section 1.2 Rules of Construction ........................................................ 9
Section 1.3 Action by or Consent of Noteholders .......................................... 9
Section 1.4 Material Adverse Effect ...................................................... 9
</TABLE>
ARTICLE II
THE NOTES
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Section 2.1 Form ......................................................................... 9
Section 2.2 Execution, Authentication and Delivery ....................................... 10
Section 2.3 Temporary Notes .............................................................. 10
Section 2.4 Registration; Registration of Transfer and Exchange .......................... 11
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 ........................................................ 15
</TABLE>
ARTICLE III
COVENANTS
<TABLE>
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Section 3.1 Payment of Principal and Interest ........................................... 15
Section 3.2 Maintenance of Office or Agency ............................................. 16
Section 3.3 Money for Payments to be Held in Trust ...................................... 16
Section 3.4 Existence ................................................................... 17
Section 3.5 Protection of Trust Property ................................................ 18
Section 3.6 Opinions as to Trust Property ............................................... 18
Section 3.7 Performance of Obligations; Servicing of Receivables ........................ 19
Section 3.8 Negative Covenants .......................................................... 20
Section 3.9 Annual Statement as to Compliance ........................................... 20
Section 3.10 Trust May Not Consolidate ................................................... 21
Section 3.11 [Reserved] .................................................................. 21
Section 3.12 No Other Business ........................................................... 21
Section 3.13 No Borrowing ................................................................ 21
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<TABLE>
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Section 3.14 Servicer's Obligations ...................................................... 21
Section 3.15 Guarantees, Loans, Advances and Other Liabilities ........................... 21
Section 3.16 Capital Expenditures ........................................................ 21
Section 3.17 Compliance with Laws ........................................................ 21
Section 3.18 Restricted Payments ......................................................... 21
Section 3.19 Notice of Events of Default ................................................. 22
Section 3.20 Further Instruments and Acts ................................................ 22
Section 3.21 Amendments of Sale and Servicing Agreement and Trust Agreement .............. 22
Section 3.22 Income Tax Characterization ................................................. 22
Section 3.23 Year 2000 ................................................................... 23
</TABLE>
ARTICLE IV
SATISFACTION AND DISCHARGE
<TABLE>
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Section 4.1 Satisfaction and Discharge of Indenture ..................................... 23
Section 4.2 Application of Trust Money .................................................. 24
Section 4.3 Repayment of Monies Held by Note Paying Agent ............................... 24
</TABLE>
ARTICLE V
REMEDIES
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Section 5.1 Events of Default ........................................................... 25
Section 5.2 Rights Upon Event of Default ................................................ 27
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture
Trustee ................................................................ 28
Section 5.4 Remedies .................................................................... 30
Section 5.5 Optional Preservation of the Receivables .................................... 31
Section 5.6 Priorities .................................................................. 32
Section 5.7 Limitation of Suits ......................................................... 33
Section 5.8 Unconditional Rights of Noteholders To Receive Principal and Interest ....... 34
Section 5.9 Restoration of Rights and Remedies .......................................... 34
Section 5.10 Rights and Remedies Cumulative .............................................. 34
Section 5.11 Delay or Omission Not a Waiver .............................................. 34
Section 5.12 Control by Noteholders ...................................................... 34
Section 5.13 Waiver of Past Defaults ..................................................... 35
Section 5.14 Undertaking for Costs ....................................................... 35
Section 5.15 Waiver of Stay or Extension Laws ............................................ 36
Section 5.16 Action on Notes ............................................................. 36
Section 5.17 Performance and Enforcement of Certain Obligations .......................... 36
Section 5.18 Subrogation ................................................................. 36
Section 5.19 Preference Claims ........................................................... 37
Section 5.20 Optional Purchase of Class A Notes .......................................... 38
</TABLE>
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ARTICLE VI
THE INDENTURE TRUSTEE AND THE TRUST COLLATERAL AGENT
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Section 6.1 Duties of Indenture Trustee ................................................. 38
Section 6.2 Rights of Indenture Trustee and the Trust Collateral Agent .................. 40
Section 6.3 Individual Rights of Indenture Trustee ...................................... 41
Section 6.4 Indenture Trustee's Disclaimer .............................................. 42
Section 6.5 Notice of Defaults .......................................................... 42
Section 6.6 Reports by Indenture Trustee to Holders ..................................... 42
Section 6.7 Compensation and Indemnity .................................................. 42
Section 6.8 Replacement of Indenture Trustee ............................................ 43
Section 6.9 Successor Indenture Trustee by Merger ....................................... 44
Section 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee ........... 44
Section 6.11 Eligibility: Disqualification ............................................... 46
Section 6.12 [Reserved] .................................................................. 46
Section 6.13 Appointment and Powers ...................................................... 46
Section 6.14 Performance of Duties ....................................................... 46
Section 6.15 Limitation on Liability ..................................................... 46
Section 6.16 Reliance Upon Documents ..................................................... 47
Section 6.17 Successor Trust Collateral Agent ............................................ 47
Section 6.18 Compensation ................................................................ 48
Section 6.19 Representations and Warranties of the Indenture Trustee and the Trust
Collateral Agent ........................................................... 49
Section 6.20 Waiver of Setoffs ........................................................... 49
Section 6.21 Control by the Controlling Party ............................................ 49
</TABLE>
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
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Section 7.1 Trust To Furnish To Indenture Trustee Names and Addresses of
Noteholders ................................................................ 50
Section 7.2 Preservation of Information; Communications to Noteholders ................... 50
Section 7.3 Reports ...................................................................... 50
</TABLE>
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
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Section 8.1 Collection of Money .......................................................... 50
Section 8.2 Release of Collateral ........................................................ 51
Section 8.3 Opinion of Counsel ........................................................... 51
</TABLE>
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ARTICLE IX
SUPPLEMENTAL INDENTURES
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Section 9.1 Supplemental Indentures ...................................................... 51
Section 9.2 Execution of Supplemental Indentures ......................................... 53
Section 9.3 Effect of Supplemental Indenture ............................................. 53
Section 9.4 Reference in Notes to Supplemental Indentures ................................ 53
</TABLE>
ARTICLE X
REDEMPTION OF NOTES
<TABLE>
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Section 10.1 Redemption .................................................................. 54
Section 10.2 Form of Redemption Notice ................................................... 54
Section 10.3 Notes Payable on Redemption Date ............................................ 55
</TABLE>
ARTICLE XI
MISCELLANEOUS
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Section 11.1 Compliance Certificates and Opinions, etc .................................. 55
Section 11.2 Form of Documents Delivered to Indenture Trustee ........................... 56
Section 11.3 Acts of Noteholders ........................................................ 56
Section 11.4 Notices, etc. to Indenture Trustee, Trust and Rating Agencies .............. 57
Section 11.5 Notices to Noteholders; Waiver ............................................. 58
Section 11.6 Alternate Payment and Notice Provisions .................................... 59
Section 11.7 Effect of Headings and Table of Contents ................................... 59
Section 11.8 Successors and Assigns ..................................................... 59
Section 11.9 Separability ............................................................... 59
Section 11.10 Benefits of Indenture ...................................................... 59
Section 11.11 Rule 144A Information ...................................................... 59
Section 11.12 Legal Holidays ............................................................. 60
Section 11.13 GOVERNING LAW .............................................................. 60
Section 11.14 Counterparts ............................................................... 60
Section 11.15 Recording of Indenture ..................................................... 60
Section 11.16 Trust Obligation ........................................................... 60
Section 11.17 No Petition ................................................................ 60
Section 11.18 Inspection ................................................................. 61
Section 11.19 Limitation of Liability .................................................... 61
Section 11.20 Use of Proceeds ............................................................ 61
</TABLE>
EXHIBIT
Exhibit A - Form of Class A Note
Exhibit B - Form of Class B Note
Exhibit C - Form of Class A Investor Letter
Exhibit D - Form of Class B Investor Letter
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INDENTURE dated as of September 1, 1999, between NATIONAL AUTO
FINANCE 1999-1 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 ("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 7.26% Class
A Automobile Receivables - Backed Notes, Series 1999-1 (the "Class A Notes") and
the 11.13% Class B Automobile Receivables - Backed Notes, Series 1999-1 (the
"Class B Notes"; and together with the Class A 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 and the Insurer.
Financial Security Assurance Inc. (the "Insurer") has issued and
delivered a financial guaranty insurance policy, dated the Closing Date (with
endorsements, the "Class A Note Policy"), pursuant to which the Insurer
guarantees Scheduled Payments, as defined in the Class A Note Policy (the
"Scheduled Payments") with respect to the Class A Notes.
As an inducement to the Insurer to issue and deliver the Class A
Note Policy, the Trust and the Insurer have executed and delivered the Insurance
and Indemnity Agreement, dated as of September 1, 1999 (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 Class A
Note Policy, and as security for the performance by the Trust of the Insurer
Trust Secured Obligations (as defined herein) and as security for the
performance by the Trust of the Trustee Trust Secured Obligations (as defined
herein), the Trust has agreed to assign the Collateral (as defined herein) to
the Trust Collateral Agent for the benefit of the Trust Secured Parties (as
defined herein), as their respective interests may appear.
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 Class A
Notes and Class B Notes:
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 Cut-off Date (including amounts due on or before the
Cut-off Date but received by NAFI, the Seller or the Issuer on or after the
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
<PAGE> 7
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 thereunder; and (h) the income and proceeds of any and all
of the foregoing (the "Collateral").
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 and 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 and the Insurer on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter).
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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.
Class A Note(s): The 7.26% Automobile Receivables - Backed
Notes, substantially in the form of Exhibit A.
Class A Noteholder: The Person in whose name a Class A Note is
registered on the Note Registrar.
Class A Note Policy: The insurance policy issued by the Insurer
with respect to the Class A Notes, including any endorsements thereto.
Class B Note(s): The 11.13% Automobile Receivables - Backed
Notes, substantially in the form of Exhibit B.
Class B Noteholder: The Person in whose name a Class B Note is
registered on the Note Registrar.
Closing Date: September 24, 1999.
Collateral: As defined in the Granting Clause hereof.
Controlling Class: The Holders of not less than 51% of the
Outstanding Amount of the Class A Notes or, if the Class A Notes are no longer
outstanding, the Holders of not less than 51% of the Outstanding Amount of the
Class B Notes.
Controlling Party: The Insurer, so long as no Insurer Default
shall have occurred and be continuing, or the Controlling Class, for so long as
an Insurer Default shall have occurred and be continuing.
Conveyance Agreements: The Sale and Servicing Agreement, the Sale
Agreement and the Assignment 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).
Cut-off Date: July 31, 1999.
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Default: Any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
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 October, 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.
Holder or Noteholder: The Person in whose name a Class A Note or
Class B 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
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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.
Insurance Agreement Indenture Cross Default: As defined in the
Insurance Agreement.
Insurer Trust Secured Obligations: All amounts and obligations
which the Trust or the Seller may at any time owe to or on behalf of the Insurer
under this Indenture, the Insurance Agreement or any other Transaction Document.
Interest Rates: The Class A Notes will bear interest at the rate
of 7.26% per annum (the "Class A Interest Rate"), computed on the basis of a
360-day year consisting of twelve 30-day months. The Class B Notes will bear
interest at the rate of 11.13% per annum (the "Class B Interest Rate"), 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.
Notes: The Class A Notes and the Class B Notes.
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, with the prior written consent of the
Insurer, 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 Register and Note Registrar: As defined in Section 2.4
hereof.
Officer's Certificate: A certificate signed by any Authorized
Officer of the Trust 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
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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, addressed to the Insurer and satisfactory to the Insurer,
and which shall comply with any applicable requirements of Section 11.1.
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 Class A Notes which have been paid with proceeds of the
Class A 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 Class A Note or
Class B Note, every previous Note evidencing all or a portion of the same debt
as that evidenced by such
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particular Note; and, for the purpose of this definition, any Notes
authenticated and delivered under Section 2.5 in lieu of mutilated, lost,
destroyed or stolen Notes 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 acceptable
to the Controlling Party.
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 each of the Insurer and the Indenture
Trustee in writing that such action will not result in a reduction or withdrawal
of the then current rating of the Notes. Upon receipt of such notice by the
Indenture Trustee, the Indenture Trustee shall promptly forward such notice to
the Seller, the Servicer, each Noteholder, the Owner Trustee and the Trust.
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.
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 September 1, 1999, 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
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be amended, supplemented, restated or otherwise modified from time to time in
accordance with the terms thereof.
Scheduled Payments: As defined in the Class A 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 Class A
Note Policy and the return of the Class A 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.
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 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 and the Insurer), including all
proceeds thereof.
Trust Secured Obligations: The Insurer Trust Secured Obligations
and the Trustee Trust Secured Obligations.
Trust Secured Parties: Each of the Indenture Trustee and the
Noteholders 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.
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Section 1.2 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 1.3 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 1.4 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 any similar or analogous determination), such
determination shall be made without taking into account the funds available from
claims under the Class A Note Policy.
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 or Exhibit B, as applicable, 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 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.
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Each Class A Note or Class B Note shall be dated the date of its
authentication. The terms of the Notes set forth in Exhibit A and Exhibit B 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.
The Indenture Trustee shall upon receipt of the Class A Note
Policy and Trust Order for authentication and delivery, authenticate and deliver
the Class A Notes for original issue in an aggregate principal amount of
$48,000,000 and the Class B Notes for original issue in an aggregate principal
amount of $3,000,000. The Notes outstanding at any time may not exceed such
amount except as provided in Section 2.5.
Each Class A Note and Class B Note shall be dated the date of its
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $100,000 and in integral multiples of $1,000 in excess thereof.
No Notes shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears attached to such
Class A Note and Class B 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 Class A Note or Class B Note shall be conclusive evidence, and the only
evidence, that such Class A Note or Class B Note has been duly authenticated and
delivered hereunder.
Section 2.3 Temporary Notes. Pending the preparation of 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 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 Notes to be
prepared without unreasonable delay. After the preparation of Notes, the
temporary Notes shall be exchangeable for 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 Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as Notes.
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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, in each case, with the prior written consent of the Controlling
Party.
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 Class A
Note or Class B 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.
As a condition to the registration of any transfer of a Class
B Note, the prospective transferee of such a Class B Note shall represent to the
Indenture Trustee and the Note Registrar the following:
(i) It has neither acquired nor will it transfer the Class B
Note or cause the Class B Note to be marketed on or through an
"established securities market" within the meaning of Section
7704(b)(1) of the Code, including, without limitation, an
over-the-counter-market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations;
(ii) It either (A) is not, and will not become, a partnership,
S corporation or grantor trust for U.S. federal income tax purposes,
or (B) is such an entity, but none of the direct or indirect
beneficial owners of any of the interests in such transferee have
allowed or caused, or will allow or cause, fifty percent (50%) or more
of the value of such interests to be attributable to such transferee's
ownership of the Class B Note; and
(iii) It understands that tax counsel to the Trust has
provided an opinion substantially to the effect that the Trust is not
a publicly traded partnership taxable as a
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corporation for U.S. federal income tax purposes and that the validity
of such opinion is dependent in part on the accuracy of the
representations in paragraphs (i) and (ii) above.
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 8-40 1 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 Class A Note or Class B 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 or Exhibit B, as applicable, 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 an investor letter substantially in the form of Annex C hereto.
The Class B 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"). The Class A Notes may not be transferred to 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") or an
individual exemption or statutory exemption from ERISA's prohibited transaction
provisions. Prior to acquiring a Class A Note or Class B Note, the Holder
thereof shall be required to represent and warrant that either it is not a
Benefit Plan or, in the case of a Class A Note only, its acquisition and holding
of the Class A Note is not a prohibited transaction or covered by a PTCE or an
individual or statutory exemption.
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.
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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 Class A Note or Class B Note is surrendered to the Indenture
Trustee, or the Indenture Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Class A Note or Class B 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 (with
respect to the Class A Notes) harmless (which requirement in the case of an
institutional investor having a claims paying ability or credit rating of
investment grade or better shall be satisfied by an unsecured agreement to
indemnify), then, in the absence of notice to the Trust, the Class A Note or
Class B Note Registrar or the Indenture Trustee that such Class A Note or Class
B 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 Class A
Note or Class B Note, a replacement Class A Note or Class B Note, as applicable
(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 Class A Note or Class B Note, but not
a mutilated Class A Note or Class B 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 Class A Note or Class B Note, direct the
Indenture Trustee, in writing, to pay such destroyed, lost or stolen Class A
Note or Class B Note when so due or payable or upon the Redemption Date without
surrender thereof. If, after the delivery of such replacement Class A Note or
Class B Note or payment of a destroyed, lost or stolen Class A Note or Class B
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Class A Note or Class B Note in lieu of which such replacement
Class A Note or Class B Note was issued presents for payment such original Class
A Note or Class B Note, the Trust, the Indenture Trustee and the Insurer shall
be entitled to recover such replacement Class A Note or Class B Note (or such
payment) from the Person to whom it was delivered or any Person taking such
replacement Class A Note or Class B Note from such Person to whom such
replacement Class A Note or Class B 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 Class A Note or Class B
Note under this Section, the Trust may require the payment by the Holder of such
Class A Note or Class B 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 Class A Note or Class B Note issued pursuant
to this Section in replacement of any mutilated, destroyed, lost or stolen Class
A Note or Class B Note shall constitute an original additional contractual
obligation of the Trust, whether or not the mutilated, destroyed, lost or stolen
Class A Note or Class B Note shall be at any time enforceable by
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anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Class A Note or Class B 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 Class A Note or Class B 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 Class A Note or Class B Note is
registered (as of the Record Date) as the owner of such Class A Note or Class B
Note for the purpose of receiving payments of principal of and interest, if any,
on such Class A Note or Class B Note and for all other purposes whatsoever,
whether or not such Class A Note or Class B 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 Forms of Notes
set forth in Exhibit A, Exhibit B and Section 3.1 hereof, and such interest
shall be payable on each Distribution Date as specified therein. Any installment
of interest or principal, if any, payable on any Class A Note or Class B 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 Class A Note or
Class B Note (or one or more Predecessor Notes) is registered on the Record
Date, by wire transfer in immediately available funds to the account designated
by the applicable Noteholder.
(b) The principal of the Notes shall be payable in
installments on each Distribution Date as provided in the Forms of Notes set
forth in Exhibit A, Exhibit B and Section 3.1 hereof. 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 the Controlling Party
or the Indenture Trustee has declared the Notes to be immediately due and
payable in the manner provided in Section 5.2 hereof. Upon written notice from
the Trust, the Indenture Trustee shall notify the Person in whose name a Class A
Note or Class B 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 Class A Note or Class B Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Distribution Date and shall specify that presentation and surrender
of such Class A Note or Class B Note shall be made within 30 days of such final
payment and shall specify the place where such Class A Note or Class B Note may
be presented and surrendered following 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 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 Busin~ss Days prior to the payment date. The Trust shall fix or cause to be
fixed any such
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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 Class A Notes has been paid in full and the Class A 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 Class A Notes under the Class A Note Policy or otherwise
which has not been reimbursed to it, deliver such surrendered Class A 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 and an
Opinion of Counsel and with the prior written consent of the Controlling Party.
ARTICLE III
COVENANTS
Section 3.1 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 Class A
Note Distribution Account and Class B 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.
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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, the Noteholders and the Insurer 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, the Noteholders and the Insurer 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 (i) Class A Note Distribution Account from the
Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due under the Class A Notes and (ii) Class B Note Distribution Account
from the Distribution Account an aggregate sum sufficient to pay the amounts
then becoming due under the Class B Notes, in each case 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
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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
prior written consent, with respect to the Class A Notes, 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.
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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
(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 Noteholders, 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 after the Closing Date, the
Trust shall furnish to the Indenture Trustee, the Noteholders, the Trust
Collateral Agent and the Insurer, an Opinion of Counsel
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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 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 Controlling Party 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 Controlling Party 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 and the
Controlling Party.
(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 Noteholders,
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, the Backup Servicer or the Seller of their
respective duties under the Transaction
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Documents (x) without the prior consent of the Controlling Party or (y) if the
effect thereof would adversely affect the Holders of any Notes or the Insurer.
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 subsequent to the Closing Date,
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 arising
subsequent to the Closing Date) 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, the Insurer and the Noteholders, within 90
days after the end of each fiscal year of the Trust (commencing with the fiscal
year ended December 31, 1999), 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.
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Section 3.10 Trust May Not Consolidate. (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.
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
Series 1999-1 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 (except as permitted by any Transaction Document) 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
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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 Noteholders, 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 acting at the direction of the Controlling Class 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, the Insurer or
the Holders of the Notes consent to amendments thereto as provided therein.
Section 3.22 Income Tax Characterization. The Trust, the
Indenture Trustee, the Trust Collateral Agent and each Noteholder intend and
agree to treat, and to take no action inconsistent with the treatment of, the
Notes as indebtedness for purposes of federal, state, local and foreign income
and franchise taxes and any other tax imposed on or measured by net income. Each
Noteholder, by acceptance of its Note, agrees to be bound by the provisions of
the Section 3.22. Furthermore, subject to the following paragraph, the Trust,
the Indenture Trustee, the Trust Collateral Agent and each Noteholder agree and
intend to treat the Trust for income and franchise tax purposes as a security
device only (or alternatively, if such characterization is not respected for any
applicable income or franchise tax purposes, as a non-entity disregarded as an
entity separate from its owner for such income or franchise tax purposes under
Treasury Regulations Section 301.7701-3(b)(ii) or any similar provisions of
applicable law).
Notwithstanding the above, in the event that any Class of
Notes is deemed for any applicable income or franchise tax purposes to represent
an equity interest in the Trust, it is the intent and agreement of the parties
hereto that the Trust shall be treated for such income or franchise tax purposes
as a partnership among the Holders of such Notes and the Certificateholder. In
the event such a partnership is deemed to exist, any interest accrued on the
Notes in accordance with the terms thereof shall be treated as guaranteed
payments as defined in Code Section 707(c) and the partnership's taxable income
or loss (net of such guaranteed payments) shall be allocated solely to the
Certificateholder. If such treatment is not respected, then the net income of
the Trust for any month as determined for federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation thereof)
shall be allocated in such manner as to cause to the greatest extent possible
the Certificateholder and each Noteholder to recognize net taxable income or
loss at such time, and in such amounts and with such character, as each such
person would have recognized such income or loss if such
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Notes had been respected as indebtedness and had not been recharacterized as an
equity interest in the Trust.
Section 3.23 Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of (i) the computer
systems used to conduct, operate and manage the business, assets and operations
of the Trust and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which systems used by, or on
behalf of, the Trust interface) and the testing of all such systems and
equipment, as so reprogrammed, has been completed as of the date hereof. The
cost to the Trust of such reprogramming and testing and of the reasonably
foreseeable consequences of year 2000 to the Trust (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Default or have a material adverse effect upon
the business, assets, operations, prospects or condition, financial or
otherwise, of the Trust. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems used to conduct, operate and manage the business, assets and operations
of the Trust are and, with ordinary course upgrading and maintenance, will
continue, until the satisfaction and discharge of this Indenture under Section
4.1 hereof, to be, sufficient to permit the Trust to conduct its business
without having a material adverse effect upon the business, assets, operations,
prospects or condition, financial or otherwise, of the Trust.
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), (vi) the right of the Insurer to receive
payment of all Insurer Trust Secured Obligations and (vii) the rights of
Noteholders and the Insurer 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 Class A Note Policy has expired in accordance
with its terms and been returned to the Insurer for cancellation; or
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(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 and the Class A Note Policy has
expired in accordance with its terms and been returned to the Insurer
for cancellation, 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
Noteholders, the Trust Collateral Agent and the Insurer an Officer's Certificate
and an Opinion of Counsel 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.
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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
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 two Business 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);
(ii) default in the payment of the principal of or any
installment of the principal of any Notes when the same becomes due
and payable and such default shall continue for a period of two
Business 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) (A) for each Distribution Date other than the Final Scheduled
Distribution Date, to the extent that the Available Amount in
accordance with the priorities set forth in Section 5.7(a) of the Sale
and Servicing Agreement are collected but not distributed, and (B) as
to the Final Scheduled Distribution Date, irrespective of whether or
not the Available Amount under Section 5.7(a) of the Sale and
Servicing Agreement is sufficient therefore;
(iii) an Insurance Agreement Indenture Cross Default shall
have occurred; provided, however, that unless an Insurer Default shall
have occurred and be continuing 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;
(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 the
earlier to occur of (x) the date upon which written, telecopied or
telephonic (confirmed promptly in writing) notice of such failure
shall have
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been given to the Trust by the Insurer or any Noteholder or (y) the
date any officer of the Trust has actual knowledge of such failure;
(v) the filing of an involuntary petition or an involuntary
proceeding against the Trust under the Federal bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
other 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 petition or proceeding shall remain unstayed and in
effect for a period of 60 consecutive days, or an order or decree for
relief against the Trust shall be entered in any such proceeding;
(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;
(vii) an Event of Default or equivalent event (as defined in
the particular transaction documents) under (a) any bond transaction,
credit agreement, or any other agreement for which obligations in the
aggregate exceed $1,000,000 to which NAFI or any affiliate (including,
but not limited to, Funding Trust I, Funding Trust II or National Auto
Receivables Master Trust) is a party, or (b) any bond transactions,
credit agreement, or any other similar agreement between NAFI or its
affiliates and First Union National Bank;
(viii) termination of the Custodian or the Back-up Servicer
without immediate replacement by a party acceptable to the Controlling
Party; or
(ix) occurrence of any servicer termination event under any
bond transaction, credit agreement or similar agreement to which NAFI
or any Seller is a party.
(x) so long as the Class A Notes shall no longer be
outstanding, all amounts owing to the Insurer have been paid to it and
the term of the Class A Note Policy shall have expired, as of any
Reporting Date, (i) the Average Delinquency Ratio shall have been
equal to or greater than 12.00%, (ii) the Average Default Rate is
equal to or greater than 25.00% or (iii) the Average Net Loss Rate is
equal to or greater than 13.00%.
The Trust shall deliver to each Noteholder, 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, its status and what action the Trust is taking
or proposes to take with respect thereto.
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Section 5.2 Rights Upon Event of Default. (a) If an Event of
Default, other than an Event of Default as described in Section 5.1(v) or (vi),
shall have occurred and be continuing, the Controlling Party, in its sole
discretion, may declare all the Notes to be immediately due and payable at par,
by a notice in writing to the Indenture Trustee and the Noteholders, setting
forth the Event or Events of Default, and, upon any such declaration, the unpaid
principal amount of such Notes, together with accrued and unpaid interest
thereon through the date of acceleration, shall become immediately due and
payable. If an Event of Default, as described in Section 5.1(v) or (vi), shall
have occurred and be continuing, the Indenture Trustee shall declare all the
Notes to be immediately due and payable at par, and, upon any such declaration,
the unpaid principal amount of such Notes, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due
and payable. 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 Class A Notes by operation of this
Section 5.2, the Indenture Trustee shall continue to be entitled to make claims
under the Class A Note Policy pursuant to the Sale and Servicing Agreement for
Scheduled Payments on the Class A Notes. Payments under the Class A Note Policy
following acceleration of any Notes shall be applied by the Indenture Trustee:
FIRST: to Class A Noteholders for amounts due and unpaid on
the Class A Notes for interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Class A Notes for interest;
SECOND: to Class A Noteholders for amounts due and unpaid on
the Class A Notes for principal, ratably, without preference
or priority of any kind, according to the amounts due and
payable on the Class A 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 Class A Notes in accordance with the Class A Note
Policy), but not the obligation, to make payments under the Class A Note Policy
or otherwise of interest and principal due on such Class A 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, 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 Controlling Class, 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
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(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) a default
occurs 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 Class A Notes
funded by the Insurer pursuant to the Class A 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 two Business Days, or (ii) a
default occurs 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 Class A Notes funded by the Insurer pursuant to
the Class A 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 two Business 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 prior written consent of
the Controlling Party and shall, at the direction of the Controlling Party,
proceed to protect and enforce its rights and the rights of the Noteholders and
the Insurer by such appropriate Proceedings as the Indenture Trustee or the
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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) 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 in accordance with the priorities as
set forth in Section 5.7(a) of the Sale and Servicing Agreement after
the application of such amounts to the costs of collections incurred by
the Indenture Trustee; 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
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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.
(e) 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.
(f) 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 and paid in accordance with the priorities as set forth in Section
5.7(a) of the Sale and Servicing Agreement or Section 5.6 hereof, whichever is
applicable.
(g) 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
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(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 is pursuant to Section 5.01(a), (e), (i), (l), (m), (o), (p)
or (q) of the Insurance Agreement, 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 Controlling Class 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
Controlling Class 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
Controlling Class 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
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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 Available Amount, in addition to any amounts in
respective of 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, the Trust Collateral Agent and the
Custodian, respectively, pursuant to priorities (i) and (ii)
of Section 5.7(a) 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 or paid by
the Servicer or otherwise, in the order of such priorities and
without preference or priority of any kind within such
priorities;
SECOND: to Class A Noteholders for amounts due and unpaid on
the Class A Notes for interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Class A Notes for interest;
THIRD: to Class B Noteholders for amounts due and unpaid on
the Class B Notes for interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Class B Notes for interest;
FOURTH: to Class A Noteholders for amounts due and unpaid on
the Class A Notes for principal, ratably, without preference
or priority of any kind, according to the amounts due and
payable on the Class A Notes for principal;
FIFTH: to the Insurer, to the extent of any amounts owing to
the Insurer under the Insurance Agreement and not paid;
SIXTH: to Class B Noteholders for amounts due and unpaid on
the Class B Notes for principal, ratably, without preference
or priority of any kind, according to the amounts due and
payable on the Class B Notes for principal; and
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SEVENTH: to the Collateral Agent to be applied as provided in
the Spread Account Agreement.
(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 Notes 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 Controlling Class 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 (which requirement in
the case of an institutional investor having a claims paying ability or
credit rating of investment grade or better shall be satisfied by an
unsecured agreement to indemnify) 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 Controlling
Class; 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
Controlling Class, the Indenture Trustee in its sole discretion may determine
what action, if any, shall be taken, notwithstanding any other provisions of
this Indenture.
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Section 5.8 Unconditional Rights of Noteholders To Receive
Principal and Interest. Notwithstanding any other provisions in this Indenture,
the Holder of any Notes shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Class A Note or Class B 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. Any such suit shall not be instituted by the Holders of the Class B
Notes until the Class A Notes shall have been indefeasibly paid in full.
Section 5.9 Restoration of Rights and Remedies. If the
Indenture Trustee, 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, the Controlling Party 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 Indenture Trustee or the Controlling Party 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 the Controlling Party may be exercised from time
to time, and as often as may be deemed expedient, by the Indenture Trustee or
the Controlling Party.
Section 5.12 Control by Noteholders. If a Controlling Class is
the Controlling Party, the Holders of a majority of the Outstanding Amount of
such Class of 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 or the Controlling Party; 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;
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(iii) such Class of Noteholders shall provide indemnity
satisfactory to the Indenture Trustee (which requirement in the case of
an institutional investor having a claims paying ability or credit
rating of investment grade or better shall be satisfied by an unsecured
agreement to indemnify) 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.
Section 5.13 Waiver of Past Defaults. Prior to the declaration
of the acceleration of the maturity of the Notes as provided in Section 5.4, the
Controlling Party 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 Class A Note or
Class B Note. In the case of any such waiver, the Trust, the Insurer, 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 Notes 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 any Class 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 Notes and in this
Indenture (or, in the case of redemption, on or after the Redemption Date).
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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, the Insurer 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 or the
Controlling Party to do so and at the Servicer's expense, the Trust agrees to
take all such lawful action as the Indenture Trustee or the Controlling Party
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 or the Controlling Party, 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) (i) If the Controlling Class is the 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 each Class of the Notes shall, and (ii) if the Insurer is the
Controlling Party, the Indenture Trustee shall, at the written direction of the
Insurer, 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 Indenture Trustee shall (i)
receive as attorney-in-fact of each Class A Noteholder any Class A Note Policy
Claim Amount from the Insurer and (ii) deposit the same in the Class A Note
Distribution Account for distribution to Class A Noteholders. Any and all Class
A Note Policy Claim Amounts disbursed by the Indenture Trustee from claims made
under the Class A Note Policy shall not be considered payment by the Trust or
from the Series 1999-1 Spread Account with respect to such Class A Notes, and
shall
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not discharge the obligations of the Trust with respect thereto. The Insurer
shall, to the extent it makes any payment with respect to the Class A 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 Class A 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 Class A 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 Class A Notes to the extent that it
has made payment pursuant to the Class A Note Policy and has not been
reimbursed. 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 Class A Noteholders'
Interest Distributable Amount or Class A 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 Class A
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 Class A Scheduled Payment paid on a Class 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 Class A 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 Class A Notes by mail that, in the event that any Class A
Noteholder's payment is so recoverable, such Class A Noteholder will be entitled
to payment pursuant to the terms of the Class A 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 Class A Notes, if any, which have been made by the Indenture Trustee
and subsequently recovered from Class A Noteholders, and the dates on which such
payments were made. Pursuant to the terms of the Class A Note Policy, the
Insurer will make such payment on behalf of the Class A Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Class A Note Policy) and not to the Indenture
Trustee or any Class A Noteholder directly (unless a Class 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 Class A 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 Class A
Notes. Each Class A Noteholder, by its purchase of Class A 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, 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 5.18, the Insurer shall be
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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 Class A 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 5.20 Optional Purchase of Class A Notes. Upon the
occurrence of an Event of Default, the Class B Noteholders representing more
than fifty percent (50%) of the outstanding principal balance of all Class B
Notes outstanding on such date may (but shall not be obligated to) purchase all
(but not less than all) of all Class A Notes then outstanding, for an amount
equal to the sum of (i) the then unpaid balance of all Class A Notes, (ii)
interest at the interest rate or rates in effect at that time on the amounts set
forth in clause (i) and all other unpaid obligations of the Issuer under the
Transaction Documents for all such Class A Notes. The Trustee shall, promptly
upon receipt of such amount, distribute such amount to the Holders of the Class
A Notes and to the other Persons identified by the Controlling Party as entitled
to such amounts.
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; provided 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:
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(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.
(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 (which requirement in the case of an institutional
investor having a claims paying ability or credit rating of investment grade or
better shall be satisfied by an unsecured agreement to indemnify) against such
risk or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct
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.
(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 or any Noteholder holding at least 5% of any Class of Notes outstanding,
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 Class A Note Policy in trust, and will hold any proceeds of any
claim on the Class A Note Policy in trust solely for the use and benefit of the
Class A Noteholders.
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(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.
(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.
(l) The Indenture Trustee shall not (i) take any action that,
to the actual knowledge of the Indenture Trustee, would result in the Trust's
becoming taxable as a corporation or a publicly-traded partnership for Federal
income tax purposes, or (ii) in accordance with clause (i) hereof (without
limitation), participate in the establishment of a market or the inclusion of
the Trust's interests thereon, within the meaning of Treasury Regulation Section
1.7704-1(d)(1).
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
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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 Insurer, pursuant to
the provisions of this Indenture, unless such Holders of Notes or the Insurer
shall have offered to the Indenture Trustee and the Trust Collateral Agent
reasonable security or indemnity (which requirement in the case of an
institutional investor having a claims paying ability or credit rating of
investment grade or better shall be satisfied by an unsecured agreement to
indemnify) 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.
(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 of either Class 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.
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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 five days after such knowledge or notice occurs.
Section 6.6 Reports by Indenture Trustee to Holders. 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(a) 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.
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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 Noteholder. 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(a)
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 Noteholders, the Trust and
the Insurer with 60 days prior written notice. The Trust may and, at the request
of the Controlling Party 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;
(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 the 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
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Trustee acceptable to the Controlling Party. If the Trust fails to appoint such
a successor Indenture Trustee, the Controlling Party may appoint a successor
Indenture Trustee.
A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee, the Controlling
Party and to the Trust. Thereupon the resignation or removal of the retiring
Indenture Trustee 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
120 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 either Class of 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
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at the time be located, the Indenture Trustee with the prior written consent of
the Controlling Party 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.
(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
cotrustee, 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
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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 have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition and it shall
have a long term debt rating of A or better by the Rating Agencies. The
Indenture Trustee shall provide copies of such reports to the Insurer and each
Noteholder upon request.
Section 6.12 [Reserved].
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 Collateral for
the Trust Secured Parties, to maintain custody and possession of such 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
Collateral (or any part thereof).
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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
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 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 Collateral; provided that any such successor shall also
be the successor Indenture Trustee under Section 6.9.
(b) Resignation. The Trust Collateral Agent and any successor
Trust Collateral Agent may resign at any time by giving the Trust, the
Noteholders and the Insurer 60
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days prior written notice; 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 Parties 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 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 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 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. Each of the Indenture Trustee and the
Trust Collateral Agent is an Illinois banking corporation, duly organized,
validly existing and in good standing under the laws of Illinois and is duly
authorized and licensed under applicable law to conduct its business as
presently conducted.
(b) Corporate Power. Each of 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 Trust Account and agrees that
amounts in the Trust 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.
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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 10 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 and each Noteholder in
writing upon their written request and at such other times as the Insurer or
such Noteholder 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.
Section 7.3 Reports
(a) [Reserved].
(b) Unless the Trust otherwise determines, the fiscal year of
the Trust shall end on December 31 of each year.
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.
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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.
(b) The Trust Collateral Agent shall, at such time as there
are no Notes outstanding, the Insurer has been paid all amounts due to it
hereunder and under the Insurance Agreement, the Class A Note Policy has expired
in accordance with its terms 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 and an Opinion of Counsel and the prior written
consent of the Controlling Party.
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
Controlling Party 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. (a) Without the consent
of the Noteholders, 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, in form satisfactory to the Indenture Trustee,
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 Indenture
which shall not be inconsistent with the provisions herein; provided, however,
that such action shall not adversely
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affect in any material respect the interests of any Noteholder or the Insurer.
Notwithstanding anything to the contrary, the Trust and the Indenture Trustee
may not enter into one or more indentures supplemental hereto under this
subsection (a) without the consent of the Class B Noteholder, for so long as
First Union National Bank or an affiliate thereof is a Class B Noteholder.
(b) The Trust and the Indenture Trustee, when authorized by a
Trust Order, also may, with prior notice to the Rating Agencies, with the prior
written 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 each Class 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:
(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 Notes 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;
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(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 Notes 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;
(viii) permit the creation of any lien 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 Notes of the security provided by the lien of this
Indenture; or
(ix) result in the Trust becoming subject to tax as a
corporation.
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 of a nationally recognized law firm 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.
Section 9.2 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 of a nationally recognized law firm (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. Notwithstanding
anything to the contrary, ten Business Days prior to the execution of any
supplemental indenture or consent pursuant to Section 9.1 hereof, the Indenture
Trustee shall furnish copies of such supplemental indenture or written
notification of such consent to each Noteholder and the Rating Agencies.
Section 9.3 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 9.4 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
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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
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 Noteholders, 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
Class A Note Distribution Account and the Class B 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.
(b) 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
Class A Note Distribution Account and the Class B Note Distribution Account
shall be paid to the applicable Class of Noteholders up to the Outstanding
Amount of the related Class of Notes and all accrued and unpaid interest
thereon. If amounts are to be paid to Noteholders pursuant to this Section
10.1(b), 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 such Notes are to be
surrendered within 30 days following payment of
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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 (b)), 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 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 Noteholders and 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 and (ii) an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with.
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
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(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
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 Trust 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.
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
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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 all Notes 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 Notes.
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 1999-1 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: Transaction Oversight
Re: National Auto Finance 1999-1 Trust, Automobile
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Receivables-Backed Notes, Class A
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 Class A 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 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 by facsimile
followed by notice 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 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.
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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 Notes
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 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 11.8 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 11.9 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 11.10 Benefits of Indenture. The Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture, and the Insurer 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 Class A
Note Policy, upon delivery of a written notice to the Indenture Trustee.
Section 11.11 Rule 144A Information. Upon the request of any
Holder, the Trust shall promptly furnish to such Holder or to a prospective
purchaser of a Note designated by such Holder, as the case may be, the
information in its possession or control required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act of 1933, as amended ("Rule 144A
Information") in order to permit compliance by such Holder with Rule 144A in
connection with the resale of such Note by such Holder; provided, however, that
the Trust shall not be required to furnish Rule 144A Information in connection
with any request made on or after the date that is three years from the later of
(i) the date such Note (or any predecessor Note) was acquired from the Trust or
(ii) the date such Note (or any predecessor Note) was last acquired from an
"affiliate" of the Trust within the meaning of Rule 144A.
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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.
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 Class A Note or Class B
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Note, hereby covenant and agree that they will not at any time institute against
the Seller, or the Trust, or join in any institution against 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, any
Noteholder holding at least 5% of any Class of Notes outstanding or 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.
Section 11.20 Use of Proceeds. The net proceeds to be received
by the Trust from the sale of the Class A Notes and the Class B Notes shall be
applied (i) to the purchase of the Receivables from the Seller, and (ii) to make
the initial deposit to the Spread Account.
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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 1999-1 TRUST
By: WILMINGTON TRUST COMPANY, not
in its individual capacity but solely as
Owner Trustee
By: /s/ DENISE M. GERAN
------------------------------------------
Name: Denise M. Geran
Title: Senior Financial Services Officer
Date:
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely
as Indenture Trustee and Trust Collateral
Agent
By: /s/ KEITH RICHARDSON
------------------------------------------
Name: Keith Richardson
Title: Assistant Vice President
Date:
<PAGE> 68
EXHIBIT A
FORM OF CLASS A NOTE
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION AND IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS. EACH
PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE IS
RELYING ON THE EXEMPTION FROM SUCH REGISTRATION PROVIDED BY RULE 144A UNDER THE
SECURITIES ACT. THE TRUST HAS NOT BEEN REGISTERED UNDER THE INVESTMENT COMPANY
ACT OF 1940 (THE "INVESTMENT COMPANY ACT") AND THIS NOTE IS NOT TRANSFERABLE
EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS DESCRIBED IN THE INDENTURE.
REGISTERED $ [_____________]
No. A-1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.____________
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 1999-1 TRUST
[___]% AUTOMOBILE RECEIVABLES-BACKED NOTES, CLASS A SERIES
1999-1
National Auto Finance 1999-1 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 [___________ ], or
registered assigns, the principal sum of [___________] DOLLARS ($[__________]),
such amount payable on each Distribution Date in an amount equal to the
aggregate amount, if any, payable from the Class A Note Distribution Account in
respect of principal on the Class A 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 October 4, 2004 Distribution Date (the
"Final Scheduled Distribution Date"). The Issuer will pay interest on this Note
at the rate per annum shown above (the "Class A Interest Rate") 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
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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 [___________], 1999. 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 Class A Notes are entitled to the benefits of a financial
guaranty insurance policy (the "Class A 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 Class A
Note Policy) with respect to the Class A Notes.
The Issuer and the Holder (by acceptance of this Note) intend
and agree, and the Issuer hereby instructs the Indenture Trustee, to treat and
to take no action inconsistent with the treatment of, this Note as indebtedness
for purposes of federal, state, local and foreign income and franchise taxes and
any other tax imposed on or measured by net income.
It is the agreement and intent of the Issuer and the Holder
(by acceptance of this Note) that, for federal, state, local and foreign income
and franchise tax purposes, the Issuer will be treated as a security device
only, or alternatively, if such characterization is not respected for any
applicable income or franchise tax purposes, the Issuer shall be treated for
such income or franchise tax purposes as a non-entity disregarded as an entity
separate from its owner under Treasury Regulations Section 301.7701-3(b)(ii) or
any similar provisions of applicable law; provided, however, that if any Class
of Notes is treated as an equity interest in the Issuer for any applicable
income or franchise tax purposes, it is the intention and agreement of the
Issuer and the Holder (by acceptance of the Note) that, the Issuer will be
treated as a partnership for such income or franchise tax purposes and the
Certificateholder and the Noteholders whose Class of Notes is treated as an
equity interest shall be treated as partners in such partnership and the
Certificate and such Notes shall be treated as partnership interests in such
partnership. The Issuer and the Holder (by acceptance of this Note) intend and
agree, and the Issuer hereby instructs the Indenture Trustee, to treat and to
take no action inconsistent with the treatment of the Issuer, the Certificate
and the Notes for purposes of federal, state, local and foreign income and
franchise taxes and any other tax imposed on or measured by net income, in the
manner set forth above.
Each Noteholder by acceptance of this 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
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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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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 1999-1 TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By:
----------------------------------------------
Name:
Title:
Date:
<PAGE> 72
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A Notes designated above and referred
to in the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as
Indenture Trustee
By:
----------------------------------------------
Name:
Title:
Date:
<PAGE> 73
REVERSE OF NOTE
This Note is a duly authorized Note of the Issuer, designated
as its [______]% Automobile Receivables-Backed Notes, Class A Series 1999-1 (the
"Class A Notes", and together with the [____________]% Automobile
Receivables-Backed Notes, Class B Series 1999-1, collectively the "Notes"),
issued under an Indenture dated as of September 1, 1999 (such Indenture, as
supplemented or amended, is herein called the "Indenture"), between the Issuer
and Harris Trust and Savings Bank, as Indenture 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 so supplemented or amended, or the Sale and
Servicing Agreement, as supplemented or amended, shall have the meanings
assigned to them in or pursuant to the Indenture, as so supplemented or amended,
or the Sale and Servicing Agreement, as so supplemented or amended.
The Class A Notes are and will be equally and ratably secured
by the collateral pledged as security therefor as provided in the Indenture. The
Class A Notes shall be senior in right of payment to the Class B Notes to the
extent provided in the Indenture and the Sale and Servicing Agreement.
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 September 21, 1999.
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(b) of
the Indenture. Notwithstanding the foregoing, 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 the
Controlling Party or the Indenture Trustee has 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, shall be
made by wire transfer in immediately available funds to the account designated
by such Noteholder, as of the applicable Record Date. 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
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<PAGE> 74
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. 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
shall be made within 30 days of such final distribution.
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
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 Controlling Party
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.
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 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 an
investor letter in the form of Exhibit C to the Indenture, 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, by acceptance of this 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.
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<PAGE> 75
Each Noteholder, by acceptance of 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 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
prior written consent of the Insurer and of the Holders of Notes representing a
majority of the Outstanding Amount of each Class of all Notes at the time
Outstanding. The Indenture also permits the amendment thereof and the
modification of certain terms thereof in certain limited circumstances without
the consent of the Class A Noteholders. The Indenture also contains provisions
permitting the Holders of Notes representing a majority of the Outstanding
Amount of each Class of all Notes at the time Outstanding, on behalf of the
Holders of all the Notes, during the continuance of an Insurer Default only, 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.
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.
3
<PAGE> 76
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.
4
<PAGE> 77
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number
of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________________ (name and address of assignee) the within
Note and 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.
1
<PAGE> 78
EXHIBIT B
FORM OF CLASS B NOTE
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION AND IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS. EACH
PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE IS
RELYING ON THE EXEMPTION FROM SUCH REGISTRATION PROVIDED BY RULE 144A UNDER THE
SECURITIES ACT. THE TRUST HAS NOT BEEN REGISTERED UNDER THE INVESTMENT COMPANY
ACT OF 1940 (THE "INVESTMENT COMPANY ACT") AND THIS NOTE IS NOT TRANSFERABLE
EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS DESCRIBED IN THE INDENTURE.
REGISTERED $[______________________]
No. B-1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.________
THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A
NOTES AS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT
ANYTIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
NATIONAL AUTO FINANCE 1999-1 TRUST
[___]% AUTOMOBILE RECEIVABLES-BACKED NOTES, CLASS B SERIES
1999-1
National Auto Finance 1999-1 Trust, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [______], or registered
assigns, the principal sum of [_______] DOLLARS ($ [___________]), such amount
payable on each Distribution Date in an amount equal to the aggregate amount, if
any, payable from the Class B Note Distribution Account in respect of principal
on the Class B Notes pursuant to Section 3.1 of the Indenture and Section 5.7 of
the Sale and Servicing Agreement; provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the [October __], 2004
Distribution Date (the "Final Scheduled Distribution Date"). The Issuer will pay
interest on this Note at the rate per annum
B-1
<PAGE> 79
shown above (the "Class B Interest Rate") 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 [______], 1999.
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 Issuer and the Holder (by acceptance of this Note) intend
and agree, and the Issuer hereby instructs the Indenture Trustee, to treat and
to take no action inconsistent with the treatment of, this Note as indebtedness
for purposes of federal, state, local and foreign income or franchise taxes and
any other tax imposed on or measured by net income.
It is the agreement and intent of the Issuer and the Holder
(by acceptance of this Note) that, for federal, state, local and foreign income
and franchise tax purposes, the Issuer will be treated as a security device
only, or alternatively, if such characterization is not respected for any
applicable income or franchise tax purposes, the Issuer shall be treated for
such income or franchise tax purposes as a non-entity disregarded as an entity
separate from its owner under Treasury Regulations Section 301.7701-3(b)(ii) or
any similar provisions of applicable law; provided, however, that if any Class
of Notes is treated as an equity interest in the Issuer for any applicable
income or franchise tax purposes, it is the intention and agreement of the
Issuer and the Holder (by acceptance of the Note) that, the Issuer will be
treated as a partnership for such income or franchise tax purposes and the
Certificateholder and the Noteholders whose Class of Notes is treated as an
equity interest shall be treated as partners in such partnership and the
Certificate and such Notes shall be treated as partnership interests in such
partnership. The Issuer and the Holder (by acceptance of this Note) intend and
agree, and the Issuer hereby instructs the Indenture Trustee, to treat and to
take no action inconsistent with the treatment of the Issuer, the Certificate
and the Notes for purposes of federal, state, local and foreign income and
franchise taxes and any other tax imposed on or measured by net income, in the
manner set forth above.
Each Noteholder, by acceptance of a Note covenants and agrees
that by accepting the benefits of the Indenture that such Noteholder (i) has
neither acquired nor will it transfer the Note or cause the Note to be marketed
on or through an "established securities market" within the meaning of Section
7704(b)(1) of the Code, including, without limitation, an
over-the-counter-market or an interdealer quotation system that regularly
disseminates firm buy or sell quotations; (ii) either (A) is not, and will not
become, a partnership, S corporation or grantor trust for U.S. federal income
tax purposes, or (B) is such an entity, but none of the direct or indirect
beneficial owners of any of the interests in such transferee have allowed or
caused, or will or cause, fifty percent (50%) or more of the value of such
interests to be attributable to such
B-2
<PAGE> 80
transferee's ownership of the Note; and (iii) understands that tax counsel to
the Trust has provided an opinion substantially to the effect that the Trust
will not be a publicly traded partnership taxable as a corporation for U.S.
federal income tax purposes and that the validity of such opinion is dependent
in part on the accuracy of the representations in paragraphs (i) and (ii) above.
Each Noteholder, by acceptance of this 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.
Each Noteholder, by acceptance of this Note, specifically
acknowledges that it has no right to or interest in any monies at any time held
pursuant to the Spread Account Agreement prior to the release of such monies
pursuant to Section 5.7 of the Sale and Servicing Agreement, such monies being
held in trust for the benefit of the Class A Noteholders and the Insurer.
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.
B-3
<PAGE> 81
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 1999-1 TRUST
By: WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement
By:
----------------------------------------------
Name:
Title:
Date:
<PAGE> 82
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in
the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as
Indenture Trustee
By:
----------------------------------------------
Name:
Title:
Date:
<PAGE> 83
REVERSE OF NOTE
This Note is a duly authorized Note of the Issuer, designated
as its [__]% Automobile Receivables-Backed Notes, Class B Series 1999-1 (the
"Class B Notes", together with the [__]% Automobile Receivables-Backed Notes,
Class A Series 1999-1, collectively the "Notes"), issued under an Indenture
dated as of September 1, 1999 (such Indenture, as supplemented or amended, is
herein called the "Indenture"), between the Issuer and Harris Trust and Savings
Bank, as Indenture 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 so
supplemented or amended, or the Sale and Servicing Agreement, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended, or the Sale and Servicing Agreement,
as so supplemented or amended.
The Class B Notes are and will be equally and ratably secured
by the collateral pledged as security therefor as provided in the Indenture. The
Class B Notes shall be subordinated in right of payment to the Class A Notes as
described in the Indenture and will not be entitled to the benefits of the Class
A Note Policy.
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 September 21, 1999.
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(b) of
the Indenture. Notwithstanding the foregoing, 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 the
Controlling Party or the Indenture Trustee has 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, shall be
made by wire transfer in immediately available funds to the account designated
by such Noteholder, as of the applicable Record Date. 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
1
<PAGE> 84
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. 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
shall be made within 30 days of such final distribution.
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
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 Controlling Party
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.
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 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 an
investor letter in the form of Exhibit D to the Indenture, 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, by acceptance of 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.
2
<PAGE> 85
Each Noteholder, by acceptance of 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 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
prior written consent of the Insurer and of the Holders of Notes representing a
majority of the Outstanding Amount of each Class of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing a majority of the Outstanding Amount of each Class of all
Notes at the time Outstanding, on behalf of the Holders of all the Notes, during
the continuance of an Insurer Default only, 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.
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.
3
<PAGE> 86
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.
4
<PAGE> 87
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 rights
(name and address of assignee)
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: *
-------------- -----------------------
- ----------
* 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.
1
<PAGE> 88
EXHIBIT C
National Financial Auto Funding Trust
as Transferor
[ ]
---------------
[ ]
---------------
Harris Trust and Savings Bank,
as Indenture Trustee
[ ]
---------------
[ ]
---------------
Re: Class A, Automobile Receivables-Backed Notes of National Auto
Finance 1999-1 Trust
Dear Sirs:
In connection with our purchase of Notes of the
above-captioned series we represent and agree as follows:
1. We have been furnished, and have received and reviewed, a
copy of the Offering Memorandum dated September [ ,] 1999 and the Indenture
Agreement (the "Indenture") dated September 1, 1999, between National Auto
Finance 1999-1 Trust (the "Trust") and Harris Trust and Savings Bank, as
indenture trustee (the "Indenture Trustee"), which sets forth the terms of the
Notes and have made such investigation as we deem necessary to evaluate the
merits and risks involved in an investment in the Notes. The Purchaser certifies
that it has received from the Issuer the information that satisfies the
requirements of paragraph (d)(4) of Rule 144A (the "Rule 144A Information").
2. We expressly understand and acknowledge that the Notes have
not been registered under the Securities Act of 1933, as amended (the "Act") or
any state securities laws and, accordingly, that the Notes may not be reoffered,
sold or otherwise pledged, hypothecated or transferred unless so registered or
an applicable exemption from the registration requirements of the Act is
available.
3. We qualify as a "qualified institutional buyer" (a
"Qualified Institutional Buyer") within the meaning of Rule 144A of the Act.
4. We, by reason of our business and financial experience,
have such knowledge, sophistication, and experience in business and financial
matters that we are capable of evaluating the merits and risks of the
prospective investment in the Notes and we are able to bear the economic risk of
such investment, including the total loss thereof.
<PAGE> 89
5. We are purchasing the Notes for our own account for
investment purposes, and not with a view to distribution.
6. We represent and warrant that (at least one of the
following must apply):
(a) we are not and are not acquiring Notes on behalf of or
with the assets of an employee benefit plan (as defined
in Section 3(3) of ERISA, as amended) or other
arrangement subject to Title I of ERISA or Section 4975
of the Code (a "Plan") or an entity whose underlying
assets are deemed for purposes of ERISA or Section 4975
of the Code to include plan assets by reason of
investments in the entity by such a Plan; or
(b) we are, or are acquiring Notes with the assets of, an
"Investment Fund" (within the meaning of Section V(b)
of PTE 84-14) managed by a "Qualified Professional
Asset Manager" (within the meaning of Section V(a) of
Prohibited Transaction Exemption ("PTE") 84-14) which
has made or properly authorized the decision for such
Fund to purchase Notes under circumstances such that
PTE 84-14 is and will be at all times applicable to the
purchase and holding of such Notes; or
(c) we are, or are acquiring Notes with the assets of, a
Plan managed by an "In-House Asset Manager" (within the
meaning of Section IV(a) of PTE 96-23) which has made
or properly authorized the decision for such Plan to
purchase Notes under circumstances such that PTE
96-23 is and will be at all times applicable to the
purchase and holding of such Notes~ or
(d) we are an insurance company pooled separate account
purchasing Notes pursuant to Section I of PTE 90-1 or
a bank collective investment fund purchasing pursuant
to Section I of PTE 9 1-38, and we are purchasing the
Notes under circumstances such that either PTE 90-1
or PTE 92-38 is and will be at all times applicable
to the purchase and holding of such Notes); or
(e) we are an insurance company purchasing Notes with funds
of an "insurance company general account" (as such term
is defined in Section V(e) of PTE 95-60) and the
conditions of Section I of PTE 95-60 are and at all
times will be satisfied.
7. The Notes were not offered or sold to us by any form of
general solicitation or advertising, including but not limited to:
(a) any advertisement, article, notice or other
communication published in any newspaper, magazine or
similar media or broadcast over television or radio; or
-2-
<PAGE> 90
(b) any seminar or meeting whose attendees were invited by
any general solicitation or general advertising.
8. Prior to the sale we were given the opportunity (i) to ask
questions of, and receive answers from the Transferor concerning the terms and
conditions of the offering and (ii) to obtain any additional information
requested concerning the Indenture, the Note Policy or the Notes, to the extent
the Transferor possessed such information or could acquire it without
unreasonable effort or expense.
9. If we are acquiring any Notes on behalf of more than one
beneficial owner, we confirm (i) on behalf of each such beneficial owner each of
the matters set forth in the foregoing subparagraphs (1) through (8) and (ii)
that each such beneficial owner will own not less than an Authorized
Denomination of Notes.
10. We agree that we will sell, transfer or otherwise dispose
of Notes held by us from time to time only when permitted in the Indenture to a
person we reasonably believe is a Qualified Institutional Buyer in reliance upon
Rule 144A under the Act. We agree to comply with any other transfer
restrictions, or other related procedures described in the Indenture and that
the Purchaser or transferee of such Notes will execute and deliver to you an
Investment Representation Letter to substantially the same effect as this letter
prior to the consummation of such sale, pledge or transfer.
11. Our taxpayer identification number is ___________________
12. Our wire instructions are as follows: ____________________
13. The undersigned hereby certifies that the undersigned is a
duly authorized officer of the Purchaser. The Purchaser hereby certifies that
the purchaser is duly authorized to purchase the Notes, and its purchase of
investments having the characteristics of the Notes is authorized under, and not
directly or indirectly in contravention of, any law, charter, trust instrument
or other operative document, investment guidelines or list of permissible or
impermissible investments that is applicable to the Purchaser.
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Indenture.
Date:
(Name of Purchaser)
By: _______________________________
Printed Name:______________________
Title:_____________________________
Mailing Address of Purchaser:
-3-
<PAGE> 91
EXHIBIT D
National Financial Auto Funding Trust
as Transferor
[ ]
---------------
[ ]
---------------
Harris Trust and Savings Bank,
as Indenture Trustee
[ ]
---------------
[ ]
---------------
Re: Class B, Automobile Receivables-Backed Notes of National Auto
Finance 1999-1 Trust
Dear Sirs:
In connection with our purchase of Notes of the
above-captioned series we represent and agree as follows:
1. We have been furnished, and have received and reviewed, a
copy of the Offering Memorandum dated September [__], 1999 and the Indenture
Agreement (the "Indenture") dated September 1, 1999, between National Auto
Finance 1999-1 Trust (the "Trust") and Harris Trust and Savings Bank, as
indenture trustee (the "Indenture Trustee"), which sets forth the terms of the
Notes and have made such investigation as we deem necessary to evaluate the
merits and risks involved in an investment in the Notes. The Purchaser certifies
that it has received from the Issuer the information that satisfies the
requirements of paragraph (d)(4) of Rule 144A (the "Rule 144A Information").
2. We expressly understand and acknowledge that the Notes have
not been registered under the Securities Act of 1933, as amended (the "Act") or
any state securities laws and, accordingly, that the Notes may not be reoffered,
sold or otherwise pledged, hypothecated or transferred unless so registered or
an applicable exemption from the registration requirements of the Act is
available.
3. We qualify as a "qualified institutional buyer" (a
"Qualified Institutional Buyer") within the meaning of Rule 144A of the Act.
4. We, by reason of our business and financial experience,
have such knowledge, sophistication, and experience in business and financial
matters that we are
<PAGE> 92
capable of evaluating the merits and risks of the prospective investment in the
Notes and we are able to bear the economic risk of such investment, including
the total loss thereof.
5. We are purchasing the Notes for our own account for
investment purposes, and not with a view to distribution.
6. We represent and warrant that we are not and are not
acquiring Notes with the assets of (1) an "employee benefit plan" (within the
meaning of Section 3(3) of ERISA, as amended), or a "plan" (within the meaning
of Section 4975(e)(1) of the Code), (2) an entity the underlying assets of which
include plan assets by reason of investment in the entity (within the meaning of
U.S. Department of Labor Regulation Section 2510.3-101) by such an "employee
benefit plan or "plan" or (3) a "governmental plan" (within the meaning of
Section 3(32) of ERISA). We further represent and covenant that throughout the
period we hold the Notes, the foregoing representation shall be true.
7. The Notes were not offered or sold to us by any form of
general solicitation or advertising, including but not limited to:
(a) any advertisement, article, notice or other
communication published in any newspaper, magazine or
similar media or broadcast over television or radio; or
(b) any seminar or meeting whose attendees were invited by
any general solicitation or general advertising.
8. Prior to the sale we were given the opportunity (i) to ask
questions of, and receive answers from the Transferor concerning the terms and
conditions of the offering and (ii) to obtain any additional information
requested concerning the Indenture, the Note Policy or the Notes, to the extent
the Transferor possessed such information or could acquire it without
unreasonable effort or expense.
9. If we are acquiring any Notes on behalf of more than one
beneficial owner, we confirm (i) on behalf of each such beneficial owner each of
the matters set forth in the foregoing subparagraphs (1) through (8) and (ii)
that each such beneficial owner will own not less than an Authorized
Denomination of Notes.
10. We agree that we will sell, transfer or otherwise dispose
of Notes held by us from time to time only when permitted in the Indenture to a
person we reasonably believe is a Qualified Institutional Buyer in reliance upon
Rule 144A under the Act. We agree to comply with any other transfer
restrictions, or other related procedures described in the Indenture and that
the Purchaser or transferee of such Notes will execute and deliver to you an
Investment Representation Letter to substantially the same effect as this letter
prior to the consummation of such sale, pledge or transfer.
11. Our taxpayer identification number is ___________________.
12. Our wire instructions are as follows: ___________________.
13. The undersigned hereby certifies that the undersigned is a
duly authorized officer of the Purchaser. The Purchaser hereby certifies that
the Purchaser is duly authorized to purchase the Notes, and its purchase of
investments having the characteristics of
-2-
<PAGE> 93
the Notes is authorized under, and not directly or indirectly in contravention
of, any law, charter, trust instrument or other operative document, investment
guidelines or list of permissible or impermissible investments that is
applicable to the Purchaser.
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Indenture.
Date:
(Name of Purchaser)
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
Mailing Address of Purchaser:
-3-
<PAGE> 94
EXHIBIT 10.109
================================================================================
SALE AND SERVICING
AGREEMENT
among
NATIONAL AUTO FINANCE 1999-1 TRUST,
as Issuer,
NATIONAL FINANCIAL AUTO FUNDING TRUST,
as Seller,
NATIONAL AUTO FINANCE COMPANY, INC.,
in its individual capacity and as Servicer
and
HARRIS TRUST AND SAVINGS BANK
as Trust Collateral Agent and Backup Servicer
Dated as of September 1, 1999
================================================================================
<PAGE> 95
EXHIBIT 10.110
================================================================================
SALE AGREEMENT
BETWEEN
NATIONAL FINANCIAL AUTO FUNDING TRUST II
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST
---------------
DATED AS OF SEPTEMBER 1, 1999
================================================================================
<PAGE> 96
EXHIBIT 10.111
CUSTODIAL AGREEMENT
This Custodial Agreement (the "Agreement") is dated as of September 1,
1999 by and between HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation, as custodian ("Custodian") and as trustee ("Trustee") and trust
collateral agent ("Agent"), and NATIONAL AUTO FINANCE COMPANY, INC., as Servicer
(the "Company" or "NAFCO").
RECITALS
A. Company and Trustee are entering into this Agreement to provide for
perfection of the pledge of assets pursuant to the Indenture, dated as of
September 1, 1999, ("Indenture") between National Auto Finance 1999-1 Trust (the
"Trust") and Agent and the Sale and Servicing Agreement, dated as of September
1, 1999, ("Sale and Servicing Agreement") among National Financial Auto Funding
Trust ("Funding Trust"), NAFCO, Trust and Agent. Financial Security Assurance,
Inc. ("FSA") is the insurer in respect of the Indenture and the Sale and
Servicing Agreements.
B. Company and Trustee have requested that Custodian act as agent of
Trustee pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals which are
incorporated herein and for good and valuable consideration the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. Any capitalized terms used in this Agreement without
definition, shall have the meaning given to such terms in the Indenture or the
Sale and Servicing Agreement.
(a) For purposes of this Agreement, the term "Custodian Documents"
shall mean with respect to each contract file, (i) the fully executed original
of the contract, (ii) the original certificate of title, and (iii) such other
documents as NAFCO chooses to maintain in its files in accordance with customary
practices and procedures to evidence that a financed vehicle is owned by the
obligor and subject to the interest of NAFCO as first lienholder or secured
party under the Indenture and Sale and Servicing Agreement.
2. APPOINTMENT OF CUSTODIAN. Subject to the terms and conditions set
forth herein, Trustee on behalf of the Trust hereby revocably appoints the
Custodian to fulfill those obligations specifically set forth herein and
Custodian hereby accepts such appointment, and agrees to act as bailee and
agent on behalf of Trustee and NAFCO to maintain exclusive custody and
possession of the Custodian Documents which may from time to time comprise part
of the Trust Assets pursuant to the terms herein. In performing its duties
hereunder, Custodian shall exercise such standards of care as it exercises in
maintaining motor vehicle installment sale contracts as customary in the
industry and no less than the standard it maintains for other
<PAGE> 1
EXHIBIT 10.109
================================================================================
SALE AND SERVICING
AGREEMENT
among
NATIONAL AUTO FINANCE 1999-1 TRUST,
as Issuer,
NATIONAL FINANCIAL AUTO FUNDING TRUST,
as Seller,
NATIONAL AUTO FINANCE COMPANY, INC.,
in its individual capacity and as Servicer
and
HARRIS TRUST AND SAVINGS BANK
as Trust Collateral Agent and Backup Servicer
Dated as of September 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.1. Definitions..............................................................................1
SECTION 1.2. Other Definitional Provisions...........................................................22
SECTION 1.3. Usage of Terms..........................................................................22
SECTION 1.4. Certain References......................................................................23
SECTION 1.5. No Recourse.............................................................................23
SECTION 1.6. Action by or Consent of Noteholders.....................................................23
SECTION 1.7. Material Adverse Effect.................................................................23
SECTION 1.8. Calculations as to Principal and Interest in Respect of Receivables.....................23
ARTICLE II
Conveyance of Receivables
SECTION 2.1. Conveyance of Receivables...............................................................24
SECTION 2.2. [Reserved]..............................................................................25
SECTION 2.3. Further Encumbrance of Trust Property...................................................25
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 NAFI and the Seller...................................28
SECTION 3.2. Repurchase upon Breach..................................................................28
SECTION 3.3. Custody of Receivables Files............................................................29
ARTICLE IV
Administration and Servicing of Receivables
SECTION 4.1. Duties of the Servicer..................................................................29
SECTION 4.2. Sub-Servicing Agreements between Servicer and the Sub-Servicers.........................32
SECTION 4.3. Obligations of the Servicer.............................................................33
SECTION 4.4. No Contractual Relationship between a Sub-Servicer and Trust Collateral Agent or
Noteholders.............................................................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4.5. Assumption or Termination of Sub-Servicing Agreement by Trust Collateral Agent..........33
SECTION 4.6. Collection of Receivable Payments.......................................................34
SECTION 4.7. Maintenance of Insurance................................................................36
SECTION 4.8. Realization upon Defaulted Receivables..................................................36
SECTION 4.9. Total Servicing Fee; Payment of Certain Expenses by Servicer............................37
SECTION 4.10. [Reserved]..............................................................................37
SECTION 4.11. Reports.................................................................................37
SECTION 4.12. Annual Statement as to Compliance, Notice of Servicer Termination Event.................38
SECTION 4.13. Annual Independent Accountants' Report..................................................39
SECTION 4.14. Access to Certain Documentation and Information Regarding Receivables...................39
SECTION 4.15. Monthly Tape............................................................................40
SECTION 4.16. Retention and Termination of Servicer...................................................40
SECTION 4.17. Custodial Arrangement...................................................................40
ARTICLE V
Trust Accounts; Distributions; Statements to Noteholders
SECTION 5.1. Establishment of Trust Accounts.........................................................41
SECTION 5.2. [Reserved]..............................................................................45
SECTION 5.3. Certain Reimbursements to the Servicer..................................................45
SECTION 5.4. Application of Collections..............................................................45
SECTION 5.5. Withdrawals from Series 1999-1 Spread Account...........................................45
SECTION 5.6. Additional Deposits.....................................................................46
SECTION 5.7. Distributions...........................................................................46
SECTION 5.8. Note Distribution Account...............................................................49
SECTION 5.9. [Reserved]..............................................................................50
SECTION 5.10. Statements to Noteholders...............................................................50
SECTION 5.11. Optional Deposits by the Insurer........................................................50
ARTICLE VI
The Class A Note Policy
SECTION 6.1. Claims Under Class A Note Policy........................................................50
SECTION 6.2. Preference Claims.......................................................................51
SECTION 6.3. Surrender of Policy.....................................................................52
SECTION 6.4. Spread Account..........................................................................52
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VII
RESERVED
ARTICLE VIII
The Seller
<S> <C> <C>
SECTION 8.1. Representations, Warranties and Covenants of the Seller.................................53
SECTION 8.2. Corporate Existence.....................................................................55
SECTION 8.3. Liability of Seller; Indemnities........................................................56
SECTION 8.4. Merger or Consolidation of, or Assumption of the Obligations of, Seller.................57
SECTION 8.5. Limitation on Liability of Seller and Others............................................57
SECTION 8.6. Seller May Own Notes....................................................................57
ARTICLE IX
The Servicer
SECTION 9.1. Representations, Warranties and Covenants of the Servicer...............................58
SECTION 9.2. Liability of Servicer; Indemnities......................................................60
SECTION 9.3. Merger or Consolidation of, or Assumption of the Obligations of the Servicer or
the Trust Collateral Agent..............................................................61
SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral Agent and Others..................62
SECTION 9.5. Delegation of Duties....................................................................64
SECTION 9.6. Servicer and Trust Collateral Agent Not to Resign.......................................65
ARTICLE X
Default
SECTION 10.1. Servicer Termination Event..............................................................65
SECTION 10.2. Consequences of a Servicer Termination Event............................................67
SECTION 10.3. Additional Consequences of a Servicer Termination Event.................................68
SECTION 10.4. Appointment of Successor................................................................68
SECTION 10.5. [RESERVED]..............................................................................72
SECTION 10.6. Notification to Noteholders and Rating Agencies.........................................70
SECTION 10.7. Waiver of Past Defaults.................................................................70
SECTION 10.8. Termination of Trust Collateral Agent...................................................70
SECTION 10.9. Successor to Servicer...................................................................71
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE XI
Termination
<S> <C> <C>
SECTION 11.1. Optional Purchase of All Receivables....................................................72
ARTICLE XII
Administrative Duties of the Servicer
SECTION 12.1. Administrative Duties...................................................................73
SECTION 12.2. Records.................................................................................75
SECTION 12.3. Additional Information to be Furnished to the Issuer....................................75
ARTICLE XIII
Miscellaneous Provisions
SECTION 13.1. Amendment...............................................................................75
SECTION 13.2. Protection of Title to Trust............................................................77
SECTION 13.3. Notices.................................................................................79
SECTION 13.4. Assignment..............................................................................80
SECTION 13.5. Limitations on Rights of Others.........................................................80
SECTION 13.6. Severability............................................................................80
SECTION 13.7. Separate Counterparts...................................................................81
SECTION 13.8. Headings................................................................................81
SECTION 13.9. Governing Law...........................................................................81
SECTION 13.10. Assignment to Trustee...................................................................81
SECTION 13.11. Nonpetition Covenants...................................................................81
SECTION 13.12. Limitation of Liability of Owner Trustee and Trustee....................................82
SECTION 13.13. Independence of the Servicer............................................................82
SECTION 13.14. No Joint Venture........................................................................82
SECTION 13.14. Insurer as Controlling Party............................................................84
</TABLE>
iv
<PAGE> 6
SALE AND SERVICING AGREEMENT dated as of September 1, 1999,
among NATIONAL AUTO FINANCE 1999-1 TRUST, a Delaware business trust, as issuer
(the "Issuer" or the "Trust"), NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware
business trust, as seller (the "Seller"), NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation, in its individual capacity ("NAFI") and as servicer (the
"Servicer"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking association,
in its capacity as trust collateral agent (the "Trust Collateral Agent") and
backup servicer (the "Backup Servicer").
WHEREAS the Issuer desires to purchase a portfolio of
receivables arising in connection with motor vehicle retail installment sale
contracts acquired by NAFI 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 is willing to sell such receivables to the
Issuer;
WHEREAS the Servicer is willing to service 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 annual rate of interest on such obligation
and (c) the outstanding principal balance of such obligation.
"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 Note Balance" means, the sum of the Class A Note
Balance and the Class B Note Balance.
"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
<PAGE> 7
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
aggregate amount advanced under such Receivable toward the purchase price of the
Financed Vehicles and any related costs, including amounts advanced in respect
of accessories, insurance premiums, service, car club and warranty contracts,
other items customarily financed as part of motor vehicle retail installment
sale contracts or promissory notes, and related costs.
"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
September 1, 1999, 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
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
(iii) 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.
"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.
2
<PAGE> 8
"Backup Servicing Agreement" means the Agreement for
Monitoring and Backup Servicing, dated as of September 1, 1999, among the
Servicer, the Insurer and CSC Logic/MSA LLP d/b/a Loan Servicing Enterprise, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"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 the Person
in whose name the Trust Certificate is registered in the Certificate Register
maintained pursuant to the Trust Agreement.
"Class" means either the Class A Notes or the Class B Notes.
"Class A Interest Rate" means 7.26% per annum (computed on the
basis of a 360-day year of twelve 30-day months).
"Class A Note Balance" means initially, the aggregate
principal amount of Class A Notes issued on the Closing Date and, thereafter,
such principal amount reduced by all amounts paid to the Class A Noteholders in
respect of the Class A Percentage of the Noteholders' Principal Distributable
Amount.
"Class A Note Distribution Account" means an account
designated as such, established and maintained pursuant to Section 5.1(a)(ii).
"Class A Note Policy" means the financial guaranty insurance
policy number _______ issued by the Insurer to the Trust Collateral Agent, as
agent for the Trustee, for the benefit of the Class A Noteholders, including any
endorsements thereto.
"Class A Note Policy Claim Amount" for any Distribution Date,
shall equal the excess, if any, of (x) the amount required to be distributed
pursuant to Section 5.7(a)(iii) and, if
3
<PAGE> 9
such Distribution Date is the Final Scheduled Distribution Date, Section
5.7(a)(v), over (y) the portion of (i) the Available Amount and (ii)] the
Deficiency Claim Amount available to make payments under such sections on such
Distribution Date.
"Class A Note Preference Claim" has the meaning set forth in
Section 6.2 hereof.
"Class A Noteholders" has the meaning assigned to such term in
the Indenture.
"Class A Notes" has the meaning assigned to such term in the
Indenture.
"Class A Percentage" means 80%.
"Class A Principal Carryover Shortfall" means, as of the close
of business on any Distribution Date, the excess of the Noteholders' Principal
Distributable Amount for the Class A Notes and any outstanding Class A Principal
Carryover Shortfall from the preceding Distribution Date over the amount in
respect of principal that was actually deposited in the Class A Note
Distribution Account and distributed on the Class A Notes on such Distribution
Date.
"Class B Interest Rate" means 11.13% per annum (computed on
the basis of a 360-day year of twelve 30-day months).
"Class B Note Balance" means initially, the aggregate
principal amount of Class B Notes issued on the Closing Date and, thereafter,
such principal amount reduced by all amounts paid to the Class B Noteholders (i)
in respect of the Class B Percentage of the Noteholders' Principal Distributable
Amount and (ii) pursuant to the provisions contained in Section 5.7(a)(ix).
"Class B Note Distribution Account" means an account
designated as such, established and maintained pursuant to Section 5.1(a)(ii).
"Class B Noteholders" has the meaning assigned to such term in
the Indenture.
"Class B Notes" has the meaning assigned to such term in the
Indenture.
"Class B Percentage" means 5%.
"Class B Principal Carryover Shortfall" means, as of the close
of business on any Distribution Date, the excess of the Noteholders' Principal
Distributable Amount for the Class B Notes and any outstanding Class B Principal
Carryover Shortfall from the preceding Distribution Date over the amount in
respect of principal that was actually deposited in the Class B Note
Distribution Account and distributed on the Class B Notes on such Distribution
Date.
"Closing Date" means September 24, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Collateral Agent" means Harris Trust and Savings Bank, in its
capacity as Collateral Agent under the Spread Account Agreement.
4
<PAGE> 10
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 5.1.
"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 Receivables as of the Cut-off Date.
"Contract" means a motor vehicle retail installment sale
contract.
"Controlling Class" means holders of not less than 51% of the
outstanding balance of the Class A Notes, or if the Class A Notes are not
outstanding, holders of not less than 51% of the outstanding balance of the
Class B Notes.
"Controlling Party" means (x) the Insurer, so long as (i) the
Class A Notes shall be outstanding or amounts owing to the Insurer have not been
paid to it and (ii) no Insurer Default shall have occurred and be continuing,
and (y) the Controlling Class, in the event (i) the Class A Notes shall no
longer be outstanding, all amounts owing to the Insurer have been paid to it and
the term of the Class A Note Policy shall have expired or (ii) an Insurer
Default shall have occurred and be continuing.
"Conveyance Agreements" means 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, Attention: Indenture Trust Administration.
"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 Controlling Party).
"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
Controlling Party as of the Closing Date). The initial Custodian on the Closing
Date shall be Harris Trust and Savings Bank, as custodian.
5
<PAGE> 11
"Cut-off Date" means August 31, 1999.
"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 Receivable 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
Receivable 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
shall mean:
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(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
by physical delivery to the Trust Collateral Agent endorsed to, or registered in
the name of, the Trust Collateral Agent 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 (ii) by delivery thereof to a
"clearing corporation" (as defined in Section 8-102 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 the Trust Collateral Agent by the amount of such
certificated security and the identification by the clearing corporation of the
certificated securities for the sole and exclusive account of the Trust
Collateral Agent (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; 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 securities intermediary that is also a "depository" pursuant to
applicable federal regulations; the making by such securities intermediary of
entries in its books and records crediting such Trust Account Property to the
Trust Collateral Agent's security account at the securities intermediary and
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 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, 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 Trust Collateral Agent or its nominee or custodian who either
(i) becomes the registered owner on behalf of the Trust Collateral Agent or (ii)
having previously become the registered owner, acknowledges that it holds for
the Trust Collateral Agent.
"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.
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"Distribution Account" means the account established pursuant
to Section 5.1(a)(iii) 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 October 21,
1999.
"Draw Date" means, with respect to any Distribution Date, the
fourth Business Day (as defined in the Class A 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 Receivable Payment on such Receivable is
due.
"Due Period" means, with respect to each 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 Controlling Party,
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 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:
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(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;
(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); and
(g) any other investment which is rated in the highest
investment category by each of the Rating Agencies and which has been approved
by the Controlling Party.
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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. All Eligible Investments shall be denominated in United
States dollars. No Eligible Investments shall be invested in securities that are
purchased at a premium.
"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).
"Final Scheduled Distribution Date" means the Distribution
Date occurring in October, 2004.
"Financed Vehicle" means an automobile or light-duty truck,
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.
"Indemnification Agreement" means the Indemnification
Agreement, dated as of September 1, 1999, between the Insurer and the Seller, as
such agreement may be amended, supplemented or otherwise modified from time to
time in accordance with the terms hereof.
"Indenture" means the Indenture dated as of September 1, 1999,
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.
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"Initial Spread Account Deposit" has the meaning set forth in
the Series 1999-1 Supplement.
"Insurance Agreement" means the Insurance and Indemnity
Agreement, dated as of September 1, 1999, 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 Class A 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 Class A 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 Class 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
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Distribution Date to the extent that without such amount a draw would be
required to be made on the Class A Note Policy.
"Interest Rate" means, as the context may require, either the
Class A Interest Rate or the Class B Interest Rate, as applicable.
"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" or "Trust" means National Auto Finance 1999-1 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 events has occurred
during such Due Period (the earliest to occur of the following events): (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
greater of any Scheduled Receivable 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 1999-1 Spread Account and drawings under the
Class A 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.
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"Lockbox Account" means any bank account held in the name of
the Trustee 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. Any Lockbox Agreement is also
required to be acceptable to the Controlling Party.
"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. Any Lockbox Bank is also required to be acceptable to
the Controlling Party.
"Lockbox Processor" means First Union National Bank and its
successors or any replacement Lockbox Processor under the Lockbox Agreement.
"Master Trust" means National Financial Auto Receivables
Master Trust.
"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
Receivable 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.
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"Note" or "Notes" has the meaning assigned to such term in the
Indenture.
"Note Balance" means either the Class A Note Balance or the
Class B Note Balance, as applicable.
"Note Pool Factor" means, with respect to each Class of Notes
and the close of business on any Distribution Date, a seven-digit decimal figure
equal to the outstanding principal amount of such Class of Notes (after giving
effect to any distributions reducing the related Note Balance on such
Distribution Date) divided by the original outstanding principal amount of such
Class of Notes.
"Noteholders" and "Holders" have the meaning assigned to the
term "Noteholders" in the Indenture.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date and each Class of Notes, 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 and each Class of Notes, the excess of the sum
of the Noteholders' Monthly Interest Distributable Amount for such Class for the
preceding Distribution Date and any outstanding Noteholders' Interest Carryover
Shortfall for such Class on such preceding Distribution Date, over the amount in
respect of interest that was actually deposited in the Note Distribution Account
and distributed on such Class on such preceding Distribution Date.
"Noteholders' Interest Distributable Amount" means, with
respect to any Distribution Date and each Class of Notes, the sum of (i) the
Noteholders' Monthly Interest Distributable Amount for such Class on such
Distribution Date and (ii) the Noteholders' Interest Carryover Shortfall for
such Class on such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date and each Class of Notes, 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 related Interest Rate on the Note Balance of
such Class on such Distribution Date (before reduction of the Note Balance of
such Class by any distributions made on such Distribution Date) and (ii)
interest on the Noteholders' Interest Carryover Shortfall at the greater of (i)
the Prime Rate or (ii) the related Interest Rate plus 2% per annum from the
preceding Distribution Date through the current Distribution Date, to the extent
permitted by law.
"Noteholders' Principal Distributable Amount" means for each
Class of Notes, with respect to (i) any Distribution Date prior to the Final
Scheduled Distribution Date, the Principal Distributable Amount and (ii) the
Final Scheduled Distribution Date, the Note Balance for such Class (before
giving effect to any distribution on the related Class on such Final Scheduled
Distribution Date).
"Notice of Claim" means the notice required to file a claim
under the Policy.
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"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 of counsel
reasonably satisfactory to the Trust Collateral Agent and the Controlling Party.
Any such counsel may be counsel to the Seller.
"Original Pool Balance" means $61,300,000.00.
"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) 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
clause (a) of the definition of "Delivery" above.
"Pool Balance" means, as of any date of determination, the
Original Pool Balance 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.
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"Prime Rate" shall mean the rate of interest published in The
Wall Street Journal from time to time as the Prime Rate. If more than one Prime
Rate is published in The Wall Street Journal for a day, the average of the Prime
Rates shall be used.
"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 in accordance with Section 1.8 hereof 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 2.5, 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 Amount" means, with respect to any Receivable
required to be retransferred pursuant to Sections 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 2.5, 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 or the Controlling Party that such Receivable is required
to be retransferred.
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"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 NAFI pursuant to Sections 2.5 or 3.2 or by the
Seller pursuant to Sections 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 Controlling Party.
"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 each of the Insurer and the Trust
Collateral Agent that such action will not result in a reduction or withdrawal
of the then current rating of the Notes. Upon receipt of such notice by the
Trust Collateral Agent, the Trust Collateral Agent shall promptly forward such
notice to each of the Seller, the Servicer, the Noteholders and the Owner
Trustee.
"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 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.
"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 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, such schedule identifying each Receivable being
transferred and assigned to the Trust pursuant to this Agreement by the name of
the Obligor and setting forth as to each such
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Receivable its Principal 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.
"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 any Distribution Date,
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: (i) repossession of
the related Financed Vehicle with or without judicial proceedings, (ii) sale of
such Financed Vehicle at public or private sale, (iii) retention of such
Financed Vehicle in satisfaction of the Obligor's obligations under such
Defaulted Receivable, or (iv) 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. The Financed Vehicles referred to in (i)
through (iv) of the preceding sentence, shall be referred to herein as
"Repossessed Financed Vehicles."
"Requisite Amount" has the meaning specified in the Series
1999-1 Supplement.
"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.
"Revolving Credit Agreement" means the Revolving Credit, Term
Loan and Security Agreement, dated as of March 31, 1999, among the Seller, NAFI
and First Union National Bank.
"Rights" has the meaning specified in Section 13.4 of this
Agreement.
"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.
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"Scheduled Receivable 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 Due 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 Receivable 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 1999-1 Spread Account" means the account designated as
such, established and maintained pursuant to the Spread Account Agreement.
"Series 1999-1 Supplement" means the Series 1999-1 supplement
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 3.00% 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 annual 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.
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"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 First Amended and
Restated Master Spread Account Agreement, dated as of March 31, 1998, among the
Insurer, the Seller, the Trust Collateral Agent and the Collateral Agent, as the
same has been previously supplemented and 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.
"Statistical Cut-off Date" means July 31, 1999.
"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.
"Supplement to the Backup Servicing Agreement" means the
Supplement to Backup Servicing Agreement, dated as of September 1, 1999, among
the Seller, NAFI and Harris Trust Savings Bank.
"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 Class A Note Policy" has the meaning specified
for "Term Of This Policy" in the Class A 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.
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"Transaction Documents" means this Agreement, the Notes, the
Certificate, the Assignment Agreement, the Sale Agreement, the Trust Agreement,
the Indenture, the Insurance Agreement, the Lockbox Agreement, the Custodian
Agreement, the Note Purchase Agreements (as defined in the Trust Agreement), the
Premium Letter (as defined in the Insurance Agreement), the Indemnification
Agreement, any Sub-Servicing Agreement, the Inducement Letter (as defined in the
Insurance Agreement), the Servicer Termination Side Letter (as defined in the
Insurance Agreement), the Spread Account Agreement, the Series 1999-1
Supplement, the Backup Servicing Agreement and the Supplement to the Backup
Servicing Agreement.
"Trigger Event" has the meaning assigned thereto in the Series
1999-1 Supplement.
"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 and
effective as of September 1, 1999, as amended and restated by the Amended and
Restated Trust Agreement, dated as of September 1, 1999, between the Seller and
the Owner Trustee, as the same may be amended and supplemented from time to
time.
"Trust Certificate" means the certificate issued pursuant to
the Trust Agreement evidencing the beneficial ownership interest 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. Although the Seller has pledged the Series 1999-1
Spread Account to the Collateral Agent (as defined in the Spread Account
Agreement) and the Insurer pursuant to the Spread Account Agreement, the Series
1999-1 Spread Account shall not under any circumstances be deemed to be a part
of or otherwise includible in the Trust or the Trust Property.
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"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.
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
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"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, Sections, 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, director, employee, agent or
attorney 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 Noteholders 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 Notes 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 Class A 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.
ARTICLE II
CONVEYANCE OF RECEIVABLES
SECTION 2.1. Conveyance of 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
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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 Receivables and all monies received thereon on or
after the Cut-off Date (including amounts due on or before the Cut-off Date but
received by NAFI, the Seller or the Issuer on or after the 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,
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 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; 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.
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 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, 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
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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 by the Seller to the Trust and by the Trust 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, structure or location of jurisdiction of organization 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, the Noteholders and the Insurer; provided however, that the Trust
Collateral Agent, the Servicer, the Noteholders 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, structure or location of jurisdiction of
organization or a relocation of, its chief executive office or principal place
of business. If any change in the Seller's name, identity, structure or location
of jurisdiction of organization 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 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, the Noteholders 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. [Reserved.]
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, 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 Certificate shall represent the beneficial ownership
interest in the Trust Property, and the Certificateholder shall be entitled to
receive distributions with respect thereto as set forth herein.
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(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 Class A Note Policy and the surrender of the Class A 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
Certificate, remain as covenants of the Trust for the benefit of the
Certificateholder, enforceable by the Certificateholder 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 and the expiration of the term of
the Class A Note Policy shall thereupon vest in the Certificateholder.
(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 Class A Note Policy has expired and the Trust
Collateral Agent has surrendered the Class A Note Policy to the Insurer, release
any remaining portion of the Trust Property to the Certificateholder (subject to
the Revolving Credit Agreement).
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, 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
Noteholders, 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
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deposit in the Collection Account, all payments received on the Receivables on
or after the Cut-Off Date an don or before the second Business Day preceding the
Closing Date. Within two Business Days after the Closing Date, the Seller shall
deliver to the Trust Collateral Agent for deposit in the Collection Account, 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 other payments received on the Receivables on or
after the Cut-off 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 of a Receivable File relating to
each Receivable. At or prior to the Closing Date, the Custodian will certify
that with respect to each Receivable listed on the Receivables Schedule that,
except as set forth on a schedule attached thereto, all documents required to be
delivered to it pursuant to the definition of Custodian Documents (as defined in
the Custodial Agreement) are in its possession. 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 Noteholders, 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 or NAFI 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 or NAFI 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 NAFI (as applicable) or its
designee any Receivable released pursuant hereto. It is understood and agreed
that the obligation of the Seller or NAFI 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 NAFI and the Seller.
Each of NAFI and 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 Class A Note Policy and on which the Noteholders
have relied in purchasing the Notes. 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
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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) NAFI, 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, the
Noteholders and the Insurer, in writing, upon the discovery of any breach of
NAFI's and 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 NAFI or 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,
if such Title Documents have not been received by the Servicer within 60 days
after the Closing Date, the Servicer shall give the Trust Collateral Agent, the
Noteholders, the Insurer, NAFI and Seller written notice of such fact. If NAFI
or 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 NAFI, the Seller, any Sub-Servicer or the
Servicer became aware, if earlier, of such breach (including failure to deliver
such Title Documents), then NAFI or the Seller shall promptly repurchase such
Receivables from the Issuer. Any such repurchase by NAFI or the Seller shall be
in exchange for the delivery by NAFI or 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 NAFI and 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 under this Agreement.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by NAFI or the Seller or by the Servicer
pursuant to Section 4.1, NAFI and 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 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 Sale
Agreement including the delivery requirements thereunder. The Seller
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hereby represents and warrants to the Trust that such assignment is valid,
enforceable and effective.
SECTION 3.3. Custody of Receivables Files. The Custodian shall maintain
custody and possession of the Receivable Files as custodian and bailee for the
Trust Collateral Agent and the Insurer, 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, 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
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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 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 (unless such security interest, lien
or other encumbrance is due to the gross negligence of the Servicer). 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 the Servicer, any
Sub-Servicer or 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, the Noteholders 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 or the occurrence of a Servicer Termination Event, the Controlling
Party may instruct the Trust Collateral Agent and the Servicer in writing 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 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,
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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, 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) 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 (which initial list shall be set forth in
the certificate of secretary of the Servicer to be delivered on the Closing
Date), 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. The Trust Collateral Agent
shall provide such list to any Noteholder upon written request thereof.
(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 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
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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 (and delivery of a copy of
such certificate to the Insurer) 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.
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 Eligible Sub-Servicers for the servicing and
administration of certain of the Receivables with the prior written consent of
the Controlling Party, which consent shall not be unreasonably withheld. The
Servicer shall notify each Rating Agency, the Trust Collateral Agent, the
Noteholders, the Backup Servicer and the Insurer prior to 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 Sub-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 Controlling Party and (ii) with
respect to all other amendments, providing five (5) days prior written notice to
the Noteholders, the Controlling Party, the Rating Agencies and the Trust
Collateral Agent 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.
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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, with the Trust
Collateral Agent and the Insurer having rights as third-party beneficiaries to
such Sub-Servicing Agreement, and the Trust, the Trustee, the Backup Servicer
and the 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, the Noteholders and the Insurer any
notice received from a Sub-Servicer.
SECTION 4.5. Assumption or Termination of Sub-Servicing Agreement by
Backup Servicer. 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, each Noteholder 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
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of Receivable more than twice during the life of such Receivable; provided
further, that the Average Extension Ratio for any calendar month, commencing
September 1999, 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, other than September 1999 and October 1999, 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 2000 will equal the arithmetic average of the Extension Ratios for the
months November 1999, December 1999 and January 2000 and will be included in the
report delivered by the Servicer pursuant to Section 4.11 on or before the
February 2000 Reporting Date). The Average Extension Ratio for September 1999
shall equal the Extension Ratio for such calendar month and the Average
Extension Ratio for October 1999 shall equal the arithmetic average of the
Extension Ratio for such calendar month and the preceding calendar month. 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) 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 on or before the Closing Date have notified
each Obligor that makes its payments on the Receivables by check to make any
such payments after the 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 Lockbox Account
and the Post-Office Box in the name of the Trust Collateral Agent 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 for the benefit of the Noteholders and the
Insurer 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 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
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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 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.
(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 Backup
Servicer or 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 Backup Servicer or 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 Backup Servicer or successor Servicer. In the event that the Controlling
Party 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
Controlling Party 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.
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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 naming the Trustee as beneficiary.
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(a) 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.
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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 Custodian, the Trust Collateral Agent, the Backup Servicer, the Lockbox Bank
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 or Backup
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, each Noteholder, 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, each Noteholder and the Trustee (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, each
Noteholder, the Insurer and the Seller a statement (and shall also mail a copy
to the Servicer, each Noteholder, the Insurer and the Seller) setting forth the
amount, if any, on deposit in the Collection Account, the Distribution Account
and the Note Distribution 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 upon
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, each Noteholder, the
Insurer and the Seller a statement showing, for the previous
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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, each Noteholder, 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, 2000, 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 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, each Noteholder, 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, 2000, 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
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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, any Noteholder holding 5% or more of the Note Balance of any
Class of Notes, the Trustee, 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 or any Noteholder 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 each of the Trustee, the Insurer, the Backup Servicer and each
Noteholder holding 5% or more of the Note Balance of any Class of Notes (upon
written request by such Noteholder to the Servicer) a computer tape and a
diskette (or any other electronic transmission acceptable to each of the
Trustee, the Insurer and the Backup Servicer) in a format acceptable to each of
the Trustee, the Backup Servicer, the Insurer (if requested by the Insurer) and
such Noteholder (if requested by such Noteholder) 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
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Date and ending on October 31, 1999, which term shall be extendible by the
Controlling Party for successive monthly terms ending on each successive month
(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 Controlling Party 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. 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 Controlling Party, the Trust Collateral Agent will, within five
days thereafter, give written notice of such non-receipt to the Insurer, each
Noteholder 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.
SECTION 4.17. Custodial Arrangement. The Custodian shall maintain
custody and possession of the Receivable Files as custodian and bailee for the
Servicer and the Trust Collateral Agent 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 obligations thereunder, 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 each Noteholder, 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 Certificateholder 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
Certificateholder 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 two separate Eligible Deposit Accounts (the "Class A Note
Distribution Account" and the "Class B Note Distribution Account"),
each bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Trust Collateral Agent on
behalf of the related Class of Noteholders. The Class A Note
Distribution Account will also be held for the benefit of
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the Insurer. Each of the Class A Note Distribution Account and the
Class B 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 "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 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 Trust Collateral Agent pursuant to Section
4.6(d); (ii) the Purchase Amount received in respect of any Purchased
Receivables pursuant to Sections 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.
(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 and (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 to the Seller (i)
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) 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 by the Trust Collateral Agent (if such
amount was erroneously deposited by the Servicer or any Sub-Servicer) and the
Insurer 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 Note
Distribution Accounts and the Distribution 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 Controlling Party, funds on
deposit in any Trust 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 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 and the
Insurer 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 (as such capitalized terms are defined in the Indenture)
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 (as defined in the
Indenture) 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,
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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 Controlling Party 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 and
the Insurer in writing promptly upon any of such Trust Accounts ceasing to be an
Eligible Deposit Account.
(ii) With respect to the Trust Account Property the
Trust Collateral Agent agrees that:
(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, the Trust Collateral Agent shall accept delivery 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;
(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
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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; and
(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.
SECTION 5.2. [Reserved.]
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(a)(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. If the Trust Collateral Agent has not received written
confirmation from the Controlling Party of the Servicer's entitlement to
reimbursement pursuant to this Section, 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 1999-1 Spread Account.
(a) In the event that the Servicer's Certificate with respect
to any Determination Date shall state that the amount of funds available under
Section 5.7(a)(iii) and, if such Distribution Date is the Final Scheduled
Distribution Date, the amount of funds available under Sections 5.7(a)(iii) and
5.7(a)(v) with respect to such Distribution Date is not sufficient to
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make payment of the amount payable on the related Distribution Date pursuant to
Section 5.7(a)(iii) and, if such Distribution Date is the Final Scheduled
Distribution Date, Sections 5.7(a)(iii) and 5.7(a)(v) (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 Noteholders, 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 Class A 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) 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, 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 with respect to the Class A Notes and any amounts owing to the Insurer
pursuant to clause (vi) below only) in the following order of priority:
(i) from the Distribution Account to the Servicer,
the Servicing Fee for the related Due Period, and any unpaid Servicing
Fees from prior Due Periods to the extent not previously paid;
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(ii) from the Distribution Account to each of the
Trust Collateral Agent, the Backup Servicer, 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 Class A
Note Distribution Account to the Class A Noteholders, the Noteholders'
Interest Distributable Amount with respect to the Class A Notes;
(iv) from the Distribution Account to the Class B
Note Distribution Account to the Class B Noteholders, the Noteholders'
Interest Distributable Amount with respect to the Class B Notes;
(v) from the Distribution Account, to the Class A
Note Distribution Account to the Class A Noteholders, the sum of (i)
the Class A Percentage of the Noteholders' Principal Distributable
Amount and (ii) the Class A Principal Carryover Shortfall; provided,
however, that on the Final Scheduled Distribution Date, the Class A
Noteholders shall receive an amount sufficient to reduce the Class A
Note Balance to zero;
(vi) from the Distribution Account to the Insurer (or
any designee thereof), to the extent of any amounts owing to the
Insurer with respect to this transaction under the Insurance Agreement,
the Indenture or this Agreement and not paid;
(vii) from the Distribution Account to the Class B
Note Distribution Account to the Class B Noteholders, the sum of (i)
the Class B Percentage of the Noteholders' Principal Distributable
Amount and (ii) the Class B Principal Carryover Shortfall; provided,
however, that on the Final Scheduled Distribution Date, the Class B
Noteholders shall receive an amount sufficient to reduce the Class B
Note Balance to zero;
(viii) from the Distribution Account to the
Collateral Agent for deposit to the Spread Account, all Available
Amounts remaining after distribution pursuant to clauses (i) through
(vii) above;
(ix) from amounts, if any, released from the Spread
Account on such Distribution Date, for the first 12 Distribution Dates
after the Closing Date, from the Distribution Account to the Class B
Note Distribution Account to the Class B Noteholders, as additional
payment of principal, 15% of the balance of any funds released from the
Spread Account pursuant to the Series 1999-1 Supplement, and for each
Distribution Date thereafter until the outstanding Class B Note Balance
is zero, from the Distribution Account to the Class B Note Distribution
Account to the Class B Noteholders, as additional payment of principal,
65% of the balance of any funds released from the Spread Account
pursuant to the Series 1999-1 Supplement;
(x) from amounts (as reduced by the distributions
pursuant to clause (ix) above), if any, released from the Spread
Account on such Distribution Date, to the
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Trustee and the Owner Trustee for any unreimbursed expenses and to pay
any indemnities owed by the Issuer to the Trustee under the Indenture
or to the Owner Trustee under the Trust Agreement;
(xi) from amounts (as reduced by the distributions
pursuant to clauses (ix) and (x) above), if any, released from the
Spread Account on such Distribution Date, to the Servicer for any
expenses incurred by the Servicer in connection with a realization upon
a Defaulted Receivable;
(xii) from amounts (as reduced by the distributions
pursuant to clauses (ix), (x) and (xi) above), if any, released from
the Spread Account on such Distribution Date, to the Backup Servicer
for reimbursement to 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; and
(xiii) from amounts (as reduced by the distributions
pursuant to clauses (ix), (x), (xi) and (xii) above), if any, released
from the Spread Account on such Distribution Date, to the holder of the
Trust Certificate (subject to the claims of First Union National Bank
under the Revolving Credit Agreement), 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 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
Certificateholder pursuant to Section 5.6 of the Indenture.
(b) The Certificateholder and each Noteholder, by its
acceptance of the Trust Certificate or a Note, as applicable, will be deemed to
have consented to the provisions of paragraph (a) 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 the Certificateholder or such Noteholder, as applicable, until such
amount has been distributed to the Certificateholder or such Noteholder pursuant
to such provisions; provided, that the foregoing shall not restrict the right of
the Certificateholder or any Noteholder, upon compliance with the provisions
hereof, from seeking to compel the performance of the provisions hereof by the
parties hereto.
(c) In furtherance of and not in limitation of the foregoing,
the Certificateholder and each Class B Noteholder, by acceptance of the Trust
Certificate or its Class B Note, as applicable, 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
(xiii) above to such Certificateholder or pursuant to clauses (iv), (vii) and
(ix) above to such Class B Noteholder. The Certificateholder and each Class B
Noteholder, by acceptance of the Trust Certificate or its Class B Note, as
applicable, further specifically
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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 Class A 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 Certificateholder 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, the Certificateholder, by acceptance
of the 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).
(d) 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(a) on the related Distribution Date.
SECTION 5.8. Note Distribution Accounts.
(a) On each Distribution Date, the Trust Collateral Agent
shall distribute all amounts on deposit in the Class A Note Distribution Account
and Class B Note Distribution Account, as such amounts on deposit in the Class A
Note Distribution Account and Class B Note Distribution Account are specified in
the monthly Servicer's Certificate, to the Class A Noteholders and Class B
Noteholders in respect of the Class A Notes and Class B Notes to the extent of
amounts due and unpaid on the Class A Notes and Class B Notes for principal and
interest in the amounts and priorities set forth in Section 5.7(a).
(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
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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.
SECTION 5.9. [Reserved.]
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
Class A Note Policy.
ARTICLE VI
THE CLASS A NOTE POLICY
SECTION 6.1. Claims Under Class A 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 Class A Note Policy Claim Amount for the related Distribution Date. If the
Class A 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
Class A Note Policy Claim Amount. Amounts paid by the Insurer pursuant to a
claim submitted under this Section 6.1
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shall be deposited by the Trust Collateral Agent into the Class A Note
Distribution Account for payment pursuant to paragraph (b) below to Class A
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 Class A Note Policy
Claim Amount claimed under the Class A Note Policy and shall constitute a
"Notice of Claim" under the Class A Note Policy. In accordance with the
provisions of the Class A Note Policy, the Insurer is required to pay to the
Trust Collateral Agent the Class A 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 Class A Note Policy) following Receipt (as
defined in the Class A Note Policy) on a Business Day (as defined in the Class A
Note Policy) of the Notice of Claim, and (ii) the applicable Distribution Date.
Any payment made by the Insurer under the Class A Note Policy shall be applied
solely to the payment of the Class A Notes, and for no other purpose.
(c) The Trust Collateral Agent shall (i) receive as
attorney-in-fact of each Class A Noteholder any Class A Note Policy Claim Amount
from the Insurer and (ii) deposit the same in the Class A Note Distribution
Account for distribution solely to Class A Noteholders. Any and all Class A Note
Policy Claim Amounts disbursed by the Trust Collateral Agent from claims made
under the Class A Note Policy shall not be considered payment by the Trust or
from the Spread Account with respect to such Class A 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 Class A 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
Class A 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 Class A 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 Class A Notes to the extent that it
has made payment pursuant to the Class A 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 with respect
to the Class A Notes. The foregoing subrogation shall in all cases be subject to
the rights of the Class A Noteholders to receive all Scheduled Payments (as
defined in the Class A Note Policy) in respect of the Class A Notes.
(d) The Trust Collateral Agent shall keep a complete and
accurate record of all funds deposited by the Insurer into the Class A Note
Distribution Account and Distribution Account and the allocation of such funds
to payment of interest on and principal paid in respect of any Class A 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 Class A Noteholders the obligations of the Insurer under the Class
A Note Policy. Notwithstanding any other provision of this Agreement or any
Transaction Document, the Class A Noteholders are not entitled to institute
proceedings directly against the Insurer.
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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 Class A 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 Class A
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 Class A
Notes by mail that, in the event that any Class A Noteholder's payment is so
recoverable, such Class A Noteholder will be entitled to payment pursuant to the
terms of the Class A Note Policy. The Trust Collateral Agent shall furnish to
the Insurer its records evidencing the payments of principal of and interest on
Class A Notes, if any, which have been made by the Trust Collateral Agent and
subsequently recovered from the Class A Noteholders, and the dates on which such
payments were made. Pursuant to the terms of the Class A Note Policy, the
Insurer will make such payment on behalf of the Class A Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Class A Note Policy) and not to the Trust
Collateral Agent or any Noteholder directly (unless a Class 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 Class A 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 "Class A Note Preference Claim") of any distribution made with
respect to the Class A Notes. Each Class A Noteholder, by its purchase of Class
A 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 Class A Note Preference
Claim direct all matters relating to such Class A Note Preference Claim
including, without limitation, (i) the direction of any appeal of any order
relating to any Class A Note 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 Class A Noteholder
and the Trust Collateral Agent hereby delegates and assigns, to the fullest
extent permitted by law, the rights of the Trust Collateral Agent and each Class
A Noteholder in the conduct of any proceeding with respect to a Class Note
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 Class A Note Preference Claim.
SECTION 6.3. Surrender of Class A Note Policy. The Trust Collateral
Agent shall surrender the Class A 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
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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, the Noteholders 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:
(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 corporate 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
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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;
(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) except as set forth in Schedule C, 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;
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(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;
(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 and the assets of the Seller
shall not be listed on the financial statements of any other entity;
(q) the Seller shall maintain records and books of account of
the Seller and shall not commingle such records and books of account, or its
assets, with the records and books of account, or assets, 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 trustee who
qualifies as an independent trustee.
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 Class
A Note Policy.
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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, 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 Noteholders, 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 Noteholders, the
Trustee and the Insurer and except any taxes to which the Owner Trustee, the
Trust Collateral Agent, the Noteholders 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
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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.
(c) The Seller shall indemnify, defend and hold harmless the
Owner Trustee, Trustee, the Noteholders 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
(except NAFI) 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 Transaction Documents and will not be
entitled to the benefits of the Class A 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, the Noteholders and the Insurer that as of the Closing 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 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
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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) except as set forth on Schedule C, 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, the
Servicer or the rights of the Noteholders, the Insurer or the Trustee under the
Transaction Documents;
(f) the principal office of the Servicer is located at 10302
Deerwood Park Boulevard, Suite 100, Jacksonville, Florida 32256; and
(g) to the Servicer's best knowledge (after using its best
efforts in conducting a detailed and complete analysis), any reprogramming
required to permit the proper functioning, in and following the year 2000, of
(i) the Servicer's computer systems used to conduct, operate and manage the
business, assets and operations of the Servicer, and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others to the
Servicer, or with which systems used by, or on behalf of, the Servicer
interface) and the testing of all such systems and equipment, as so
reprogrammed, has been completed as of the date hereof. To the Servicer's best
knowledge (after using its best efforts in conducting a detailed and complete
analysis), the cost to the Servicer of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Servicer's systems and
equipment (including, without limitation, reprogramming errors and the failure
of others' systems) will not result in a Servicer Termination Event or have a
material adverse effect upon the Servicer's business, assets, operations,
prospects or condition, financial or otherwise. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, to the
Servicer's best knowledge (after using its best efforts in conducting a detailed
and complete analysis), the Servicer's computer and management information
systems used to conduct, operate and manage the Servicer's business, assets and
operations are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the Servicer
to conduct its business without having a material adverse effect upon the
Servicer's business, assets, operations, prospects or condition, financial or
otherwise.
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
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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
affects the interests of the Noteholders or the Insurer, the party discovering
such breach shall give prompt written notice thereof to the other parties, the
Noteholders 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 Class
A 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 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, the Noteholders, the
Insurer 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.
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(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, 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 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
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such qualification is or shall be necessary to protect the validity and
enforceability of this 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 or an Event of Default and
(iii) an Opinion of Counsel to the effect that all conditions precedent to
merger have been satisfied and a first priority security interest opinion have
been provided to the Insurer and the Trust Collateral Agent. 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 (which notice shall be forwarded by the Trust Collateral Agent to the
Noteholders).
(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, the
Noteholders 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
Controlling Party, 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
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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, the Backup Servicer or their
respective 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 or
the Noteholders, the Trust Collateral Agent, the Insurer or its officers,
directors, employees or agents, the Insurer 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.
(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 hereof, 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
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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 Termination Event.
(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) [Reserved]
(e) Neither the Backup Servicer, the Trust Collateral Agent
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. Neither the Trust Collateral Agent nor the Backup
Servicer shall 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 or the Trust Collateral Agent 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, the Backup Servicer and the
Trust Collateral Agent 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, in each case with the prior written consent of the Controlling
Party 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 Controlling Party and may perform other
specific duties through such sub-contractors in accordance with Servicer's
customary servicing policies and procedures, with the prior written consent of
the Controlling Party; 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. Neither NAFI nor any party acting as
Servicer hereunder shall appoint any Sub-Servicer hereunder without the prior
written consent of the Controlling Party.
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SECTION 9.6. Servicer and Backup Servicer Not to Resign. Subject to the
provisions of Section 9.3, neither the Servicer nor the Backup Servicer shall
resign from the obligations and duties imposed on it by this Agreement as Backup
Servicer or as Servicer except (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 have a material adverse effect on the Servicer or the Backup Servicer, as
the case may be, and the Controlling Party does not elect to waive the
obligations of the Servicer or the Backup Servicer, as the case may be, to
perform the duties which render it legally unable to act or to delegate those
duties to another Person or (ii) with respect to the Backup Servicer, upon 90
days written notice to the Noteholders, the Insurer, the Trustee, the Owner
Trustee and the Servicer, and an entity that is an Eligible Servicer acceptable
to the Controlling Party shall have assumed the responsibilities and obligations
of the Backup Servicer. Any such determination permitting the resignation of the
Servicer or the Backup Servicer pursuant to clause (i) above 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 the Backup Servicer or an entity acceptable to the
Insurer shall have assumed the responsibilities and obligations of the Servicer
or 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. No resignation of the Backup Servicer shall become effective until an
entity acceptable to the Controlling Party shall have assumed the
responsibilities and obligations of the Backup Servicer.
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 the earlier of the date on which (i) a responsible
officer of the Servicer obtains knowledge of such failure or (ii) notice is
received by the Servicer from the Trust Collateral Agent acting at the direction
of the Controlling Party (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
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and adversely affects any Noteholder (determined without regard to the
availability of funds under the Class A Note Policy) or the Insurer (unless an
Insurer Default shall have occurred and be continuing), and (ii) continues
unremedied for a period of thirty days after the earlier of the date on which
(i) a responsible officer of the Servicer has knowledge of such failure or (ii)
notice, requiring the same to be remedied, shall have been given to the Servicer
by the Trust Collateral Agent acting at the direction of the Controlling Party,
or to the Servicer and the Trust Collateral Agent by the Insurer or any
Noteholder; 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 any Trust Property or Transaction Document (determined
without regard to the availability of funds under the Class A Note Policy) and,
within 30 days after the earlier of the date on which (i) a responsible officer
of the Servicer has knowledge of such failure or (ii) notice shall have been
given to the Servicer by the Trust Collateral Agent acting at the direction of
the Controlling Party, 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 Class A Note Policy; or
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(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 prior written consent or direction of the
Controlling Party, 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,
together with any and all actions to which any Noteholder, the Trust Collateral
Agent or the Insurer may be entitled to under any applicable law, and (ii)
subject to Section 10.4, 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 10.4. 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, the Receivables, control over
the Post-Office Box and Lockbox Account 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 it 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, the Noteholders 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 the Backup Servicer or a successor
Servicer, and 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.
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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 Backup Servicer
or the successor Servicer, as the case may be, in effecting the termination of
the responsibilities and rights of the terminated Servicer under this Agreement,
including, without limitation, the transfer to the Backup Servicer or 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 Backup Servicer or 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 Backup 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 4.6(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 Backup Servicer or 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) (i) On and after 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; provided, however, that the Backup Servicer shall not
be required to be the successor servicer unless it shall have been provided with
four weeks' advance notice of any of the events described in clauses (i), (ii)
and (iii) above. 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 Controlling Party 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 Class A Note
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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, the Backup
Servicer would become successor Servicer and at such time the Backup Servicer
shall be legally unable or unwilling to act as Servicer, the Controlling Party
shall appoint a successor Servicer; provided, however, that if the Controlling
Party shall not appoint a successor Servicer within 180 days thereof, the Backup
Servicer 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.
(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 4.16. If, 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 pursuant to Section 4.16, 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, with the prior written
consent of the Controlling Party, seek to have a successor to it appointed as
Servicer; and if such successor is appointed by the Controlling Party (or by a
court of competent jurisdiction pursuant to clause (c) above), the Backup
Servicer shall not be liable for the acts or omissions of such successor
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 the Trust Collateral Agent and the Controlling Party agree in writing to
a larger Servicing Fee
(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
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written consent of the Controlling Party, 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.
SECTION 10.7. Waiver of Past Defaults. The Controlling Party 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 60 days' prior written notice thereof to the Seller, the
Insurer and the Noteholders. Upon receiving such notice of resignation, the
Seller shall, with the prior written consent of the Controlling Party, 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, one copy to the Noteholders 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 Controlling Party 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 Controlling Party, 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 (which notice shall be forwarded by the Trust Collateral Agent to
the Noteholders), all authority, power, obligations and responsibilities of the
Trust Collateral Agent under this Agreement, whether with respect to the
Receivables 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 Controlling Party 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 in certificates or opinions furnished to
the Backup Servicer and conforming to the requirements of this Agreement; but in
the case 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 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 sold to
the Trust on the Cut-off Date, the Seller or the Servicer shall have the option
to purchase the Owner Trust Estate, other than the
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Trust Accounts (with the prior written consent of the Insurer if such purchase
would result in a claim on the Class A Note 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, 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, the Insurer, the Noteholders 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.
(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 Noteholders, 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 which presentation and surrender of the
Notes at the office of the Trust Collateral Agent herein designated shall be
made on a date not more than 30 days following such payment on the Notes, (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
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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 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.
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(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, the Noteholders, the 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;
(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, the
Custodian, the Backup Servicer 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.
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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.
(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 Controlling Party
and First Union National Bank (so long as First Union National Bank or an
Affiliate shall hold the Class B Notes), 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.
(b) This Agreement may also be amended from time to time by
the parties hereto, with the prior written consent of the Controlling Party, the
consent of First Union National Bank (so long as First Union National Bank or an
Affiliate shall hold the Class B Notes), 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 of each Class (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
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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.
(c) 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.
(d) 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 1999-1 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 1999-1 Spread
Account or uses of funds on deposit in the Series 1999-1 Spread Account may be
amended in any respect by the Seller, the Servicer, the Insurer and the Trust
Collateral Agent (the consent of which shall not be withheld or delayed with
respect to any amendment that does not adversely affect the Trust Collateral
Agent) without the consent of, or notice to, the Noteholders, but with the
consent of First Union National Bank (solely in their capacity as lender under
the Revolving Credit Agreement).
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, any Noteholder holding 5% or more of the Note Balance
of any Class, 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 Noteholders, the Owner
Trustee, the Trust Collateral Agent and the Trustee at least thirty days' prior
written notice thereof and shall have filed appropriate amendments to all
previously filed financing statements or continuation statements prior to the
effectiveness of such change. Promptly upon such filing, the Seller or the
Servicer, as the case may be, shall deliver an Opinion
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of Counsel in form and substance reasonably satisfactory to the Insurer, the
Noteholders, 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 the Other Conveyed Property,
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 Noteholders, 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 file any such amendment prior to the date of such
relocation. 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 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, any Noteholder holding 5% or more of the Note Balance
of any Class, 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
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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
Noteholders, 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 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 or (C) any
action which is necessary to preserve and protect such
interest during the following 12-month period; and
(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 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.
Each Opinion of Counsel referred to in clause (A) or (B) 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 Backup Servicer, the Noteholders, 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, 10302 Deerwood Park Boulevard,
Suite 100, Jacksonville, Florida 32256, (b) in the case of the Servicer to
National Auto Finance Company, Inc., 10302 Deerwood Park Boulevard, Suite 100,
Jacksonville, Florida 32256, (c) in the case of the Issuer or the Owner Trustee,
at 1100 North Market Street, Rodney
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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, Transaction Oversight (in each case in which
notice or other communication to the Insurer refers to a Servicer Termination
Event, an Insurance Agreement Event of Default, an Event of Default, a claim on
a Class A Note 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, (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, (h) in the case of Prudential, to One
Gateway Center, 11th Floor, Newark, New Jersey 07102-5311, Attention: Michael J.
Bozzo, Telecopier # 973-802-2147 and (i) in the case of First Union National
Bank, to 301 South College Street, Charlotte, North Carolina 28288-0610,
Attention: Prakash Wadhwani, Telecopier # 704-374-3254. 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.
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 each Class of the
outstanding Notes). Notwithstanding anything to the contrary contained herein,
the assignment or other transfer of all or any portion of the Servicer's rights
("Rights") or obligations under this Agreement (including, without limitation,
its right to receive all or any part of the Servicing Fee) shall only be
permitted to be transferred to a single transferee and such prospective
transferee must, as a condition to such assignment or other transfer acknowledge
and agree that (i) it has neither acquired nor will it transfer the such Rights
or cause such Rights to be marketed on or through an "established securities
market" within the meaning of Section 7704(b)(1) of the Code, including, without
limitation, an over-the- counter-market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations; (ii) it either (A) is not,
and will not become, a partnership, an S corporation or a grantor trust for U.S.
federal income tax purposes, or (B) is such an entity, but none of the direct or
indirect beneficial owners of any of the interests in such transferee have
allowed or caused, or will allow or cause, fifty percent (50%) or more of the
value of such interests to be attributable to such transferee's ownership of the
Rights; and (iii) it understands that tax counsel to the Trust has
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provided an opinion substantially to the effect that the Trust will not be
treated as a publicly traded partnership taxable as a corporation for U.S.
federal income tax purposes and that the validity of such opinion is dependent
in part on the accuracy of the representations in paragraphs (i) and (ii) above.
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 Class
A 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.
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SECTION 13.11. Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement, the Servicer, the Backup Servicer, the Trustee,
the Trust Collateral Agent, the Custodian, the Insurer, the Owner Trustee 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, the Backup Servicer, the Trustee, the Trust Collateral Agent, the
Custodian, the Insurer and the Owner Trustee 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
Servicer and in no event shall Harris Trust and
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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, the Backup 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 Class A Note Policy, the Insurer shall have certain rights
hereunder for so long as no Insurer Default shall have occurred and be
continuing and the Class A Notes shall remain outstanding or amounts or amounts
owing the Insurer have not been paid to it. 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 Controlling Class. The Insurer may disclaim any of its
rights and powers under this Agreement (but not its duties and obligations under
the Class A 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.
SECTION 13.16. Duties of Trust Collateral Agent. Prior to the payment
in full of the Notes and the expiration of the term of the Class A Note Policy,
the Trust Collateral Agent shall act solely for the benefit of the Noteholders
and the Insurer, as their interests may appear herein.
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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 1999-1 TRUST,
by Wilmington Trust Company, not in its individual capacity but
solely as Owner Trustee on behalf of the Trust,
By: /s/ JAMES P. LAWLER
--------------------------------------
Name: James P. Lawler
Title: Vice President
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: /s/ JOHN J. CASHIN
--------------------------------------
Name: John J. Cashin
Title: Vice President
NATIONAL AUTO FINANCE COMPANY, INC.,
in its individual capacity and as Servicer,
By: /s/ STEPHEN R. VETH
--------------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary &
General Counsel
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as
Trust Collateral Agent and Backup Servicer
By: /s/ KEITH RICHARDSON
--------------------------------------
Name: Keith Richardson
Title: Assistant Vice President
<PAGE> 88
SCHEDULE A
SCHEDULE OF RECEIVABLES
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SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Each of NAFI and 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 Receivables transferred to the Trust on the Closing
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, 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, 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 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, 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 Section 2.1, 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. as of the Cut-off Date, no such Receivable is delinquent for more
than thirty days in payment as to any scheduled payment. In addition, as of the
Statistical Cut-off Date, each Receivable has a remaining maturity of 56 months
or less, has an original outstanding principal
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balance of not more than $35,000, has made a minimum of 4 scheduled payments to
NAFI and has an APR of not less than 14% per annum;
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 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, 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
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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 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;
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;
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21. as of the Cut-off Date, 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 Cut-off Date and the Closing 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;
25. by the Closing Date, 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 was complete and accurate as of the 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 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 or beneficial to the Noteholders or
to the Insurer have been utilized in selecting such Receivable from all other
similar Receivables originated or purchased by NAFI;
29. as of the Statistical Cut-off Date, the APR of the Receivables was
approximately 19.10% and the weighted average remaining scheduled maturity on
the Receivables was approximately 58.28 months and the percentage of the
aggregate outstanding balance of the Receivables relating to the financing of
used Financed Vehicles was 85%. The final scheduled
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payment date on the Receivable with the latest maturity is April, 2004. Each
Receivable amortizes based on a Simple Interest Method or Rule of 78 Method;
30. as of the Statistical Cut-off Date, Receivables originated by NAFI
are at least 75% of the Original Pool Balance, the top three states will
represent no more than 54.47% of the pool, PAC Receivables (i.e., Receivables
with planned principal balances) will not exceed 20% of the Original Pool
Balance, no originator will exceed 3% of the Original Pool Balance; and
31. no Receivable provides for a prepayment penalty.
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SCHEDULE C
LEGAL PROCEEDINGS
On October 22, 1998, Pearl Peckerman, I.R.A., on behalf of herself and
all others similarly situated, filed a putative class-action complaint (the
"Peckerman Complaint") in the United States District Court for the Southern
District of Florida against the Company and certain current and former officers
and directors of the Company, as well as the co-lead underwriters of the
Company's initial public offering. On December 4, 1998, Harvey Rooks, Rachel
Rooks and Joyce Bornstein, on behalf of themselves and all others similarly
situated, filed a putative class action complaint (the "Rooks Complaint") in the
United States District Court for the Southern District of Florida against the
Company and certain current and former officers and directors of the Company, as
well as the co-lead underwriters of the Company's initial public offering.
On February 5, 1999, the United States District Court for the Southern
District of Florida ordered that these actions be consolidated. Thereafter, on
July 29, 1999, the plaintiffs filed an amended and consolidated class-action
complaint (the "Amended and Consolidated Complaint") styled In re National Auto
Finance Company, Inc. Securities Litigation, Case Number 98-8767-CIV-Hurley.
The individual lead plaintiffs in the Amended and Consolidated
Complaint are Pearl Peckerman, Harvey Rooks, Rachel Rooks, Joyce Bornstein,
Emanuel Androulidakis, Frank Rosetti, Thomas R. Bopp, Noel V. Brodtman, Jr.,
Susan H. Jacobsen, Leonard R. Carothers, Fred Gaunce, Duane Morris, Ralph Casey,
Hiram Graham, and Vance Prigge. In addition, the action was instituted on behalf
of a putative class of plaintiffs consisting of those persons who purchased or
otherwise acquired stock of the Company between January 29, 1997 and April 15,
1998 inclusive, excluding the Company, its subsidiaries and affiliates, the
individual defendants, members of the immediate families of each of the
individual defendants, and the successors and assigns of any defendant. Other
than the Company, the defendants to the action are: Gary L. Shapiro, Keith B.
Stein, Roy E. Tipton, Kevin G. Adams, Edgar A. Otto, Peter Offerman, Morgan M.
Schussler, Steven L. Gurba, and the co-lead underwriters of the Company's
January 1997 initial public offering, Raymond James & Associates, Inc. and
Cruttenden Roth, Inc.
The Amended and Consolidated Complaint sets forth allegations
surrounding the Company's 1997 restated financial statements, the interpretation
of FASB No. 125 and the relationship between the Company and its prior outside
service provider, Omni Financial Services of America, Inc. The plaintiffs'
allegations of liability are based on various theories of recovery, including
alleged violations of Section 11, 12(a)(2), 15 and 20(a) of the Securities Act
of 1933, as amended, and Section 10(b) and Rule 10b-5 of the Securities Exchange
Act of 1934, as amended. The plaintiffs are seeking compensatory damages as the
court deems appropriate.
The Company is presently assessing the merits of the claims and
anticipates filing a motion to dismiss the complaint in its entirety in the near
future. In addition, the two underwriter defendants, Raymond James, Inc. and
Cruttenden Roth, Inc. have asserted that pursuant to the underwriting agreement
entered into with the Company in connection with its initial public offering,
the Company is required to indemnify the underwriters for their legal and other
costs
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<PAGE> 95
incurred in this litigation, including but not limited to any potential judgment
against them. The Company is presently assessing the merits of those claims.
The Company has directors' and officers' liability insurance policy
with a liability limit of $5 million; and two excess policies with liability
limits of $2 million and $3 million, respectively. Each insurer has raised
certain coverage defenses or denied coverage. The Company has engaged, and will
continue to pursue appropriate strategies to protect and preserve its claims of
full coverage under all such policies.
Litigation is subject to many uncertainties, and it is possible that
the above action could be decided unfavorably. In addition, the Company may
enter into discussions in an attempt to settle the pending litigation if it is
in the best interests of the Company's stockholders to do so. Management is
presently unable to make a meaningful estimate of the amount or range of loss
that could result from an unfavorable outcome or settlement of the pending
litigation. It is possible that the Company's business, volume, results of
operations, cashflows or financial position could be materially affected by an
unfavorable outcome or settlement of the pending litigation.
2
<PAGE> 96
EXHIBIT 5.10
FORM OF STATEMENT TO NOTEHOLDERS
3
<PAGE> 97
EXHIBIT A
[RESERVED]
<PAGE> 98
EXHIBIT B
FORM OF SERVICER'S CERTIFICATE
<PAGE> 1
EXHIBIT 10.110
- --------------------------------------------------------------------------------
SALE AGREEMENT
BETWEEN
NATIONAL FINANCIAL AUTO FUNDING TRUST II
AND
NATIONAL FINANCIAL AUTO FUNDING TRUST
-----------------------------
DATED AS OF SEPTEMBER 1, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
SALE AGREEMENT
SALE AGREEMENT, dated as of September 1, 1999, 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 First Amended and
Restated Pooling and Administration Agreement dated as of September 1, 1999 (as
amended and restated, 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 (the "Trustee"), or the Assignment Agreement, dated as
of September 1, 1999, 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 September 24, 1999.
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
actuarial 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> 3
Related Security: With respect to any Receivable, all of the interest
of Funding Trust II in, to and under (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 and any and all 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
A 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, to Funding Trust I 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
A, (ii) all monies paid or payable thereunder on or after August 31, 1999 (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 September 1, 1999 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
$51,000,000.00 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 National Auto Finance 1999-1 Trust ("1999-1 Trust")
as 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
2
<PAGE> 4
Financial Security Assurance Inc. ("Financial Security") (for so long as any
policy issued by Financial Security 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 in its
capacity as Trust Collateral Agent under the Sale and Servicing Agreement, dated
as of September 1, 1999 (the "Sale and Servicing Agreement"), among 1999-1
Trust, Funding Trust I, NAFI and Harris Trust.
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 has knowledge of, or
receives notice of, or receives any payment on a Receivable belonging to Funding
Trust I, Funding Trust II shall promptly notify the Trust Collateral Agent, and
shall hold such receivable in trust and as bailee for Funding Trust I, and shall
promptly turn such payment over to Harris Trust, as Trust Collateral Agent under
the Sale and Servicing Agreement.
3
<PAGE> 5
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 Market Street
Wilmington, Delaware 19801
Attention: Corporate Administration Trust Department
Telecopier No.: (302) 984-4903
Confirmation: (302) 428-3372
If to Funding Trust I:
National Financial Auto Funding Trust I
c/o Chase Manhattan Bank Delaware, as Trustee
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Administration Trust Department
Telecopier No.: (302) 984-4903
Confirmation: (302) 428-3372
4
<PAGE> 6
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Transaction Oversight Department
Re: National Auto Finance 1999-1 Trust
7.26% Automobile Receivables-Backed Class A Notes
Telecopier No: (212) 339-3518,
(212) 339-3529
Confirmation: (212) 826-0100
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 1999-1
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 and Funding Trust I each hereby
agrees not to cause the filing of a petition in bankruptcy against the other
until one year and one day after the
5
<PAGE> 7
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 was conveyed to Funding Trust I.
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.
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 the Control Party, to cure any
ambiguity or to correct any provisions in this Agreement.
[Remainder of Page Intentionally Blank]
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Sale
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: /s/ JOHN J. CASHIN
-----------------------------------
Name: John J. Cashin
Title: Vice President
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: /s/ JOHN J. CASHIN
-----------------------------------
Name: John J. Cashin
Title: Vice President
<PAGE> 1
EXHIBIT 10.111
CUSTODIAL AGREEMENT
This Custodial Agreement (the "Agreement") is dated as of September 1,
1999 by and between HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation, as custodian ("Custodian") and as trustee ("Trustee") and trust
collateral agent ("Agent"), and NATIONAL AUTO FINANCE COMPANY, INC., as Servicer
(the "Company" or "NAFCO").
RECITALS
A. Company and Trustee are entering into this Agreement to provide for
perfection of the pledge of assets pursuant to the Indenture, dated as of
September 1, 1999, ("Indenture") between National Auto Finance 1999-1 Trust (the
"Trust") and Agent and the Sale and Servicing Agreement, dated as of September
1, 1999, ("Sale and Servicing Agreement") among National Financial Auto Funding
Trust ("Funding Trust"), NAFCO, Trust and Agent. Financial Security Assurance,
Inc. ("FSA") is the insurer in respect of the Indenture and the Sale and
Servicing Agreements.
B. Company and Trustee have requested that Custodian act as agent of
Trustee pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals which are
incorporated herein and for good and valuable consideration the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. Any capitalized terms used in this Agreement
without definition, shall have the meaning given to such terms in the Indenture
or the Sale and Servicing Agreement.
(a) For purposes of this Agreement, the term "Custodian
Documents" shall mean with respect to each contract file, (i) the fully executed
original of the contract, (ii) the original certificate of title, and (iii) such
other documents as NAFCO chooses to maintain in its files in accordance with
customary practices and procedures to evidence that a financed vehicle is owned
by the obligor and subject to the interest of NAFCO as first lienholder or
secured party under the Indenture and Sale and Servicing Agreement.
2. APPOINTMENT OF CUSTODIAN. Subject to the terms and conditions
set forth herein, Trustee on behalf of the Trust hereby revocably appoints the
Custodian to fulfill those obligations specifically set forth herein and
Custodian hereby accepts such appointment, and agrees to act as bailee and agent
on behalf of Trustee and NAFCO to maintain exclusive custody and possession of
the Custodian Documents which may from time to time comprise part of the Trust
Assets pursuant to the terms herein. In performing its duties hereunder,
Custodian shall exercise such standards of care as it exercises in maintaining
motor vehicle installment sale contracts as customary in the industry and no
less than the standard it maintains for other
<PAGE> 2
custodial accounts. FSA hereby directs the Trustee to appoint the Custodian, as
custodian hereunder.
3. RECEIPT OF CUSTODIAN DOCUMENTS. Custodian hereby acknowledges
receipt of the contract files for each contract file set forth in Exhibit 1
attached hereto and made a part hereof, further acknowledge that such Contract
Files contain all of the Receivables set forth on the Receivable Schedule
attached to the Sale and Servicing Agreement as Exhibit A thereto and further
acknowledges the receipt of such Contract Files with the exception of any files
set forth on Schedule 2 hereto. Custodian will review the Custodian Documents
and designate any deficiencies or discrepancies in such files as set forth on
Exhibit 1 within 45 days from the date hereof.
4. MAINTENANCE OF CUSTODIAN DOCUMENTS. Custodian agrees to
maintain the Custodian Documents in its possession at its office located at 111
West Monroe Street, LLW-B2 Vault, Chicago, Illinois 60603 or, subject to the
prior written consent of the Insurer, at such other location as Custodian shall
give Trustee thirty (30) days advance written notice. It is intended that by the
Custodian's possession of the Custodian Documents pursuant to this Agreement
that the Trustee will be deemed to have possession of the Custodian Documents
for purposes of Section 9-305 of the UCC as in effect in the state in which the
Custodian Documents are located.
5. DUTIES OF CUSTODIAN. (a) SAFEKEEPING. The Custodian shall hold
the Custodian Documents and any amendment, replacement or supplement thereto in
a fire-and water-proof location as bailee on behalf of the Trustee. The
Custodian shall identify on the books and records of the Custodian the Trustee's
interest in the Custodian Documents. The Custodian shall conduct, or cause to be
conducted, periodic physical inspections of the Custodian Documents held by it
under this Agreement, and of the related accounts, records and computer systems,
in such a manner as shall enable the Trustee and the Custodian to verify the
accuracy of the Custodian's inventory and record keeping with respect to the
Custodian Documents all in accordance with the Custodian's normal internal audit
procedures in effect from time to time. The Custodian shall promptly notify
Trustee and NAFCO of any material breach of Custodian's obligations hereunder
and shall promptly take appropriate action to remedy any such failure. In acting
as Custodian and bailee, Custodian shall not assert any beneficial ownership
interest in the Custodian Documents.
(b) ACCESS TO RECORDS. Subject only to the Custodian's
security requirements applicable to its own employees having access to similar
records held by Custodian, Custodian shall permit NAFCO and Trustee or their
duly authorized representatives, attorneys or auditors to inspect the Custodian
Documents and related accounts, records and computer systems maintained by the
Custodian relating to Custodian's obligations under this Agreement at such times
as NAFCO or Trustee may reasonably request following two (2) Business Days
advance notification. Custodian shall maintain a complete and accurate record of
all Custodian Documents forwarded to NAFCO and shall maintain copies of each
Request for Release (as defined below) in its own records.
(c) RELEASE OF DOCUMENTS. Custodian may release such Custodian
Documents (the "Requested Custodian Documents") to NAFCO, or such party then
servicing such Custodian Documents (the "Servicer"), as are requested in writing
by the Servicer for any
2
<PAGE> 3
Permitted Purpose (as defined below) pursuant to a request for release in the
form of Exhibit 2 hereto (a "Request for Release"). Custodian shall make such
Requested Custodian Documents available to Servicer within two (2) business days
of Servicer's written request. During the time that the Servicer is in
possession or control of the Requested Custodian Documents, the Servicer shall
hold such documents as bailee in trust for Trustee. Each Request for Release
shall constitute a representation by the Servicer that (i) such release is in
the ordinary course of its business (a) in connection with the release of
collateral securing such Contract after satisfaction of the related indebtedness
thereunder or in connection with correcting vehicle lienholder or similar
information on a Contract or title document, (b) in connection with the obligor
placing a second lien on the financed vehicle, (c) as required to retitle a
vehicle in a new state or (d) in connection with payments of insurance proceeds
or (ii) such contract has been retransferred to the Transferor in accordance
with the Indenture and the Sale and Servicing Agreement (each of the foregoing,
a "Permitted Purpose"). In addition, if such Request for Release is in
connection with a payoff of the related contract or the application of insurance
proceeds such Request for Release shall contain a representation that the
proceeds of such payoff or insurance have been or will be remitted to the
appropriate account. Each such Request for Release shall constitute an
obligation of NAFCO to return such Custodian Documents unless the need therefore
has ceased or the related Receivable shall have been paid in full as certified
in writing to the Custodian by the Servicer's submission of a Request for
Release.
(d) REPORTS. Custodian shall prepare and deliver to Trustee
and NAFCO, on the 5th day of each August, November, February and May, a report
(which may be delivered electronically) indicating (1) the Custodian Documents
remaining in the possession of the Custodian, (2) any remaining deficiencies in
the documentation which comprise the Custodian Documents, and (3) any other
documents relating to the contract files. The form of the report will be
substantially identical to Exhibit 3 attached hereto.
(e) The Custodian shall retain possession of the Custodian
Document for each assigned account until receipt of written notice from NAFCO
that the related account has been determined to be a contract that is a
Liquidated Receivable during the current month.
6. INSTRUCTIONS; AUTHORITY TO ACT. Upon receipt by Custodian of
reasonable written instructions certified by an authorized officer of the
Servicer and/or the Trustee, Custodian shall be deemed to have received proper
instruction from such party regarding the Custodian Documents which are the
subject of such written instruction. The Servicer and/or the Trustee will
provide to the Custodian a list of such authorized officers with specimen
signatures as well as an updated list from time to time.
7. CUSTODIAN FEES. Custodian shall receive fees from the Servicer
pursuant to the fee schedule attached as Schedule A. Custodian shall provide to
the Servicer a monthly fee bill detailing the activity and associated fees and
expenses for the prior month, and custodian fee shall be payable by the Servicer
within 30 days after receipt of billing. Trustee shall not be liable for the
payment of any such unpaid fees or expenses.
8. INDEMNIFICATIONS. NAFCO agrees to indemnify the Custodian and
its respective officers, directors, employees and agents for any and all
liabilities, losses, costs and expenses that may be incurred by Custodian
arising out of or in connection with this Agreement, except
3
<PAGE> 4
for any such liabilities, losses, costs or expenses incurred by Custodian as a
result of Custodian's negligence, willful misconduct or bad faith. This right of
indemnification shall survive the termination of this Agreement, and the
resignation or removal of the Custodian or Trustee under the Agreements. The
costs and expenses of enforcing this indemnity shall be paid by NAFCO. The
Custodian agrees to indemnify, defend and hold harmless the Company and the
Trustee, their respective officers, directors, employees and agents from and
against any and all claims, expenses, liabilities, obligations, losses, damages,
injuries (to person, property, or natural resources), penalties, stamp or other
similar taxes, actions, suits, judgments, payments, costs, or expenses
(including reasonable attorney's and agent's fees and expenses) of whatever kind
which may be imposed on or incurred by the Company and the Trustee arising from
the gross negligence or willful misconduct of the Custodian in maintaining
custody of the Custodian Documents pursuant to this Agreement; provided,
however, that the Custodian will not be liable to an indemnified party to the
extent that any such amount resulted from the gross negligence or willful
misconduct of the Company or FSA; 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 such indemnified party.
9. REGARDING CUSTODIAN. The Custodian undertakes to perform such
duties and only such duties as are specifically set out in this Agreement. In
the absence of bad faith on the part of the Custodian, the Custodian may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates, opinions or other papers or
documents furnished to the Custodian which conform to the requirements of this
Agreement, and which the Custodian reasonably believes to be genuine and signed
or presented by the proper party or parties. The Custodian shall not be required
to expend or risk its own funds or otherwise to incur any liability, financial
or otherwise, 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 for
believing that repayment of such funds or indemnity satisfactory to it against
such risk or liability is not assured to it. Custodian shall be entitled to rely
and act upon the advice of counsel with respect to its performance of its
obligations under this Agreement and shall incur no liability of any kind for
any actions taken in good faith pursuant to such advice, provided that such
action does not constitute a violation of applicable state or federal law.
10. TERM AND TERMINATION; AMENDMENT. This Agreement shall become
effective as of the date hereof and will supersede any prior agreement or
understanding between NAFCO and the Custodian with respect to the subject matter
hereof. It is agreed that NAFCO or FSA may terminate this Agreement at anytime
without cause upon sixty (60) days prior written notice to the parties hereto
with the consent of the Trustee. In addition, this Agreement will terminate if
and to the extent that the Indenture or the Sale and Servicing Agreement
terminates. The Trustee shall deliver notice of such termination to the
Custodian within fifteen (15) days of its receipt of written notice of such
termination. Upon such termination the Custodian will separate all Custodian
Documents from the files it maintains and shall deliver the Custodian Documents
to such person as Trustee (acting at the direction of FSA) shall direct. This
Agreement may not be modified, altered or amended except by an agreement in
writing executed by each of the parties hereto with the consent of Funding Trust
and FSA.
4
<PAGE> 5
11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
12. NOTICES. All written notices, communications, or demands, and
delivery of documents shall be personally delivered, sent via overnight delivery
service, via facsimile (upon receipt of confirmation of error-free transmission)
or mailed via U.S. mail, return receipt requested and shall be deemed duly given
upon receipt by the parties at their respective addresses set forth below or at
such other address as any party notifies the other parties hereto of in writing:
Custodian: Harris Trust and Savings Bank
111 W. Monroe Street, LLW-B2 Vault
Chicago, Illinois 60603
Fax: (312)461-1522
with a copy to: Harris Trust and Savings Bank
311 W. Monroe Street, 12th Floor
Chicago, Illinois 60606
Attn: Indenture Trust Division
Fax: (312)461-3525
NAFCO: National Auto Finance Company, Inc.
10302 Deerwood Park Blvd., Suite 100
Jacksonville, Fla. 32256
Fax: (904)996-2500
Trustee: Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
13. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, but Custodian may not assign or delegate any
of its rights or obligations hereunder without the prior written consent of
Trustee (acting at the written direction of FSA) and NAFCO. Concurrently with
the appointment of any successor custodian, this Agreement shall be amended to
install such successor custodian as successor to Custodian, provided, that any
merger or consolidation pursuant to Section 17 hereof shall not require an
amendment. Nothing contained herein shall release Trustee or NAFCO from their
respective obligations to the other under the Indenture or the Sale and
Servicing Agreement. FSA and its successors and assigns shall be Third-Party
beneficiaries to the provisions of this Agreement and shall be entitled to
enforce the provisions of this Agreement as if it were a party hereto.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts with the same effect as if all parties had signed the same
document. All such counterparts shall
5
<PAGE> 6
be deemed an original, shall be construed together and shall constitute one and
the same instrument.
15. THIRD PARTY CLAIMS. In the event that (i) Trustee, NAFCO or
Custodian shall be served by a third party with any type of levy, attachment,
writ or court order with respect to any Custodian Document or (ii) a third party
shall institute any court proceeding by which any Custodian Document shall be
required to be delivered otherwise than in accordance with the provisions of
this Agreement, the party receiving such service shall promptly deliver or cause
to be delivered to the other parties to this Agreement copies of all court
papers, orders, documents and other materials concerning such proceedings.
Custodian shall continue to hold and maintain all Custodian Documents that are
the subject of such proceedings pending a final order of a court of competent
jurisdiction permitting or directing disposition thereof. Upon final
determination of such court, Custodian shall dispose of such Custodian Documents
as directed by such determination or, if no such determination is made, in
accordance with the provisions of this Agreement. Expenses of Custodian incurred
as a result of such proceedings shall be borne by NAFCO.
16. INSURANCE OF CUSTODIAN. Custodian shall, at its own expense,
maintain at all times during the term of this Custodial Agreement and keep in
full force and effect (a) fidelity insurance, (b) theft of documents insurance,
(c) fire insurance, and (d) forgery insurance. All such insurance shall be in
amounts, with standard coverage and subject to deductibles, as are customary for
similar insurance typically maintained by banks that act as custodian in similar
transactions.
17. MERGER OR CONSOLIDATION OF CUSTODIAN. Any corporation, banking
association or trust company into which Custodian may be merged or converted or
consolidated with, or any corporation, banking association or trust company
resulting from any merger, conversion or consolidation to which Custodian shall
be a party, or any corporation, banking association or trust company succeeding
to all or substantially all the corporate trust business of Custodian, shall be
the successor of Custodian hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto.
18. JURISDICTION: VENUE AND WAIVER OF JURY TRIAL. NAFCO, CUSTODIAN
AND TRUSTEE HEREBY IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY, INDIRECTLY OR OTHERWISE IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT SHALL BE LITIGATED, ONLY IN COURTS HAVING A SITUS WITHIN THE
STATE OF NEW YORK. NAFCO, CUSTODIAN AND TRUSTEE HEREBY CONSENT AND SUBMIT TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID STATE.
CUSTODIAN HEREBY IRREVOCABLY DESIGNATES HARRIS TRUST & SAVINGS BANK, 88 PINE
STREET, WALL STREET PLAZA, 19TH FLOOR, NEW YORK, NY 10005, FOR SERVICE OF LEGAL
PROCESS AND AGREES THAT SERVICE OF SUCH PROCESS UPON SUCH PARTY SHALL CONSTITUTE
PERSONAL SERVICE OF PROCESS UPON CUSTODIAN PROVIDED THAT A COPY OF SUCH PROCESS
BE DELIVERED TO CUSTODIAN PURSUANT TO THE PROVISIONS OF SECTION 12 ABOVE. NAFCO,
CUSTODIAN AND TRUSTEE HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO TRANSFER OR CHANGE
THE VENUE OF ANY LITIGATION
6
<PAGE> 7
BROUGHT AGAINST THEM BASED UPON, RELATED TO OR FROM THIS AGREEMENT.
NAFCO, CUSTODIAN AND TRUSTEE HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, RELATED TO OR FROM, THIS
AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY
NAFCO, CUSTODIAN AND TRUSTEE, AND NAFCO, CUSTODIAN AND TRUSTEE ACKNOWLEDGE THAT
NO PERSON HAS MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS WAIVER OF TRIAL
BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
NAFCO, CUSTODIAN AND TRUSTEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT NAFCO, CUSTODIAN AND
TRUSTEE HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. NAFCO, CUSTODIAN AND TRUSTEE FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN
REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL.
7
<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto have executed this
Agreement as of the date first above written.
HARRIS TRUST AND SAVINGS BANK,
as Custodian
/s/ KEITH RICHARDSON
-------------------------------
By: Keith Richardson
Title: Assistant Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
/s/ KEITH RICHARDSON
-------------------------------
By: Keith Richardson
Title: Assistant Vice President
NATIONAL AUTO FINANCE
COMPANY, INC.
/s/ KEITH B. STEIN
-------------------------------
By: Keith B. Stein
Title: Chairman of the Board
Acknowledged and Agreed
FINANCIAL SECURITY ASSURANCE INC.
/s/ AUTHORIZED SIGNATURE
- ---------------------------
By:
Title:
8
<PAGE> 9
Exhibit 1 to
Custodial Agreement
Custodian Certification
Harris Trust and Savings Bank
311 Monroe Street, 12th Floor
Chicago, ILL 60606
Attn: Indenture Trust Division
Re: Custodial Agreement (the "Custodial Agreement") dated as of
September 1, 1999 by and between HARRIS TRUST AND SAVINGS BANK, an Illinois
banking corporation as custodian ("Custodian") as trustee ("Trustee") and as
trust collateral agent, and NATIONAL AUTO FINANCE COMPANY, INC., as Servicer.
Ladies and Gentlemen:
In accordance with the provisions of Section 3 of the Custodial Agreement, the
undersigned, as Custodian, hereby certifies that, as to each contract listed in
the contract list dated ________________, 19__, attached hereto as Schedule 1,
it has reviewed the documents delivered to it pursuant to Section 3 of the
Custodial Agreement and has determined that, except as noted in the attached
Schedule 1, (a) all documents specified in clauses (i) through (iii) of the
definition of the term Custodian Documents (as such term is defined in the
Custodial Agreement) are in its possession, (b) such documents have been
reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such contract, and (c) based on its
examination, and only as to the foregoing documents, the information set forth
in the contract list respecting such contract accurately reflects the
information set forth in the file for such contract. Custodian has made no
independent examination of such documents beyond the review specifically
required in the above-referenced Custodial Agreement. Custodian makes no
representations as to the: (i) validity, legality, sufficiency, enforceability
or genuineness of any such documents contained in each or any of the contracts
identified on the contract list, or (ii) collectability, insurability,
effectiveness or suitability of any such contract.
<PAGE> 10
Page 2
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Custodial Agreement.
HARRIS TRUST AND SAVINGS BANK,
as Custodian
By:
---------------------------
Name:
Title:
<PAGE> 11
Schedule 1
List of Contracts
<PAGE> 12
Schedule 2
List of Excluded Contract Files
<PAGE> 13
Exhibit 2 to
Custodial Agreement
REQUEST FOR RELEASE OF DOCUMENTS
To:
Re:
Reference is made to that certain Custodial Agreement (the "Custodial
Agreement") dated as of September 1, 1999 by and between HARRIS TRUST AND
SAVINGS BANK, an Illinois banking corporation as custodian ("Custodian"), as
trustee ("Trustee") and as trust collateral agent, and NATIONAL AUTO FINANCE
COMPANY, INC., as Servicer. Capitalized terms used herein shall have the same
meanings assigned to such terms in the Custodial Agreement. In connection with
the administration of the contracts and related contract files held by you as
Custodian, we request the release, and acknowledge receipt, of the (contract
file/specify documents) for the contract(s) described below, for the reason(s)
indicated.
Obligor's Name, Address & Zip Code:
Contract Number:
Reason for Requesting Documents (check one)
1. Contract Paid in Full
- -----
2. Repossession of related vehicle
- -----
3. Contract substituted with alternate contract to be
- ----- delivered to Custodian with a revised contract schedule
indicating substitutions
4. Contract liquidated by ______________
- -----
5. Contract redelivered pursuant to the Sale and Servicing
- ----- Agreement
6. Other (explain)
- -----
If item 1, 3, 4 or 5 above is checked, and if all or part of the
contract files were previously released to us, please release to us our previous
receipt on file with you, as well as any additional documents in your possession
relating to the above specified contract.
If item 6 above is checked, and "Correction" is indicated, please note
the following (set forth how many contract files are requested and the principal
balances of the related contracts).
This request shall constitute a representation by the undersigned that
(i) such release is in the ordinary course of its business (a) in connection
with the release of collateral securing such contract after satisfaction of the
related indebtedness thereunder or in connection with correcting
<PAGE> 14
vehicle lienholder or similar information on a contract or title document, (b)
in connection with the obligor placing a second lien on the financed vehicle,
(c) as required to retitle a vehicle in a new state or (d) in connection with
payments of insurance proceeds or (ii) such contract has been retransferred to
the Transferor in accordance with the Indenture or Sale and Servicing Agreement.
In addition, the undersigned hereby represents that the proceeds have been or
will be remitted to the appropriate account.
By:
---------------------------------
Name:
Title:
Date: , 199
------------------- --
cc:
<PAGE> 15
Exhibit 3 to
Custodial Agreement
Custodian Report
Harris Trust and Savings Bank
311 Monroe Street, 12th Floor
Chicago, ILL 60606
National Auto Finance Company
10302 Deerwood Park Blvd., Suite 100
Jacksonville, Fla. 32256
Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022
Attn: Surveillance Department
Re: National Auto Finance Company Inc.
Re: Custodial Agreement (the "Custodial Agreement") dated as of September
1, 1999 by and between HARRIS TRUST AND SAVINGS BANK, an Illinois
banking corporation, as custodian ("Custodian"), as trustee ("Trustee")
and as trust collateral agent, and NATIONAL AUTO FINANCE COMPANY, INC.,
as Servicer.
Ladies and Gentlemen:
In accordance with the provisions of Section 5(d) of the
Custodial Agreement, the undersigned, as Custodian, hereby certifies that:
1. Attached as Exhibit 2 hereto is a list of the
Custodian Documents remaining in the Custodian's
possession.
2. Attached as Exhibit 3 hereto is a list of any
remaining deficiencies in the documentation which
comprise the Custodian Documents.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Custodial Agreement.
HARRIS TRUST AND SAVINGS BANK,
as Custodian
By:
------------------------
Name:
Title:
<PAGE> 16
Exhibit 4 to
Custodial Agreement
<PAGE> 1
EXHIBIT 10.112
TRUST AGREEMENT
TRUST AGREEMENT, dated as of September 1, 1999, between
National Financial Auto Funding Trust (the "Company") and Wilmington Trust
Company, a Delaware banking corporation, not in its individual capacity but
solely as Owner Trustee (the "Owner Trustee"). The Company and the Owner Trustee
hereby agree as follows:
1. The trust created hereby shall be known as National Auto
Finance 1999-1 Trust, in which name the Owner Trustee may conduct the business
of the Trust, make and execute contracts, and sue and be sued.
2. The Company hereby assigns, transfers, conveys and sets
over to the Owner Trustee the sum of $1.00. The Owner Trustee hereby
acknowledges receipt of such amount in trust from the Company, which amount
shall constitute the initial trust estate. The Owner Trustee hereby declares
that it will hold the trust estate in trust for the Company. It is the intention
of the parties hereto that the Trust created hereby constitute a business trust
under Chapter 38 of Title 12 of the Delaware Code, 12 Del.C. Section 3801 et
seq. and that this document constitute the governing instrument of the Trust.
The Owner Trustee is hereby authorized and directed to execute and file a
certificate of trust with the Delaware Secretary of State in the form attached
hereto.
3. The Company and the Owner Trustee will enter into an
Amended and Restated Trust Agreement, satisfactory to each such party, to
provide for the contemplated operation of the Trust created hereby. Prior to the
execution and delivery of such Amended and Restated Trust Agreement, the Owner
Trustee shall not have any duty or obligation hereunder or with respect to the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise.
4. This Trust Agreement may be executed in one or more
counterparts.
5. The Owner Trustee may resign upon thirty days prior notice
to the Company.
<PAGE> 2
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.
NATIONAL FINANCIAL AUTO FUNDING TRUST,
as Company
By: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity, but
solely as Trustee of National Financial
Auto Funding Trust
By: /s/ DENIS KELLY
--------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
WILMINGTON TRUST COMPANY,
as Owner Trustee
By: /s/ ANITA E. DALLAGO
--------------------------------------
Name: Anita E. Dallago
Title: Administrative Account Manager
2-
<PAGE> 1
EXHIBIT 10.113
================================================================================
AMENDED AND RESTATED TRUST AGREEMENT
between
NATIONAL FINANCIAL AUTO FUNDING TRUST
and
WILMINGTON TRUST COMPANY
Owner Trustee
Dated as of September 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS ......................................................................1
SECTION 1.1. Capitalized Terms.......................................................1
SECTION 1.2. Other Definitional Provisions...........................................4
SECTION 1.3. Action by or Consent of Noteholders and Certificateholder...............4
SECTION 1.4. Material Adverse Effect.................................................5
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............................................6
SECTION 2.5. Initial Capital Contribution of Trust Estate............................6
SECTION 2.6. Declaration of Trust....................................................6
SECTION 2.7. Liability...............................................................7
SECTION 2.8. Title to Trust Property.................................................7
SECTION 2.9. Situs of Trust..........................................................7
SECTION 2.10. Representations and Warranties of the Depositor.........................7
SECTION 2.11. Tax Treatment \f C \l...................................................9
SECTION 2.12. Covenants of the Depositor..............................................9
SECTION 2.13. Covenants of the Certificateholder.....................................12
SECTION 2.13. Covenants of the Owner Trustee.........................................12
ARTICLE III CERTIFICATE AND TRANSFER OF INTERESTS .........................................14
SECTION 3.1. Initial Ownership......................................................14
SECTION 3.2. Signature on Certificate...............................................15
SECTION 3.3. Authentication of Certificate..........................................15
SECTION 3.4. Registration of Transfer and Exchange of the Certificate...............15
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificate.......................18
SECTION 3.6. Person Deemed the Certificateholder....................................18
SECTION 3.7. Access to List of Certificateholder's Name and Address.................19
SECTION 3.8. Maintenance of Office or Agency........................................19
SECTION 3.9. ERISA Restrictions.....................................................19
SECTION 3.10. Securities Matters.....................................................19
SECTION 3.10. Pledge of Certificate..................................................19
ARTICLE IV VOTING RIGHTS AND OTHER ACTIONS.................................................20
SECTION 4.1. Prior Notice to Holder with Respect to Certain Matters.................20
SECTION 4.2. Action by Certificateholder with Respect to Certain Matters............20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4.3. Action by Certificateholder with Respect to Bankruptcy.................21
SECTION 4.4. Restrictions on Certificateholder's Power..............................21
SECTION 4.6. Rights of Insurer......................................................22
ARTICLE V CERTAIN DUTIES ..................................................................22
SECTION 5.1. Accounting and Records to the Noteholders, the Certificateholder,
the Internal Revenue Service and Others................................22
SECTION 5.2. Signature on Returns; Tax Matters Partner..............................23
SECTION 5.3. Note Purchase Agreements...............................................23
ARTICLE VI AUTHORITY AND DUTIES OF OWNER TRUSTEE ..........................................23
SECTION 6.1. General Authority......................................................23
SECTION 6.2. General Duties.........................................................24
SECTION 6.3. Action upon Instruction................................................24
SECTION 6.4. No Duties Except as Specified in this Agreement or in Instructions.....25
SECTION 6.5. No Action Except under Specified Documents or Instructions.............25
SECTION 6.6. Restrictions...........................................................25
ARTICLE VII CONCERNING THE OWNER TRUSTEE ..................................................26
SECTION 7.1. Acceptance of Trusts and Duties........................................26
SECTION 7.2. Furnishing of Documents................................................27
SECTION 7.3. Representations and Warranties.........................................27
SECTION 7.4. Reliance; Advice of Counsel............................................28
SECTION 7.5. Not Acting in Individual Capacity......................................29
SECTION 7.6. Owner Trustee Not Liable for Certificate or Receivables................29
SECTION 7.7. Owner Trustee May Own Certificates and Notes...........................29
SECTION 7.8. Payments from Owner Trust Estate.......................................29
SECTION 7.9. Conducting Activities in Other Jurisdictions...........................30
ARTICLE VIII COMPENSATION OF OWNER TRUSTEE ................................................30
SECTION 8.1. Owner Trustee's Fees and Expenses......................................30
SECTION 8.2. Indemnification........................................................30
SECTION 8.3. Payments to the Owner Trustee..........................................31
ARTICLE IX TERMINATION OF TRUST AGREEMENT .................................................31
SECTION 9.1. Termination of Trust Agreement.........................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE X SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES ..........................33
SECTION 10.1. Eligibility Requirements for Owner Trustee.............................33
SECTION 10.2. Resignation or Removal of Owner Trustee................................33
SECTION 10.3. Successor Owner Trustee................................................34
SECTION 10.4. Merger or Consolidation of Owner Trustee...............................35
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee..........................35
ARTICLE XI MISCELLANEOUS ..................................................................36
SECTION 11.1. Supplements and Amendments.............................................36
SECTION 11.2. Limitations on Rights of Others........................................37
SECTION 11.3. Notices................................................................38
SECTION 11.4. Severability...........................................................38
SECTION 11.5. Separate Counterparts..................................................38
SECTION 11.6. Assignments; Insurer...................................................38
SECTION 11.7. No Petition............................................................39
SECTION 11.8. No Recourse............................................................39
SECTION 11.9. Headings...............................................................39
SECTION 11.10. GOVERNING LAW..........................................................39
SECTION 11.11. Master Servicer........................................................39
SECTION 11.12. Instruction............................................................40
SECTION 11.12. Limitation of Liability................................................40
</TABLE>
iii
<PAGE> 5
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> 6
THIS AMENDED AND RESTATED TRUST AGREEMENT dated as of September 1,
1999, 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, the Class A Note Purchase Agreement, the
Class B Note Purchase Agreement 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. Codess.. 3801 et. seq. as the same may be amended
from time to time.
"Certificate" or "Trust Certificate" means the trust
certificate evidencing the beneficial ownership interest of the
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.
"Class A Note Purchase Agreement" means the Note Purchase
Agreement dated September 24, 1999, among National Auto Finance Company, Inc.,
the Trust and First Union National Bank, the Depositor and the purchasers listed
on Exhibit A to the Note Purchase Agreement.
1
<PAGE> 7
"Class B Note Purchase Agreement" means the Note Purchase
Agreement dated September 24, 1999, among National Auto Finance Company, Inc.,
the Trust and First Union National Bank.
"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 Certificateholder 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 Certificateholder and the
Depositor).
"Definitive Certificate" shall mean the Certificate issued in
certificated, fully registered form.
"Depositor" shall mean National Financial Auto Funding Trust
in its capacity as Depositor hereunder.
"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 the 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 September 1,
1999, between the Trust 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.
2
<PAGE> 8
"Note Purchase Agreements" means the Class A Note Purchase
Agreement and the Class B Note Purchase Agreement.
"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.
"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.
"Revolving Credit and Term Loan and Security Agreement" means
the Revolving Credit and Term Loan and Security Agreement among the Depositor,
National Auto Finance Company, Inc. and First Union National Bank, dated as of
March 31, 1999, and as the same may be amended or modified from time to time.
"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 Harris Trust and
Savings Bank, as the Trust Collateral Agent and Backup Servicer, dated as of
September 1, 1999, 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 the Certificateholder
thereafter.
"Series 1999-1 Supplement" means the Series 1999-1 Supplement
to the Spread Account Agreement.
"Spread Account" shall mean the Series 1999-1 Spread Account
established and maintained pursuant to the Series 1999-1 Supplement.
"Spread Account Agreement" shall mean the First Amended and
Restated Master Spread Account Agreement, dated as of March 31, 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 has been
previously supplemented and as 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
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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.
(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 Certificateholder.
Whenever any provision of this Agreement refers to action to be taken, or
consented to, by the Noteholders or the Certificateholder, such provision shall
be deemed to refer to the Certificateholder or
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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 the
Noteholders or the Certificateholder. Solely for the purposes of any action to
be taken, or consented to, by the 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 Owner
Trustee, 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, has been notified
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 the Certificateholder (or any similar or analogous
determination), such determination shall be made without taking into account the
funds available from claims under the Class A Note Policy.
ARTICLE II
ORGANIZATION
SECTION 2.1. Name. There is hereby formed a trust to be known as
"National Auto Finance 1999-1 Trust," in which name the Owner Trustee may
conduct the activities 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 Certificateholder 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 Certificate
pursuant to this Agreement, and to sell the Notes; (ii) with the proceeds of the
sale of the Notes, to fund 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 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 Certificateholder 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 Certificateholder and the Noteholders.
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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.
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 Certificateholder,
subject to the obligations of the Trust under the Basic Documents. It is the
intention and agreement 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
and agreement of the parties hereto that, solely for income and franchise tax
purposes, the Trust shall be treated as a security device only, or
alternatively, if such characterization is not respected for any applicable
income or franchise tax purposes, the Trust shall be treated solely for such
income or franchise tax purposes as a non-entity disregarded as an entity
separate from its owner under Treasury Regulations Section 301.7701-3(b)(ii);
provided, however, that if any Class of Notes is treated as an equity interest
in the Trust for any applicable income or franchise tax purposes, it is the
intention and agreement of the parties hereto that, solely for such income or
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 Servicer, on behalf of 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 income or franchise tax
purposes. None of the parties hereto shall make the election provided in
Treasury Regulations Section 301.7701-3(c) to have the Trust classified as an
association taxable as a corporation. 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.
(b) The Holder, other than to the extent set forth in
clause (a), shall not 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.
(b) The Holder shall not have legal title to any part
of the Trust Property. The Holder shall be entitled to receive
distributions with respect to its undivided ownership interest therein
only in accordance with Article IX and Section 5.7 of the Sale and
Servicing Agreement. No transfer, by operation of law or otherwise, of
any right, title or interest by the 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.
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 Class A Note
Policy and upon which the Noteholders rely in purchasing their Notes.
(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. The Depositor is duly qualified to do
business and is 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 trust action; and the execution,
delivery and performance of this Agreement has been duly authorized by
the Depositor by all necessary trust action.
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(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.
(f) No Proceedings. There are no proceedings or investigations
pending or, to its knowledge threatened against the Depositor 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 Notes
or the Certificate.
SECTION 2.11. Tax Treatment. The Depositor, the Servicer and the
Certificateholder intend and agree to treat, and to take no action inconsistent
with the treatment of, the Notes as indebtedness for purposes of federal, state,
local and foreign income and franchise taxes and any other tax imposed on or
measured by net income. Furthermore, subject to the following paragraph, the
Depositor, the Servicer and the Certificateholder agree and intend to treat the
Trust as a security device only (or alternatively, if such characterization is
not respected for any applicable income or franchise tax purposes, as a
non-entity disregarded as an entity separate from its owner for such income or
franchise tax purposes under Treasury Regulations Section 301.7701-3(b)(ii) or
any similar provision of applicable law) and consistent with such intent the
Depositor, the Certificateholder and the Owner Trustee shall not file tax
returns on behalf of the Trust.
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Notwithstanding the above, in the event that any Class of Notes is
recharacterized by the Internal Revenue Service for federal income tax purposes
to represent an equity interest in the Trust, it is the intent and agreement of
the parties hereto that the Trust shall be treated for income and franchise tax
purposes as a partnership among the holders of such Notes and the
Certificateholder. In the event such a partnership is deemed to exist, any
interest accrued on the Notes in accordance with the terms thereof shall be
treated as guaranteed payments as defined in Code Section 707(c) and the
partnership's taxable income or loss (net of such guaranteed payments) shall be
allocated solely to the Certificateholder. If such treatment is not respected,
then the net income of the Trust for any month as determined for federal income
tax purposes (and each item of income, gain, loss and deduction entering into
the computation thereof) shall be allocated in such manner as to cause to the
greatest extent possible the Certificateholder and each Noteholder to recognize
net taxable income or loss at such time, and in such amounts, as each such
person would have recognized such income or loss if such Notes had been
respected as indebtedness and had not been recharacterized as an equity interest
in the Trust.
SECTION 2.12. Covenants of the Depositor. The Depositor agrees and
covenants for the benefit of each Noteholder, the 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 cause or permit the Trust to create, incur or
suffer to exist any indebtedness (other than any indebtedness pursuant
to the Revolving Credit and Term Loan and Security Agreement) or engage
in any activity, except, in each case, as permitted by this 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;
(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,
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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;
(e) the operations of the Trust will be conducted in
accordance with the following standards:
(A) prior to the date which is one year and one day
after the Notes shall have been paid in full, the Depositor shall not
institute any proceedings against, or join any Person in instituting
against, the Trust any bankruptcy, reorganization, receivership
arrangement, insolvency or liquidation proceedings or other similar
proceedings under any federal or state bankruptcy or similar law. This
Section 2.12(e) shall survive the termination of this Agreement and the
Trust;
(B) so long as the Notes shall not have been
indefeasibly paid in full, the Trust shall not:
(i) engage in any activities other than those set
forth in Section 2.3 hereof;
(ii) consolidate or merge with or into any other
entity or convey or transfer its properties and assets substantially as
an entirety to any entity;
(iii) dissolve or liquidate, in whole or in part;
(iv) except as permitted by the Basic Documents to
which the Trust is a party, commingle the funds and other assets
comprising part of the Trust Estate with those of any other Person;
(v) identify itself as a division of any person or
entity;
(vi) become or hold itself out as being liable for
the debts of any other Person;
(vii) (A) incur any indebtedness, except as permitted
under the Basic Documents; (B) suffer or permit to exist any liens,
claims or encumbrances on any of its property other than liens, claims
or encumbrances permitted to be incurred by the Trust pursuant to the
Basic Documents to which the Trust is a party; (C) make any advances,
loans, extensions of credit, acquisitions or investments except as
permitted by the Basic Documents to which the Trust is a party; (D)
conduct activities or enter into transactions with Affiliates of the
Trust, except on an arm's-length basis; or (E) own or acquire any stock
of any Person or guarantee any obligation of any Person or, except
pursuant to any Basic Document, own or acquire any securities of any
Person; and
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(viii) amend any of the provisions contained in this
Section 2.12 hereof;
(C) so long as the Notes shall not have been
indefeasibly paid in full, the Trust shall:
(i) (A) act solely in its own name and through its
duly authorized officers or agents in the conduct of its activities
except to the extent required by the law of any applicable
jurisdiction; (B) conduct its activities so as not to mislead others as
to the identity of the entity with which they are conducting
activities; (C) hold itself out to the public as a legal entity
separate and distinct from the Depositor or any Affiliate thereof; (D)
pay its own expenses and liabilities out of its own funds and assets;
and (E) use a telephone number, mailing address, stationery and other
business forms that are separate from the Depositor;
(ii) maintain all records and books of account so as
to reflect the separate existence of the Trust and maintain bank
accounts and assets separate from any other Person. The books of the
Trust may be kept (subject to any provision contained in any applicable
statutes) inside or outside the State of Delaware at such place or
places as maybe designated from time to time by the Depositor;
(iii) hold appropriate meetings and meet such other
formalities as may be necessary to authorize all of the Trust's actions
as may be required by law and observe all other trust formalities;
(iv) correct any known misunderstanding regarding its
separate identity;
(v) conduct the Trust's activities at an office
segregated from the office of the Depositor;
(vi) deliver, file and pay, as applicable, all tax
returns and financial statements and tax payments as and when required
under the Basic Documents, and to the extent its assets and liabilities
are consolidated with those of any Affiliates on any financial
statements, cause appropriate footnotes to be added to such financial
statement indicating that the assets of the Trust are not available to
creditors of such Affiliates; and
(vii) promptly deliver to the Insurer and Noteholders
copies of any and all notices, instructions or other written
communications given by either party hereto to the other pursuant to
the terms of this Agreement.
SECTION 2.13. Covenants of the Certificateholder. The Certificateholder
agrees:
(a) to be bound by the terms and conditions of the Certificate
and of this Agreement, including any supplements or amendments hereto,
and to perform
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the obligations of the Certificateholder as set forth therein or herein
in all respects as if it were a signatory hereto; which undertaking is
made for the benefit of the Trust, the Owner Trustee, the Insurer and
the Noteholders present and future;
(b) to hereby appoint the Depositor as the 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, the Certificateholder will sign such federal
income tax information return in its capacity as holder of an interest
in the Trust. The 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 the Certificateholder is other than an individual or
other entity holding the Certificate through a broker who reports
securities sales on Form 1099-B, to notify the Owner Trustee of any
transfer by it of the Certificate in a taxable sale or exchange, within
30 days of the date of the transfer; and
(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.
SECTION 2.14. Covenants of the Certificateholder/Owner Trustee. The
Certificateholder hereby instructs the Owner Trustee that the operations of the
Trust will be conducted in accordance with the following standards:
(a) prior to the date which is one year and one day after the
Notes shall have been paid in full, the Owner Trustee shall not
institute any proceedings against, or join any Person in instituting
against, either of the Trust or the Depositor any bankruptcy,
reorganization, receivership arrangement, insolvency or liquidation
proceedings or other similar proceedings under any federal or state
bankruptcy or similar law. This Section 2.14(a) shall survive the
termination of this Agreement and the Trust;
(b) so long as the Notes shall not have been indefeasibly paid
in full, the Trust shall not:
(i) engage in any activities other than those set
forth in Section 2.3 hereof;
(ii) consolidate or merge with or into any other
entity or convey or transfer its properties and assets substantially as
an entirety to any entity;
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(iii) dissolve or liquidate, in whole or in part;
(iv) except as permitted by the Basic Documents to
which the Trust is a party, commingle the funds and other assets
comprising part of the Trust Estate with those of any other Person;
(v) identify itself as a division of any person or
entity;
(vi) become or hold itself out as being liable for
the debts of any other Person;
(vii) (A) incur any indebtedness, except as permitted
under the Basic Documents; (B) suffer or permit to exist any liens,
claims or encumbrances on any of its property other than liens, claims
or encumbrances permitted pursuant to the Basic Documents to which the
Trust is a party; (C) make any advances, loans, extensions of credit,
acquisitions or investments except as permitted by the Basic Documents
to which the Trust is a party; (D) conduct activities or enter into
transactions with Affiliates of the Trust, except on an arm's-length
basis; or (E) own or acquire any stock of any Person or guarantee any
obligation of any Person or, except pursuant to any Basic Document, own
or acquire any securities of any Person; and
(viii) amend any of the provisions contained in this
Section 2.14 hereof;
(c) so long as the Notes shall not have been indefeasibly paid
in full, the Trust shall:
(i) (A) act solely in it own name and through its
duly authorized officers or agents in the conduct of its activities
except to the extent required by the law of any applicable
jurisdiction; (B) conduct its activities so as not to mislead others as
to the identity of the entity with which they are conducting
activities; (C) hold itself out to the public as a legal entity
separate and distinct from the Depositor or any Affiliate thereof; (D)
pay its own expenses and liabilities out of its own funds and assets;
and (E) use a telephone number, mailing address, stationery and other
business forms that are separate from the Depositor;
(ii) maintain all records and books of account so as
to reflect the separate existence of the Trust and maintain bank
accounts and assets separate from any other Person. The books of the
Trust may be kept (subject to any provision contained in any applicable
statutes) inside or outside the State of Delaware at such place or
places as may be designated from time to time by the Depositor;
(iii) hold appropriate meetings and meet such other
formalities as may be necessary to authorize all of the Trust's actions
as may be required by law and observe all other trust formalities;
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(iv) correct any known misunderstanding regarding its
separate identity;
(v) conduct the Trust's activities at an office
segregated from the office of the Depositor;
(vi) deliver, file and pay, as applicable, all tax
returns and financial statements and tax payments as and when required
under the Basic Documents, and to the extent its assets and liabilities
are consolidated with those of any Affiliates on any financial
statements, cause appropriate footnotes to be added to such financial
statement indicating that the assets of the Trust are not available to
creditors of such ; and
(vii) promptly deliver to the Insurer and the
Noteholders copies of any and all notices, instructions or other
written communications given by either party hereto to the other
pursuant to the terms of this Agreement.
ARTICLE III
CERTIFICATE AND TRANSFER OF INTERESTS
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 later of (a)
the payment in full of all amounts payable to First Union National Bank pursuant
to the provisions of the Revolving Credit and Term Loan and Security Agreement
and (b) the sale of the Certificate by the Depositor, the Depositor, as the
Certificateholder, shall be the sole beneficiary of the Trust. The Certificate
shall not be divisible and shall always represent 100% of the beneficial
ownership interest of the Trust.
SECTION 3.2. Signature on Certificate. The Certificate shall be
executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee. A Certificate bearing the manual or
facsimile signature of an individual who was, at the time when such signature
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 individual shall have ceased to be so authorized prior to the
authentication and delivery of such Certificate or did not hold such office at
the date of authentication and delivery of such Certificate. A transferee of the
Certificate shall become the Certificateholder, and shall be entitled to the
rights and subject to the obligations of the Certificateholder hereunder, upon
due registration of the Certificate in such transferee's name pursuant to
Section 3.4.
SECTION 3.3. Authentication of Certificate. Concurrently with the
initial sale of the Receivables to the Trust pursuant to the Sale and Servicing
Agreement, the Owner Trustee shall cause the Certificate 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. The Certificate shall neither entitle its
holder to any benefit under this Agreement nor
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shall be valid for any purpose, unless there shall appear on the 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. The Certificate shall be dated the date
of its authentication.
SECTION 3.4. Registration of Transfer and Exchange of the Certificate.
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 the Certificate and of transfers and
exchanges of the Certificate as herein provided. The Owner Trustee shall be the
initial Certificate Registrar.
As a condition to the registration of any transfer of the Certificate,
the prospective transferee of such a Certificate shall represent to the Owner
Trustee and the Certificate Registrar the following:
(i) It has neither acquired nor will it transfer the
Certificate or cause the Certificate to be marketed on or through an
"established securities market" within the meaning of Section
7704(b)(1) of the Code, including, without limitation, an over-the-
counter-market or an interdealer quotation system that regularly
disseminates firm buy or sell quotations.
(ii) It either (A) is not, and will not become, a
partnership, S corporation or grantor trust for U.S. federal income tax
purposes, or (B) is such an entity, but none of the direct or indirect
beneficial owners of any of the interests in such transferee have
allowed or caused, or will allow or cause, fifty percent (50%) or more
of the value of such interests to be attributable to such transferee's
ownership of the Certificate.
(iii) It understands that tax counsel to the Trust
has provided an opinion substantially to the effect that the Trust will
not be a publicly traded partnership taxable as a corporation for U.S.
federal income tax purposes and that the validity of such opinion is
dependent in part on the accuracy of the representations in paragraphs
(i) and (ii) above.
The Certificate has 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 the Certificate unless
such resale or transfer complies with Section 3.9 and is pursuant to (a) Section
3.1 hereof and (b) 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 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 such time as the Certificate shall
be
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registered pursuant to a registration statement filed under the Securities Act,
the Certificate 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 SECTIONS 3.1 AND
3.4 OF THE TRUST AGREEMENT PERTAINING TO THE NATIONAL AUTO FINANCE 1999-1 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 (AS SUCH TERMS ARE DEFINED IN THE AGREEMENT) 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
the name and address of the Certificateholder on the Closing Date in the form
which such information is provided to the Certificate Registrar by the
Depositor. Upon any transfer of the Certificate, 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 the 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, a new Certificate dated the date of authentication by the Owner
Trustee or any authenticating agent.
The 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The 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.
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No service charge shall be made for any registration of transfer or
exchange of the Certificate, 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 the
Certificate.
Notwithstanding the preceding provisions of this Section, the Owner
Trustee shall not be required to make, and the Certificate Registrar shall not
be required to register, transfers and exchanges of the Certificate 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 the Insurer 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, the
Certificateholder, by acceptance of the 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(a) 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 [Class
A] 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 Certificateholder hereby grant to the
Collateral Agent for the benefit of the Indenture Trustee on behalf of the
[Class A] 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, the Certificateholder, by acceptance of
the 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 that 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 Certificate. If (a) a
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 the Certificate and (b) there shall be delivered
to the Certificate Registrar, the Owner Trustee and (unless (i) an Insurer
Default shall have occurred and be continuing or (ii) the Class A Notes are no
longer outstanding, all amounts owing to the Insurer have been paid to it and
the term of the Class A Note Policy has expired) the Insurer, such security or
indemnity as may be required by them to save each of them
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harmless, then in the absence of notice that the 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. In connection with the issuance of a 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 the ownership of the Trust,
as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
SECTION 3.6. Person Deemed the Certificateholder. Every Person by
virtue of becoming the 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 the
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, respectively, may treat the Person in whose name the
Certificate shall be registered in the Certificate Register as the owner of the
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 Certificateholder's Name and Address. The Owner
Trustee shall furnish or cause to be furnished to the Servicer, the Depositor or
(unless (i) an Insurer Default shall have occurred and be continuing or (ii) the
Class A Notes are no longer outstanding, all amounts owing to the Insurer have
been paid to it and the term of the Class A Note Policy has expired) the
Insurer, within 15 days after receipt by the Owner Trustee of a request therefor
from such Person in writing, the name and address of the Certificateholder as of
the most recent Record Date. The Holder, by receiving and holding the
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.
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 the Certificate may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Owner Trustee in respect
of the Certificate 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 Certificateholder
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 Certificate 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 Code, or (iii) any entity whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"Benefit Plan"). The Certificate shall not be registered in the name of any
Holder unless the
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Holder shall have represented and warranted, substantially in the form of
paragraph 8 to Exhibit C, 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, the Exchange Act, 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 Agreement and shall promptly notify the party delivering the same if such
certificate does not so conform.
SECTION 3.11. Pledge of Certificate. The parties hereto hereby
acknowledge that the Depositor has, pursuant to the Revolving Credit and Term
Loan and Security Agreement, pledged the Certificate to First Union National
Bank. Upon receipt of notice from First Union National Bank to the effect that
an Event of Default has occurred and is continuing under the Revolving Credit
and Term Loan and Security Agreement, (i) the Owner Trustee shall upon request,
pay to First Union National Bank directly any and all amounts that the
Certificateholder would be entitled to receive hereunder and (ii) First Union
National Bank may exercise its rights under that agreement and notwithstanding
any other provision of this Agreement to the contrary, upon the request of First
Union National Bank, the outstanding Certificate shall be deemed canceled and a
new Certificate shall be issued and registered in the name or upon the order of
First Union National Bank, and without further action, First Union National Bank
shall become the Certificateholder.
ARTICLE IV
VOTING RIGHTS AND OTHER ACTIONS
SECTION 4.1. Prior Notice to Holder 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 Certificateholder in writing of the proposed action and
the Certificateholder shall not have notified the Owner Trustee in writing prior
to the 10th day after such notice is given that the Certificateholder has
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 interest of the Holder);
(b) the amendment of the Indenture by a supplemental
indenture in circumstances where the consent of any Noteholder is
required;
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(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 Certificateholder; 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 interest of the Certificateholder.
The Owner Trustee shall notify the Certificateholder 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 Certificateholder with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Insurer or, (i) in the event that an Insurer Default shall have occurred
and be continuing or (ii) the Class A Notes are no longer outstanding, all
amounts owing to the Insurer have been paid to it and the term of the Class A
Note Policy has expired, 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 Security Majority, as the case may be, and the furnishing of
indemnification satisfactory to the Owner Trustee by the Certificateholder.
SECTION 4.3. Action by Certificateholder with Respect to Bankruptcy.
Until the Notes have been indefeasibly 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 (i) an Insurer Default shall have occurred and be
continuing or (ii) the Class A Notes are no longer outstanding, all amounts
owing to the Insurer have been paid to it and the term of the Class A Note
Policy has expired) or the Security Majority upon an Insurer Default (or if the
Class A Notes are no longer outstanding, all amounts owing to the Insurer have
been paid to it and the term of the Class A Note Policy has expired). One year
and one day after the Notes have been indefeasibly paid in full, all amounts due
to the Insurer under the Insurance Agreement have been paid in full, the term of
the Class A Note Policy has expired and the Trust Collateral Agent has
surrendered the Class A Note 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 the Certificateholder and the delivery to the Owner Trustee by the
Certificateholder of written certification that the Certificateholder reasonably
believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholder's Power. (a) The
Certificateholder 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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(b) The Certificateholder (other than the Depositor
as sole Certificateholder) shall not 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
Certificateholder is the Instructing Party pursuant to Section 6.3 and
unless the 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 the Certificateholder 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 the
Certificateholder with the Owner Trustee, that the Certificateholder
shall not have any right in any manner whatever by virtue, or by
availing itself of any provisions of this Agreement to enforce any
right under this Agreement, except in the manner provided in this
Agreement. For the protection and enforcement of the provisions of this
Section 4.4, the Certificateholder and the Owner Trustee shall be
entitled to such relief as can be given either at law or in equity.
SECTION 4.5. Rights of Insurer. Notwithstanding anything to the
contrary in the Basic Documents, unless (A) either (i) an Insurer Default shall
have occurred and be continuing or (ii) the Class A Notes are no longer
outstanding, all amounts owing to the Insurer have been paid to it and the term
of the Class A Note Policy has been expired and (B) it shall have received the
prior written consent of the Security Majority, the Owner Trustee shall not (i)
remove the Servicer, the Custodian, 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.
ARTICLE V
CERTAIN DUTIES
SECTION 5.1. Accounting and Records to the Noteholders, the
Certificateholder, 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, any allocations of net income under Section 2.11, (b) deliver (or
cause to be delivered) to the Certificateholder, as may be required by the Code
and applicable Treasury Regulations, such information in the Depositor's
possession as may be requested (including Schedule K-1, if
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applicable) to enable the Certificateholder to prepare its federal, state and
local income and franchise tax returns, (c) file or cause to be filed, if
necessary, such tax returns relating to the Trust (including, if applicable, 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, local or federal statute or
rule or regulation thereunder so as to maintain the Trust's characterization as
a security device or non-entity, as the case may be, 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
5.8(c) of the Sale and Serving Agreement with respect to income or distributions
to the Certificateholder 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
upon request sign all tax information returns provided to it in execution form,
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. Notwithstanding anything to the contrary above, none
of the parties hereto shall make the election provided in Treasury Regulations
Section 301.7701-3(c) to have the Trust classified as an association taxable as
a corporation.
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 pursuant to an
instruction sign on behalf of the Trust the tax returns of the Trust provided to
it in execution form, unless applicable law requires a Certificateholder to sign
such documents, in which case such documents shall be signed by the Depositor.
(b) 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. Note Purchase Agreements. The Owner Trustee is hereby
authorized to execute and deliver the Note Purchase Agreements with respect to
the Notes.
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
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 a signatory 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 $53,125,000. 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, which the
Instructing Party hereby agrees shall be 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
Holder, 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 (i) an Insurer
Default shall not have occurred and be continuing and (ii) either the Class A
Notes are still outstanding, amounts owing to the Insurer under the Insurance
Agreement have not been paid to it or the term of the Class A Note Policy has
not expired) or the Security Majority (if (i) an Insurer Default shall have
occurred and be continuing or (ii) the Class A Notes are no longer outstanding,
all amounts owing to the Insurer have been paid to it and the Class A Note
Policy has expired) (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 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
in violation of this Agreement or the Basic Documents, as it shall deem
to be in the best interests of the Certificateholder, 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
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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
in violation of this Agreement or the Basic Documents, as it shall deem
to be in the best interests of the Certificateholder, 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 filing for the Trust with the Securities
and Exchange Commission 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
or (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to the Basic Documents.
SECTION 6.6. Restrictions. The Owner Trustee shall not (a) take any
action that is in violation of the purposes of the Trust set forth in Section
2.3, or (b) take any action (including, without limitation, participating in the
establishment of a market or the inclusion of the Trust's interests thereon,
within the meaning of Treasury Regulation Section 1.7704-1(d)(1)) that, to the
actual knowledge of the Owner Trustee, would result in the Trust becoming
taxable as a corporation or a publicly traded partnership for federal income tax
purposes. The Certificateholder shall not direct the Owner Trustee to take
action that would violate the provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
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, (iv) for any gains on 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;
(d) as provided in Section 8.4 hereof, under no circumstances
shall the Owner Trustee be personally 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
Certificate, and the Owner Trustee shall in no event assume or incur
any liability, duty or obligation to the Depositor, the Insurer,
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Trustee, Trust Collateral Agent, the Collateral Agent, any Noteholder
or to the 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 the
Certificateholder, unless such Instructing Party or the
Certificateholder has 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 Certificateholder 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
Holder, the Noteholders (which shall have relied on such representations and
warranties in purchasing the Notes) and the Insurer (which shall have relied on
such representations and warranties in issuing the Class A Note Policy), 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.
(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
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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 reasonably 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.
(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.
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.
SECTION 7.6. Owner Trustee Not Liable for Certificate or Receivables.
The recitals contained herein and in the Certificates (other than the
authenticity of the signature and countersignature of the Owner Trustee on the
Certificate) 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 Certificate (other than the signature and
countersignature of the Owner Trustee on the Certificate) 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
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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 the Certificateholder 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 pledgee
of the Certificate or the 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 Trustee
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. Conducting Activities 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 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.
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ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1. Owner Trustee's Fees and Expenses. Wilmington Trust
Company shall receive as compensation for its services hereunder such fees as
have been separately agreed upon before the date hereof between the Depositor
and Wilmington Trust Company, and Wilmington Trust Company 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 the
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. In the event the Owner Trustee shall receive payment from
any Person with respect to any Expenses following the receipt of payment from
the Depositor regarding same, the Owner Trustee shall immediately return such
payment to the Depositor without any action by or on behalf of the Depositor or
any Person.
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 the Certificateholder.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1. Termination of Trust Agreement. (a) This Agreement and the
Trust shall wind up, dissolve and 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 the Certificateholder of all amounts
required to be paid to it pursuant to this Agreement, the indefeasible payment
in full of all amounts payable to the Noteholders pursuant to the Indenture and
the other Transaction Documents 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 the Certificateholder shall not
(x) operate to terminate this Agreement or the Trust, nor (y) entitle the
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.
(a) Except as provided in clause (a), neither the Depositor
nor any other Certificateholder shall be entitled to revoke or
terminate the Trust.
(b) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholder shall surrender its
Certificate to the Trust Collateral Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by
letter to the Certificateholder 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
Certificate shall be made upon presentation and surrender of the
Certificate 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 Certificate at the office of the Trust Collateral Agent therein
specified, and (iv) interest will cease to accrue on the Certificate.
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 the Certificateholder. Upon presentation
and surrender of the Certificate, the Trust Collateral Agent shall
cause to be distributed to the Certificateholder amounts distributable
on such Distribution Date pursuant to Section 5.7 of the Sale and
Servicing Agreement.
In the event that the Certificateholder shall not have surrendered its
Certificate for cancellation within six months after the date specified in the
above mentioned written notice, the
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Owner Trustee shall give a second written notice to the Certificateholder to
surrender the Certificate for cancellation and receive the final distribution
with respect thereto. If within one year after the second notice the Certificate
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 Certificateholder concerning surrender of the 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 Holder shall thereafter look solely to the
Depositor for payment.
(c) Subject to the requirements of the Business Trust Statute,
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.
(d) 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.
(e) 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
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 (A) the
Insurer in its sole discretion, so long as (i) an Insurer Default shall not have
occurred and be continuing and (ii) either the Class A Notes are still
outstanding, amounts owing to the Insurer under the Insurance Agreement have not
been paid in full or the term of the Class A Note Policy has not expired or (B)
acceptable to the Security Majority (instead of the Insurer, in the event that
either (i) an Insurer Default shall have occurred and be continuing or (ii) the
Class A Notes are no longer outstanding, all amounts owing to the Insurer have
been paid to it and the term of the Class A Note Policy has expired). 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,
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the Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 10.2.
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 Certificateholder, the Insurer, the
Noteholders 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 (A) the Insurer, so long as
(i) an Insurer Default shall not have occurred and be continuing and (ii) either
the Class A Notes are still outstanding, amounts owing to the Insurer under the
Insurance Agreement have not been paid in full or the term of the Class A Note
Policy has not expired or (B) the Security Majority, in the event that either
(i) an Insurer Default shall have occurred and be continuing or (ii) the Class A
Notes are no longer outstanding, all amounts owing to the Insurer have been paid
to it and the term of the Class A Note Policy has expired), 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, the Noteholders 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,
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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.
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 the Certificateholder, 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 (i) an Insurer Default shall
have occurred and be continuing or (ii) the Class A Notes are no longer
outstanding and all amounts owing to the Insurer have been paid to it, 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.
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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 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
SECTION 11.1. Supplements and Amendments. (a) Subject to Section 4.6,
this Agreement may be amended by the parties hereto, with the prior written
consent of the Insurer (so long as (i) an Insurer Default shall not have
occurred and be continuing and (ii) either the
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Class A Notes are outstanding or amounts owing to the Insurer under the
Insurance Agreement have not been paid in full) and First Union National Bank
(so long as it or any Affiliate shall hold the Class B Notes) and with prior
written notice to the Rating Agencies, but without the consent of any of the
Noteholders or, in the event that the Depositor is not the Certificateholder,
the Certificateholder, (i) to cure any ambiguity or defect or (ii) to correct,
supplement or modify any provisions in this Agreement.
(b) This Agreement may also be amended from time to time, with
the prior written consent of the Insurer (so long as (i) an Insurer Default
shall not have occurred and be continuing and (ii) either the Class A Notes are
outstanding or amounts owing to the Insurer under the Insurance Agreement have
not been paid in full) by the parties hereto, with prior written notice to the
Rating Agencies, to the extent such amendment materially and adversely affects
the interests of any Noteholder, with the consent of the Noteholders evidencing
not less than a majority of the Outstanding Amount of the Notes and, the consent
of the Certificateholder (which consent of any Noteholder or the
Certificateholder given pursuant to this Section or pursuant to any other
provision of this Agreement shall be conclusive and binding on the Noteholder
and the Certificateholder and on all future Noteholders and Certificateholders
of the Note or Certificate ( as applicable) issued upon the transfer thereof or
in exchange thereof or in lieu thereof whether or not notation of such consent
is made upon the Note or the Certificate) 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 Certificateholder; 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 Certificateholder or (b)
reduce the aforesaid percentage of the Outstanding Amount of the Notes and the
Certificate, the holders of which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes and the
Certificateholder.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish a true copy of such amendment or consent to each
Noteholder, the Certificateholder, the Trustee and each of the Rating Agencies.
Whenever an amendment requires the consent of the Certificateholder,
the Noteholders, the Insurer or the Trustee, such party or parties must approve
the particular form of such proposed amendment. The manner of obtaining such
consents (and any other consent of the Certificateholder provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by the Certificateholder 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 (which Opinion of Counsel shall be at the expense of
(i) NAFI, with respect to an amendment pursuant to clause (a) of this section
and (ii) the party requesting or responsible for such amendment, with respect to
an
35
<PAGE> 41
amendment pursuant to clause (b) of this section except if requested by the
Owner Trustee, in which case the expense shall be borne by the Trust) 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.
SECTION 11.2. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Owner Trustee (including in its
individual capacity), the Depositor, the Certificateholder, the Servicer and, to
the extent expressly provided herein, the Insurer, the Trustee, First Union
National Bank 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, 10302 Deerwood Park
Boulevard, Suite 100, Jacksonville, Florida 32256; if to the Insurer, addressed
to Insurer, Financial Security Assurance Inc., 350 Park Avenue, New York, NY
10022, Attention: Transaction Oversight, Re: National Auto Finance 1999-1 Trust,
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 Class A 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") if to any
Noteholder, to the address listed on the Note Register; or, as to each party, at
such other address as shall be designated by such party in a written notice to
each other party.
(b) Any notice required or permitted to be given to
the Certificateholder shall be given by first-class mail, postage
prepaid, at the address of the 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.
36
<PAGE> 42
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, the Noteholders and their
respective successors and permitted assigns and First Union National Bank. This
Agreement shall also inure to the benefit of the Insurer for so long as (i) an
Insurer Default shall not have occurred and be continuing and (ii) either the
Class A Notes are outstanding or amounts owing to the Insurer under the
Insurance Agreement have not been paid in full. 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
Class A Note Policy) upon delivery of a written notice to the Owner Trustee.
SECTION 11.7. No Petition. The Owner Trustee (both in its individual
capacity and as Owner Trustee), by entering into this Agreement, the
Certificateholder, by accepting the 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. The Certificateholder by accepting the
Certificate acknowledges that the Certificateholder's Certificate represents the
beneficial ownership interest in the Trust only and does not represent an
interest in or obligation 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 otherwise agreed or may be expressly set
forth or contemplated in this Agreement, the Certificate 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
37
<PAGE> 43
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.
SECTION 11.12. Instruction. National Auto Finance Company, Inc. and the
co-trustees of the Depositor, by execution of this Agreement, hereby direct
Chase Manhattan Bank Delaware, as trustee of National Financial Auto Funding
Trust, to execute and deliver this Agreement on behalf of National Financial
Auto Funding Trust.
SECTION 11.13. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and delivered
by Chase Manhattan Bank Delaware, not individually or personally but solely as
trustee of the Depositor, in the exercise of the powers and authority conferred
and vested in it under the governing instrument of the Depositor, (b) each of
the representations, undertakings and agreements herein made on the part of the
Depositor is made and intended for the purpose of binding only the Depositor and
(c) under no circumstances shall Chase Manhattan Bank Delaware be personally
liable for the payment of any indebtedness or expenses of the Depositor or be
liable for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Depositor under this Agreement.
38
<PAGE> 44
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: /s/ AUTHORIZED SIGNATURE
-------------------------
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: /s/ AUTHORIZED SIGNATURE
-------------------------
Name:
Title:
Acknowledged and Agreed:
NATIONAL AUTO FINANCE COMPANY, INC.,
Servicer and sole Certificateholder of
National Financial Auto Funding Trust
By: /s/ AUTHORIZED SIGNATURE
-------------------------
Name:
Title:
<PAGE> 45
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
TRUST AGREEMENT PERTAINING TO THE NATIONAL AUTO FINANCE 1999-1 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 (AS SUCH TERMS ARE DEFINED IN THE AGREEMENT) IS
OBLIGATED TO REGISTER THE CERTIFICATES UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAWS.
TRUST CERTIFICATE
evidencing a 100% beneficial ownership interest in the assets of the Trust, as
defined below, the property of which includes a pool of retail installment sale
contracts secured by new or used automobiles 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 the assets of National Auto Finance 1999-1 Trust (the "Trust") formed by
National Financial Auto Funding Trust, a Delaware business trust (the
"Depositor").
<PAGE> 46
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Certificate 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
September 1, 1999 (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 the duly authorized Certificate designated as a
"Trust Certificate" (herein called the "Certificate"). 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 or light duty trucks (the "Receivables"), all monies due
thereunder on or after the 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 Sale Agreement dated as of September 1, 1999 between
National Auto Funding Trust II 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 October 21, 1999, to the Person in
whose name this Certificate is registered at the close of business on the last
Business Day of the calendar month immediately preceding the month in which such
Distribution Date occurs (the "Record Date"), the amount to be distributed to
the Certificateholder 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.
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(a) of the Sale and Servicing Agreement,
such monies being held in trust for the benefit of the Class A Noteholders
<PAGE> 47
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, the Certificateholder, by acceptance
of the 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 that the Insurer shall
consider reasonably necessary in order to perfect the Trust Collateral Agent's
security interest in the Collateral.
It is the agreement and intent of the Depositor, the Servicer, and the
Certificateholder that, for purposes of income and franchise taxes, the Trust
will be treated as a security device only, or alternatively, if such
characterization is not respected for any applicable income or franchise tax
purposes, the Trust shall be treated solely for such income or franchise tax
purposes as a non-entity disregarded as an entity separate from its owner under
Treasury Regulations Section 301.7701-3(b)(ii) or any similar provision of
applicable law; provided, however, that if any Class of Notes is treated as an
equity interest in the Trust for any applicable income or franchise tax
purposes, it is the intention and agreement of the Depositor, the Servicer and
the Certificateholder that the Trust will be treated as a partnership for such
income and franchise tax purposes and the Certificateholder and the Noteholders
whose Class of Notes are treated as equity interests will be treated as partners
in the partnership. The Depositor and any other Certificateholder, by acceptance
of the Certificate, agrees to treat, and to take no action inconsistent with the
treatment of, the Certificate for such tax purposes as a partnership interest in
the Trust. The Certificateholder, by its acceptance of the Certificate,
covenants and agrees that it 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
Certificate, 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.
<PAGE> 48
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.
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.
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 1999-1 TRUST
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
Dated:
By:
----------------------------------------------------
Name:
Title:
<PAGE> 49
(Reverse of Certificate)
The Certificate does 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 the 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 Certificateholder 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 (i) no Insurer
Default has occurred and is continuing and (ii) either the Class A Notes are
outstanding or amounts owing to the Insurer under the Insurance Agreement have
not been paid in full, and with the consent of the Certificateholder and the
holders of the Notes 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 Certificateholder (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 class and 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.
The Certificate is issuable only as a registered Certificate. As
provided in the Trust Agreement and subject to certain limitations therein set
forth, the Certificate is exchangeable for a new Certificate, 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> 50
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 the
Certificateholder of all amounts required to be paid to it 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 Certificate; 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 Certificate may not be acquired by, and the Holder hereof by
holding this Certificate agrees that it is not (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"). The Holder of the interest
represented by this Certificate, and each person to whom this Certificate is
transferred, is required to represent and warrant to the Owner Trustee that it
is not a Benefit Plan.
The undersigned acknowledges and agrees that (i) it has neither
acquired nor will it transfer the Certificate or cause the Certificate to be
marketed on or through an "established securities market" within the meaning of
Section 7704(b)(1) of the Code, including, without limitation, an over-the-
counter-market or an interdealer quotation system that regularly disseminates
firm buy or sell quotations; (ii) it either (A) is not, and will not become, a
partnership, S corporation or grantor trust for U.S. federal income tax
purposes, or (B) is such an entity, but none of the direct or indirect
beneficial owners of any of the interests in such transferee have allowed or
caused, or will allow or cause, fifty percent (50%) or more of the value of such
interests to be attributable to such transferee's ownership of the Certificate;
and (iii) it understands that tax counsel to the Trust has provided an opinion
substantially to the effect that the Trust will not be treated as a publicly
traded partnership taxable as a corporation for U.S. federal income tax purposes
and that the validity of such opinion is dependent in part on the accuracy of
the representations in paragraphs (i) and (ii) above.
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
<PAGE> 51
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
____________________ 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 Exchange Act.
<PAGE> 52
EXHIBIT B
CERTIFICATE OF TRUST OF
NATIONAL AUTO FINANCE 1999-1 TRUST
This Certificate of Trust of National Auto Finance 1999-1 Trust (the
"Trust") is being duly executed and filed on behalf of the Trust by the
undersigned, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. Code, ss. 3801 et seq.) (the "Act").
1. Name. The name of the business trust formed by this
Certificate of Trust is National Auto Finance 1999-1 Trust.
2. Delaware Trustee. 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. Effective Date. This Certificate of Trust shall be
effective upon filing.
IN WITNESS WHEREOF, the undersigned, has duly executed this Certificate
of Trust in accordance with Section 3811(a)(1) of the Act.
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:
---------------------------------
Name:
Title:
<PAGE> 53
EXHIBIT C
FORM OF INVESTMENT LETTER
[LETTERHEAD OF PURCHASER]
[Date]
Wilmington Trust Company, as trustee
of National Auto Finance 1999-1 Trust
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Ladies and Gentlemen:
The undersigned (the "Purchaser") proposes to purchase the Trust
Certificate issued pursuant to that certain Trust Agreement, dated as of
September 1, 1999 (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
Certificate, 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
Certificate in the capacity marked below (check one):
[ ] The Purchaser certifies that the Purchaser is purchasing the Trust
Certificate for its own account only; or
<PAGE> 54
[ ] The Purchaser certifies that the Purchaser is purchasing the Trust
Certificate 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 Certificate.
7. The Purchaser understands and acknowledges that the Trust
Certificate has 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 Certificate is 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 Certificate 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 that it is not, and is not
acquiring the Trust Certificate 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 Code or (iii) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity.
9. The Purchaser additionally represents that (i) it has neither
acquired nor will it transfer the Trust Certificate or cause the Trust
Certificate to be marketed on or through an "established securities market"
within the meaning of Section 7704(b)(1) of the Code, including, without
limitation, an over-the-counter-market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations; (ii) it either (A) is not,
and will not become, a partnership, S corporation or grantor trust for U.S.
federal income tax purposes, or (B) is such an entity, but none of the direct or
indirect beneficial owners of any of the interests in such transferee have
allowed or caused, or will allow or cause, fifty percent (50%) or more of the
value of such interests to be attributable to such transferee's ownership of the
Trust Certificate; and (iii) it understands that tax counsel to the Trust has
provided an opinion substantially to the effect that the Trust will not be
treated as a publicly traded partnership taxable as a corporation for U.S.
federal income tax purposes and that the validity of such opinion is dependent
in part on the accuracy of the representations in paragraphs (i) and (ii) above.
Very truly yours,
[Purchaser]
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
<PAGE> 55
EXHIBIT D
FORM OF TRANSFEREE REPRESENTATION LETTER
<PAGE> 1
EXHIBIT 10.114
- --------------------------------------------------------------------------------
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 SEPTEMBER 1, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated as of September 1, 1999 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 Amended
and Restated Pooling and Administration Agreement, dated as of December 8, 1994
(as amended and restated, 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: September 24, 1999.
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.
2
<PAGE> 3
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 A 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 (including the receipt of the Purchase Price defined below), 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 A, (ii) all
monies paid or payable thereunder on or after August 31, 1999 (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
3
<PAGE> 4
equal to $51,000,000 in 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 is in effect with respect to any securities
issued by Funding Trust II or any trust of which Funding Trust II or National
Financial Auto Funding Trust 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 Section 2.2(b) to be delivered to Harris Trust and Savings
Bank ("Harris Trust") in its capacity as the Trust Collateral Agent under the
Sale and Servicing Agreement, dated as of September 1, 1999 (the "Sale and
Servicing Agreement"), among National Auto Finance 1999-1 Trust, National
Financial Auto Funding Trust ("Funding Trust I"), NAFI and Harris Trust.
(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.
4
<PAGE> 5
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, as Trust Collateral
Agent under the Sale and Servicing Agreement.
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 Market Street
Wilmington, Delaware 19801
Attn: Corporate Trust Administration Department
Telecopier No.: (302) 984-4903
Confirmation: (302) 428-3372
5
<PAGE> 6
If to Financial Security Assurance Inc.:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Transaction Oversight Department
Re: National Auto Finance 1999-1 Trust 7.26%
Automobile Receivables-Backed Notes, Class A
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
September 1, 1999 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 1999-1 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,
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.
6
<PAGE> 7
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.
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 the Control Party, to cure
any ambiguity or to correct any provisions in this Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment 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: /s/ JOHN J. CASHIN
------------------------------------
Name: John J. Cashin
Title: Vice President
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: /s/ PATRICIA M. F. RUSSO
------------------------------------
Name: Patricia M. F. Russo
Title: Vice President
<PAGE> 1
EXHIBIT 10.115
SERIES 1999-1 SUPPLEMENT
dated as of September 1, 1999
to the
FIRST AMENDED AND RESTATED MASTER SPREAD ACCOUNT AGREEMENT
dated as of March 31, 1998
among
NATIONAL FINANCIAL AUTO FUNDING TRUST,
as the Transferor,
FINANCIAL SECURITY ASSURANCE INC.,
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee and Collateral Agent
<PAGE> 2
SERIES 1999-1 SUPPLEMENT (the "Supplement"), dated as of
September 1, 1999 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 ("Harris Trust and Savings
Bank"), in its capacity as Trustee and Trust Collateral Agent under the Series
1999-1 Indenture referred to below (in such capacity, the "Trustee") and as
Collateral Agent under the FIRST AMENDED AND RESTATED MASTER SPREAD ACCOUNT
AGREEMENT, dated as of March 31, 1998, among the parties thereto (the "Master
Agreement"), as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof, to
the Master Agreement. Capitalized terms used in this Supplement and not
otherwise specifically defined shall have the meaning given such term in the
Master Agreement.
RECITALS
1. The parties hereto have executed the Master Agreement,
which contemplates and provides for the execution of individual Series
Supplements with respect to Series issued pursuant to Securitization
Agreements, for the purpose of identifying, describing, and pledging Collateral
related to a particular Series.
2. National Auto Finance 1999-1 Trust, a Delaware Business
trust (the "Series 1999-1 Trust"), was formed pursuant to an Amended and
Restated Trust Agreement, dated as of September 1, 1999 (as the same may be
amended and restated, amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof, the "Series 1999-1 Trust
Agreement"), between the Transferor and Wilmington Trust Company, as owner
trustee.
3. Pursuant to a Sale and Servicing Agreement, dated as of
September 1, 1999 (as the same may be amended, amended and restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, the "Series 1999-1 Sale and Servicing Agreement"), by and among
the Series 1999-1 Trust, the Transferor, National Auto Finance Company, Inc.
("NAFI"), as the Servicer, and Harris Trust and Savings Bank, as the Trust
Collateral Agent and Backup Servicer, the Transferor is selling the Trust
Property to the Series 1999-1 Trust on the Series 1999-1 Closing Date. Pursuant
to the Indenture, dated as of September 1, 1999 (as the same may be amended and
restated, amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, the "Series 1999-1 Indenture" and, together
with the Series 1999-1 Trust Agreement and the Series 1999-1 Sale and Servicing
Agreement, the "Series 1999-1 Securitization Agreements"), the Series 1999-1
Trust is granting a security interest in the Series 1999-1 Collateral to the
Trustee on behalf of the Noteholders and Financial Security. Also pursuant to
the Series 1999-1 Indenture, the Series 1999-1 Trust is issuing $48,000,000
aggregate principal amount of 7.26% Class A Automobile Receivables-Backed Notes
and $3,000,000 aggregate principal amount of 11.13% Class B Automobile
Receivables-Backed Notes.
4. The Transferor has requested that Financial Security issue
the Series 1999-1 Note Policy to the Trustee to guarantee payment of the
Scheduled Payments (as defined in the Series 1999-1 Note Policy) on each
Distribution Date in respect of the Series 1999-1 Notes.
5. In partial consideration of the issuance of the Series
1999-1 Note Policy, the Transferor agreed that Financial Security shall have
certain rights as Controlling Party, to the
<PAGE> 3
extent set forth herein with respect to the Receivables and other property
constituting the Trust Property.
6. As contemplated by Section 2.02 of the Master Agreement,
this Series 1999-1 Supplement constitutes a Series Supplement to the Master
Agreement so that hereafter this Series 1999-1 Supplement shall form a part of
the Master Agreement for all purposes thereof, and all references herein and
hereafter to the Master Agreement shall mean the Master Agreement, as
supplemented hereby.
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. Each term used but not defined herein shall
have the meaning assigned to such term in the Master Agreement or in the Series
1999-1 Sale and Servicing Agreement, as applicable.
"Controlling Party" means with respect to Series 1999-1, the
Person designated as the Controlling Party pursuant to Section 6.01 of the
Master Agreement.
"Eligible Account" has the meaning set forth for "Eligible
Deposit Account" in the Series 1999-1 Sale and Servicing Agreement.
"Initial Spread Account Deposit" means, with respect to
Series 1999-1, an amount equal to $2,400,009.00.
"NAFI" has the meaning specified in the third recital hereof.
"Permitted Investment" has the meaning set forth for
"Eligible Investment" in the Series 1999-1 Sale and Servicing Agreement.
"Requisite Amount" means, with respect to the Series 1999-1
Notes, as of any Reporting Date after giving effect to any distributions of
principal on Series 1999-1 to be made on the related Distribution Date, the
greater of (a) the sum of (1) the greater of (i) 8% of the Series 1999-1 Pool
Balance; provided however, 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, 12%
of the Series 1999-1 Pool Balance as of such Reporting Date, and (ii) the
lesser of (A) the greater of (I) the outstanding principal amount of the Series
1999-1 Pool Balance as of such Reporting Date after giving effect to any
distributions of principal to be made thereon on the related Distribution Date
and (II) $100,000 and (B) 3.5% of the initial Pool Balance, provided, if (x)
the Transferor has deposited in the Collection Account an amount equal to the
aggregate Purchase Amount for the Receivables pursuant to Section 11.1 of the
Series 1999-1 Sale and Servicing Agreement on or prior to such Reporting Date,
(y) the Notes have been redeemed for an amount equal to the Redemption Price
pursuant to Section 10.1 of the Series 1999-1 Indenture on or prior to such
Reporting Date and all
<PAGE> 4
amounts due and payable on the Notes as of such Reporting Date have been fully
paid and (z) all Secured Obligations due and payable to Financial Security and
the Trustee as of such Reporting Date have been fully paid, then for purposes
of this clause (a) the Requisite Amount shall be an amount equal to $100,000 as
of such Reporting Date and (2) an amount equal to the product of (i) the Class
B Interest Rate, (ii) the Class B Note Balance as of the preceding Reporting
Date, after giving effect to any distributions on such related Distribution
Date, and (iii) 1.43 and (b) if an Insurance Agreement Event of Default shall
have occurred as of such Reporting Date, an unlimited amount.
"Security Interests" means, with respect to the Series 1999-1
Notes, the security interests and liens in the Series 1999-1 Collateral granted
pursuant to Section 2.3 hereof.
"Series 1999-1 Balance" means, with respect to any Reporting
Date, the Pool Balance as of the last day of the related Due Period.
"Series 1999-1 Certificates" means the Trust Certificates.
"Series 1999-1 Closing Date" means September 24, 1999.
"Series 1999-1 Collateral" has the meaning specified in
Section 2.3 hereof.
"Series 1999-1 Indenture" has the meaning set forth in the
third recital hereof.
"Series 1999-1 Initial Balance" means $ 60,000,212.88.
"Series 1999-1 Insurance Agreement" means the Insurance
Agreement related to Series 1999-1.
"Series 1999-1 Insurer Secured Obligations" means the Insurer
Secured Obligations with respect to Series 1999-1.
"Series 1999-1 Note Policy" means the Note Policy issued with
respect to the Series 1999-1 Notes.
"Series 1999-1 Notes" or "Series 1999-1" means the 7.26%
Class A Automobile Receivables-Backed Notes issued pursuant to the Series
1999-1 Indenture.
"Series 1999-1 Release Amounts" means the amounts distributed
to the Series 1999-1 Reversionary Holder pursuant to Section 5.7 of the Series
1999-1 Sale and Servicing Agreement and Section 5.6 of the Series 1999-1
Indenture.
"Series 1999-1 Reversionary Holder" has the meaning specified
in Section 2.1 hereof.
"Series 1999-1 Sale and Servicing Agreement" has the meaning
set forth in the third recital hereof.
"Series 1999-1 Secured Obligations" means the Secured
Obligations related to the Series 1999-1 Notes.
"Series 1999-1 Securitization Agreements" has the meaning set
forth in the third recital hereof.
<PAGE> 5
"Series 1999-1 Spread Account" has the meaning set forth in
Section 3.1(a) hereof.
"Series 1999-1 Trust" has the meaning set forth in the second
recital hereof.
"Series 1999-1 Trust Agreement" has the meaning set forth in
the second recital hereof.
"Series 1999-1 Trust Property" means the Trust Property with
respect to Series 1999-1, as described in the Series 1999-1 Sale and Servicing
Agreement.
"Series of Notes" or "Series" means the Series 1999-1 Notes
or, as the context may require, any other series of certificates or notes
issued or arising as described in Section 2.02 of the Master Agreement, or
collectively, all such series.
"Standby Servicer" has the meaning set forth for "Backup
Servicer" in the Series 1999-1 Sale and Servicing Agreement.
"Trigger Event" means, with respect to the Series 1999-1
Notes, as of any Reporting Date with respect to the Series 1999-1 Notes 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 November 2000
Distribution Date, the Average Delinquency Ratio is equal to or greater than 9%
or (ii) as of such Reporting Date after the November 2000 Distribution Date,
the Average Delinquency Ratio is equal to or greater than 11%, or (b) as of
such Reporting Date (i) occurring before the November 2000 Distribution Date,
the Average Default Rate is equal to or greater than 19% or (ii) occurring
after the November 2000 Distribution Date, the Average Default Rate is equal to
or greater than 16.5% or (c) as of such Reporting Date (i) occurring before the
November 2000 Distribution Date, the Average Net Loss Rate is equal to or
greater than 10%, (ii) occurring after the November 2000 Distribution Date, the
Average Net Loss Rate is equal to or greater than 8.5%.
Section 1.2 Rules of Interpretation. The terms "hereof," "herein" or
"hereunder," unless otherwise modified by more specific reference, shall refer
to this Series 1999-1 Supplement 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
Series 1999-1 Supplement. 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.
ARTICLE II
THE SERIES 1999-1 REVERSIONARY HOLDER;
SERIES SUPPLEMENTS; THE COLLATERAL
Section 2.1 Reversionary Holder. The Transferor, as agent of the
Series 1999-1 Reversionary Holder, hereby agrees with the Trustee and with
Financial Security that payment of the Series 1999-1 Release Amounts to the
Series 1999-1 Reversionary Holder is expressly conditioned on subordination of
the Series 1999-1 Collateral to payments of interest and principal on the
Series 1999-1 Notes, payments of amounts due to Financial Security and the
other obligations of the Trust, in each case to the extent provided in Section
5.7 of the Series 1999-1
<PAGE> 6
Sale and Servicing Agreement, Section 5.6 of the Indenture and Section 3.03 of
the Master Agreement, and the Security Interests of the Secured Parties in the
Series 1999-1 Collateral are intended to effect and enforce such subordination
and to provide security for the Series 1999-1 Secured Obligations. With respect
to Series 1999-1, the Reversionary Holder (the "Series 1999-1 Reversionary
Holder") shall be the holders of the Series 1999-1 Class B Notes.
Section 2.2 Series Supplements. As provided in and subject to the
conditions specified in Section 2.02 of the Master Agreement, the parties
hereto are entering into this Series 1999-1 Supplement with respect to the
Series 1999-1 Notes.
Section 2.3 Grant of Security Interest by the Transferor.
(a) To secure the performance of the Series 1999-1 Secured Obligations
and the Secured Obligations with respect to each other Series, to the extent
provided herein and in the Master Agreement, the Transferor, 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 1999-1 Collateral" and
constituting Collateral under the Master Agreement):
(i) the amounts distributed to the Series 1999-1 Spread
Account pursuant to Section 5.7 of the Series 1999-1 Sale and Servicing
Agreement and Section 5.6 of the Indenture and all rights and remedies
that the Transferor may have to enforce such distributions, whether
under the Series 1999-1 Securitization Agreements or otherwise;
(ii) the Series 1999-1 Spread Account established pursuant to
Section 3.1 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
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 1999-1 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 Series 1999-1
Supplement, including for the purpose of perfecting the security interests
granted hereunder, the Transferor represents and warrants that it has, prior to
the execution of this Series 1999-1 Supplement, executed and filed, on or prior
to the Series 1999-1 Closing Date, appropriate Uniform Commercial Code
financing statements in the State of Illinois in form sufficient to assure that
upon the filing of such financing statement the Collateral Agent, as agent for
the Secured Parties, will have a first priority perfected security interest in
all Series 1999-1 Collateral which can be perfected by the filing of a
financing statement.
<PAGE> 7
ARTICLE III
SPREAD ACCOUNTS
Section 3.1 Establishment of Series 1999-1 Spread Account; Initial
Spread Account Deposit into Spread Account.
(a) On or prior to the Series 1999-1 Closing Date, the Collateral
Agent established with respect to Series 1999-1, at its office or at another
depository institution or trust company an Eligible Account, designated,
"Spread Account - National Auto Finance 1999-1 Trust - Harris Trust and Savings
Bank, as Collateral Agent for Financial Security Assurance Inc. and another
Secured Party" (the "Series 1999-1 Spread Account").
On the Closing Date with respect to Series 1999-1, the Collateral Agent
deposited the Initial Spread Account Deposit received from the Transferor into
the Series 1999-1 Spread Account.
ARTICLE IV
CONDITION TO EFFECTIVENESS; DATE OF EFFECTIVENESS
Section 4.1 Execution and Delivery. This Series 1999-1 Supplement
shall become effective as of the date hereof upon the 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 Series 1999-1 Supplement hereby acknowledge that Financial Security is
the Controlling Party with respect to Series 1999-1.
ARTICLE V
MISCELLANEOUS
Section 5.1 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 herein, as may be reasonably
requested or required to effectuate the purpose or provisions of this Series
1999-1 Supplement or to confirm or perfect any transaction described or
contemplated herein.
Section 5.2 Governing Law. This Series 1999-1 Supplement 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.
Section 5.3 Counterparts. This Series 1999-1 Supplement may be
executed in two or more counterparts by the parties hereto, and each such
counterpart shall be considered and original and all such counterparts shall
constitute one and the same instrument.
Section 5.4 Headings. The headings of sections and paragraphs
and the Table of Contents contained in this Series 1999-1 Supplement are
provided for convenience only. They form no part of this Series 1999-1
Supplement and shall not affect its construction or interpretation.
<PAGE> 8
Section 5.5 Ratification. The covenants, representations and
agreements provided for in the Master Agreement are hereby in all respects
ratified, confirmed and approved by the parties hereto and made applicable to
this Series 1999-1 Supplement.
Section 5.6 Limited Liability. It is expressly understood and agreed
by the parties hereto that (a) this Series 1999-1 Supplement is executed and
delivered by Chase Manhattan Bank Delaware, not individually or personally but
solely as trustee of the Transferor, in the exercise of the powers and
authority conferred and vested in it under the Trust Agreement, (b) each of the
representations, undertakings and agreements herein made on the part of the
Transferor is made and intended not as personal representations, undertakings
and agreements by Chase Manhattan Bank Delaware, but is made and intended for
the purpose of binding only the Transferor and (c) under no circumstances shall
Chase Manhattan Bank Delaware, be personally liable for the payment of any
indebtedness or expenses of the Transferor or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or
undertaken by the Transferor under this Series 1999-1 Supplement or the other
Transaction Documents.
[Remainder of Page Intentionally Left Blank]
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Series
1999-1 Supplement as of the date set forth on the first page hereof.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By: CHASE MANHATTAN BANK DELAWARE,
not in its individual capacity
but solely as owner trustee of
National Financial Auto
Funding Trust
By: /s/ DENIS KELLY
------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
HARRIS TRUST AND SAVINGS BANK, as Trustee
By: /s/ KEITH RICHARDSON
------------------------------------
Name: Keith Richardson
Title: Assistant Vice President
HARRIS TRUST AND SAVINGS BANK, as
Collateral Agent
By: /s/ KEITH RICHARDSON
------------------------------------
Name: Keith Richardson
Title: Assistant Vice President
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ AUTHORIZED SIGNATURE
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.116
AGREEMENT FOR MONITORING AND BACKUP SERVICING
THIS AGREEMENT FOR MONITORING AND BACKUP SERVICING, dated as of
September 1, 1999 (as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time in accordance with the terms
hereof, this "Agreement"), among National Auto Finance Company, Inc. ("NAFI" or
the "Servicer," formerly National Auto Finance Company L.P.), CSC Logic/MSA LLP
d/b/a Loan Servicing Enterprise, a Texas limited liability partnership ("LSE",
or the "Backup Servicer"), and FINANCIAL SECURITY ASSURANCE INC., a monoline
insurance company incorporated under the laws of the State of New York, as
certificate insurer or insurer, as applicable ("Insurer" or "FSA").
W I T N E S S E T H
WHEREAS, the parties enter into this Agreement with respect to and in
connection with the Sale and Servicing Agreement, dated as of September 1, 1999,
among National Financial Auto Funding Trust, NAFI, Harris Trust and Savings
Bank, as Trust Collateral Agent and Backup Servicer ("Harris") and the National
Auto Finance 1999-1 Trust (the "Trust"), (such agreement, as may be amended,
supplemented, amended and restated or otherwise modified from time to time in
accordance with the terms thereof, the "Sale and Servicing Agreement"); and
WHEREAS, Harris serves as backup servicer under the Sale and Servicing
Agreement (in such capacity, the "S&SA Backup Servicer"); and
WHEREAS, the parties to this Agreement desire to appoint LSE as backup
servicer with respect to the Trust; and
WHEREAS, LSE desires to be appointed as backup servicer in accordance
with the terms hereof; and
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms. Capitalized terms used but not defined
herein shall have the respective meanings assigned to them as set forth in the
Sale and Servicing
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Agreement. Wherever used in this Agreement, the following words and phrases
shall have the following meanings:
"Backup Servicer" or "LSE" means CSC Logic/MSA LLP d/b/a Loan Servicing
Enterprise, a Texas registered limited liability partnership, in its capacity as
backup servicer hereunder.
"Collection Records" means all manually prepared or computer generated
records related to collection efforts or payment histories with respect to the
Receivables.
"Controlling Class" means holders of not less than 51% of the
outstanding balance of the Class A Notes, or if the Class A Notes are not
outstanding, holders of not less than 51% of the outstanding balance of the
Class B Notes.
"Controlling Party" means (x) the Insurer, so long as (i) the Class A
Notes shall be outstanding or amounts owing to the Insurer have not been paid to
it and (ii) no Insurer Default shall have occurred and be continuing, and (y)
the Controlling Class, in the event (i) the Class A Notes shall no longer be
outstanding, all amounts owing to the Insurer have been paid to it and the term
of the Class A Note Policy shall have expired or (ii) an Insurer Default shall
have occurred and be continuing.
"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.
"Draw Date" means with respect to any Distribution Date, the fourth
Business Day immediately preceding such Distribution Date.
"Due Period" means with respect to any 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.
"Independent Accountants" means a firm of nationally recognized
independent certified public accountants.
"Insurer" means Financial Security Assurance Inc., a monoline insurance
company incorporated under the laws of the State of New York, or any successor
or assign thereto.
"Insurer Default" means an Insurer Default (as defined in the Sale and
Servicing Agreement).
"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; the name,
address and telephone number
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of the co-borrower, if any; original Principal Balance; original term; Annual
Percentage Rate; current Principal Balance; current remaining term; origination
date; first payment date; a field identifying each contract as either a simple
interest or Rule-of-78's contract; final scheduled payment date; next payment
due date; date of most recent payment; new/used classification; collateral
description, including vehicle identification, make, model and year; days
currently delinquent; number of contract extensions to date; amount of Scheduled
Payment (as defined in the Sale and Servicing Agreement); current Insurance
Policy (as defined in the Sale and Servicing Agreement); expiration date; and
past due late charges.
"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.
"Policy" means the Note Policy (as defined in the Sale and Servicing
Agreement).
"Principal Balance" means Principal Balance (as defined in the Sale and
Servicing Agreement).
"Receivable" means a Receivable (as defined in the Sale and Servicing
Agreement).
"S&SA Backup Servicer" means Harris Trust and Savings Bank in its
capacity as the backup servicer under the Sale and Servicing Agreement.
"Servicer" means National Auto Finance Company, Inc., a Delaware
corporation with its corporate headquarters in Jacksonville, Florida.
"Servicer Termination Event" means a Servicer Termination Event (as
defined in the Sale and Servicing Agreement).
"Servicer's Certificate" means the monthly certificate or report
delivered by the Servicer with respect to the Receivables on or prior to each
Reporting Date substantially in the form attached as Exhibit B to the Sale and
Servicing Agreement.
"Servicing Transfer Date" means the agreed upon date on which the
Backup Servicer assumes all rights, responsibilities, and duties of the
Servicer.
"Servicing Transfer Notification" shall have the meaning set forth in
Section 3.01 of this Agreement.
"Spread Account Amount" means those amounts on deposit in the Spread
Account established in accordance with the Sale and Servicing Agreement.
"Transaction Documents" shall have the meaning assigned to it in the
Sale and Servicing Agreement.
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"Trust" shall have the meaning set forth in the Sale and Servicing
Agreement.
"Trustee" or "Trust Collateral Agent" means Harris Trust and Savings
Bank in its capacity as Trustee or Trust Collateral Agent, as applicable, under
the Sale and Servicing Agreement.
ARTICLE II
OVERSIGHT OF SERVICING
Section 2.01 Requirements of Servicer and Backup Servicer; Monthly
Tape.
(a) On or before the fourth Business Day, but in no event
later than the fifth calendar day, of each month, commencing in October 1999,
the Servicer will deliver to each of the Trustee, the Insurer (upon request),
such Noteholders holding 5% or more of the Note Balance of any Class of Notes
(upon written request) and the Backup Servicer a computer tape or a diskette (or
any other electronic transmission acceptable to each of the Trustee, the Insurer
(if requested by the Insurer) and the Backup Servicer) in a format acceptable to
each of the Trustee, the Backup Servicer and the Insurer (if requested by the
Insurer) containing the information with respect to the Receivables as of the
preceding Determination Date (the "Monthly File") necessary for preparation of
the Servicer's Certificate relating to the immediately succeeding Reporting Date
and necessary to determine the application of the collections as provided in the
Sale and Servicing Agreement. The Backup Servicer shall use the information
contained in the Monthly File to verify the Servicer's Certificate delivered by
the Servicer pursuant to the Sale and Servicing Agreement, and commencing in
October 1999, the Backup Servicer shall notify the Servicer of any discrepancies
within three Business Days of receipt by the Backup Servicer of such Servicer's
Certificate. In the event that the Backup Servicer reports any discrepancies,
the Servicer and the Backup Servicer shall attempt to reconcile any material
discrepancies prior to the related Distribution Date; provided, however, that in
the absence of a reconciliation prior to the related Draw Date, the Backup
Servicer shall certify to the Controlling Party and the Trustee on such Draw
Date that such discrepancies remain unreconciled. In the absence of a
reconciliation prior to the related Distribution Date, the applicable Servicer's
Certificate shall control for the purpose of calculations and distributions with
respect to such related Distribution Date. In the event that the Backup Servicer
and the Servicer are unable to reconcile discrepancies with respect to a
Servicer's Certificate by the related Distribution Date, the Servicer shall
cause the Independent Accountants, at the Servicer's expense, to audit such
Servicer's Certificate and, prior to the Distribution Date for the month
following the month in which such Servicer's Certificate was delivered,
reconcile the discrepancies. The effect, if any, of such reconciliation shall be
reflected in the Servicer's Certificate next succeeding the Servicer's
Certificate with respect to which such discrepancies were noted. In addition,
upon the occurrence of a Servicer Termination Event the Servicer shall, if so
requested by the Controlling Party or the Backup Servicer, deliver to the
Controlling Party (if requested by the Controlling Party) and Backup Servicer
(i) within three Business Days of demand
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<PAGE> 5
therefore a computer tape or a diskette (or any other electronic transmission
acceptable to the Controlling Party (if requested by the Controlling Party) and
the Backup Servicer) in a format acceptable to the Controlling Party (if
requested by the Controlling Party) and the Backup Servicer containing as of the
close of business on the date of demand all of the data maintained by the
Servicer in computer format in connection with servicing the Receivables and
(ii) within five (5) calendar days true and correct copies of all other
Collection Records and Monthly Records. Other than the duties specifically set
forth in this Agreement, the Backup Servicer shall have no obligations
hereunder, including, without limitation, to supervise, verify, monitor or
administer the performance of the Servicer. The Backup Servicer shall have no
liability for any actions taken or omitted by the Servicer. With respect to
Section 4.15 of the Sale and Servicing Agreement, this section shall apply in
substitution and replacement of such sections for purposes of such Sale and
Servicing Agreement.
(b) The Servicer's performance of its obligations under this
Agreement shall in no way relieve the Servicer of its obligations under the
Servicing Agreements.
(c) The Backup Servicer's performance of its obligations under
this Agreement shall in no way relieve the Servicer of its obligations under the
Sale and Servicing Agreement or relieve the S&SA Backup Servicer of its
obligations under the Sale and Servicing Agreement.
(d) The Backup Servicer shall consult fully with the Servicer
as may be necessary from time to time to perform or carry out the Backup
Servicer's obligations hereunder and Servicer shall cooperate with the Backup
Servicer in such consultation. The Servicer shall execute, deliver and/or
provide to the Backup Servicer from time to time as requested by the Backup
Servicer or Controlling Party such documents, tapes or materials as shall be
reasonably necessary or desirable for the Backup Servicer to perform its duties
hereunder and to complete any servicing transaction or transfer contemplated
hereby.
Section 2.02 Duties of the Backup Servicer. In addition to, and not in
limitation of, the duties otherwise required by this Agreement, the Backup
Servicer agrees to perform the duties specified in Exhibit A hereto.
Section 2.03 Authority of the Backup Servicer. In performing its duties
hereunder, the Backup Servicer shall have full power and authority to do or
cause to be done any and all things in connection with such backup servicing and
administration which it may deem necessary or desirable in the best interest of
the Trustee, Insurer and the Servicer, to the extent that such interest does not
conflict with the interest of the Trustee or the Insurer. In the event that
Backup Servicer, in its sole discretion, determines that there is a conflict of
interest between the Trustee, the Insurer and the Servicer, the Backup Servicer
shall defer to the interests of the Trustee and the Insurer.
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<PAGE> 6
Section 2.04 Pre-Transfer Standard of Care. In performing its duties
and obligations hereunder pursuant to this Agreement prior to a transfer of
servicing, the Backup Servicer will comply with all applicable state and federal
laws and will exercise that degree of skill and care consistent with the degree
of skill and care that the Backup Servicer exercises in its capacity as backup
servicer in similar transactions and, if more exacting, with prudent industry
standards for backup servicers performing only the functions set forth herein,
and will apply in performing such duties and obligations, those standards,
policies and procedures consistent with the standards, policies and procedures
the Backup Servicer applies in its capacity as backup servicer in similar
transactions and the standards, policies and procedures giving due consideration
and, if more exacting, to the prudent industry standards for backup servicers
performing only the functions set forth herein. In performing its duties and
obligations hereunder, the Backup Servicer shall maintain all state and federal
licenses, permits, qualifications and franchises necessary for it to perform its
servicing responsibilities hereunder, and shall not impair the rights of Trustee
or the Trust in the Receivables.
Section 2.05 Reliance; Duty to Examine Liability. (a) In the absence of
bad faith, gross negligence or willful misconduct on its part, the Backup
Servicer may conclusively rely on the written advice of counsel (and shall be
fully protected in such reliance) respecting any matters arising under this
Agreement or any other Transaction Documents and, as to the truth of the
statements in any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement or
the Sale and Servicing Agreement or any other Transaction Documents 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 (other than the Servicer's Certificate, the Backup Servicer's
obligations with respect to which are set forth in Section 2.01 hereof); but in
the case 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 hereof.
(b) The Backup Servicer in its capacity as such shall not be
required to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or under the Sale and
Servicing Agreement, or in the exercise of any of its rights or powers in its
capacity as the Backup Servicer, 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 in this Agreement to the contrary,
the Backup Servicer in its capacity as such shall not be liable for any
obligation of the Servicer contained in this Agreement or the Sale and Servicing
Agreement and the Insurer shall look only to the Servicer to perform such
obligations. The Backup Servicer in its capacity as such shall perform such
duties and only such duties as are specifically set forth in this Agreement and
shall not be bound by the terms of the Sale and Servicing Agreement or any other
Transaction Documents.
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(c) The Backup Servicer in its capacity as such shall not be
under any obligations to appear in, prosecute or defend any legal action 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 in its capacity as such 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.
(d) Neither the Backup Servicer in its capacity as such nor
any of its officers, directors, employees or agents shall be liable for any
action taken or omitted under this Agreement or in connection therewith except
to the extent caused by the Backup Servicer's gross negligence, bad faith or
willful misconduct. Each party hereto (for itself and any person or entity
claiming through it) hereby releases, waives, discharges, exculpates and
covenants not to sue the Backup Servicer in its capacity as such for any action
taken or omitted under this Agreement except to the extent caused by the Backup
Servicer's gross negligence, bad faith or willful misconduct.
(e) The Backup Servicer in its capacity as such will not be
responsible for delays attributable to the Servicer's failure to deliver
information, defects in the information supplied by the Servicer or other
circumstances beyond the control of the Backup Servicer. The Backup Servicer in
its capacity as such shall have no responsibility, shall not be in default and
shall incur no liability (i) for any act or failure to act by any third party,
including the Servicer or the Controlling Party, or for any inaccuracy or
omission in a notice or communication received by the Backup Servicer from any
third party or (ii) which is due to or results from the invalidity or
unenforceability of any Receivable or noncompliance of the underlying contract
with applicable law or the breach or the inaccuracy of any representation or
warranty made with respect to any Receivable.
Section 2.06 Backup Servicing Fee.
(a) The Backup Servicer shall be paid a one-time acceptance
fee of $1,000 payable by Servicer on the date hereof.
(b) For initial General Setup, as set forth in Exhibit A,
Backup Servicer shall be owed a one-time fee of 6,500, payable by Servicer on
the date hereof.
(c) Legal fees of the Backup Servicer associated solely with
the drafting and negotiating of this Agreement will be charged and paid by
Servicer at the actual cost to the Backup Servicer, a maximum of which shall be
$5,000.
(d) The Servicer shall be charged and shall pay to the Backup
Servicer a monthly fee at a rate of $1,000 per month for the Trust pursuant to
the Sale and Servicing
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Agreement for the services provided by the Backup Servicer under Section 2.01
above and Exhibit A. Any monthly fee assessed pursuant to this subsection (e)
includes a total of fifteen (15) hours of technical support, per Trust, of
Backup Servicer's personnel time. For Backup Servicer personnel time in excess
of such fifteen (15) hours, the Backup Servicer will be entitled to charge the
Servicer its then prevailing hourly rate; provided, however, that the Backup
Servicer will notify the Servicer when the Backup Servicer has performed ten
(10) hours of such work. The Backup Servicing Fee shall be payable monthly by
the 21st day following the Due Period for which the charges relate. In the event
payment is not received within 30 days of the Distribution Date, an interest
charge of 1.5% per month on any outstanding balance will incur.
(e) In the event of a Servicing Transfer Notification in
Section 3.01 (as hereinafter defined), from and after the date the Backup
Servicer assumes the servicing duties pursuant to the terms of Section 3.01, the
backup servicing fee will no longer accrue or be owed by Servicer to LSE;
provided, however, that all fees owed to Backup Servicer have been paid current.
ARTICLE III
TRANSFER OF SERVICING
SECTION 3.01 Backup Servicer Assumption of Servicer Duties.
(a) Upon the occurrence of a Servicer Termination Event and at
the written request of the Controlling Party and with the reasonable cooperation
of the Servicer, the Backup Servicer will convert the existing Receivables to
the Backup Servicer's systems and commence servicing of the Receivables. The
Controlling Party and the Backup Servicer shall mutually agree upon a date (the
"Servicing Transfer Date") on which the Servicer will cease all servicing
activities and on which the Backup Servicer shall assume all servicing duties
and shall provide the Trustee with written notification of such Servicing
Transfer Date; provided that, the Backup Servicer shall be required to agree to
a date proposed by the Controlling Party which is within 45 calendar days of the
date of receipt of a Servicing Transfer Notice (the "Maximum Transfer Date"). It
is intended that no later than the Servicing Transfer Date, the Controlling
Party and LSE (along with such other parties as are necessary to effectuate such
agreement) shall enter into a mutually satisfactory servicing agreement under
which LSE will service the existing Receivables; provided however, that if by
the Maximum Transfer Date such parties shall not have entered into such an
agreement, then from the Maximum Transfer Date until such date as such an
agreement is entered into, the Backup Servicer shall service the Receivables
substantially in accordance with the terms and conditions with respect to LSE as
successor servicer and to those methods described in the Assumption Agreement,
dated as of March 1, 1999, by and among LSE, OHA Auto Receivables, Inc. ("OHA")
and Norwest Bank, National Association ("Norwest"), relating to the Pooling and
Servicing Agreement dated as of May 26, 1998 by and among OHA, OHA Financial,
Inc. and Norwest.
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(b) The Servicer agrees to cooperate fully and promptly in
providing the Backup Servicer with such information as is necessary for the
Backup Servicer to assume the servicing duties pursuant to this Section 3.01 and
will provide reasonable access to the Servicer's premises as requested by the
Backup Servicer or the Controlling Party in connection with such conversion. LSE
will promptly notify the Controlling Party and the Trustee of any failure of the
Servicer to cooperate and LSE shall not be liable to any party for a failure to
complete its timely assumption of servicing duties if such failure is the result
of such failure of the Servicer to cooperate.
SECTION 3.02 Indemnity to Backup Servicer. The Backup Servicer will be
indemnified from and against all claims, damages, losses or expenses reasonably
incurred by the Backup Servicer (including reasonable attorneys' fees and
expenses), arising out of claims asserted against the Backup Servicer by third
parties arising out of or based upon any matter related to or arising out of
this Agreement to the extent the act or omission giving rise to the claim occurs
before the Servicing Transfer Date, except for any claims, damages, losses or
expenses arising from the Backup Servicer's own gross negligence, bad faith or
willful misconduct. All amounts due to the Backup Servicer as indemnification
pursuant to this Section 3.02 shall be payable (i) first, by the Servicer; and
(ii) second, from the Spread Account Amounts.
SECTION 3.03 Indemnity by Backup Servicer. The Backup Servicer will
indemnify the Servicer, the Trustee and the Insurer from and against all claims,
damages, losses or expenses reasonably incurred by the Servicer, the Trustee or
the Insurer (including reasonable attorneys' fees), arising out of claims
asserted against the Servicer, the Trustee or the Insurer by third parties
arising out of or based upon the Backup Servicer's negligence or wrongful acts
only to the extent the act or omission giving rise to the claim occurs before
the Servicing Transfer Date, except for any claims, damages, losses or expenses
arising from the Servicer's or the Trustee's own negligence or the Insurer's own
gross negligence, bad faith or willful misconduct.
SECTION 3.04 Conversion and Post-Conversion Fees. The Backup Servicer
shall be paid on the Servicing Transfer Date a portfolio conversion fee of an
amount per then outstanding active loan to be mutually agreed upon by the
Controlling Party and the Backup Servicer at the time of such conversion. After
the Servicing Transfer Date and pursuant to any mutually satisfactory servicing
agreement executed pursuant to Section 3.01, LSE shall be paid a monthly ongoing
servicing fee as more fully set forth in such servicing agreement.
SECTION 3.05 Limitation of Liability. In conjunction with the
conversion, upon the occurrence of a Servicing Termination Event, LSE is
authorized to accept and rely (except to the extent that management personnel of
the Backup Servicer have actual knowledge of the inaccuracy thereof) on all the
accounting, records and work of the
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Servicer, and LSE shall have no duty, responsibility, obligation, or liability
(collectively, "Liability") for the acts or omissions of Servicer.
SECTION 3.06 Continued Errors. Except as provided in this Agreement,
LSE may accept and reasonably rely on all accounting, records and work of the
Servicer without audit, and LSE shall have no Liability for the acts or
omissions of the Servicer. If any error, inaccuracy or omission (collectively,
"Errors") exists in any information received from the Servicer, and such Errors
should cause or materially contribute to LSE making or continuing any Errors
(collectively, "Continued Errors"), LSE shall have no Liability for such
Continued Errors; provided, however, that this provision shall not protect LSE
against any Liability which would otherwise be imposed by reason of willful
misconduct, bad faith or gross negligence in discovering or correcting any Error
or in the performance of its or their duties hereunder or under this Agreement.
In the event LSE becomes aware of Errors or Continued Errors, LSE shall, with
the prior consent of the Controlling Party, use its best efforts to reconstruct
and reconcile such data as is commercially reasonable to correct such Errors and
Continued Errors and prevent future Continued Errors. LSE shall be entitled to
recover its costs thereby expended from the Servicer.
SECTION 3.07 Cooperation of the Trustee, the Insurer and the Servicer.
In the event of a servicing transfer pursuant to a Servicing Transfer
Notification, the Servicer agrees to assist LSE in a reasonable manner with the
transfer of servicing, and the Insurer agrees to use its reasonable best efforts
to obtain the Servicer's assistance and cooperation to the extent possible and
consistent with the Controlling Party's other agreements with the Servicer.
Except as may be otherwise provided, it is expressly agreed and understood that
LSE is not responsible for any vendor payments owed by the Servicer which LSE
reasonably believes beneficial to the completion of the systems conversion and
portfolio transfer, except that LSE shall inform the Controlling Party of any
such vendor payments. In the event LSE incurs any expenses for vendor payments
in connection with the systems conversion and portfolio transfer, such expenses
shall constitute servicing transition expenses.
ARTICLE IV
TERMINATION
SECTION 4.01 Merger or Consolidation or Similar Action by Backup
Servicer. Any Person (i) into which the Backup Servicer may be merged or
consolidated, resulting from any merger or consolidation to which the Backup
Servicer shall be a party, (ii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Backup Servicer, or (iii) succeeding to
the business of the Backup Servicer, in any of the foregoing cases shall execute
and deliver to each of the Servicer and the Controlling Party an agreement of
assumption to perform every obligation of the Backup Servicer under this
Agreement without the execution or filing of any paper or any further act on the
part of
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any of the parties to this Agreement, anything in this Agreement to the
contrary notwithstanding. The Backup Servicer or its successor hereunder shall
provide the Servicer, the Trustee, the Noteholders and the Insurer with prompt
notice of any such transaction. Nothing contained in this Section shall be
deemed to release the Backup Servicer from any obligation under this Agreement.
SECTION 4.02 Backup Servicer Not to Resign.
(a) The Backup Servicer shall not resign from the obligations
and duties imposed on it by this Agreement except (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 have a material adverse effect on the Backup Servicer and the
Insurer does not elect to waive the obligations of the Backup Servicer to
perform the duties which render it legally unable to act or to delegate those
duties to another Person or (ii) with the prior written consent of the
Controlling Party in its sole discretion.
(b) Any such determination permitting the resignation of the
Backup Servicer pursuant to clause (i) of subparagraph (a) above shall be
evidenced by an Opinion of Counsel to such effect delivered and acceptable to
the Trustee or Trust Collateral Agent, as applicable, and the Controlling Party.
No resignation of the Backup Servicer under this Agreement shall become
effective until an entity acceptable to the Controlling Party shall have assumed
the responsibilities and obligations of the Backup Servicer hereunder; provided,
however, that in the event a successor backup servicer is not appointed within
60 days after the Backup Servicer has given notice of its resignation and has
provided an Opinion of Counsel, if so required hereunder, the Backup Servicer
may petition a court for the appointment of a successor.
SECTION 4.03 Termination.
(a) The Controlling Party may elect to remove the Backup
Servicer upon the occurrence of any of the following conditions:
(i) The termination of the Sale and Servicing Agreement;
(ii) The Controlling Party terminates the Backup Servicer as
Backup Servicer hereunder, which termination may be effected either
immediately with cause or upon 60 days notice to the Backup Servicer
and the Trustee without cause;
(iii) The entry with respect to the Backup Servicer of a
decree or order for relief by a court or agency or supervisory
authority having jurisdiction under any present or future federal or
state bankruptcy, insolvency or similar law;
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(iv) A conservator, receiver or liquidator is appointed with
respect to the Backup Servicer in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings; or
(v) The Backup Servicer shall admit in writing its inability
to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations.
(b) The Backup Servicer will be allowed to terminate its
obligations under this Agreement if it does not receive any payment required to
be made under the terms of this Agreement, which failure continues unremedied
for a period of 30 Business Days after written notice of such failure shall have
been given to the Trustee, the Insurer, the Noteholders and the Servicer and
which notice shall state the intent of the Backup Servicer to terminate its
obligations hereunder in the event of non-payment after 30 Business Days.
SECTION 4.04 Effect of Removal.(a) (a) Upon removal of LSE as Backup
Servicer hereunder, prior to the transfer of servicing to the S&SA Backup
Servicer, it is expressly agreed that the parties are under no obligation to
enter into an agreement whereby LSE will become successor Servicer under the
Sale and Servicing Agreement.
(b) Notwithstanding anything to the contrary herein, in the
event that: (i) the Backup Servicer either resigns or is terminated, pursuant to
Sections 4.02 or 4.03 hereof respectively, and (ii) the Servicer shall have
either previously or concurrently be terminated, then the Backup Servicer, in
the event of its resignation, or the Controlling Party, in the event of the
termination of the Backup Servicer by the Controlling Party, shall notify the
S&SA Backup Servicer at least four weeks prior to the date of such resignation
or termination, as applicable. In the event that such notice shall not be
delivered by the Backup Servicer or Controlling Party, as applicable, to the
S&SA Backup Servicer with such four week advance notice, then such resignation
or termination shall not become effective until such four week period has
elapsed.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BACKUP SERVICER
SECTION 5.01 Insurance Coverage. The Backup Servicer shall at all times
maintain an errors and omissions insurance policy providing coverage in an
amount of not less than $1,000,000 and a fidelity bond in an amount of not less
than $100,000, in such form as is customary for loan servicers acting in respect
of consumer loans on behalf of institutional investors therein.
SECTION 5.02 Representations and Warranties of the Backup Servicer. The
Backup Servicer hereby represents, warrants and covenants to the Insurer, the
Trustee and
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the Servicer that as of the date of this Agreement or as of such date
specifically provided herein;
(a) The Backup Servicer is a limited partnership duly
organized and validly existing under the laws of the State of Texas;
(b) All necessary partnership, regulatory or other similar
action has been taken to authorize and empower the Backup Servicer and the
officers or representatives acting on the Backup Servicer's behalf, and the
Backup Servicer has full power and authority, and the legal right, to execute,
deliver and perform this Agreement;
(c) This Agreement has been duly authorized, executed and
delivered by the Backup Servicer and the performance and compliance with the
terms of this Agreement will not conflict with, result in any breach of the
terms and provisions of, or constitute (with or without notice, lapse of time or
both) a default under the Backup Servicer's partnership agreement any material
contract, indenture, lease, credit agreement or any other agreement or
instrument to which the Backup Servicer is a party or which may be applicable to
the Backup Servicer or any of its assets and will not 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 the Agreement);
(d) This Agreement shall constitute a legal, valid, and
binding obligation of the Backup Servicer enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of whether
such enforceability shall be considered in a proceeding in equity or at law;
(e) The Backup Servicer is duly licensed and qualified to
transact business and is in good standing under the laws of each state in which
such qualification is required to perform the functions specified herein and
this Agreement constitutes a valid, legal and binding obligation of the Backup
Servicer, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally and to general principles of equity;
(f) The Backup Servicer is not in violation of, and the
execution, delivery and performance of this Agreement by the Backup Servicer
will not constitute a violation with respect to any order or decree of any court
or any order, regulation or demand of any federal, state, municipal or
governmental agency, which violation might have consequences that would
materially and adversely affect the condition (financial or other) of operations
of the Backup Servicer or its properties or might have consequences that would
affect the performance of its duties hereunder;
(g) No proceeding of any kind, including but not limited to
litigation, arbitration, judicial or administrative, is pending or threatened
against or contemplated by the Backup Servicer (A) asserting the invalidity of
this Agreement, (B) seeking to prevent
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the consummation of any of the transactions contemplated by this Agreement, or
(C) seeking any determination or ruling that would under any circumstances have
an adverse effect on the execution, delivery, performance or enforceability of
this Agreement;
(h) No information, certificate of an officer, statement
furnished in writing or report delivered to Servicer, Trustee or the Insurer, or
if applicable any escrow agent, by the Backup Servicer will, to the knowledge of
the Backup Servicer, contain any untrue statement of a material fact or omit a
material fact necessary to make the information, certificate, statement or
report not misleading; and
(i) All approvals, authorizations, consents, orders 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 of this Agreement by the Backup Servicer have been or
will be taken or obtained on or prior to the date hereof.
SECTION 5.03 Representations and Warranties of the Servicer. The
Servicer hereby represents, warrants and covenants to the Backup Servicer and
the Insurer that as of the date of this Agreement or as of such date
specifically provided herein:
(a) The Servicer is a corporation duly organized 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 owned and
such business is presently conducted;
(b) The Servicer has the power and authority to execute and
deliver this Agreement and to carry out its terms; and the execution, delivery,
and performance of this Agreement have been duly authorized by the Servicer by
all necessary corporate action;
(c) This Agreement shall constitute a legal, valid, and
binding obligation of the Servicer enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of whether
such enforceability shall be considered in a proceeding in equity or at law;
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms thereof shall not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the certificate of
incorporation or by-laws of the Servicer, or to the best knowledge of the
Servicer, after reasonable investigation, any indenture, agreement, or other
instrument to which the Servicer is a party or by which it shall be bound; nor
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any such indenture, agreement, or other instrument
(other than the Agreement); nor violate any law or, to the best knowledge of the
Servicer, any order, rule, or regulation applicable to the Servicer of any court
or of any federal or state regulatory body,
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<PAGE> 15
administrative agency, or other governmental instrumentality having jurisdiction
over the Servicer or its properties; and
(e) Except with respect to the pending shareholder class
action complaints against the Servicer or any amendments thereto, there are no
proceedings or investigations pending or, to the best knowledge of the Servicer,
threatened before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Servicer or its
properties (a) asserting the invalidity of this Agreement, (b) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement, or (c) seeking any determination or ruling that might materially and
adversely affect the performance by the Servicer of its obligations under, or
the validity or enforceability of, this Agreement.
SECTION 5.04 Survival of Representations and Warranties. The
representations and warranties set forth in this Article V are continuous and
shall survive the date of this Agreement. Upon discovery by the Insurer, the
Trustee, the Servicer or the Backup Servicer of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other parties.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Waivers. The provisions of this Agreement may only be
waived by written consent of the party making the waiver. The failure of any
party at any time to require performance by another party of any provision of
this Agreement shall in no way affect that party's right to enforce such
provision, nor shall the waiver by any party of any breach of any provision of
this Agreement be taken or held to be a waiver of any further breach of the same
provision or any other provision.
SECTION 6.02 Effect of Agreement. Except as expressly set forth herein,
this Agreement 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 Sale and Servicing Agreement under the Sale and Servicing Agreement, nor
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Sale and Servicing
Agreement, all of which are hereby ratified and affirmed in all respects by the
parties hereto and shall continue in full force and effect.
SECTION 6.03 Effectiveness of Agreement. This Agreement shall become
effective as of the date first above written when counterparts hereof executed
and delivered on behalf of each party hereto shall have been received by the
Insurer.
SECTION 6.04 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered personally
or mailed by first-class registered or certified mail, postage prepaid, or by
telephonic facsimile
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transmission and overnight delivery service, postage prepaid, in any case
addressed as follows:
To the Backup Servicer: Loan Servicing Enterprise
9330 LBJ Freeway, Suite 500
Dallas, Texas 75343-3429
Attn: John Kilgore
TEL: (972) 238-1898
FAX: (972) 783-3532
To Insurer: Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attn: Errol Uhr
TEL: (212) 826-0100
FAX: (212) 339-3518
To Servicer: National Auto Finance Company, Inc.
10302 Deerwood Park Blvd., Suite 100
Jacksonville, Florida 32256
Attn: Keith B. Stein
TEL: (904) 996-2548
FAX: (904) 996-2557
To Trustee: Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attn: Indenture Trust Administration
TEL: (312) 461-4662
FAX: (312) 461-3525
Such notice, request, consent or other communication shall be deemed given when
so delivered, or if mailed five days after deposit as aforesaid with the U. S.
Postal Service.
SECTION 6.05 Rights Cumulative. All rights and remedies under this
Agreement are cumulative, and none is intended to be exclusive of another. No
delay or omission in insisting upon the strict observance or performance of any
provision of this Agreement, or in exercising any right or remedy, shall be
construed as a waiver or relinquishment of such provision, nor shall it impair
such right or remedy. Every right and remedy may be exercised from time to time
and as often as deemed expedient.
SECTION 6.06 Captions. The article, paragraph and other headings
contained in this Agreement are for reference purposes only, and shall not limit
or otherwise affect the meaning hereof.
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SECTION 6.07 Legal Holidays. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day in New York, New York, Dallas, Texas,
Chicago, Illinois or Jacksonville, Florida such action, delivery or payment need
not be made on that date, but may be made on the next succeeding Business Day.
SECTION 6.08 Relationship of the Parties. The relationship of the
parties to this Agreement is that of independent contractors. Neither this
Agreement nor any of the activities contemplated hereby shall be deemed to
create any partnership, joint venture, agency or employer/employee relationship
between the Backup Servicer, Insurer or Servicer.
SECTION 6.09 Incorporation of Exhibits. This Agreement shall from time
to time incorporate exhibits which shall be part of this Agreement. All exhibits
attached to this Agreement, at any time and from time to time, and signed by the
parties are hereby incorporated in this Agreement by reference for all purposes.
SECTION 6.10 Integration. This Agreement, with its exhibits,
constitutes the sole agreement between the parties concerning the subject matter
hereof. All previous agreements between these parties concerning the subject
matter hereof, whether oral or written, have been integrated into this
Agreement.
SECTION 6.11 Counterparts; Signatures. This Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument. Signatures to this Agreement obtained via facsimile shall
be valid.
SECTION 6.12 Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS.
SECTION 6.13 Amendments. This Agreement may be amended from time to
time by the parties hereto with the prior written consent of the Controlling
Party and written notice to the Trustee and NAFI. Any such amendment shall
become effective when counterparts thereof executed and delivered on behalf of
each party thereto shall have been received by the Controlling Party and the
Controlling Party shall have executed a written consent to such amendment.
SECTION 6.14 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,
this Agreement may not be assigned by NAFI, including in its capacity as
Servicer, or LSE, including in its capacity as Backup Servicer, without the
prior written consent of the Controlling Party and written notice to the
Trustee, except as contemplated by Section 4.01 hereof. Notwithstanding
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anything to the contrary contained herein, the assignment or other transfer of
all or any portion of the Servicer or Backup Servicer's rights ("Rights") or
obligations under this Agreement (including, without limitation, its right to
receive all or any part of the Servicing Fee or the Backup Servicing Fee) shall
only be permitted to be transferred to a single transferee and such prospective
transferee must, as a condition to such assignment or other transfer acknowledge
and agree that (i) it has neither acquired nor will it transfer the such Rights
or cause such Rights to be marketed on or through an "established securities
market" within the meaning of Section 7704(b)(1) of the Code, including, without
limitation, an over-the-counter-market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations, (ii) it either (A) is not,
and will not become, a partnership, S corporation or grantor trust for U.S.
federal income tax purposes, or (B) is such an entity, but none of the direct or
indirect beneficial owners of any of the interests in such transferee have
allowed or caused, or will allow or cause, fifty percent (50%) or more of the
value of such interests to be attributable to such transferee's ownership of the
Rights; and (iii) it understands that tax counsel to the Trust has provided an
opinion substantially to the effect that the Trust will not be treated as a
publicly traded partnership taxable as a corporation for U.S. federal income tax
purposes and that the validity of such opinion is dependent in part on the
accuracy of the representations in paragraphs (i) and (ii) above.
SECTION 6.15 Limitations on Rights of Others; Third Party
Beneficiaries. The provisions of this Agreement are solely for the benefit of
the parties hereto. Any right of the Controlling Party to direct, appoint,
consent to, approve of, or take any action under this Agreement, shall be a
right exercised by the Controlling Party in its sole and absolute discretion.
The Controlling Party may disclaim any of its rights and powers under this
Agreement, including, without limitation, its rights under Section 6.17, upon
delivery of a written notice to the Trustee or Trust Collateral Agent, as
applicable. Nothing in this Agreement, whether express or implied, shall be
construed to give any other Person any legal or equitable right, remedy or claim
in the Owner Trust Estate or Trust Estate, as applicable, or under or in respect
of this Agreement or any covenants, conditions or provisions contained herein;
provided, however, that the Controlling Party is a third-party beneficiary of
this Agreement and is entitled to the rights and benefits granted to it
hereunder.
SECTION 6.16 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 provision hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render enforceable
such provision in any other jurisdiction.
SECTION 6.17 Insurer as Controlling Party. The parties hereby
acknowledge that the Insurer shall have certain rights and powers hereunder as
partial consideration for the issuance of the Policies. The parties hereto
hereby further acknowledge that the Insurer is the Controlling Party under Sale
and the Servicing Agreement as of the date
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hereof. If an Insurer Event of Default shall have occurred and be continuing,
then the Controlling Class shall be the Controlling Party. The Insurer may give
or withhold any consent required hereunder in its sole and absolute discretion.
SECTION 6.18 Submission to Jurisdiction. EACH PARTY HERETO HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW
YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT, AND HEREBY (A) IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT AND (B) IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING. NOTHING IN THIS SECTION 6.18 SHALL
AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST
ANY OR ALL OF THE OTHER PARTIES HERETO OR ANY OF THEIR RESPECTIVE PROPERTIES IN
THE COURTS OF ANY OTHER JURISDICTION.
SECTION 6.19 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
ACTIONS OF ANY OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE
A JURY.
SECTION 6.20 Backup Servicer Fees and Expenses. In the event that the
Backup Servicer is entitled to payment of any fee or expense hereunder from the
Servicer or under the Sale and Servicing Agreement or Transaction Document, the
Insurer agrees, upon written notice, to pay any such amount which has not been
paid within 30 Business Days of accrual of such fee or expense; provided, that
if prior consent of the Insurer is required before the Backup Servicer incurs
such expenses, such consent has been obtained.
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
CSC LOGIC/MSA LLP d/b/a LOAN
SERVICING ENTERPRISE, as Backup Servicer
By: /s/ JOHN F. KILGORE
----------------------------------------------
Name: John F. Kilgore
--------------------------------------------
Title: Executive Director
-------------------------------------------
NATIONAL AUTO FINANCE
COMPANY, INC., as Servicer
By: /s/ STEPHEN R. VETH
----------------------------------------------
Name: Stephen R. Veth
--------------------------------------------
Title: Vice President, Secretary and
General Counsel
-------------------------------------------
FINANCIAL SECURITY ASSURANCE
INC., as to its obligations under Section 6.20
only
By: /s/ AUTHORIZED SIGNATURE
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
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ACKNOWLEDGED AND ACCEPTED:
FINANCIAL SECURITY ASSURANCE INC.,
as Insurer
By: /s/ AUTHORIZED SIGNATURE
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
ACKNOWLEDGED WITH RESPECT
TO SECTION 4.04
Harris Trust and Savings Bank,
as Backup Servicer under the
Sale and Servicing Agreement
By: /s/ KEITH RICHARDSON
----------------------------------------------
Name: Keith Richardson
--------------------------------------------
Title: Assistant Vice President
-------------------------------------------
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EXHIBIT A
BACKUP SERVICING DUTIES
I. ONE TIME, UP FRONT DUTIES:
A. GENERAL SETUP
Obtain Contact List of Personnel
Set up Bank Control Record
Input Class Codes
Set up Record Control Record
Establish Customer Service P.O. Box
Establish Customer Service 800 #
Establish Custodial Bank Accounts
Set up Lockbox P.O. Box
Set up/Format Welcome Letter
Set up/Format Billing Statements
Set up Client ID
Obtain Prior Servicing and Credit Agreements
Obtain Month End Servicer Reports
Obtain Trial Balance and List of Receivables
Obtain Copies of VSI/Default Insurance Policies
B. DATA COLLECTION
o OBTAIN DATA FILES (necessary data listed below)
Loan File
Name & Address File and Telephone Number
Collection Notes
Transaction History
OBTAIN REPORTS (in order to balance to Data Files)
Trial Balance (derived from BNI System)
Suspense Account
Insurance Tracking Status (when available)
Past Due Summary with Detail
Aged Delinquency Summary
Servicer Report
Repossession Report
Inventory Report
C. DATA MAPPING: RECEIVE TEST FILES AND REPORTS ("0 balance"
loans will not be loaded, and Collection Notes and Transaction
History will be stored in an electronic file but will not be
mapped to the system)
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PRELIMINARY MAPPING
Loan File
Name & Address File
INSTALLMENT LOAN (IL) DATA ANALYSIS (testing validity of data)
Loan File
Name & Address File
DEVELOPMENT OF CONVERSION PROGRAM
INSTALLMENT LOAN SYSTEM
Loan File
Name & Address File
SYSTEM TESTING (LSE will take output from Conversion Program
and load to Test System)
IL SYSTEM
Loan File
Name & Address File
PERFORM LOAN VALIDATION SYSTEM BALANCING TO REPORTS,
PERFORM TESTING REASONABLENESS
Loan File
Name & Address File
II. MONTHLY SERVICES:
o RECEIVE AND STORE MONTHLY FILES AND REPORTS FROM
SERVICER FILES (stored on LSE system and reviewed to
ensure completeness on face)
Loan File
Name & Address File
o RECEIVE AND STORE MONTHLY SERVICER REPORT FROM
SERVICER Upon receipt of the Monthly Data File and
Monthly Servicer Report, LSE shall compare the two
and will: (i) verify the aggregate Outstanding
Balance of Receivables at the beginning of the
related Collection Period; (ii) verify the number and
principal balance of delinquent Receivables at the
close of the related Collection Period; and (iii)
verify the aggregate Outstanding Balance of
Receivables at the close of the related Collection
period.
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o RECEIVE, STORE AND REVIEW MONTHLY REPOSSESSION REPORT
AND INVENTORY REPORT
Monthly Repossession Reports and Inventory Report in
order to monitor location and quantity of vehicles in
repossession and liquidation.
III. ADDITIONAL MONTHLY SERVICES:
o RECEIPT, STORAGE AND VERIFICATION OF THE FOLLOWING
REPORTS:
Trial Balance
Suspense Account
Insurance Tracking Status
Aged Delinquency Summary
Month-End Investor Report Validation
Repossession Report
Inventory Report
o FULL CONVERSION OF LATEST DATA FILE RECEIVED
On a monthly basis, Backup Servicer will load the
latest Files received from Servicer onto the LSE
system and will run a conversion program, test system
and verify reports.
o VERIFICATION OF REPORTS
Backup Servicer will produce its own reports from the
conversion and will compare the information on the
reports received from Servicer.
The above duties may be performed on a more or less frequent basis,
provided that Backup Servicer has received prior written notification from the
Controlling Party requesting such change and that any associated fees (to be
charged to Servicer) have been mutually agreed upon.
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EXHIBIT 10.117
SUPPLEMENT TO BACKUP SERVICING AGREEMENT
This Supplement, dated as of September 1, 1999, by and among National
Financial Auto Funding Trust ("Funding Trust"), National Auto Finance Company,
Inc. ("NAFI", formerly National Auto Finance Company LP) and Harris Trust and
Savings Bank ("Harris") (the "Supplement") to the Backup Servicing Agreement,
dated as of March 31, 1998, by and among Funding Trust, NAFI and Harris (the
"Agreement").
W I T N E S E T H:
WHEREAS, Funding Trust, NAFI and Harris wish to supplement the
Agreement in accordance with the terms of this Supplement;
NOW THEREFORE, the parties hereby agree, in consideration of the
mutual promises and mutual obligations set forth herein, to the terms and
conditions of the Agreement as amended by this Supplement.
SECTION 1 Survival of the Agreement. Nothing contained herein or
contained in the Agreement for Monitoring and Backup Servicing, dated as of the
date hereof (the "LSE Agreement"), by and among NAFI, CSC Logic/MSA LLP d/b/a
Loan Servicing Enterprise and Financial Security Assurance Inc. ("FSA"), shall
terminate the Agreement. Except as explicitly provided herein, the terms of the
Agreement shall continue to govern, and the rights and responsibilities of the
parties under the Agreement shall survive the parties' entry into this
Supplement and NAFI's entry into the LSE Agreement. Unless otherwise defined in
this Agreement, all terms defined in the Sale and Servicing Agreement shall
have the same meanings in this Agreement.
SECTION 2 Suspension of Obligations.
(a) Harris' duty to perform its duties as Backup Servicer under the
Agreement and Harris' entitlement to collect payments for services under the
Agreement, in each case arising after the date hereof, are hereby suspended
from the date of the signing of this Supplement until such date, if any, as the
parties to this Supplement are given written notice by the Controlling Party
that the LSE Agreement has been terminated and that they are to resume
performance under the Agreement thirty (30) days after Harris has received
written notice of LSE's termination (the "Notice Date"). NAFI's duty to pay
Harris for its performance of its duties as Backup Servicer incurred after the
date hereof under the Agreement is hereby suspended from the date of the
signing of this Supplement until the Notice Date. Harris and NAFI hereby agree
that as of the date hereof no amounts are due and outstanding to Harris under
the Agreement and no performance of duties under the Agreement are due and
outstanding by Harris or NAFI. After the Notice Date, the provisions of this
Supplement will terminate and the parties will resume their respective duties
and obligations under the Agreement.
<PAGE> 2
(b) FSA hereby agrees for the benefit of Harris as Backup Servicer
pursuant to the Pooling and Servicing Agreement, dated as of October 1, 1995,
and the Pooling and Servicing Agreement, dated as of October 21, 1996, each
among Funding Trust, NAFI, and Harris, as Trustee, and for the benefit of
Harris as Standby Servicer pursuant to the Sale and Servicing Agreement, dated
as of June 29, 1997, among Funding Trust, NAFI, Harris and the National Auto
Finance 1997-1 Trust, the Sale and Servicing Agreement, dated as of December
15, 1997, among Funding Trust, NAFI, Harris, as Trust Collateral Agent and
Backup Servicer, and the National Auto Finance 1998-1 Trust and the Sale and
Servicing Agreement, dated as of September 1, 1999 among Funding Trust, NAFI,
Harris as Trust Collateral Agent and Backup Servicer, and the National Auto
Finance 1999-1 Trust (such agreements, the "Underlying Agreements"), that so
long as the Notice Date has not occurred, the Controlling Party will not
appoint Harris as successor servicer under the Underlying Agreements.
SECTION 3 Limited Effect. Except as expressly set forth in this
Supplement, the Agreement shall continue to be, and shall remain, in full force
and effect in accordance with its terms.
SECTION 4 Counterparts. This Supplement may be executed by each of the
parties hereto on any number of separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the same
instrument.
SECTION 5. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.
SECTION 6. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and delivered
by Chase Manhattan Bank Delaware, not individually or personally but solely as
trustee of Funding Trust, in the exercise of the powers and authority conferred
and vested in it under the Trust Agreement, (b) each of the representations,
undertakings and agreements herein made on the part of Funding Trust is made
and intended not as personal representations, undertakings and agreements by
Chase Manhattan Bank Delaware, but is made and intended for the purpose of
binding only Funding Trust and (c) under no circumstances shall Chase Manhattan
Bank Delaware, be personally liable for the payment of any indebtedness or
expenses of Funding Trust or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by Funding
Trust under this Agreement or the other Transaction Documents.
2
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
HARRIS TRUST AND
SAVINGS BANK
By: /s/ KIETH RICHARDSON
-----------------------------------
Name: Kieth Richardson
Title: Assistant Vice President
NATIONAL FINANCIAL AUTO
FUNDING TRUST
By: CHASE MANHATTAN
BANK DELAWARE, not in its
individual capacity but solely as
Owner Trustee
By: /s/ DENIS KELLY
-----------------------------------
Name: Denis Kelly
Title: Assistant Vice President
NATIONAL AUTO FINANCE
COMPANY INC.
By: /s/ STEPHEN R. VETH
-----------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary and
General Counsel
3
<PAGE> 4
ACKNOWLEDGED AND ACCEPTED:
FINANCIAL SECURITY ASSURANCE INC.
By: /s/ AUTHORIZED SIGNATURE
-----------------------------
Name:
Title:
4
<PAGE> 1
EXHIBIT 10.118
AMENDMENT NUMBER 1 TO THE AMENDED AND RESTATED
POOLING AND ADMINISTRATION AGREEMENT
THIS AMENDMENT NUMBER 1, dated as of May __, 1999 (the "Amendment") to
AMENDED AND RESTATED POOLING AND ADMINISTRATION AGREEMENT, dated as of December
4, 1994 (as amended and restated, the "Agreement"), among NATIONAL FINANCIAL
AUTO FUNDING TRUST II (successor to National Financial Auto Funding Trust, f/k/a
NAFCO Funding Trust), a Delaware business trust ("NAFCO"), as transferor,
NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a National Auto Finance Company L.P.),
a Delaware corporation ("National Auto"), as initial Administrator, and BANKERS
TRUST COMPANY, a New York banking corporation, as Trustee.
W I T N E S S E T H:
WHEREAS, NAFCO, National Auto and the Trustee have previously entered
into the Agreement whereby NAFCO and Trustee formed National Financial Auto
Receivables Master Trust;
WHEREAS, National Auto agreed to act as Administrator and the Trustee
agreed to act as trustee;
WHEREAS, the Agreement provides that following the Effective Date, the
Administrator will cause the Trustee to enter into certain hedging agreements;
WHEREAS, the parties desire to amend the Agreement to incorporate
certain provisions relating to hedging;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of
this Agreement, terms used in this Amendment shall have the meanings assigned in
the Agreement.
SECTION 2. Amendments to Agreement. (a) Effective upon the execution
and delivery of this Amendment, a new subsection (iii) of Section 4.03(a), shall
be inserted following subsection (ii) of Section 4.03(a) which reads as follows:
"(iii) to any Hedging Counterparty, the amount of any payments (other than
termination payments) then due and payable pursuant to the terms of any Hedging
Instrument;"
(b) Effective upon the execution and delivery of this Amendment, a new
subsection (xiv) (prior to renumbering pursuant to clause (c) below) of
Section 4.03(a) shall be inserted following subsection (xiii) (prior to
the renumbering pursuant to clause (c) below) of Section 4.03(a) which
reads as follows:
"(xiv) to any Hedging Counterparty, the amount of any termination payments then
due and payable pursuant to the terms of any Hedging Instrument;"
<PAGE> 2
-2-
(c) Effective upon execution and delivery of this Amendment, each subsection
of Section 4.03(a) shall be renumbered to reflect the insertion of new
subsections (iii) and (xiv); and
(d) Effective upon the execution and delivery of this Amendment, each
reference to the subsections in subsection 4.03(a) shall be amended,
mutatis mutandis.
SECTION 3. Representations and Warranties. (a) NAFCO hereby confirms
that (i) each of the representations and warranties set forth in Section 7.01 of
the Agreement are true and correct as of the date first written above with the
same effect as though each had been made as of such date, except to the extent
that any of such representations and warranties expressly relate to earlier
dates and (ii) no Amortization Event has occurred and is continuing.
(b) National Auto hereby confirms that (i) each of the representations and
warranties set forth in Section 8.01 of the Agreement are true and correct
as of the date first written above with the same effect as though each had
been made as of such date, except to the extent that any of such
representations and warranties expressly relate to earlier dates and (ii)
no Amortization Event or Administrator Default has occurred and is
continuing.
SECTION 4. Effectiveness of Agreement. Except as expressly amended by
the terms of this Amendment, all terms and conditions of the Agreement, as
amended, shall remain in full force and effect.
SECTION 5. Execution in Counterparts, Effectiveness. This Amendment
may be executed by the parties hereto in several counterparts, each of which
shall be executed by the NAFCO, National Auto and the Trustee 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 AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICT
OF LAW PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
[signatures follow]
<PAGE> 3
IN WITNESS WHEREOF, NAFCO, the Administrator and the Trustee have
caused this Amendment to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
NATIONAL FINANCIAL AUTO FUNDING TRUST II (as
successor to National Financial Auto Funding
Trust, f/k/a NAFCO Funding Trust)
as the transferor
By: Chase Manhattan Bank Delaware (as successor to Chase
Manhattan Bank USA, N.A.), not in its individual
capacity but solely as Owner Trustee of the National
Financial Auto Funding Trust II)
By: /s/ DENIS KELLY
----------------------------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
Address: 1201 North Market Street, 9th Floor
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 428-3375
Facsimile: (302) 984-4903
NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a
National Auto Finance Company L.P.)
as Administrator
By: /s/ STEPHEN R. VETH
----------------------------------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary & General Counsel
Address: 10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32256
Attention: General Counsel
Telephone: (904) 996-2551
Facsimile: (904) 996-2557
<PAGE> 4
BANKERS TRUST COMPANY,
not in its individual capacity but solely as Trustee of National Financial
Auto Receivables Master Trust (f/k/a NAFCO Auto Receivables Master Trust)
By: /s/ AUTHORIZED SIGNATURE
----------------------------------------------------------
Name:
Title:
Address: Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Telephone: (212) 250-8360
Facsimile: (212) 250-6439
<PAGE> 1
EXHIBIT 10.119
AMENDMENT NUMBER 2 TO THE AMENDED AND RESTATED
POOLING AND ADMINISTRATION AGREEMENT
THIS AMENDMENT NUMBER 2, dated as of September 21, 1999 (the
"Amendment"), to AMENDED AND RESTATED POOLING AND ADMINISTRATION AGREEMENT,
dated as of December 8, 1994 (as amended and restated, the "Agreement"), among
NATIONAL FINANCIAL AUTO FUNDING TRUST II (successor to National Financial Auto
Funding Trust, f/k/a NAFCO Funding Trust), a Delaware business trust ("NAFCO"),
as transferor, NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a National Auto Finance
Company L.P.), a Delaware corporation ("National Auto"), as initial
Administrator, and BANKERS TRUST COMPANY, a New York banking corporation, as
Trustee.
W I T N E S S E T H:
WHEREAS, NAFCO, National Auto and the Trustee have previously
entered into the Agreement whereby NAFCO and Trustee formed National Financial
Auto Receivables Master Trust (the "Trust") of which First Union National Bank
is the Class B Certificateholder ("FUNB");
WHEREAS, the Administrator and FUNB wish to use an updated format
for the Daily Funding Report, attached as Exhibit G to the Agreement;
WHEREAS, the Administrator has been calculating the
Overcollateralization Level by including in the amount on deposit in the Excess
Funding Account, the amount of outstanding checks relating to the purchase of
Receivables; FUNB wishes to provide an accommodation to the Administrator so
that such calculation may be made in accordance with the Agreement;
NOW THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of
this Agreement, terms used in this Amendment shall have the meanings assigned
in the Agreement.
SECTION 2. Amendments to Agreement. Effective upon the execution
and delivery of this Amendment:
(a) Exhibit G to the Agreement is hereby replaced in its entirety with
the Exhibit G shown on Schedule 1 attached hereto;
(b) the definition of Overcollateralization Level in Appendix A to the
Agreement is amended to read:
"Overcollateralization Level" means as of any date of
determination, the excess, if any, of (i) the sum of (a) the Eligible Pool
Balance and (b) the sum of (x) the amount of funds on deposit in the Reserve
Fund, (y) (I) until October 21, 1999, fifty percent (50%) of the amount of
funds on deposit in the Excess Funding Account and (II) on and after October
21, 1999, none of the funds on
<PAGE> 2
-2-
deposit in the Excess Funding Account; provided, however, that in the case of
this clause (y), 100% of the amounts which the Administrator has on deposit in
the Excess Funding Account to cure an Overcollateralization Deficit of which
the Class B Certificateholder is aware shall be included in this calculation
and (z) the amount of funds on deposit in the Collection Account representing
principal collections, measured as of the close of business each Friday (or the
next succeeding Business Day if such Friday is not a Business Day) over (ii)
the Certificate Principal Amount.
SECTION 3. Representations and Warranties.
(a) NAFCO hereby confirms that (i) each of the representations and
warranties set forth in Section 7.01 of the Agreement are true and correct as
of the date first written above with the same effect as though each had been
made as of such date, except to the extent that any of such representations and
warranties expressly relate to earlier dates and (ii) no Amortization Event has
occurred and is continuing.
(b) National Auto hereby confirms that (i) each of the
representations and warranties set forth in Section 8.01 of the Agreement are
true and correct as of the date first written above with the same effect as
though each had been made as of such date, except to the extent that any of
such representations and warranties expressly relate to earlier dates and (ii)
no Amortization Event or Administrator Default has occurred and is continuing.
SECTION 4. Effectiveness of Agreement. Except as expressly amended
by the terms of this Amendment, all terms and conditions of the Agreement, as
amended, shall remain in full force and effect.
SECTION 5. Execution in Counterparts, Effectiveness. This Amendment
may be executed by the parties hereto in several counterparts, each of which
shall be executed by the NAFCO, National Auto and the Trustee 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 AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO
CONFLICT OF LAW PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
SECTION 7. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Chase Manhattan Bank Delaware (as successor to Chase Manhattan Bank USA,
N.A.), not individually or personally but solely as trustee of National
Financial Auto Funding Trust II, 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 National Financial Auto Funding Trust II
is made and intended not as personal representations, undertakings and
agreements by Chase Manhattan Bank Delaware (as successor to Chase Manhattan
Bank USA, N.A.) but is made and intended for the purpose of binding only
National Financial Auto Funding Trust II and (c) under no circumstances shall
Chase Manhattan Bank
<PAGE> 3
-3-
Delaware (as successor to Chase Manhattan Bank USA, N.A.) be personally liable
for the payment of any indebtedness or expenses of National Financial Auto
Funding Trust II or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by National Financial
Auto Funding Trust II under this Amendment or the Agreement.
[signatures follow]
<PAGE> 4
IN WITNESS WHEREOF, NAFCO, the Administrator and the Trustee have caused
this Amendment to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
NATIONAL FINANCIAL AUTO FUNDING TRUST II (as
successor to National Financial Auto Funding
Trust, f/k/a NAFCO Funding Trust) as the
transferor
By: Chase Manhattan Bank Delaware (as successor
to Chase Manhattan Bank USA, N.A.), not in
its individual capacity but solely as Owner
Trustee of the National Financial Auto
Funding Trust II)
By: /s/ JOHN J. CASHIN
--------------------------------------------
Name: John J. Cashin
Title: Vice President
Address: 1201 Market Street, 9th Floor
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 428-3375
Facsimile: (302) 984-4903
NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a
National Auto Finance Company L.P.)
as Administrator
By: /s/ STEPHEN R. VETH
--------------------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary &
General Counsel
Address: 10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32256
Attention: General Counsel
Telephone: (904) 996-2551
Facsimile: (904) 996-2557
<PAGE> 5
BANKERS TRUST COMPANY,
not in its individual capacity but solely
as Trustee of National Financial Auto
Receivables Master Trust (f/k/a NAFCO Auto
Receivables Master Trust)
By: /s/ PATRICIA M.F. RUSSO
--------------------------------------------
Name: Patricia M.F. Russo
Title: Vice President
Address: Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Telephone: (212) 250-8360
Facsimile: (212) 250-6439
<PAGE> 6
-6-
SCHEDULE 1
Exhibit G to the Agreement follows.
<PAGE> 1
EXHIBIT 10.120
AMENDMENT NUMBER 3 TO THE AMENDED AND RESTATED
POOLING AND ADMINISTRATION AGREEMENT
THIS AMENDMENT NUMBER 3, dated as of September 24, 1999 (the
"Amendment"), to AMENDED AND RESTATED POOLING AND ADMINISTRATION AGREEMENT,
dated as of December 8, 1994 (as amended and restated, the "Agreement"), among
NATIONAL FINANCIAL AUTO FUNDING TRUST II (successor to National Financial Auto
Funding Trust, f/k/a NAFCO Funding Trust), a Delaware business trust ("NAFCO"),
as transferor, NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a National Auto Finance
Company L.P.), a Delaware corporation ("National Auto"), as initial
Administrator, and BANKERS TRUST COMPANY, a New York banking corporation, as
Trustee.
W I T N E S S E T H:
WHEREAS, NAFCO, National Auto and the Trustee have previously
entered into the Agreement whereby NAFCO and Trustee formed National Financial
Auto Receivables Master Trust (the " Trust") of which First Union National Bank
is the Class B Certificateholder ("FUNB");
WHEREAS, simultaneously with the execution hereof, National Auto and
various trusts which are indirectly owned by it are securitizing receivables in
a Qualifying ABS Transaction;
WHEREAS, the Agreement provides that upon the closing of a
Qualifying ABS Transaction, changes will be made to the Agreement to reflect the
levels of enhancement and concentration in such qualifying ABS transaction.
WHEREAS, as a result of the completion of such Qualifying ABS
Transaction, certain Amortization Events and/or Liquidation Events will likely
occur under the agreement.
WHEREAS, FUNB and the Administrator desire to provide, for a limited
period, certain alternative Amortization Events and Liquidation Events relating
to the Net Loss Ratio, Delinquency Ratio and Gross Default Ratio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Unless otherwise amended by the terms of this Agreement,
terms used in this Amendment shall have the meanings assigned in the Agreement.
SECTION 2. Amendments to Agreement. Effective upon the execution and
delivery of this Amendment:
(a) the definition of "Minimum Required Overcollateralization Level"
in Appendix A to the Agreement shall be amended to read:
<PAGE> 2
-2-
"Minimum Required Overcollateralization Level" means, with respect
to any Interest Period, (A) with respect to Receivables less than thirty-one
(31) days past due, the greatest of (a) 19%, (b) the Initial Credit Enhancement
Level for the most recently completed Qualified ABS Transaction, which in the
case of the Qualifying ABS Transaction occurring in September, 1999, is 24%
(such amount to be readjusted upon the closing of each Qualifying ABS
Transaction) and (c) the product of (x) 3.0 and (y) the Net Loss Ratio for the
Distribution Date on which such Interest Period commenced; provided, that this
subsection (c) shall not apply for the period commencing with the October, 1999
Calculation Period and ending with the December, 1999 Calculation Period;
provided, however, that if a Trigger Event shall have occurred and be
continuing, the amount calculated pursuant to this clause (A) shall be increased
by 2% and (B) with respect to Receivables greater than thirty (30) days, but
less than sixty (60) days, past due, 60%.
(b) Subsections (f), (g), (h), (i), (j) and (k) of Section 9.01 of
the Agreement shall be amended to read:
(f) the Net Loss Ratio for any Distribution Date exceeds: (I) 14% for
the October, 1999 Calculation Period, (II) 16% for the November,
1999 Calculation Period, (III) 15% for the December, 1999
Calculation Period and (IV) 11% for any other Calculation Period;
(g) the Net Loss Ratio for any Distribution Date exceeds: (I) 16% for
the October, 1999 Calculation Period, (II) 18% for the November,
1999 Calculation Period, (III) 17% for the December, 1999
Calculation Period and (IV) 13% for any other Calculation Period;
(h) the Delinquency Ratio exceeds: (I) 14% for the October, 1999
Calculation Period, (II) 16% for the November, 1999 Calculation
Period, (III) 15% for the December, 1999 Calculation Period and (IV)
11% for any other Calculation Period;
(i) the Delinquency Ratio exceeds: (I) 16% for the October, 1999
Calculation Period, (II) 18% for the November, 1999 Calculation
Period, (III) 17% for the December, 1999 Calculation Period and (IV)
13% for any other Calculation Period;
(j) the Gross Default Ratio for any Calculation Period exceeds: (I) 24%
for the October, 1999 Calculation Period, (II) 25% for the November,
1999 Calculation Period, (III) 24.5% for the December, 1999
Calculation Period and (IV) 22% for any other Calculation Period;
(k) the Gross Default Ratio for any Calculation Period exceeds: (I) 26%
for the October, 1999 Calculation Period, (II) 27% for the November,
1999 Calculation Period, (III) 26.5% for the December, 1999
Calculation Period and (IV) 24% for any other Calculation Period;
(c) Subsection (o) of Section 9.01 of the Agreement shall be
amended to read:
<PAGE> 3
-3-
(o) the hedging requirement set forth in Section 13.25 shall not have
been complied with.
(d) A new subsection (c) shall be added to Section 13.23 of
the Agreement, which shall read:
(c) Non-Dealer Originations originated by any single person (a
"Non-Dealer Originator") shall not be deemed to be Eligible
Receivables to the extent that the Non-Dealer Originations
originated by such Non-Dealer Originator exceeds (i) until the last
day of the December, 1999 Calculation Period, five percent (5%) of
the Eligible Pool Balance or (ii) thereafter, three percent (3%) of
the Eligible Pool Balance.
(e) A new Section 13.27 shall be added to the Agreement, which
shall read:
Section 13.27 Trigger Events. If any of the following events shall occur, a
Trigger Event shall be deemed to have occurred and continue until the next
succeeding Distribution Date:
(a) the Net Loss Ratio for any Distribution Date exceeds: (I) 13% for the
October, 1999 Calculation Period, (II) 15% for the November, 1999 Calculation
Period, and (III) 14% for the December, 1999 Calculation Period;
(b) the Delinquency Ratio exceeds: (I) 13% for the October, 1999
Calculation Period, (II) 15% for the November, 1999 Calculation Period, and
(III) 14% for the December, 1999 Calculation Period; and
(c) the Gross Default Ratio for any Calculation Period exceeds: (I) 23%
for the October, 1999 Calculation Period, (II) 24% for the November, 1999
Calculation Period, and (III) 23.5% for the December, 1999 Calculation Period.
SECTION 3. Representations and Warranties.
(a) NAFCO hereby confirms that (i) each of the representations and
warranties set forth in Section 7.01 of the Agreement are true and correct as of
the date first written above with the same effect as though each had been made
as of such date, except to the extent that any of such representations and
warranties expressly relate to earlier dates and (ii) no Amortization Event has
occurred and is continuing.
(b) National Auto hereby confirms that (i) each of the
representations and warranties set forth in Section 8.01 of the Agreement are
true and correct as of the date first written above with the same effect as
though each had been made as of such date, except to the extent that any of such
representations and warranties expressly relate to earlier dates and (ii) no
Amortization Event or Administrator Default has occurred and is continuing.
SECTION 4. Effectiveness of Agreement. Except as expressly amended
by the terms of this Amendment, all terms and conditions of the Agreement, as
amended, shall remain in full force and effect.
<PAGE> 4
-4-
SECTION 5. This Amendment may be executed by the parties hereto in
several counterparts, each of which shall be executed by the NAFCO, National
Auto and the Trustee and be deemed to be an original and all of which shall
constitute together but one and the same agreement.
SECTION 6. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Limitation of Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Chase Manhattan Bank Delaware (as successor to Chase Manhattan Bank USA,
N.A.), not individually or personally but solely as trustee of National
Financial Auto Funding Trust II, 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 National Financial Auto Funding Trust II
is made and intended not as personal representations, undertakings and
agreements by Chase Manhattan Bank Delaware (as successor to Chase Manhattan
Bank USA, N.A.) but is made and intended for the purpose of binding only
National Financial Auto Funding Trust II and (c) under no circumstances shall
Chase Manhattan Bank Delaware (as successor to Chase Manhattan Bank USA, N.A.)
be personally liable for the payment of any indebtedness or expenses of National
Financial Auto Funding Trust II or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by National
Financial Auto Funding Trust II under this Amendment or the Agreement.
[signatures follow]
<PAGE> 5
IN WITNESS WHEREOF, NAFCO, the Administrator and the Trustee have
caused this Amendment to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
NATIONAL FINANCIAL AUTO FUNDING TRUST II (as
successor to National Financial Auto Funding
Trust, f/k/a NAFCO Funding Trust) as the
transferor
By: Chase Manhattan Bank Delaware (as successor
to Chase Manhattan Bank USA, N.A.), not in
its individual capacity but solely as Owner
Trustee of the National Financial Auto
Funding Trust II)
By: /s/ JOHN J. CASHIN
----------------------------------------------
Name: John J. Cashin
Title: Vice President
Address: 1201 Market Street, 9th Floor
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 428-3375
Facsimile: (302) 984-4903
NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a
National Auto Finance Company L.P.)
as Administrator
By: /s/ STEPHEN R. VETH
----------------------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary & General
Counsel
Address: 10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32256
Attention: General Counsel
Telephone: (904) 996-2551
Facsimile: (904) 996-2557
<PAGE> 6
BANKERS TRUST COMPANY,
not in its individual capacity but solely as
Trustee of National Financial Auto Receivables
Master Trust (f/k/a NAFCO Auto Receivables Master
Trust)
By: /s/ PATRICIA M. F. RUSSO
----------------------------------------------
Name: Patricia M. F. Russo
Title: Vice President
Address: Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Telephone: (212) 250-8360
Facsimile: (212) 250-6439
<PAGE> 1
EXHIBIT 10.121
REFERRAL AGREEMENT
THIS REFERRAL AGREEMENT (the "Agreement") is effective as of this 22nd
day of September, 1999 ("Effective Date"), by and between National Auto Finance
Company, Inc. (the "Company") and Atlantic Coast Federal Credit Union
("Atlantic").
A. The Company is engaged in the purchase, financing and servicing of
retail installment sales contracts (each, a "Contract") originated by
automobile dealers (each, a "Dealer") in connection with such Dealers'
sale of new and used automobiles, vans and light duty trucks
(collectively, "Automobile") to non-prime consumers.
B. The Company desires to pay Atlantic a referral fee for each
Contract referred by Atlantic, which is actually purchased and funded
by the Company, and Atlantic is willing to accept such referral fee in
accordance with the terms of this Agreement.
NOW THEREFORE, for a valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties mutually agree with
each other as follows:
1. Payment of Referral Fee. In the event, and only in the event,
(1) Atlantic enters into a contractual agreement with a
Dealer whereby the Dealer offers to the Company the right to
purchase one or more contracts which are originated by such
Dealer (such Dealer, a "Referred Dealer") and (ii) the
Company actually purchases and funds such Contract from such
Referred Dealer, at the sole discretion of the Dealer, then
the Company shall pay to Atlantic an amount equal to $50.00
for each purchased and funded Contract as a one-time referral
fee (the Referral Fee) in full, final and complete
compensation for Atlantic's services in finding the Referred
Dealer and causing the Referred Dealer to refer the Contract
to this Company and $25.00 for each NAFI GAP policy sold with
each purchased and funded contract as a one time fee. The
Referral Fees and GAP Referral Fees shall be payable by the
Company to Atlantic on the 15th day of each calendar month
during the term of this Agreement for all Contracts which are
actually purchased from any Referred Dealer and funded by the
Company during the previous 30-day period.
2. Company's Representations and Warranties. The Company
represents and warrants to Atlantic that it (i) is duly
organized, validly existing and in good standing under the
laws of its jurisdiction of formation; (ii) has
<PAGE> 2
all requisite power and authority and all licenses and
permits to own and operate its properties and to carry on its
business as now conducted, and to enter into and perform its
obligations under this Agreement and the transactions
contemplated thereby and the performance of its obligations
thereunder; and (iii) has duly qualified and is authorized to
do business and is in good standing as a foreign corporation
(or is exempt from such requirements) and has obtained all
necessary licenses and approvals in each jurisdiction where
the character of its properties or the nature of its
activities makes such qualification necessary.
3. Atlantic's Representation and Warranties. Atlantic represents
and warrants to the Company that it (i) is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of formation; (ii) has all requisite power and
authority and all licenses and permits to own and operate its
properties and to carry on its business as now conducted, and
to enter into and perform its obligations under this
Agreement and the transactions contemplated thereby and the
performance of its obligations thereunder; and (iii) has duly
qualified and is authorized to do business and is in good
standing as a foreign corporation (or is exempt from such
requirements) and has obtained all necessary licenses and
approvals in each jurisdiction where the character of its
properties or the nature of its activities makes such
qualification necessary.
4. Each Party Responsible for Own Costs and Expenses. Each party
agrees that all costs or expenses incurred by such party in
connection with referring any Contract to the Company and/or
this Agreement shall be paid by such party, without
reimbursement from the other party (except for the payment of
the Referral Fee with respect to any refunded Contract as set
forth in paragraph 1 of this Agreement).
5. No Agency, Authority or Power to Bind. Both parties are and
shall be independent contractors with respect to the terms,
provisions, and operation of this Agreement. In no event
shall either party have the right or power (whether express
or implied) to make any representation or warranty (express
or implied) on behalf of the other party or otherwise to bind
the other party in any way whatsoever.
6. Term and Modification. This Agreement shall be effective
commencing as of the date hereof. The term of this Agreement
shall be for one year from the date hereof. At the end of
such year and any succeeding years if the term of this
Agreement is extended (the "Anniversary Date"), such term
will be automatically extended for an additional year without
action on the part of either party. Either party may give
written notice to the other party, no less than the date that
is sixty (60) days prior to the Anniversary Date in any such
year, to the effect that the automatic
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<PAGE> 3
extension will not occur, in which event the Agreement will
terminate on such Anniversary Date. Notwithstanding the
foregoing, the term of this Agreement shall be terminated
upon the happening of either of the following events: (a) the
mutual written consent of the Company and Atlantic; or (b)
Atlantic withdraws from the automobile dealer financing
market; or (c) if either party is in default, breach or
noncompliance in any respect of its representations,
warranties, covenants or agreements under this Agreement and
such defaulting party fails to cure such default, breach or
non-compliance after the expiration of forty five (45) days
after written notice is received by such party; or (d) if
either party makes an assignment for the benefit of creditors
or admits in writing its inability to 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 a party or a substantial part of such a
party's assets (but if any of the foregoing occurs
involuntary, 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).
In the event this Agreement is terminated for any reason,
NAFI's obligation to pay any compensation of any type or
nature, (except for Contracts funded or to be funded prior to
such termination) shall be terminated.
7. Negation of Partnership. Nothing contained in this Agreement
or in any document executed in connection with this Agreement
is intended to create any partnership, joint venture or
association between the parties hereto with reference to any
Contract, Dealer, automobile or the business of the Company
or Atlantic referenced herein and any inferences to the
contrary are expressly negated.
8. Governing Law. The law of the State of Florida (without
regard to conflict of law principles) and applicable federal
law shall govern, construe and apply to all aspects of this
Agreement.
9. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto 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 set
forth in this Agreement, there are not, and were not, any
representations, understandings, stipulations, agreements or
promises, oral or written, with respect to the payment of the
Referral Fee or otherwise.
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<PAGE> 4
10. Company Indemnification. Company shall indemnify and hold
Atlantic harmless against any and all losses, claims,
damages, liabilities, regulatory or civil actions, costs or
expenses (including any attorneys' fees or other expenses
reasonably incurred by Atlantic in connection with
investigating any claim against it and defending any action
and any amounts paid in settlement or compromise) that arise
out of or are based upon (a) the failure of the Company, its
officers, employees or agents to conform to the statutes,
ordinances and other regulations and requirements of any
governmental authority in connection with performance of this
Agreement or any other contract thereunder, (b) the
negligence of Company, its officers, employees and agents,
(c) any action or inaction of Company, its officers,
employees and agents in performing the obligations of Company
under this Agreement or any Contract thereunder, and (d) any
breach by Company, its officers, employees or agents of any
term, condition, warranty, representation or any other
portion of this Agreement. Company's duties as set forth in
this section shall survive termination of this Agreement for
any reason.
11. Atlantic Indemnification. Atlantic shall indemnify and hold
Company harmless against any and all losses, claims, damages,
liabilities, regulatory or civil actions, costs or expenses
(including any attorneys' fees or other expenses reasonably
incurred by Company in connection with investigating any
claim against it and defending any action and any amounts
paid in settlement or compromise) that arise out of or are
based upon (a) the failure of Atlantic, its officers,
employees or agents to conform to the statutes, ordinances
and other regulations and requirements of any governmental
authority in connection with performance of this Agreement or
any other contract thereunder, (b) the negligence of
Atlantic, its officers, employees and agents, (c) any action
or inaction of Atlantic, its officers, employees and agents
in performing the obligations of Atlantic under this
Agreement or any Contract thereunder, and (d) any breach by
Atlantic, its officers, employees or agents of any term,
condition, warranty, representation or any other portion of
this Agreement. Atlantic's duties as set forth in this
section shall survive termination of this Agreement for any
reason.
12. Notices. Any notice, request, demand or other communication
shall be sufficiently given if in writing and delivered in
person or transmitted by telecopier (confirmed by reliable
overnight delivery service guaranteeing delivery by 10:30
A.M. on the next Business Day) or mailed by registered or
certified mail, postage prepaid, return receipt requested, or
sent by reliable overnight delivery service, addressed as
follows:
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<PAGE> 5
If to the Company: National Auto Finance Company, Inc.
10302 Deerwood Park Blvd, Suite 100
Jacksonville, Florida 32256
Attention: William G. Magro
Telephone Number: 904-996-2510
Fax Number: 904-996-2539
If to Atlantic: Atlantic Coast Federal Credit Union
505 Haines Avenue
Waycross, GA 31501
Attention: Robert Larison
Telephone Number: 800-234-0642
Fax Number: 800-298-9140
13. Waiver. To be effective, any waiver or modification of any
term or condition stated in this Agreement must be in writing
and signed by an authorized officer of the Company and
Atlantic and shall not be considered as a waiver of any
future obligation or right.
14. Severability. In the event that any paragraph of this
Agreement or portion thereof is held by a court to be invalid
or unenforceable for any reason, the other paragraphs and
portions of the Agreement shall not be invalid or
unenforceable and will continue in full force and effect.
15. Legal Action. If legal action is necessary to enforce this
Agreement or collect any amounts owing to Atlantic or the
Company, the prevailing party has the right, subject to
applicable law, to payment by the other party of all
attorney's fees and costs, including fees on any appeal and
any post-judgment actions.
16. Company Confidentiality. Company warrants that Company, its
officers, employees and agents will hold in strictest
confidence all information in any way related to Atlantic and
Atlantic's members, including, but not limited to names,
addresses, telephone numbers and all other information
regarding any member or their relationship with Atlantic.
Company warrants that Company, its officers, employees and
agents will not use such information for any purpose other
than providing the services set forth in this Agreement.
Company warrants that Company, its officers, employees and
agents will not provide any information about Atlantic or
Atlantic's members to any third party without Atlantic's
prior written consent. It is the express intent of the
parties that these warranties of confidentiality be construed
broadly and comprehensively. All warranties set forth in this
Section shall survive termination of this Agreement for any
reason.
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<PAGE> 6
17. Atlantic Confidentiality. Atlantic warrants that Atlantic,
its officers, employees and agents will hold in strictest
confidence all information in any way related to Company and
Company's members, including, but not limited to names,
addresses, telephone numbers and all other information
regarding any member or their relationship with Company.
Atlantic warrants that Atlantic, its officers, employees and
agents will not use such information for any purpose other
than providing the services set forth in this Agreement.
Atlantic warrants that Atlantic, its officers, employees and
agents will not provide any information about Company or
Company's members to any third party without Company's prior
written consent. It is the express intent of the parties that
these warranties of confidentiality be construed broadly and
comprehensively. All warranties set forth in this Section
shall survive termination of this Agreement for any reason.
18. Assignment. This Agreement will be binding on the parties and
their respective successors and assigns. Atlantic's right to
assign this Agreement shall be subject to the written consent
of Company and such consent shall not be unreasonably
withheld. Atlantic may, without the necessity of obtaining
consent, assign this Agreement to a credit union service
organization or to any entity that directly or indirectly
controls or is controlled by Atlantic, which acquires all or
substantially all of its assets or into which it is merged or
reorganized. Company may not assign its rights under the
Agreement (except for the right to receive money) nor shall
controlling interest in Company be sold, transferred or
assigned to any party not currently an affiliate or a
shareholder of Company or a trust with a shareholder of
Company as trustee, without Atlantic first being given an
option to terminate this Agreement. Atlantic's option to
terminate shall continue for a period of twelve months after
assignment or transfer, but may be exercised only if there is
a substantial deterioration in the quality of Company's
services and support after the assignment or change in
controlling interest of Company. Such option to terminate
shall be exercised by notice given within the option period.
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<PAGE> 7
IN WITNESS WHEREOF, each party set forth below has executed this
Agreement as of the date of acknowledgment to be effective on the date first
written above.
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ WILLIAM G. MAGRO
-------------------------------------
William G. Magro
Title: President
-------------------------------------
ATLANTIC COAST FEDERAL CREDIT UNION
By: /s/ ROBERT J. LARISON
-------------------------------------
Robert J. Larison
Title: President
-------------------------------------
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<PAGE> 1
EXHIBIT 10.122
FIRST AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY
AGREEMENT
THIS FIRST AMENDMENT, dated as of September 23, 1999 ("Amendment"), to that
certain Revolving Credit, Term Loan and Security Agreement, dated as of March
31, 1999, by and between National Financial Auto Funding Trust (the "Borrower"
or "NFAFT"), National Auto Finance Company, Inc. ("NAFI") and First Union
National Bank ("FUNB" or the "Lender") (as amended from time to time, the
"Revolving Credit Agreement" or the "Agreement").
W I T N E S S E T H:
WHEREAS, the parties have previously entered into the Revolving Credit
Agreement pursuant to which FUNB agreed to make a revolving loan (the "Loan") to
the Borrower, secured by certain residual cash flows from the Original
Underlying Trusts (as defined in the Revolving Credit Agreement) and other
Collateral (as defined in the Revolving Credit Agreement) in the initial maximum
principal amount of eight million dollars ($8,000,000.00);
WHEREAS, pursuant to the Revolving Credit Agreement, the Borrower has
acquired all of the beneficial interest in the newly-formed National Auto
Finance 1999-1 Trust, (the "1999-1 Trust") and as a result of such acquisition
obtained new Collateral (as defined in the Revolving Credit Agreement);
WHEREAS, the Lender and the Borrower now wish to amend the Revolving Credit
Agreement to more clearly reflect the inclusion of this newly-acquired
Collateral;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of this
Amendment terms used in this Amendment shall have the meanings assigned to them
in the Revolving Credit Agreement.
SECTION 2. Amendments to Agreement. Effective upon the execution and
delivery of this Amendment, the Agreement shall be amended as follows:
a. Section 1.1 is hereby amended to add the following definitions:
"1999-1 INSURANCE AND INDEMNITY AGREEMENT" means the Insurance and
Indemnity Agreement, dated as of September 1, 1999, among FSA, National Auto
Finance 1999-1 Trust, the Borrower and NAFI, and as the same may be amended from
time to time.
"1999-1 INDENTURE" means the Indenture, dated September 1, 1999, between
National Auto Finance 1999-1 Trust, as issuer, and Harris, as indenture trustee,
and as the same may be amended from time to time.
<PAGE> 2
"1999-1 SALE AND SERVICING AGREEMENT" means the Sale and Servicing
Agreement, dated as of September 1, 1999, among National Auto Finance 1999-1
Trust, as issuer, the Borrower, as seller, NAFI, as servicer, and Harris, as
trust collateral agent and back-up servicer, and as the same may be amended from
time to time.
"1999-1 TRANSACTION" means the transactions contemplated and put into
effect by the Underlying Transaction Documents related to the 1999-1 Sale and
Servicing Agreement and the 1999-1 Insurance and Indemnity Agreement.
b. Section 1.1 is hereby amended to amend the following definitions:
"CONTRACT" with respect to the 1995-1 Transaction and the 1996-1
Transaction, has the respective meanings set forth in the Underlying Transaction
Documents therefor as of the date the related Underlying Transaction,
respectively, closed; and, with respect to the 1997-1 Transaction, the 1998-1
Transaction and the 1999-1 Transaction, has the meaning set forth in the
definition of "Receivable" set forth in the Underlying Transaction Documents
therefor as of the date the related Underlying Transaction, respectively,
closed.
"CONTRACT BALANCE" means, with respect to the 1995-1 Transaction and the
1996-1 Transaction, the "Outstanding Principal Balance" as defined therein as of
the date the related Underlying Transaction, respectively, closed; and, with
respect to the 1997-1 Transaction, the 1998-1 Transaction and the 1999-1
Transaction, the "Principal Balance", as defined therein as of the date the
related Underlying Transaction, respectively, closed, of any Contract.
"CUSTODIAN AGREEMENT" shall mean each of the Custodian Agreement, dated
as of October 15, 1998, among the Custodian, Harris, in its capacity as
Underlying Trustee, and NAFI, as administrator, and the Custodial Agreement,
dated September 1, 1999, between NAFI and Harris and as the each of the
foregoing same may be amended, modified or succeeded from time to time.
"INSURANCE POLICY" means with respect to any Contract, an insurance
policy covering physical damage to the related Vehicle or the collectibility of
the payments under the Contract; but shall not include any policy issued by FSA
under any of the 1995-1 Insurance and Indemnity Agreement, the 1996-1 Insurance
and Indemnity Agreement, 1997-1 Insurance and Indemnity Agreement, the 1998-1
Insurance and Indemnity Agreement or the 1999-1 Insurance and Indemnity
Agreement.
"INSURANCE TERMINATION DATE" means, in the singular, the termination
date (with such amendments as have been consented to by the Lender) of the
1995-1 Insurance and Indemnity Agreement, the 1996-1 Insurance and Indemnity
Agreement, the 1997-1 Insurance and Indemnity Agreement , the 1998-1 Insurance
and Indemnity Agreement or the 1999-1 Insurance and Indemnity Agreement, in each
case as such agreement terminates in accordance with its terms pursuant to
Section 4.01 of such agreement, and in the plural, all of such termination dates
but such Insurance Termination Dates shall be determined without regard to the
existence of any other transactions involving FSA and any member of the NAFI
Group (other than the Borrower).
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<PAGE> 3
"IRREVOCABLE INSTRUCTION LETTER" means, in the singular, any one of, and
in the plural, each of the Irrevocable Instruction Letters, executed by NAFI,
the Borrower, the Co-trustees of the Borrower, the Underlying Trustees and other
parties thereto as named therein, in the form attached as Exhibit G hereto.
"ORIGINAL UNDERLYING TRANSACTION DOCUMENTS" means the agreements,
contracts, documents, amendments, consents, instruments, certificates and other
papers executed in connection with the Original Underlying Transactions
including, but not limited to, the 1995-1 Insurance and Indemnity Agreement, the
1996-1 Insurance and Indemnity Agreement, the 1997-1 Insurance and Indemnity
Agreement, the 1998-1 Insurance and Indemnity Agreement, the 1999-1 Insurance
and Indemnity Agreement, the 1995-1 Pooling and Servicing Agreement, the 1996-1
Pooling and Servicing Agreement, the 1998-1 Sale and Servicing Agreement, the
1999-1 Sale and Servicing Agreement, the 1999-1 Sale and Servicing Agreement,
the 1997-1 Indenture, the 1998-1 Indenture and the 1999-1 Indenture, and as any
of the foregoing may have been or may hereafter be amended.
"PLEDGED CERTIFICATES" means, in the singular, any one of, and in the
plural, each of the certificates evidencing beneficial ownership interests in
either the National Auto Finance 1997-1 Trust, the National Auto Finance 1998-1
Trust or the National Auto Finance 1999-1 Trust.
"PRINCIPAL BALANCE" means with respect to any date of determination the
sum of the following principal balances as of the last day of the Due Period
immediately preceding such date of determination: (1) the "Pool Outstanding
Principal Balance" of each of the 1995-1 Transaction and the 1996-1 Transaction,
each as defined in its related Underlying Transaction as of the closing date
related thereto and (2) the "Principal Balance" of each of the 1997-1
Transaction, the 1998-1 Transaction and 1999-1 Transaction, each as also defined
in its related Underlying Transaction as of the closing date related thereto.
"TRANSACTION DOCUMENT", when used in the singular, and "TRANSACTION
DOCUMENTS" when used in the plural, means any and all of this Agreement, as
amended from time to time, the Note, the Irrevocable Instruction Letters, any
and all other agreements, amendments, consents, documents and instruments
executed and delivered by or on behalf of Borrower, NAFI, Lender, or any of
their respective authorized designees evidencing or otherwise relating to the
Loan and the Liens granted to Lender with respect to the Loan, as the same may
from time to time be amended, modified, supplemented or renewed.
"UNDERLYING DETERMINATION DATE" means the close of business of the last
day of the Due Period, or if such day is not a Business Day, the immediately
preceding Business Day.
"UNDERLYING TRANSACTION" means, in the singular, any one of, and, in the
plural, all of the Original Underlying Transactions, the 1999-1 Transaction and
any other transaction subject to the Lien of Section 10.1.
"UNDERLYING TRANSACTION DOCUMENTS" means the agreements, contracts,
documents, amendments, consents, instruments, certificates and other papers
executed in connection with the Underlying Transactions, as the same may have
been or may hereafter be amended, including, without
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<PAGE> 4
limitation, with respect to the Original Underlying Transaction Documents and
the 1999-1 Underlying Transaction.
"UNDERLYING TRUST" means, in the singular, any of National Auto Finance
1995-1 Trust, National Auto Finance 1996-1 Trust, National Auto Finance 1997-1
Trust, National Auto Finance 1998-1 Trust or National Auto Finance 1999-1 Trust;
and, in the plural, all of such trusts.
"UNDERLYING TRUSTEE" means, in the singular, either Chase or Harris, and
in the plural, both of them or any other person, including, without limitation,
any permitted successor and assign, acting in a similar capacity, in their
capacities as trustees, trust collateral agents or collateral agents in the
Underlying Transactions and any other trustee designated with respect to an
Underlying Transaction.
c. Section 10.1 (1) is hereby amended to read:
(1) the Trust Property of the 1995-1 Transaction and the 1996-1 Transaction (as
defined in the 1995-1 Pooling and Servicing Agreement and the 1996-1
Pooling and Servicing Agreement, respectively) and Trust Estates of the
1997-1 Transaction, 1998-1 Transaction and the 1999-1 Transaction (as
defined in the 1997-1 Sale and Servicing Agreement, the 1998-1 Sale and
Servicing Agreement and the 1999-1 Sale and Servicing Agreement,
respectively, subject, in each case, to the prior claims of (i) in the case
of the Trust Property of the 1995-1 Transaction, the parties referenced in
subsections (i) through (x) of Section 4.01 of the 1995-1 Pooling and
Servicing Agreement; (ii) in the case of the Trust Property of the 1996-1
Transaction, the parties referenced in subsections (i) through (x) of
Section 4.01 of the 1996-1 Pooling and Servicing Agreement; (iii) in the
case of the Trust Estate of the 1997-1 Transaction, the parties referenced
in subsections (b)(i) through (x) of Section 5.7 of the 1997-1 Sale and
Servicing Agreement; (iv) in the case of the Trust Estate of the 1998-1
Transaction, the parties referenced in subsections (b)(i) through (x) of
Section 5.7 of the 1998-1 Sale and Servicing Agreement; and (v) in the case
of the 1999-1 Transaction, the parties referenced in subsections (a)(i)
through (xii) of Section 5.7 of the 1999-1 Sale and Servicing Agreement;
and, further subject to the claims of any parties entitled, under the terms
of the aforementioned Underlying Transaction Documents, to amounts
deposited to the Collection Account (as such term is defined in each of the
aforementioned Underlying Transaction Documents) that do not constitute
Available Amounts (as such term is defined in each of the Underlying
Transaction Documents relating to the Original Underlying Transactions as
of April 7, 1999 which definition is set forth in Exhibit F hereto, and,
with respect to any other Underlying Transaction Documents as in effect on
the date hereof, but with any such changes thereto as shall have been
consented to by FUNB); and, further subject to the claims of any parties
entitled, under the terms of the aforementioned Underlying Transaction
Documents, to amounts deposited to the Collection Account (as such term is
defined in each of the aforementioned Underlying Transaction Documents)
that do not constitute Available Amounts (as such term is defined in each
of the Underlying Transaction Documents as in effect on the related closing
date, which definition, with respect to each of the Original Underlying
Transactions, is set forth in Exhibit F hereto, but with any such changes
thereto as shall have been consented to by FUNB).
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<PAGE> 5
d. Section 7.7 is hereby amended to read:
7.7 OTHER AGREEMENTS. Borrower is not a party to any material agreements other
than this Agreement, the other Transaction Documents and:
(1) the Note;
(2) the Irrevocable Instruction Letter;
(3) the Intercreditor Agreement
(4) the 1995-1 Pooling and Servicing Agreement;
(5) the Assignment Agreement; dated as of October 1, 1995, between
Bankers Trust Company, not in its individual capacity but solely as
trustee for the National Financial Auto Receivables Master Trust,
and the Borrower;
(6) the Transfer Agreement, dated as of October 1, 1995, between the
Borrower and Harris;
(7) the 1995-1 Insurance and Indemnity Agreement as amended as of March
31, 1998;
(8) the Indemnification Agreement dated as of November 21, 1995, among
FSA, the Borrower and First Union Capital Markets Corp.;
(9) the First Amended and Restated Master Spread Account Agreement,
dated as of March 31, 1998 among the Borrower, FSA and Harris (as
Trustee and Collateral Agent), and the Series 1996-1, 1997-1 and
1998-1 Supplements thereto;
(10) the Placement Agent Agreement, dated as of November 21, 1995,
between First Union Capital Markets Corp. and the Borrower;
(11) the 1996-1 Pooling and Servicing Agreement as amended as of March
31, 1998;
(12) the Purchase and Contribution Agreement, dated as of October 21,
1996, between NAFI and the Borrower;
(13) the Sale Agreement, dated as of October 21, 1996, between the
Borrower and National Financial Auto Funding Trust II;
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<PAGE> 6
(14) the Transfer Agreement, dated as of November 13, 1996, between the
Borrower and Harris;
(15) the 1996-1 Insurance and Indemnity Agreement;
(16) the Indemnification Agreement, dated as of November 13, 1996, among
FSA, the Borrower and First Union Capital Markets Corp.;
(17) the Underwriting Agreement, dated as of November 13, 1996, between
First Union Capital Markets Corp. and the Borrower;
(18) the 1997-1 Sale and Servicing Agreement;
(19) the Purchase and Contribution Agreement, dated as of July 29, 1997,
between NAFI and the Borrower;
(20) the Sale Agreement, dated as of June 29,1997, between National
Financial Auto Funding Trust II and the Borrower;
(21) the Indemnification Agreement, dated as of July 23, 1997, among
FSA, the Borrower and First Union Capital Markets Corp.;
(22) the 1997-1 Insurance and Indemnity Agreement as amended as of March
31, 1998;
(23) the Trust Agreement, dated as of July 21, 1997, between the
Borrower, as Depositor, and Wilmington, as Owner Trustee;
(24) the 1998-1 Sale and Servicing Agreement;
(25) the Trust Agreement, dated as of December 15, 1997, between the
Borrower and Wilmington;
(26) the Purchase and Contribution Agreement, dated as of December 15,
1997, between NAFI. and the Borrower;
(27) the Sale Agreement, dated as of December 15, 1997, between National
Financial Auto Funding Trust II and the Borrower;
(28) the 1998-1 Insurance and Indemnity Agreement as amended as of March
31, 1998;
(29) the Indemnification Agreement, dated as of January 20, 1998, among
FSA, the Borrower and First Union Capital Markets Corp.;
(30) the 1999-1 Sale and Servicing Agreement;
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(31) the Amended and Restated Trust Agreement, dated as of September 1,
1999, between NFAFT and Wilmington;
(32) the 1999-1 Insurance and Indemnity Agreement;
(33) the Indemnification Agreement, dated as of September 1, 1999, among
FSA and the Borrower;
(34) the Sale Agreement, dated as of August 1, 1999, between NFAFT and
NFAFT II;
(35) Series 1999-1 Supplement to the First Amended and Restated to
Master Spread Account Agreement, dated as of March 31, 1998 among
NFAFT, FSA and Harris; and
(36) Supplement to Backup Servicing Agreement, dated as of 8/1/99 among
NFAFT, NAFI and Harris.
(37) the 1999-1 Indenture.
e. Section 7.17 is hereby amended to read:
7.17 DELIVERY OF PHYSICAL CERTIFICATES. The Borrower has caused Wilmington
Trust Company, as Underlying Trustee of the 1997-1 Transaction, 1998-1
Transaction and the 1999-1 Transaction, to Deliver each of the Pledged
Certificates to the Lender.
e. Section 7.18 is hereby amended to read:
7.18 OWNERSHIP. The Borrower is 100% owned by NAFI, and each of the
1997-1 Trust, 1998-1 Trust and the 1999-1 Trust are 100% owned by the Borrower,
and (a) each Underlying Trustee has so registered the Borrower as the sole owner
of the Underlying Trust related to it upon such Underlying Trustee's books and
records and (b) the owner trustee of the Borrower has registered NAFI as the
sole owner of the Borrower on such owner trustee's books and records.
SECTION 3. Conditions Precedent. The Borrower represents and warrants that
all conditions precedent to the effectiveness of this Amendment have been met.
In addition, it shall be a condition precedent to the effectiveness of this
Amendment that the Borrower shall have delivered to the Lender an opinion of (a)
Morrison & Foerster LLP to the effect that this Amendment is duly authorized,
executed and delivered by the Borrower and is legal, valid, and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms, (b) of Morrison & Foerster LLP, with respect to the true
sale of the underlying 1999-1 trust property collateral from the Borrower to the
1999-1 Trust, (c) of Morrison & Foerster LLP, with respect to the security
interest of FUNB in the Collateral, (d) of Rogers, Towers, Bailey, Jones & Gay
with respect to the perfection and priority of First Union's security interest
in the First-Priority Collateral
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and (e) of Morrison & Foerster LLP, with respect to the nonconsolidation of the
Borrower and the 1999-1 Trust in the event that NAFI should become a debtor
under the Code.
SECTION 4. Effectiveness of Agreement. Except as expressly amended by the
terms of this Amendment, all terms and conditions of the Revolving Credit
Agreement shall remain in full force and effect.
SECTION 5. Execution in Counterparts, Effectiveness. This Amendment may be
executed by the parties hereto in several counterparts, each of which shall be
executed by the Borrower and the Lender and be deemed to be an original and all
of which shall constitute together but one and the same agreement.
SECTION 8. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO CONFLICT OF LAW PRINCIPLES.
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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 hereof.
NATIONAL FINANCIAL AUTO FUNDING TRUST,
as Borrower
By: CHASE MANHATTAN BANK DELAWARE
not in its individual capacity but
solely as Owner Trustee for National
Financial Auto Funding Trust
By: /s/ JOHN J. CASHIN
--------------------------------------
Printed Name: John J. Cashin
----------------------------
Title: Vice President
-----------------------------------
FIRST UNION NATIONAL BANK,
as Lender
By: /s/ AUTHORIZED SIGNATURE
--------------------------------------
Printed Name:
----------------------------
Title:
-----------------------------------
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EXHIBIT 10.123
SERVICING AGREEMENT
This Servicing Agreement, dated as of October 20, 1999 by and between
NATIONAL AUTO FINANCE COMPANY, Inc., a Delaware corporation, as Servicer
("Servicer" or "NAFI"), and ATLANTIC COAST FEDERAL CREDIT UNION, a credit union
organized and existing under the laws and regulations of the United States of
America ("Owner"), as owner of the certain receivables related to the sale or
lease of automobiles and/or light trucks (collectively, "Automobiles").
WHEREAS, Owner is engaged in the business of providing financing, to
finance the purchase or lease of such Automobiles and holds the receivables
arising therefrom ("Receivables").
WHEREAS, NAFI is engaged in the business of, among other things, making
and extending credit on Automobiles and servicing Receivables arising with
respect thereto, and Owner desires to retain NAFI to provide certain collection
services and NAFI is willing to provide such services pursuant to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties intending to be
legally bound, mutually agree with each other as follows:
ARTICLE I
DEFINITIONS
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and/or policies
of a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise.
Agreement: This Servicing Agreement including any exhibits or schedules
hereto and all amendments hereof and supplements hereto.
Business Day: A day other than a Saturday, Sunday, or a day on which
the executive offices of Servicer are closed, or any day that commercial banks
or Federal Reserve Banks serving the Owner or the Servicer are closed.
Certificate of Title: The actual motor vehicle title in question or the
application therefor pending issuance of the actual title.
Delinquent Obligor: With respect to any Receivable, the Obligor of such
Receivable that is delinquent seven (7) or more days in tendering a Scheduled
Payment.
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Financed Vehicle: Any Automobile and related personal property,
together with all repairs, warranties, service contracts, and accessions thereto
which secure an Obligor's indebtedness and other obligations under a Receivable.
Government Authority: With respect to any Person, property or matter,
any federal, state or local governmental or quasi-governmental entity, body,
agency, authority, political subdivision, department, commission,
instrumentality, board, tribunal, administration, court or other authority
having or asserting jurisdiction over such Person, property or matter.
Law: With respect to any Person, property or matter, any judgment,
order, decree, writ, injunction, award, statute, rule, law, regulation,
published Government Authority or agency interpretation, ordinance, code or
other requirements applicable to such Person, property or matter.
Liquidated Receivable: Any Receivable which has been (a) charged-off by
Owner, (b) which Financed Vehicle has been sold or otherwise disposed of after
repossession, or (c) paid in full by the Obligor.
Material Adverse Effect: With respect to a Person or Receivable, shall
mean an event, change or occurrence which, individually, or together with any
other event, change or occurrence, has a material adverse effect on (i) the
financial position, business, or results of operations of such Person and its
subsidiaries or Affiliates, taken as a whole; (ii) the ability of such Person to
perform its obligations under this Agreement or to consummate the other
transactions contemplated by this Agreement; or (iii) the value, enforceability
or marketability of any Receivable or any Financed Vehicle.
Obligor: With respect to any Receivable, the purchaser, co-purchaser,
lessee, or co-lessee of the related Financed Vehicle or any other Person who
owes or may be liable for payments under such Receivable, whether as a
guarantor, endorser or otherwise.
Owner: The Person identified on the first page of this Agreement as
Owner of the Receivables to be serviced under this Agreement.
Person: Any individual, corporation, partnership, joint venture,
limited liability company, limited liability partnership, association,
joint-stock company, trust, unincorporated organization, business association,
group acting in concert or other organization, whether acting as principal or in
any representative capacity or any government or any agency, Government
Authority or political subdivision thereof.
Permit: Any federal, state, local, and foreign governmental approval,
authorization, certificate, easement, filing, franchise, license, notice,
permit, or right to which any Person is a party or that is or may be binding
upon or inure to the benefit of any Person or its securities, assets, or
business.
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Receivable: Any retail installment contract, closed-end lease
agreement, security agreement, conditional sales contract, chattel paper and
related promissory note, or any other obligation, evidencing an Obligor's
obligation arising from the bona fide sale or lease of a motor vehicle by a
dealer to such Obligor, and which the Owner shall deliver to Servicer for
servicing pursuant to the terms of this Agreement.
Receivable File: With respect to any Receivable, the file accessible to
Servicer through electronic transmission from Owner, which file shall contain a
data entry worksheet, "real time" payment history, the Obligor application, the
retail installment sales contract, closed end lease agreement, promissory note
and/or security agreement which relate to the Receivable, and such other
information, documents, instruments, electronic entries and writings as the
Owner shall supply or the Servicer shall reasonably request the Owner to supply.
Repossession Fee: With respect to any Receivable and subject to all
applicable Laws for the jurisdiction where such Receivable is located, a fee
payable to Servicer by Owner in an amount to which Owner and Servicer shall
agree on a case by case basis per repossession as compensation for Servicer
repossessing and disposing of a Financed Vehicle pursuant to the terms of this
Agreement plus reimbursement of reasonable expenses.
Scheduled Payment: With respect to any Receivable, the amount indicated
in such Receivable as required to be paid by the Obligor during each calendar
month by the due date specified in such Receivable.
Servicer: National Auto Finance Company, Inc..
Servicing Compensation: The Servicing Fee, and the other amounts to
which Servicer is entitled pursuant to Section 3.7 of this Agreement.
Servicing Fee: With respect to each Receivable (except Receivables in
bankruptcy or repossession) delivered to Servicer at any time during a calendar
month, an amount equal to $29.50 per Receivable per calendar month paid to
Servicer by Owner for servicing such Receivable payable monthly. Such Servicing
Fee shall be subject to adjustment upon mutual agreement of Servicer and Owner.
Term: The term of this Agreement as set forth in Section 7.1 hereof.
Termination Fee: A fee set forth in Section 7.1 of this Agreement.
Initial Termination Fee: A fee set forth in Section 7.1 of this
Agreement.
Transfer Fee: With respect to each Receivable (delinquent or otherwise)
delivered to Servicer at any time during the calendar month, a one time per
Receivable Transfer Fee equal to $10.00 to cover Servicer's expenses to board a
Receivable onto its electronic information system.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF SERVICER. Servicer
represents, warrants and covenants to Owner as follows:
(a) It is a corporation, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power and
authority to own its assets and to transact the business in which it is
currently engaged. It is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the business transacted by it or
properties owned or leased by it requires such qualification and in which the
failure so to qualify would have a Material Adverse Effect;
(b) It has the corporate power and authority to make, execute, deliver
and perform this Agreement and all of the transactions contemplated herein, and
has taken all necessary corporate action to authorize the execution, delivery
and performance of this Agreement. When executed and delivered, this Agreement
will constitute a legal, valid and binding obligation of Servicer, enforceable
in accordance with its terms, except as enforcement of such terms may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally, by general principles of equity and by the possible
unavailability of equitable remedies, indemnity or contribution, and where
against public policy;
(c) It holds all necessary Permits from all Government Authorities
necessary for conducting its business as it is presently conducted except where
the failure to have such licenses, certificates and Permits would not have a
Material Adverse Effect. It is not required to obtain the consent of any other
party or any Permit from any Governmental Authority in connection with the
execution, delivery, performance, validity or enforceability of this Agreement,
except for such Permits as shall have been obtained or filed by Servicer prior
to the date of this Agreement;
(d) Servicer's execution, delivery and performance of this Agreement
will not conflict with, or result in a breach of, or constitute a default under:
(i) any provision of any existing Law or regulation or any order or decree of
any court applicable to Servicer or any of its properties, or (ii) any provision
of the Servicer's Articles of Incorporation or Bylaws, or constitute a material
breach of, or result in the creation or imposition of any lien, charge or
encumbrance upon any of its properties pursuant to, any mortgage, indenture,
contract or other agreement to which it is a party or by which it may be bound
and which would have a Material Adverse Effect;
(e) The collection practices used by Servicer with respect to each
Receivable will be in all material respects in compliance with all applicable
law, prudent and customary in the loan origination and servicing business and in
compliance with Servicer's servicing procedures for similar receivables, loans,
obligations or accounts;
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(f) No litigation or administrative proceeding of or before any court,
tribunal or Governmental Authority is currently pending, or, to Servicer's
knowledge, threatened, against Servicer or any of its properties that is
reasonably expected to have a Material Adverse Effect or which questions the
validity or enforceability of this Agreement; and
(g) Servicer's computer and other systems supporting the servicing of
the Receivables will be modified and maintained to operate in a manner such that
at all times, including on and after January 1, 2000, Servicer will possess the
capability of servicing the Receivables in accordance with the terms of this
Agreement.
SECTION 2.2 REPRESENTATIONS AND WARRANTIES OF OWNER. Owner represents,
warrants and covenants to Servicer as follows:
(a) It is a credit union, validly existing and in good standing under
the law of the jurisdiction where it is chartered and has the requisite power
and authority to own its assets and to transact the business in which it is
currently engaged. It is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the business transacted by it or
properties owned or leased by it requires such qualification and in which the
failure so to qualify would have a Material Adverse Effect;
(b) It has the power and authority to make, execute, deliver and
perform this Agreement and all of the transactions contemplated herein, and has
taken all necessary action to authorize the execution, delivery and performance
of this Agreement. When executed and delivered, this Agreement will constitute a
legal, valid and binding obligation of Owner, enforceable in accordance with its
terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar Laws affecting the enforcement of creditors' rights
generally, by general principles of equity and by the possible unavailability of
equitable remedies, indemnity and contribution, and where against public policy;
(c) It holds all necessary Permits from all Government Authorities
necessary for conducting its business as it is presently conducted except where
the failure to have such Permits would not have a Material Adverse Effect. It is
not required to obtain the consent of any other party or any Permit from any
Governmental Authority in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, except for such Permits as shall
have been obtained or filed by Owner prior to the date of this Agreement;
(d) Owner's execution, delivery and performance of this Agreement will
not conflict with, or result in a breach of, or constitute a default under: (i)
any provision of any existing Law or regulation or any order or decree of any
court applicable to Owner or any of its properties, or (ii) any provision of the
Owner's Charter or Bylaws, or constitute a material breach of, or result in the
creation or imposition of any lien, charge or encumbrance upon any of its
properties pursuant to, any mortgage, indenture, contract or other agreement to
which it is a party or by which it may be bound and which would have a Material
Adverse Effect;
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(e) No litigation or administrative proceeding of or before any court,
tribunal or Governmental Authority is currently pending, or, to Owner's
knowledge, threatened, against Owner or any of its properties that is reasonably
expected to have a Material Adverse Effect or which questions the validity or
enforceability of this Agreement;
(f) All information provided to Servicer by Owner regarding any
Receivable tendered or to be tendered to Servicer for servicing is true and
correct in all material respects;
(g) All Receivables which Owner seeks to have Servicer service
hereunder will be secured by, or involve the leasing of, an Automobile, will be
duly and validly authorized, executed and delivered by the related Obligor and
will constitute a legal, valid and binding obligation of the related Obligor,
and in which Owner has a valid, perfected and subsisting first priority lien or
security interest;
(h) All Receivables tendered to Servicer by Owner for servicing will
comply in all respects with all applicable Government Authority Laws and/or
regulations, including but not limited to usury, credit reporting,
truth-in-lending, and provisions of the Laws of the jurisdiction where the
Receivable originated which pertain to the financing and leasing of Automobiles,
and Owner shall be solely responsible therefor. However, Owner makes no such
warranties regarding the compliance of any Receivables with applicable
Government Authority Laws and/or regulations as such Government Authority Laws
and/or regulations relate to any actions taken by Servicer as to any
Receivables.
SECTION 2.3 BREACH OF REPRESENTATIONS AND WARRANTIES.
It is understood and agreed that the representations and warranties set
forth in this Article II shall exist until such time as this Agreement is
terminated. Upon discovery by Servicer or Owner, as the case may be, of a breach
of any of the foregoing representations, warranties and covenants, the Person
discovering such breach shall give prompt written notice to the other party. The
breaching party shall cure such breach in all material respects within sixty
(60) days of its discovery or its receipt of notice of breach, or, with the
prior written consent of an officer of the non-breaching party, such longer
period as is specified in such consent.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 3.1 DELIVERY OF DELINQUENT RECEIVABLES
At any time during each calendar month during the Term of this
Agreement, Owner will refer for servicing its indirect Receivables which have
become seven (7) calendar days delinquent for any Scheduled Payment. Servicer
shall then service such Receivables for the benefit of Owner pursuant to this
Agreement until such Receivables
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(a) become sixty-one (61) calendar days delinquent (b) such Receivables are
liquidated; (c) the Obligor of any such Receivable has died; (d) any of such
Receivables are in litigation, repossession, bankruptcy, or charged-off by
Owner; or (e) this Agreement is terminated as set forth herein. In the event of
the occurrence of (a), (c), and/or (d) of the preceding sentence, any such
Receivables will be referred back to Owner for further action or servicing as
the case may be. Except as otherwise set forth in this Agreement, Owner shall
suspend any and all servicing activities on all Receivables referred to and
serviced by Servicer.
SECTION 3.2 DUTIES OF SERVICER.
(a) Servicer, as agent for Owner, shall service, administer and make
collections on the Receivables (i) in accordance with all applicable Law, with
the applicable provisions of the Receivable and (ii) in conformity with
Servicer's Collection Policy; a copy of which is attached hereto as Exhibit A.
Servicer agrees to provide Owner any revisions and replacements to such
Collection Policy within fifteen (15) days after such revisions or replacements
are made by Servicer.
(b) Servicer's duties shall be limited to collection activities as set
forth in Exhibit A including making collection calls to Delinquent Obligors and
such other services as Servicer and Owner may agree to in writing from time to
time.
(c) Servicer shall use reasonable efforts to effect collections of
accounts referred to it by Owner. Unless otherwise instructed by Owner, all
collection efforts shall be conducted in Servicer's name and Servicer agrees
that it shall comply with all provisions of the Fair Debt Collection Practices
Act and applicable state statutes.
SECTION 3.3 COLLECTION AND ALLOCATION OF RECEIVABLE PAYMENTS.
Consistent with the terms of this Agreement, Servicer shall make
reasonable efforts to timely collect all payments lawfully called for under the
terms and provisions of the Receivables as and when the same shall become due,
and shall follow such collection procedures as it follows with respect to all
comparable Automobile receivables that it services for itself. Payment
acceptance and processing with respect to the Receivables, will be retained
solely by Owner.
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SECTION 3.4 REALIZATION UPON RECEIVABLES.
(a) Owner retains the absolute right to manage the repossession of any
Financed Vehicle. At Owner's direction, Financed Vehicles may be referred to
Servicer from time to time for repossession of the Financed Vehicle. In such
event, Servicer shall use all commercially reasonable efforts consistent with
its servicing procedures set forth herein, to lawfully repossess or otherwise
convert the ownership of the Financed Vehicle securing any Receivable as to
which Owner shall have determined eventual payment in full is unlikely, and
where permitted by the express terms of the Receivable and applicable Law.
Servicer shall commence efforts to repossess or otherwise convert the ownership
of a Financed Vehicle; provided, however, that Servicer may elect not to
commence such efforts within such time period if, in good faith and reasonable
judgment, it determines either that such action would violate the terms of the
related Receivable, it would be impracticable to do so or that the proceeds
ultimately recoverable with respect to such Receivable would be increased by
forbearance, in which case, such Receivable shall be referred back to Owner for
further action.
(b) Owner specifically acknowledges that upon repossession of any
Financed Vehicle, Servicer shall sell all repossessed Financed Vehicles at
auction unless it determines in its good faith and reasonable judgment either
that it would be impractical to do so or that the proceeds ultimately
recoverable with respect to such Receivable would be increased by an alternative
sale procedure. The foregoing shall be subject to the provision that, in any
case in which the Financed Vehicle shall have suffered damage, Servicer shall
not expend funds in connection with the repair or the repossession of such
Financed Vehicle unless it shall determine in its good faith and reasonable
discretion that such repair and/or repossession will increase the net proceeds
ultimately recoverable with respect to such Receivable by an amount greater than
the amount of such expenses. All amounts received upon sale of a Financed
Vehicle shall be remitted directly by Servicer to Owner. If Servicer in good
faith decides not to sell the Financed Vehicle at auction or at private sale or
the Financed Vehicle if offered for auction or sale and not sold, the Owner
shall then give Servicer written instructions with respect to disposing of such
Financed Vehicle.
(c) If Servicer receives a notice that an Obligor has died or has filed
for relief under the United States Bankruptcy Code, Servicer shall notify Owner
of such death or the filing for relief under the United States Bankruptcy Code
and refer the Receivable back to Owner.
SECTION 3.5 PHYSICAL DAMAGE INSURANCE; OTHER INSURANCE.
Servicer shall have no obligation to monitor the maintenance of, or
enforce liability, physical damage, theft, loss or other insurance by any
Obligor with respect to a Financed Vehicle.
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SECTION 3.6 SERVICING COMPENSATION AND SERVICER EXPENSES.
(a) As compensation for its collection services hereunder, Servicer
shall bill Owner once each calendar month a servicing fee (the "Servicing Fee")
of $29.50 per Receivable referred to Servicer and for which collection
activities have been initiated during the preceding calendar month (excluding
any Receivables in bankruptcy or repossession). In addition to such Servicing
Fee and subject to Owner's prior written approval, Owner will also pay for any
and all third party expenses related to such collection activities including
charges such as field hits and special investigations.
(b) In addition, Servicer shall bill Owner a one-time Transfer Fee of
$10.00 per Receivable for Receivables referred to Servicer for servicing for the
preceding calendar month.
(c) In addition to the Repossession Fee paid to Servicer upon
assignment by Owner of a Receivable for repossession and disposition, Owner
shall be required to pay all reasonable third party expenses related to the
repossession and disposition of a Financed Vehicle.
(d) Servicer shall tender to Owner a billing statement on the fifteenth
(15th) day of the next succeeding calendar month following the calendar month in
which such fees and expenses accrue. In the event payment of each such billing
statement is not received by Servicer by the first (1st) day of the following
calendar month, Servicer may assess Owner a late fee of two percent (2%) per
month of the gross amount of each such billing statement until paid in full.
SECTION 3.7 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
RECEIVABLES.
The Servicer and the Owner, and their respective representatives shall
be permitted, following reasonable notice to the other and during regular
business hours, to inspect, audit, and make copies of and abstracts from the
other's records regarding any Receivables, Delinquent Obligors or related
Obligors.
SECTION 3.8 INSURANCE CONTINGENT DISASTER RELIEF PROTECTION.
Servicer shall maintain, at its own expense, a computer disaster
recovery plan and computer disaster recovery procedures in forms consistent with
industry standards of prudent institutional receivables servicers, including
procedures that address Year 2000 compliance and Year 2000 contingency programs.
No provision of this Section requiring such a plan and such procedures shall
diminish or relieve Servicer from its duties and obligations as set forth in
this Agreement. Upon written request, Servicer shall cause to be delivered to
Owner such plan and such procedures.
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SECTION 3.9 POSSESSION OF RECEIVABLE FILES.
Owner shall, upon the execution and delivery of this Agreement, make
accessible by electronic transmission to Servicer copies of documents in each
Receivable File, including "real time" payment histories, the Certificate of
Title, Obligor application, the retail installment sales contract, closed-end
lease agreement, promissory note and/or security agreement. Upon the referral
and initiation of collection activities on each such Receivable, Owner shall
enable Servicer to electronically place a "hold" on any specific Receivable File
to reflect electronically and otherwise that all activity on such account, must
be approved by Servicer before any action is taken, including specifically,
payment acceptance and processing. Servicer's access to such Receivable Files is
for the sole purpose of servicing the related Receivables. In the event any
Receivable is returned to Owner for any reason, Owner shall terminate Servicer's
access to such Receivable File.
ARTICLE IV
OWNER
SECTION 4.1 LIABILITY OF OWNER.
Owner shall be liable in accordance herewith only to the extent of the
obligations specifically imposed by this Agreement.
SECTION 4.2 INDEMNIFICATION OF OWNER.
Servicer shall indemnify and hold Owner and Owner's officers,
employees, agents, representatives and controlling Persons harmless from and
against any and all losses, claims, damages, liabilities, regulatory or civil
actions, costs or expenses (including any attorneys' fees or other expenses
reasonably incurred by Owner in connection with investigating any claim against
it and defending any action and any amounts paid in settlement or compromise)
that arise out of or are based upon (a) the failure of Servicer, its officers,
employees or agents to conform to the statutes, ordinances and other regulations
and requirements of any Governmental Authority in connection with performance of
this Agreement, (b) the negligence of Servicer, its officers, employees and
agents, (c) any action or inaction of Servicer, its officers, employees and
agents in performing the obligations of Servicer under this Agreement or any
Receivable thereunder, and (d) any breach by Servicer, its officers, employees
or agents of any term, condition, warranty, representation or any other portion
of this Agreement. Notwithstanding anything in this Agreement to the contrary,
Servicer's duties as set forth in this Section shall survive termination of this
Agreement for any reason.
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ARTICLE V
SERVICER
SECTION 5.1 LIMITATION ON LIABILITY OF SERVICER AND OTHERS.
Owner, Servicer and any director, officer, employee or agent of Owner
or Servicer may rely in good faith on any document of any kind which, prima
facie, is properly executed and submitted by any appropriate Person respecting
any matters arising hereunder. Servicer shall not be under any obligation to
appear in, prosecute or defend any action, claim or other proceeding (other than
customary collection activities with respect to any Receivable) that in the
Servicer's opinion may involve expense or liability to the Servicer.
SECTION 5.2 INDEMNIFICATION OF SERVICER.
Owner shall indemnify and hold Servicer and Servicer's officers,
employees, agents, representatives and controlling Persons harmless from and
against any and all losses, claims, damages, liabilities, regulatory or civil
actions, costs or expenses (including any attorneys' fees or other expenses
reasonably incurred by Servicer in connection with investigating any claim
against it and defending any action and any amounts paid in settlement or
compromise) that arise out of or are based upon (a) the failure of Owner, its
officers, employees or agents to conform to the statutes, ordinances and other
regulations and requirements of any Governmental Authority in connection with
performance of this Agreement, (b) the negligence of Owner, its officers,
employees and agents, (c) any action or inaction of Owner, its officers,
employees and agents in performing the obligations of Owner under this Agreement
or any Receivable thereunder, and (d) any breach by Owner, its officers,
employees or agents of any term, condition, warranty, representation or any
other portion of this Agreement. Notwithstanding anything in this Agreement to
the contrary, Owner's duties as set forth in this Section shall survive
termination of this Agreement for any reason.
ARTICLE VI
DEFAULT
SECTION 6.1 EVENTS OF DEFAULT. The following events by Servicer or
Owner shall be Events of Default under this Agreement:
(a) Failure on the part of Servicer or Owner duly to observe or
perform, in any material respect any of the covenants, obligations or agreements
set forth in this Agreement, which failure is not cured within sixty (60) days
after the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to Servicer or Owner, as the case may be, or, if
such failure cannot reasonably be cured within sixty (60) days, such party has
not commenced and diligently pursued the cure of such failure within sixty (60)
days after the date of such notice; or
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<PAGE> 12
(b) A decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against Servicer or Owner and such decree or
order shall have remained in force, undischarged or unstayed for a period of
sixty (60) days; or
(c) Servicer or Owner shall consent to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to Servicer or
Owner, as the case may be, or of or relating to all or substantially of
Servicer's or Owner's property, as the case may be; or
(d) Servicer or Owner shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations; or
(e) Any representation or warranty of Owner in this Agreement is false,
incorrect or misleading in any material respect, or if any representation or
warranty contained in any reports, documents, certificates or other papers
delivered to Servicer from time to time, is false, incorrect or misleading in
any material respect, and is not cured within sixty (60) days of written notice
thereof to Owner; or
(f) Any representation or warranty of Servicer in this Agreement is
false, incorrect or misleading in any material respect, or if any representation
or warranty contained in any reports, documents, certificates or other papers
delivered to Owner from time to time is false, incorrect or misleading in any
material respect and is not cured within sixty (60) days of written notice
thereof to Servicer.
SECTION 6.2 NOTICE OF DEFAULT AND/OR TERMINATION.
Upon the happening of an Event of Default as provided in Section 6.1
above, the non-defaulting party shall give written notice of such Event of
Default to the defaulting party who shall have sixty (60) days to cure such
default. After the expiration of sixty (60) days from such written notice and if
the default is still not cured, then the non-defaulting party may commence
termination of all the rights and obligations of both parties under this
Agreement in accordance with Section 7.1 of this Agreement; provided that the
party seeking termination shall give sixty (60) days written notice of such
termination.
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<PAGE> 13
ARTICLE VII
TERMINATION OF THE SERVICING AGREEMENT
SECTION 7.1. TERM AND TERMINATION.
This Agreement shall be effective upon its execution but operative upon
Owner's transmission of any Receivable File(s) to Servicer for servicing
pursuant to this Agreement. Such transmission and acceptance thereof by Servicer
shall be acknowledged by both parties in writing declaring the day on which such
transmission occurs as the operative date (the "Operative Date") of this
Agreement. Owner acknowledges that upon execution of this Agreement, Servicer
will incur considerable expense to prepare an environment into which Receivable
Files will be transmitted for servicing. As a consequence, if Owner fails to
commence transmitting Receivable Files as contemplated by this Agreement within
thirty (30) calendar days after Servicer has declared such environment ready to
accept such Receivable Files, Owner agrees to pay Servicer ten thousand dollars
and no cents ($10,000) in liquidated damages due and payable upon demand.
Payment of such liquidated damages shall be in lieu of Owner's obligations to
pay the Initial Termination Fee or the Termination Fees as defined herein.
Furthermore, upon payment of such liquidated damages, this Agreement shall be
terminated. The Term of this Agreement shall be for an initial period (the
"Initial Period") of one year from the date hereof, renewable by Servicer on
each anniversary of the date hereof (the "Anniversary Date") for an additional
one year such that, if so renewed, the Term of this Agreement shall be extended
one year from each such Anniversary Date. Servicer shall renew this Agreement by
giving written notice to Owner of its desire to renew at least thirty (30) but
no more than forty-five (45) days prior to each Anniversary Date hereof. Upon
each such renewal of the Agreement, the parties hereto shall renegotiate the
Servicing Fee to be assessed by Servicer and paid by Owner for the succeeding
Term of this Agreement. In the event Owner and Servicer cannot agree to the
amount of the Servicing Fee, the Agreement will terminate on the Anniversary
Date. Owner reserves the right to prevent renewal of this Agreement for any
additional one year period by providing Servicer at least sixty (60) days'
written notice prior to any Anniversary Date of Owner's decision not to renew
the Agreement. Notwithstanding any term or provision of this Agreement to the
contrary, the Term of this Agreement shall be terminated upon the happening of
any of the following events: (a) at the election of Owner during the Initial
Term hereof, after (180 days after date of Agreement) and upon giving Servicer
sixty (60) days written notice pursuant to Section 8.5 hereof and remitting a
Initial Termination Fee to Service equal to one calendar month's average
servicing billing; (b) collection by Servicer and liquidation with respect to
the last Receivable serviced by Servicer; (c) the mutual written consent of
Servicer and Owner; or (d) Servicer or Owner has an uncured Default under
Article VI hereof, and the non-defaulting party has given the defaulting party
notice of termination as provided in Article VI. In the event Owner, without
cause, including during the Initial Period hereof, terminates this Agreement
prior to the liquidation of all or substantially all Receivables serviced
hereunder, then Owner agrees to pay as a termination fee ("Termination Fee") an
amount equal to twice one calendar month's average billing.
13
<PAGE> 14
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 SEVERABILITY OF PROVISIONS.
Any provision of this Agreement which is prohibited or which is held to
be void or unenforceable shall be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof. Any
provision of this Agreement which is prohibited or unenforceable or is held to
be void or unenforceable in any jurisdiction shall be ineffective, as to such
jurisdiction, only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction as to any provision shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable Law, the parties hereto waive any provision of Law which
prohibits or renders void or unenforceable any provision hereof.
SECTION 8.2 AMENDMENT.
This Agreement may be amended from time to time only by a writing
signed by the Servicer and the Owner.
SECTION 8.3 DURATION OF AGREEMENT.
This Agreement shall continue in existence and effect until terminated
as herein provided.
SECTION 8.4 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida, without regard to the conflicts of laws or
choice of laws rules, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
SECTION 8.5 NOTICES.
Any notice, request, demand or other communication shall be
sufficiently given if in writing and delivered in person or transmitted by
telecopier (confirmed by reliable overnight delivery service guaranteeing
delivery by 10:30 A.M. on the next Business Day) or mailed by registered or
certified mail, postage prepaid, return receipt requested, or sent by reliable
overnight delivery service, addressed as follows:
14
<PAGE> 15
If to Servicer: National Auto Finance Company, Inc.
10302 Deerwood Park Blvd., Suite 100
Jacksonville, FL 32256
Attention: Peter Benes
Telephone Number: 904/996-2579
Fax Number: 904/996-2541
If to Owner: Atlantic Coast Federal Credit Union
505 Haines Avenue
Waycross, GA 31501
Attention: Karen Stewart
Telephone Number: _____________
Fax Number: __________________
SECTION 8.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which, when taken together, shall
constitute but one and the same instrument.
SECTION 8.7 WAIVERS.
No term or provision of this Agreement may be waived or modified unless
such waiver or modification is in writing and signed by the party against whom
such waiver or modification is sought to be enforced.
SECTION 8.8 EXHIBITS.
The schedules and exhibits to this Agreement, as amended and in effect
from the time of such amendment until subsequent amendment thereto, if any, are
hereby incorporated and made a part hereof and are an integral part of this
Agreement.
SECTION 8.9 GENERAL INTERPRETIVE PRINCIPLES.
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(b) references herein to "Articles," and "Sections" and other
subdivisions without reference to a document are to designated Articles and
Sections and other subdivisions of this Agreement;
15
<PAGE> 16
(c) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision;
(d) the term "include" or "including" shall mean without limitation by
reason of enumeration; and
(e) the cover page, headings and subheadings hereof have been provided
for convenience of reference only and are not intended to and shall not, affect
the construction or interpretation of this Agreement.
SECTION 8.10 ASSIGNMENT.
This Agreement shall not be assigned by the Servicer without the prior
written consent of the Owner, which consent shall not be unreasonably withheld,
except as otherwise provided herein. Upon assignment by Owner of the
Receivables, all of Servicer's obligations herein shall remain in full force and
effect and such assignee shall succeed to all of the rights and obligations of
the Owner hereunder with the same force and effect as if said assignee had been
a party hereto and had executed the same in place of Owner.
SECTION 8.11 CONFIDENTIALITY AND NONSOLICITATION.
(a) Servicer hereby agrees with Owner and confirms that the names of
the applicants for, Delinquent Obligors or Obligors under, any of the
Receivables, and any financial information, documentation of the Receivables,
terms, conditions and pricing of the proposed Receivables and underwriting
procedures and all other data, information or documentation which has been
disclosed to, or obtained by the Servicer with respect to this Agreement and, as
may hereafter be disclosed to, or obtained by the Servicer constitute valuable,
confidential, proprietary information belonging solely to the Owner. Herein all
such information is called "Confidential Information". "Confidential
Information" shall exclude any information which was in Servicer's possession
prior to its disclosure or release by or on behalf of Owner to Servicer, is
generally available to the public, or is known to the public or becomes known to
the public through no fault of the Servicer or is disclosed in accordance with
an order of a court or other authority, or which consists of forms not
proprietary to the Owner, such as any forms of any Governmental Authority. Owner
specifically consents to Servicer issuing a press release announcing the
establishment of this and any other business relationship between the parties
hereto.
(b) Servicer shall, and shall cause its employees, agents, accountants,
counsel, service bureaus, independent contractors, representatives and other
Persons performing services for it, to keep strictly confidential all such
Confidential Information and to use such Confidential Information solely in
furtherance of performing its obligations under this Agreement, shall not
disclose or use, and shall use all reasonable efforts to cause its employees,
agents, accountants, counsel, service bureaus, independent contractors,
representatives and others performing services for it not to disclose or use,
directly or
16
<PAGE> 17
indirectly, such Confidential Information for any other purpose or with any
other investment banker, applicant Delinquent Obligors or Obligor or other
Person, except to the extent expressly permitted hereunder. Servicer shall not
use and shall not disclose to and shall prevent the use by others of any
Confidential Information supplied under this Agreement to: (i) offer or supply
the services to be provided by Owner and/or its Affiliates and contractors in
connection with originating, funding, selling, securitizing or otherwise in
connection with financing competitive with the Receivables, or to solicit, or to
otherwise solicit any business of any Obligor or applicants for the Receivables
with respect to any similar services or receivables similar to, a substitute
for, or competitive with the Receivables, without Owner's express prior written
consent. The immediately foregoing sentence is not intended to, and shall not,
restrict Servicer's provision of services to other Persons without disclosure or
use by Servicer or any such other Person of any Confidential Information.
(c) Servicer, the Servicer's Affiliates and controlling Persons,
together with any Persons with which the Servicer or such Persons may have a
relationship with respect to financing of the type represented by the
Receivables shall also keep strictly confidential the names, addresses and all
other information, financial or otherwise, of the Delinquent Obligors, Obligors
or applicants of the Receivables which have been disclosed to, or which may come
to the attention of Servicer in connection with the performance of this
Agreement and Servicer shall not use or disclose, and shall take all reasonable
measures to prevent any of its employees, officers, directors, agents,
Affiliates, controlling Persons, or other representatives to use or disclose,
and shall prevent all other Persons from using or disclosing such information
for any purpose except in furtherance of the functions to be performed by the
Servicer pursuant to this Agreement.
(d) In addition, Servicer shall not solicit any Obligors or applicants
for Receivables for any financing similar to, a substitute for or competitive
with other business of any such applicant, Delinquent Obligors or Obligor or
after the termination of this Agreement, use any list, other data or documents
related to or provided by Owner that is Confidential Information, including, any
underwriting procedures, or other Confidential Information utilized or obtained
in connection with the Receivables to solicit the applicants or Obligors of the
Receivables or other customers of Owner or its Affiliates.
(e) Servicer may hereafter disclose any Confidential Information
received by it to its directors, officers, and financial and legal advisers and
any independent contractors and service bureaus solely for the purpose of, and
then only as reasonably necessary in connection with, and in furtherance of, the
performance of its functions as Servicer thereunder; provided that the Servicer,
prior to any such disclosure, informs all such Persons of the confidential
nature of such Confidential Information and of the terms of this provision prior
to the delivery of any such information and that by receiving such information,
such Persons agree to be bound by this provision. Servicer shall not, and shall
cause its directors, officers, employees, agents, independent contractors,
service bureaus, advisors, representatives and controlling Persons not to make
any disclosure or
17
<PAGE> 18
improper use of Confidential Information, unless advised by counsel that such
disclosure is required under applicable Law.
(f) Servicer understands that all Confidential Information is and shall
continue hereunder to be the exclusive and sole property of Owner, and that
neither this Section nor the furnishing of any information hereunder shall
prevent or limit Owner from disclosing such information to other Persons for any
purpose, including, soliciting the services of other potential servicers. In the
event this Agreement is terminated or a successor servicer is appointed
hereunder, Servicer will return to Owner, or at the request of Owner, the
successor servicer, all copies of all Confidential Information, whether in
written, electronic, magnetic or other form.
(g) The provisions of this Section 8.11 shall survive and continue in
full force and effect after the termination of this Agreement.
SECTION 8.12 SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of and be
enforceable by the Owner and the Servicer and their respective permitted
successors and assigns. Nothing herein shall prevent the Owner or the Servicer
from assigning, as collateral security, their respective rights hereunder.
SECTION 8.13 LEGAL ACTION.
If legal action is necessary to enforce this Agreement or collect any
amounts owing under this Agreement, the prevailing party has the right, subject
to applicable law, to payment by the other party of all attorney's fees and
costs, including fees on any appeal and any post-judgment actions.
SECTION 8.14 ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement and understanding of
the Owner and the Servicer with respect to the subject matter.
SECTION 8.15 NO THIRD PARTY BENEFICIARIES.
This Agreement is not intended, and shall not be construed to, confer
any rights upon any shareholder, creditor, partner or joint venturer of the
Servicer, the Owner or any other Person, whether as third party beneficiaries or
otherwise, against any party hereto or their respective directors, officers,
agents, employees, representatives, Affiliates or controlling Persons. Servicer
and Owner acknowledge and agree that they are contracting with each other on an
arm's-length basis, and this Agreement is not intended to create, and shall not
create, or constitute the parties hereto as partners or joint venturers.
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<PAGE> 19
IN WITNESS WHEREOF, Servicer and Owner have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
SERVICER
NATIONAL AUTO FINANCE COMPANY, INC.,
as Servicer
By: /s/ WILLIAM B. MAGRO
----------------------------------------------
Name: William B. Magro
Title: President and Chief Operating Officer
OWNER
ATLANTIC COAST FEDERAL CREDIT UNION,
as Owner
By: /s/ ROBERT J. LARISON, JR.
----------------------------------------------
Name: Robert J. Larison, Jr.
---------------------------------------
Title: President
---------------------------------------
19
<PAGE> 1
EXHIBIT 10.124
WAIVER
THIS WAIVER, effective as of September 30, 1999, by 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"), Manufacturers Life Insurance Company
(U.S.A.), a Michigan corporation ("ML"), and The Structured Finance High Yield
Fund, LLC, a Delaware limited liability company ("SFHY"), for the benefit of
National Auto Finance Company, Inc., a Delaware corporation (the "Company"). The
Fund, PCI, ML and SFHY are sometimes collectively referred to herein as the
"Noteholders," and the Fund and Progressive are sometimes collectively referred
to herein as the "Equityholders."
PRELIMINARY STATEMENT
Pursuant to a Securities Purchase Agreement, dated as of December 22,
1997 (the "December Agreement"), (i) the Fund, PCI and ML purchased from the
Company $40,000,000 aggregate principal amount of the Company's Senior
Subordinated Notes due December 22, 2004 (the "Notes"), and 1,038,924 detachable
warrants to purchase initially 1,038,924 shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), and (ii) the Fund and Progressive
purchased 1,904,762 shares of the Company's Common Stock.
Pursuant to a Securities Purchase Agreement, dated as of March 27, 1998
(the "March Agreement"; the December Agreement and the March Agreement are
sometimes collectively
<PAGE> 2
referred to herein as the "Agreements"), SFHY purchased
from the Company, $20,000,000 aggregate principal amount of the Company's Notes
and 593,671 detachable warrants to purchase initially 593,671 shares of the
Company's Common Stock.
Pursuant to a Restructuring Agreement dated as of April 7, 1999 (the
"Restructuring Agreement"), among other things, the Company, the Noteholders and
the Equityholders amended Article 10 of each of the Agreements to add a new
Section 10.15, providing for a Return on Assets Covenant (as defined in the
Restructuring Agreement).
In conformity with applicable provisions of the Agreements and the
Restructuring Agreement (in particular, Section Eleven (11) Miscellaneous.
Subsection (e)(ii) Amendment and Waiver, of the Restructuring Agreement, the
Company has requested the Noteholders and Equityholders to waive the required
Return on Assets Covenant for the Measurement Period ended on September 30,
1999.
1. Waiver. For valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each of the Noteholders and
Equityholders, by and through its authorized corporate officers, does hereby
waive compliance by the Company with the Return on Assets Covenant for the
Measurement Period ended on the Measurement Date of September 30, 1999, as such
terms are defined in Section 10.15 of each of the Agreements and the
Restructuring Agreement.
2
<PAGE> 3
2. Ratification. Except as expressly set forth herein, this
Waiver shall not alter, waive, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the
Agreements, the Restructuring Agreement, or any other agreement executed in
connection therewith, all of which are hereby ratified and affirmed in all
respects by the Noteholders, Equityholders and the Company, and shall continue
in full force and effect. This Waiver shall apply solely to the waiver of the
Company's compliance requirements with respect to attaining the designated
Return on Assets Covenant for the Measurement Period ended on the Measurement
Date of September 30, 1999, and shall not be construed as waiving the Company's
compliance requirements with respect to such Return on Assets Covenant for any
future Measurement Period.
3. Counterparts. This Waiver may be executed in any number of
counterparts and by the parties hereto in separate counterparts of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Waiver.
4. Notice of Waiver. In conformity and in accordance with
Section Eleven (11) Miscellaneous. Subsection (b) Notices of the Restructuring
Agreement, this Waiver is hereby delivered by telecopier to the following:
<TABLE>
<S> <C>
to the Fund: with a copy to:
The 1818 Mezzanine Fund, L.P. Cadwalader, Wickersham & Taft
c/o Brown Brothers Harriman & Co. 100 Maiden Lane
59 Wall Street New York, New York 10038
New York, New York 10005 Attention: David C.L. Frauman, Esq.
Attention: Joseph Donlan Telecopier No.: (212)504-6666
Telecopier No.: 212-493-8429
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
to PCI or Progressive: with a copy to:
3 Parklands Drive, 2nd Floor Cadwalader, Wickersham & Taft
Darien, Connecticut 06820 100 Maiden Lane
Attention: Evelyn Erb New York, New York 10038
Telecopier No.: (203)655-1200 Attention: David C.L. Frauman, Esq.
Telecopier No.: (212)504-6666
to ML: with a copy to:
c/o MF Private Capital, Inc. Manufacturers Life Insurance Company
45 Milk Street, Suite 600 Corporate Law Department
Boston, Massachusetts 02109-5105 200 Bloor Street East
Attention: Raymond L. Bitt, Jr. Toronto, Ontario M4W 1ES, Canada
Telecopier No.: (617)451-5601 Attention: William Dawson, Esq.
Telecopier No.: (416)926-5657
to SFHY: with a copy to:
The Structured Finance High Cadwalader, Wickersham & Taft
Yield Fund, LLC 100 Maiden Lane
c/o Prudential Investments -- Structured New York, New York 10038
Finance Group Attention: David C.L. Frauman, Esq.
One Gateway Center, 11th Floor Telecopier No.: (212)504-6666
Newark, New Jersey 07106-5311
Attention: Steven M. Tompson
Telecopier No.: (973) 802-2147
to the Company: with a copy to:
National Auto Finance Company, Inc. Weil, Gotshal & Manges LLP
10302 Deerwood Park Blvd., Suite 100 767 Fifth Avenue
Jacksonville, Florida 32256 New York, New York 10153-0119
Attention:Stephen R. Veth Attention: Howard Chatzinoff, Esq.
Telecopier No.: (904) 996-2557 Telecopier No.: (212)310-8007
</TABLE>
4
<PAGE> 5
IN WITNESS WHEREOF, each of the Noteholders and Equityholders has duly
executed this Waiver this 15th day of November, 1999.
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman and Co.,
its General Partner
By: /s/ JOSEPH P. DONLAN
----------------------------------
Name: Joseph P. Donlan
Title: Senior Manager
PC INVESTMENT COMPANY
By: /s/ EVELYN ERB
----------------------------------
Name: Evelyn Erb
Title: Portfolio Manager
PROGRESSIVE INVESTMENT
COMPANY, INC.
By: /s/ EVELYN ERB
----------------------------------
Name: Evelyn Erb
Title: Portfolio Manager
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By: /s/ RAYMOND L. BRITT
----------------------------------
Name: Raymond L. Britt
Title: Senior Managing Director
5
<PAGE> 6
THE STRUCTURED FINANCE HIGH YIELD
FUND, LLC
By: /s/ STEVEN TOMPSON
---------------------------------
Name: Steven Tompson
Title: Managing Director
6
<PAGE> 1
EXHIBIT 10.125
CONTRACT SALE AGREEMENT
DATED AS OF FEBRUARY 4, 2000
BY AND BETWEEN
NATIONAL AUTO FINANCE COMPANY, INC.
AND
NUVELL CREDIT CORPORATION
<PAGE> 2
CONTRACT SALE AGREEMENT ( the "Sale Agreement"), dated as of February 4,
2000, by and between NATIONAL AUTO FINANCE COMPANY, INC. (the "Seller"), a
Delaware corporation, its successors and permitted assigns, and NUVELL CREDIT
CORPORATION (the "Purchaser"), a Delaware corporation, its successors and
assigns.
W I T N E S S E T H:
WHEREAS, the Seller purchases from Dealers certain retail installment sales
contracts secured by new and used automobiles and light-duty trucks
("Contracts");
WHEREAS, the Seller desires to purchase Contracts in accordance with terms
of this Agreement and the Seller's Contract Finance Program Guidelines, as
defined herein, for sale and assignment to the Purchaser;
WHEREAS, the Seller intends to sell, and the Purchaser intends to purchase,
certain of such Contracts together with all of its rights thereunder, as
described herein;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS
"ADVERSE CLAIM" means a claim of ownership or any lien, security interest,
title retention, trust or other charge or encumbrance, either legal or in
equity, or other type of preferential arrangement having the effect of a lien or
security interest upon or with respect to the Sold Program Contracts or
Purchased Assets other than in favor of the Purchaser with respect to this Sale
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AMOUNT FINANCED" has the meaning ascribed thereto in the applicable
Truth-in-Lending disclosure in the Program Contract given to the Obligor.
"APR" means, with respect to a Contract, as of any time, the contractual
annual rate of interest or annual rate of finance charges being borne by such
Contract.
-1-
<PAGE> 3
"ASSIGNMENT" means the assignment by Seller to Purchaser, substantially in
the form of Exhibit A hereto, which shall have attached thereto as of the Sale
Date the original of the Program Contract that shall be purchased by the
Purchaser from the Seller on such Sale Date.
"AUTOMOBILES" means new and used automobiles and light-duty trucks, the
purchase of which the Obligors financed by the Program Contracts.
"BUSINESS DAY" means any day other than a Saturday or a Sunday, or another
day on which banks in the States of Arkansas, Florida, or Tennessee are
required, or authorized by law, to close.
"BUY RATE" means with respect to any Sold Program Contract the rate
specified as such in Seller's Contract Finance Program Guidelines in effect on
the Closing Date.
"CLOSING DATE" means the first date on which the Seller shall sell
Contracts to the Purchaser pursuant to this Agreement.
"CONTRACT FILE" means, as to each Contract, (a) the executed original of
the Contract, (b) the original credit application fully executed by each
Obligor, on Seller's customary form or on a form approved by Seller for such
application, (c) the credit information and reports in accordance with Seller's
customary practices (including proof that verification of income, employment and
residence have been completed by the Seller in accordance with its customary
practices), (d) the original certificate of title (or application therefor), or
other legal evidence of title with appropriate endorsement to Purchaser or
Purchaser's designee, (e) evidence of insurance required under this Agreement as
to the Financed Vehicle, (f) all applicable service contracts and credit life or
credit accident and disability insurance policies and agreements, (g) the
odometer statement fully completed and signed or other evidence of mileage of
the Financed Vehicle satisfactory to the Purchaser, (h) all applicable
assignments, and (i) any and all other documents and records that Seller shall
keep on file or in computer media, in accordance with its customary procedures,
relating to the origination, administration, collection and servicing of such
Contract or the related Obligor or Financed Vehicle.
"CONTRACT RATE" means with respect to any Sold Program Contract, the
interest rate on such Sold Program Contract as disclosed as the APR.
"DEALER" means a franchise automobile dealer or an independent automobile
dealer identified on Exhibit G attached hereto, or an Affiliate of any such
automobile dealer, who has entered into a Dealer Agreement with the Seller that
governs, among other things, the origination and sale to the Seller of the Sold
Program Contracts.
"DEALER AGREEMENT" means an agreement between the Seller and a Dealer
setting forth the terms for the purchase of Contracts by the Seller.
-2-
<PAGE> 4
"DEBT" of a party means (a) indebtedness for borrowed money, (b)
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) obligations to pay the deferred purchase price of property or services, (d)
obligations as lessee under leases which have been or should be, in accordance
with generally accepted accounting principles, recorded as capital leases, (e)
obligations secured by any lien or security interest granted by a party, even
though such party has not assumed or become liable for the payment of such
obligations, (f) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire or
otherwise to ensure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (a) through (e) above,
and (g) liabilities in respect of unfunded vested benefits under plans covered
by the ERISA, as amended, and regulations promulgated thereunder.
"ELECTRONIC CONTRACT INFORMATION" means, as to each Contract, the applicant
information provided by the applicant and retained on electronic medium, all
electronically transmitted documents and information provided by an applicant to
a Dealer, all of which may be retained and transmitted by electronic means from
Seller to Purchaser, and the following information with respect to each such
Contract: (a) the Amount Financed, (b) the Principal Balance, (c) the amount of
each monthly payment due from the Obligor, (d) the APR (calculated in accordance
with the Contract), (e) the Contract's Origination Date, (f) the date on which
in each month the scheduled payment is due, (g) the Contract's original term in
months, (h) the next payment due date, (i) the number of days delinquent, if
applicable, (j) the accrued and unpaid interest of such Contract, (k) Dealer
participation, if any, paid or to be paid to a Dealer, (l) the late payment fee
and NSF fee applicable to such Contract, (m) the effective Buy Rate applicable
to such Contract, (n) the credit quality and/or classification of such Contract,
in accordance with Seller's Contract Finance Program Guidelines then in effect,
and (o) such other information as may be reasonably requested by the Purchaser
to be transmitted to the Purchaser by the Seller with respect to each such
Contract.
"ELIGIBLE PROGRAM CONTRACTS" means all Program Contracts that comply with
the representations and warranties set forth in Section 4.2 of this Sale
Agreement, including Program Contracts that, as of the Closing Date, have not
been funded and the Obligor's first payment is not yet due or Obligor's first
payment is included in the Contract File endorsed in favor of Purchaser.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"FEE" means the amount designated as such in the Fee Schedule attached as
Exhibit B to this Sale Agreement and which is included as part of the Purchase
Price to be paid by the Purchaser to the Seller for the purchase of an Eligible
Program Contract pursuant to Sections 2.1 and 2.3 of this Agreement.
"FEE SCHEDULE" means the schedule agreed to between the Seller and the
Purchaser setting forth the method for calculating the Purchase Price for each
Eligible Program Contract purchased
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by the Purchaser from the Seller pursuant to this Agreement, in the form of
Exhibit B hereto, which schedule the Seller and the Purchaser may jointly agree
to modify from time to time.
"FINANCED VEHICLE" means, with respect to a Contract, the Automobile,
together with all accessions thereto, securing the related Obligor's
indebtedness under such Contract.
"GOVERNMENTAL AUTHORITY" means the United States of America, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
"INDEMNIFIED AMOUNTS" means any and all amounts necessary to indemnify such
Indemnified Party from and against any and all claims, actions, demands,
proceedings and suits brought by any Person other than a party to this
Agreement, whether or not groundless, and losses, damages, liabilities and
reasonable costs and expenses, including reasonable attorneys fees and
disbursements and court costs, arising out of or resulting from any such claim,
action, demand, proceeding or suit.
"INDEMNIFIED PARTY" means any Person entitled to indemnification from the
Seller or the Purchaser pursuant to Section 8.1 or 8.2 of this Agreement.
"INITIAL PERIOD" has the meaning set forth in Section 2.5 of this Sale
Agreement.
"OBLIGOR" means, with respect to any Program Contract, the Persons
obligated to make payments in respect thereto.
"OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate
signed by the Chairman of the Board, the Chief Executive Officer, the President,
a Vice President, the Treasurer, the Secretary or any other duly authorized
officer of such Person.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
association, joint venture, Governmental Authority or any other entity of
whatever nature.
"PRINCIPAL BALANCE" of a Program Contract means, on any date of
determination, the Amount Financed reduced by that portion of all prior payments
received by the Seller, the Purchaser or the Purchaser's assignee with respect
to such Program Contract allocable to principal as reflected on the records
maintained by the Seller or the Purchaser or the Purchaser's assignee, as the
case may be. In no event, shall the Principal Balance of a Program Contract
include administrative charges, charges for force placed insurance, late payment
fees, NSF fees or other charges that are not considered part of the Amount
Financed.
"PROGRAM CONTRACTS" or "CONTRACTS" means Contracts originated by Seller
pursuant to Article II hereof and in accordance with the Seller's Contract
Finance Program Guidelines.
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"PURCHASED ASSETS" means (a) with respect to each Sold Program Contract,
all of the Seller's right, title and interest in and to (i) the Sold Program
Contract, including all payments on or with respect to such Sold Program
Contract after the Sale Date, (ii) the security interest in the Financed Vehicle
granted by the Obligor(s) to the Dealer pursuant to the Sold Program Contract
and assigned and transferred by the Dealer to the Seller and by the Seller to
the Purchaser pursuant to this Sale Agreement, (iii) any proceeds with respect
to the Sold Program Contract from recourse to the Dealer, if any, under the
related Dealer Agreement, (iv) any documents in the Contract File for such Sold
Program Contract, (v) the proceeds of any insurance policies, warranties,
service contracts and other agreements maintained with respect to the Financed
Vehicle and Sold Program Contract, (vi) all income and proceeds of the foregoing
or relating thereto, and (vii) with respect to each Sold Program Contract, all
of the Seller's rights against the Dealer as described in the Dealer Agreement.
"PURCHASE PRICE" means the purchase price to be paid by the Purchaser to
the Seller for the purchase of an Eligible Program Contract pursuant to Section
2.3 of this Agreement, determined in accordance with the Fee Schedule.
"PURCHASER TERMINATION EVENT" See Section 7.2 of this Agreement.
"PURCHASER'S CONTROL ACCOUNT" means an account established by the Purchaser
and the Seller at such bank as reasonably determined by the Purchaser, in which
the Purchaser shall deposit part of the Purchase Price, as specified in Section
2.1(c) of this Agreement, for each Eligible Program Contract purchased by the
Purchaser from the Seller pursuant to this Agreement and from which the Seller
shall make payments of the purchase price for each such Eligible Program
Contract to the Dealer from which the Seller purchased such Eligible Program
Contract. The Purchaser's Control Account shall be in the name of the Purchaser,
and the Seller shall have authority to issued drafts on or authorize payments
from such account only subject to the specific approval of the Purchaser.
"REPURCHASE PRICE" means with respect to any Sold Program Contract that the
Seller is obligated to repurchase, an amount equal to the sum of (a) the cash
Purchase Price paid by the Purchaser for the purchase of such Contract pursuant
to Section 2.3 of this Agreement, plus (b) any accrued but unpaid interest with
respect to such Program Contract, plus (c) amounts expended by the Purchaser
under the Sold Program Contract, and not reimbursed by the Obligor or some other
Person, for collection, repossession and other costs related to the enforcement
of Purchaser's security interest in the Financed Vehicle or collection of
amounts due and payable by the Obligor(s) pursuant to the Sold Program
Contracts, minus (d) all payments received by the Purchaser with respect to such
Program Contract and applied as a reduction of the principal balance thereof.
"SALE" means a sale of an Eligible Program Contract from the Seller to the
Purchaser pursuant to this Sale Agreement.
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"SALE AGREEMENT" or "AGREEMENT" means this Contract Sale Agreement,
including the Seller's Contract Finance Program Guidelines and all exhibits to
this Sale Agreement.
"SALE ASSIGNMENT" or "ASSIGNMENT" means, with respect to any Sold Program
Contract, the assignment in the form of Exhibit A hereto.
"SALE DATE" means the date on which each Sold Program Contract is sold
pursuant to this Sale Agreement.
"SALES FINANCE COMPANY LICENSE" means a current license issued to the
Seller authorizing it to purchase and sell Contracts in each state in which such
license is required.
"SCHEDULED TERMINATION DATE" means the date on which this Sale Agreement is
scheduled to terminate, as set forth in Section 2.5 of this Sale Agreement.
"SECURITIES" has the meaning ascribed thereto in Section 5.1(g).
"SELLER'S CONTRACT FINANCE PROGRAM GUIDELINES" means the written credit,
underwriting and purchasing policies and procedures (including Seller's
published rate cards and program guidelines and such criteria as may be
established by the Seller for Dealers to be eligible to offer and sell Contracts
to the Seller) that are reasonably acceptable to the Purchaser and pursuant to
which the Seller shall purchase Contracts from Dealers. Seller's Contract
Finance Program Guidelines shall include, but not be limited to, minimum income
requirements for an Obligor, maximum debt to income and monthly payment to
income ratios for an Obligor, limitations on the amount to be advanced for the
purchase of a Financed Vehicle and related services and products, limitations on
the make, model, age, mileage and condition of a Financed Vehicle, minimum down
payment requirements, in total dollars and as a percentage of the purchase price
for a Financed Vehicle or the amount financed, minimum credit bureau and credit
scores, maximum and minimum payment terms, maximum and minimum interest rates,
maximum amounts to be paid as dealer finance income and/or dealer participation,
minimum and maximum acquisition fees and purchase discounts applicable to the
Seller's purchase of Contracts from Dealers, and such other criteria as the
Seller, with the approval of the Purchaser, shall deem necessary or appropriate.
"SELLER TERMINATION EVENT" See Section 7.1 of this Agreement.
"SERVICER" means National Auto Finance Company, Inc. (the same entity as
the Seller herein and sometimes referred to herein as "NAFI").
"SERVICING AGREEMENT" means that certain Servicing Agreement by and between
National Auto Finance Company, Inc., as the "Servicer," and the Purchaser, as
the "Owner," dated as of the date of this Agreement, as such may be amended from
time to time.
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"SOLD PROGRAM CONTRACT" means a Program Contract sold by the Seller to the
Purchaser pursuant to Section 2.1 of this Sale Agreement.
"SUBSIDIARY" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"TERM" means the term of this Sale Agreement, as set forth in Section 2.5
of this Sale Agreement.
"TERMINATION EVENT" means a Seller Termination Event or a Purchaser
Termination Event, as described in Sections 7.1 and 7.2 of this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the state where the
Program Contract is originated.
1.2 USAGE OF TERMS.
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
genders; references to "writing" include printing, typing, lithography and other
means of reproducing words in a visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including," means "including without
limitation." All section and article references shall be to sections and
articles in this Agreement.
ARTICLE II
SALE OF ELIGIBLE PROGRAM CONTRACTS
2.1 SALE AND PURCHASE OF ELIGIBLE PROGRAM CONTRACTS.
(a) During the term of this Agreement and subject to the terms and
conditions hereof, on each Business Day the Seller shall sell to the Purchaser,
and the Purchaser shall purchase from the Seller, all Eligible Program Contracts
that have been purchased by the Seller from Dealers. Seller shall begin selling,
and Purchaser shall begin purchasing, Eligible Program Contracts commencing on
the Closing Date.
(b) On each Business Day, the Seller shall (i) identify the Eligible
Program Contracts to be sold by the Seller to the Purchaser pursuant to this
Agreement and (ii) deliver to the Purchaser, via overnight delivery service, (A)
a list of the Eligible Program Contracts to be sold
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by the Seller to the Purchaser, containing such information with respect to each
such Contract as may be reasonably requested by the Purchaser, (B) an
acknowledgment from the Servicer, in such form as may be reasonably acceptable
to the Purchaser, stating that upon Purchaser's payment in full of the Purchase
Price the Servicer is holding the Contract File for each such Contract as agent
for the Purchaser, (C) the executed original of each such Contract, (D) an
executed Sale Assignment for each such Contract, in the form of Exhibit A
attached to this Agreement, (E) a copy of the application for the certificate of
title or other evidence of title relating to the Financed Vehicle, (F) a copy of
the Seller's internally prepared checklist for each such Contract indicating
that all required documentation and procedures with respect to the Seller's
purchase of each such Contract from a Dealer have been completed in accordance
with the Seller's Contract Finance Program Guidelines, (G) an invoice prepared
by the Seller for each such Contract setting forth a calculation of the Purchase
Price therefor in accordance with the Fee Schedule attached as Exhibit B hereto,
as such may be amended from time to time by the parties, and (H) with respect to
each such Contract, a copy of the check drawn on the Purchaser's Control Account
made payable to the Dealer from whom the Seller has purchased such Contract, or
such other written authorization, as may be reasonably acceptable to the
Purchaser and the drawee bank, for payment of funds from the Purchaser's Control
Account to the Dealer from whom the Seller has purchased such Contract, in the
amount of the purchase price to be paid by the Seller to the Dealer for the
purchase of such Contract.
(c) Upon receipt of the documents and instruments required to be delivered
by the Seller to the Purchaser pursuant to Section 2.1(b) above, and subject to
the conditions set forth in Section 3.1 of this Agreement, the Purchaser will
consummate the purchase of each such Eligible Program Contract to be sold by the
Seller and will pay the Purchase Price for each such Eligible Program Contract
on the same Business Day, but in no event no later than the next Business Day.
Payment of the Purchase Price for each Eligible Program Contract shall be made
by (i) electronic funds transfer to the Purchaser's Control Account in the
amount of the purchase price to be paid by the Seller to the Dealer for such
Eligible Program Contract, as indicated by the information provided by the
Seller to the Purchaser pursuant to Section 2.1(b)(ii)(F) above, and (ii)
electronic funds transfer to such account as may be designated by the Seller in
writing to the Purchaser the Fee and additional amounts as the Seller may be
entitled pursuant to the Fee Schedule. In addition, simultaneous with the
transfer of funds to the Purchaser's Control Account as payment of part of the
Purchase Price for an Eligible Program Contract, the Purchaser will instruct the
drawee bank at which the Purchaser's Control Account is held to honor the
Seller's draft or other authorization for payment provided by the Seller to the
Purchaser pursuant to Section 2.1(b)(ii)(F) above. Notwithstanding the
provisions of this Section 2.1, Purchaser may decline to purchase an Eligible
Program Contract, if Purchaser determines in good faith that all of the
conditions precedent to the Purchaser's obligation to purchase such Eligible
Program Contract, as set forth in Section 3.1 of this Agreement, have not been
satisfactorily completed. The fact that the Purchaser shall have consummated the
purchase of an Eligible Program Contract shall not be deemed a waiver by the
Purchaser of any of the requirements of Section 3.1 of this Agreement or any
breach by the Seller of any covenant, representation or warranty with respect to
such Eligible Program Contract.
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(d) The sale by the Seller of each Eligible Program Contract shall be
without recourse by the Purchaser and its successors and assigns against Seller,
except to the extent specifically provided for in this Agreement.
(e) Prior to each Sale Date, Purchaser shall have the right to review the
Electronic Contract Information for each Eligible Program Contract proposed to
be sold by Seller. Purchaser may reject any Contract that in Purchaser's good
faith judgment does not materially conform to any representation or warranty
contained in Article IV. Purchaser shall have the right, in its sole discretion,
to refuse to purchase any Eligible Program Contract for which a letter of
guaranty has been provided by a Dealer to any financing entity or any Eligible
Program Contract upon which any financing entity has exercised any rights or
asserted any claims against any Dealer bonds.
2.2 PURCHASER'S ACCESS TO AND REVIEW OF INFORMATION RELATING TO OFFERED PROGRAM
CONTRACTS.
For purposes of Purchaser's review of the Electronic Contract Information
for any Eligible Program Contract, Seller shall afford Purchaser, its counsel,
accountants, and other representatives full access to the Electronic Contract
Information related to such Eligible Program Contract and the books and records
of Seller relating to such Eligible Program Contract, and to the extent
necessary to evaluate the purchase of any Eligible Program Contract, Seller
shall cause its officers and employees to provide such assistance and to furnish
such reasonably available information in respect to such Eligible Program
Contracts as Purchaser may from time to time request.
2.3 CONVEYANCE OF SOLD PROGRAM CONTRACTS BY SELLER.
(a) Following payment of the Purchase Price by the Purchaser and execution
and delivery of the Sale Assignment by the Seller, the ownership of each Sold
Program Contract specified in such Sale Assignment and the Purchased Assets
shall be vested in the Purchaser, and the Seller shall not take any action
inconsistent with such ownership and shall not claim any ownership interest in
any such Sold Program Contract.
(b) The Seller shall indicate in its records that ownership of each Sold
Program Contract and the Purchased Assets is held by the Purchaser or its
assignee. In addition, the Seller shall respond to any inquiries with respect to
ownership of any Sold Program Contract by stating that it is no longer the owner
of such Sold Program Contract and that ownership of such Sold Program Contract
is held by Purchaser or its assignee. Seller agrees to hold in trust for
Purchaser any cash payments received in connection with a Sold Program Contract
and shall remit such funds by wire transfer or in the form received within
twenty-four (24) hours after their receipt to an account established by
Purchaser.
(c) The Seller agrees that, from time to time, at its expense, it will
promptly execute and deliver all further instruments, notices and documents, and
take all further action, that may
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be necessary or appropriate, or that the Purchaser may reasonably request, in
order to perfect, protect or more fully evidence the transfer of ownership of
the Sold Program Contracts to the Purchaser or its assignee or to enable the
Purchaser or its assignee to exercise or enforce any of its rights hereunder or
under any Sale Assignment. Without limiting the generality of the forgoing, the
Seller will promptly, upon the request of the Purchaser, execute and file or
cause to be filed such financing or continuation statements, certificates of
title or other title documentation in support of the lien of the Purchaser's
assignee in the related Automobile, or amendments thereto or assignments
thereof. The Seller hereby authorizes the Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any of the Sold Program Contracts and proceeds
thereof without the signature of the Seller. Seller also hereby constitutes
Purchaser, its permitted successors and assigns, as Seller's true and lawful
attorneys, with full power of substitution, in the name of Seller or otherwise,
whether in relation to tangible or intangible property, to transfer all right,
title and interest in and to any Financed Vehicle, to execute and deliver any
and all certificates, instruments and other documents necessary to effect such
transfer of title, to endorse and collect any checks or other payments owed to
Purchaser under the Sold Program Contract, to discharge any liens on Financed
Vehicles and to modify or change, or request modification or change of, the loss
payee or additional insured endorsement with respect to any insurance policy on
a Financed Vehicle. Seller also grants Purchaser the right to use its name to
collect from Dealers refundable insurance and warranty premiums included in the
Amount Financed. Seller will provide Purchaser with its logo and any applicable
trademarks for use on documents seeking collection of these amounts. Seller
agrees that the foregoing powers are irrevocable notwithstanding any reason
whatsoever, including, without limitation, Seller's dissolution, merger,
consolidation or any other change in Seller. Seller will, at Purchaser's
reasonable request, execute appropriate separate instruments evidencing the
forgoing powers. Purchaser will indemnify and hold Seller harmless from any
claims or liabilities arising from Purchaser's exercise of the powers granted in
this Section. A copy of that Power of Attorney is attached hereto as Exhibit D.
2.4 INTENDED CHARACTERIZATION OF EACH TRANSACTION; GRANT OF SECURITY INTEREST
IN FAVOR OF PURCHASER.
It is the intention of the parties hereto that each transfer of Sold
Program Contracts to be made hereunder shall constitute a purchase and sale and
not a loan. In the event, however, that a court of competent jurisdiction were
to hold that the transaction evidenced hereby constitutes a loan and not a
purchase and sale, or a Governmental Authority determines that the Purchaser may
not purchase or acquire Program Contracts, it is the intention of the parties
hereto that this Sale Agreement shall constitute a security agreement under
applicable law and that the Seller shall be deemed to have granted to the
Purchaser as of the date hereof a first priority security interest in all of the
Seller's right, title and interest in, to and under each Sold Program Contract,
and all proceeds thereof.
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2.5 TERM.
The Term of this Agreement shall be for an initial period (the "Initial
Period") commencing on the date hereof and ending on the last day of the third
full calendar month following the Closing Date (such date, as such may be
extended pursuant hereto, is hereinafter referred to as the "Scheduled
Termination Date"). The Term of this Agreement shall be extended for an
additional three (3) calendar months, unless the Purchaser or the Seller shall
give written notice to the other party of its desire to terminate this Agreement
at least fifteen (15) days prior to a Scheduled Termination Date. Either the
Purchaser or the Seller shall be allowed to terminate this Agreement and its
respective obligations under this Agreement (not including its indemnification
obligations and such other obligations as shall survive termination of this
Agreement, as specifically set forth herein) upon the earlier of (i) the
Scheduled Termination Date, (ii) the passage of any applicable period of remedy
and notice pursuant to Article VII, or (iii) after the Initial Period, the
giving to the other party of at least thirty (30) days advance written notice of
its desire to terminate this Agreement.
ARTICLE III
CONDITIONS PRECEDENT TO EFFECTIVENESS
OF SALE AGREEMENT AND TO EACH SALE
3.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
(a) The obligation of the Purchaser to purchase Eligible Program Contracts
from the Seller pursuant to this Agreement is subject to the conditions
precedent that the Purchaser shall have satisfactorily completed its due
diligence review of the Seller and its operations and that the Purchaser shall
have received the following, in form and substance satisfactory to the
Purchaser, by the Closing Date, or such other date as may be specified for the
receipt of such document or instrument by the parties. In the event Seller has
not provided the following as set forth herein, a Seller Termination Event shall
automatically occur.
(i) The articles of incorporation of the Seller certified, as of a
date no more than ten (10) days prior to the Closing Date, by the Secretary of
State of Delaware.
(ii) A good standing certificate from the State of Delaware, dated no
later than ten (10) days prior to the Closing Date, and within twenty (20) days
after the Closing Date ,from each state in which the Seller is required to
qualify to do business as a foreign corporation, each of which shall be dated no
later than thirty (30) days prior to the actual delivery date;
(iii) A list of states in which the Seller is qualified to engage in
business and has obtained a Sales Finance Company License or a collection agency
license, and a copy of each Sales Finance Company License and collection agency
license;
(iv) A power of attorney from the Seller, in substantially the form of
Exhibit D attached hereto, which power shall entitle the Purchaser certain
irrevocable rights to effect the
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transfer of Sold Program Contracts, to effect the transfer and sale of the
Financed Vehicles securing the Sold Program Contracts, to effect the transfer
and release of any lien on any such Financed Vehicle, to recover proceeds under
any Insurance Policy relating to the Sold Program Contracts, and to effect the
sale of and recovery of proceeds with respect to the Purchased Assets;
(v) A certificate of the Secretary or Assistant Secretary of the
Seller (on which certificate the Purchaser may conclusively rely until such time
as it shall receive from the Seller a revised certificate meeting the
requirements of this subsection) certifying as of the Closing Date: (A) the
names and true signatures of the officers authorized on its behalf to sign this
Sale Agreement, the power of attorney and any Sale Assignment, (B) a copy of the
Seller's articles of incorporation and bylaws, and (C) a copy of the resolutions
of the board of directors of the Seller approving this Sale Agreement and the
transactions contemplated hereby;
(vi) An Officer's Certificate in the form of Exhibit E hereto;
(vii) Acknowledgment copies of proper financing statements
(Form UCC-1), duly filed with the appropriate Governmental Authorities, in
respect of Sold Program Contracts naming the Seller as the debtor and the
Purchaser as the secured party, or other similar instruments or documents as may
be necessary or, in the opinion of the Purchaser, desirable under the UCC of all
appropriate jurisdictions or any comparable law to perfect the Purchaser's
ownership interests in all Sold Program Contracts;
(viii) The favorable Opinion of Seller's outside counsel
satisfactory to the Purchaser, in substantially the form of Exhibit F attached
to this Agreement;
(ix) The Seller's Contract Finance Program Guidelines;
(x) A list of all Dealers, separated by state in which each Dealer is
located, from which the Seller has purchased in any calendar month during the
period January 1999 through January 2000 greater than one-half percent (0.5%) of
the total dollar amount of Automobile retail installment sale contracts
purchased during any such month, which list shall include, for each such
calendar month during such period, the number of such Contracts purchased and
the dollar amount of such Contracts purchased;
(xi) A list and detailed description of material pending and
threatened litigation to which the Seller or any of its Affiliates or assets may
be subject;
(xii) A copy of the balance sheet and related statements of income and
retained earnings and changes in financial position of the Seller and its
consolidated Subsidiaries for the year ended December 31, 1998, and the calendar
quarter ended September 30, 1999, which either shall be audited statements or
shall be certified by the Chief Financial Officer of the Seller as being true
and correct and fairly reporting the financial condition and results of
operations of the Seller and its consolidated Subsidiaries at and for the year
and calendar quarter, respectively, then
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ended in accordance with generally accepted accounting principles consistently
applied, and stating that the Seller and its Subsidiaries are paying their debts
as they mature, and neither the Seller nor any Subsidiary has incurred debts
beyond its ability to pay as they mature; and
(xiii) Such other approvals, consents, opinions, documents and
instruments, as the Purchaser may reasonably request in writing prior to the
Closing Date, to be delivered by the Seller to the Purchaser at such time as
reasonably requested by the Purchaser.
Upon the receipt by the Purchaser of the items referred to in Paragraphs (i)
through (xiii) of this Section 3.1(a) that are required to be delivered by the
Seller to the Purchaser on or prior to the Closing Date, the Purchaser shall
notify the Seller in writing that the conditions precedent to the effectiveness
of this Sale Agreement have been satisfied and that this Sale Agreement is
effective as of the date and time specified in such notice.
(b) (i) Each Sale from the Seller to the Purchaser shall be subject to
the following additional conditions precedent that on the related date of such
Sale, the Seller shall have certified in the related Sale Assignment executed by
the Seller and delivered to the Purchaser that (except as specifically disclosed
in such Sale Assignment or in writing and specifically consented to by the
Purchaser, in its sole discretion):
(A) The representations and warranties of the Seller set forth in
Sections 4.1 and 4.2 are true and correct on and as of such date, before and
after giving effect to such Sale and to the application of the proceeds
therefrom, as though made on and as of such date;
(B) No event has occurred which, with notice or the passage of
time, would constitute a Seller Termination Event;
(C) The Seller is in compliance with each of its covenants set
forth herein;
(D) The Scheduled Termination Date has not occurred; and
(E) The Program Contract described in the Assignment and to which
the Assignment relates is an Eligible Program Contract;
(ii) The Seller shall have taken such other actions, including
delivery to the Purchaser of such approvals, consents, opinions, additional
information with respect to the Seller, documents and instruments, as the
Purchaser may reasonably request; and
(iii) The Purchaser or the Servicer acting as agent for and on behalf
of the Purchaser shall have received from the Seller, in satisfactory form, the
following:
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(A) The Contract File for each and every Sold Program Contract;
(B) The Seller's internally prepared checklist indicating that all
required documentation and procedures with respect to the Seller's purchase of
the Eligible Program Contract from a Dealer have been completed in accordance
with the Seller's Contract Finance Program Guidelines;
(C) The buy data for each and every Sold Program Contract setting
forth all amounts paid (and with respect to Dealer participation, to be paid) by
the Seller to the Dealer, together with such other information as may be
reasonably requested by the Purchaser to evidence that the Dealers have been
paid in full (excepting Dealer participation, which may be paid in installments)
by the Seller for each and every Sold Program Contract;
(D) A power of attorney from each named lienholder, if any
other than Seller individually, on any Financed Vehicle, which power shall
entitle the Seller, with full right of substitution, certain irrevocable rights
to effect the transfer of the Financed Vehicle or any lien on the Financed
Vehicle; and
(E) (1) For the first Sale Date occurring after the forty-fifth (45th)
day after the end of a calendar quarter, a balance sheet and related statement
of income, in conformity with the requirements of Section 3.1(a)(xii), at and
for the year-to-date period ending on the last day of the calendar quarter
immediately preceding such Sale Date; (2) within one hundred twenty (120) days
after the end of the Seller's fiscal year, commencing with the fiscal year
ending December 31, 1999, a balance sheet as at the end of such year and the
related statements of income and retained earnings and changes in financial
position for the Seller and its consolidated Subsidiaries for such year, setting
forth in each case in comparative form the figures for the previous year,
accompanied by an audit report of a firm of independent public accountants of
recognized national standing and membership of AICPA stating that such firm has
audited the financial statements of the Seller and its consolidated Subsidiaries
and issued its report thereon and that such audit was made in accordance with
generally accepted auditing standards and included such tests of the accounting
records and such other auditing procedures as such firm considered necessary in
the circumstances and that the financial statements of the Seller and its
consolidated Subsidiaries report the financial condition and results of
operations of the Seller and its consolidated Subsidiaries at and for the years
then ended in accordance with generally accepted accounting principles
consistently applied, without a qualification arising out of the scope of the
audit; and (3) with the delivery of each such financial statement, a certificate
from the Chief Financial Officer of the Seller stating that the Seller and its
Subsidiaries are paying their debts as they mature, neither the Seller nor any
Subsidiary has incurred debts beyond its ability to pay as they mature, and
there has not occurred any material adverse change in the financial condition or
results of operations of the Seller or any Subsidiary since the date of the most
recent financial statements delivered by the Seller to the Purchaser pursuant to
either Section 3.1(a)(xii) of this Agreement or this Section 3.1(b)(iii)(E).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
4.1 GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER.
The Seller represents and warrants to the Purchaser, as of the date hereof
and on each subsequent date on which a Sale is made, as follows:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, is duly qualified to do business and
is in good standing in every jurisdiction in which the nature of its business
requires it to be so qualified and which failure to qualify could have a
material adverse affect on Seller;
(b) The Seller has the power and authority to own and convey all of its
properties and assets and to execute and deliver this Sale Agreement and to
perform the transactions contemplated hereby;
(c) The execution, delivery and performance by the Seller of this Sale
Agreement and the transactions contemplated hereby, (i) have been duly
authorized by all necessary action on the part of the Seller, (ii) do not
contravene or cause the Seller to be in default under (A) the Seller's articles
of incorporation and bylaws, (B) any contractual restriction with respect to any
Debt of the Seller or contained in any indenture, loan or credit agreement,
lease, mortgage, security agreement, bond, note or other agreement or instrument
binding on or affecting the Seller or its property or (C) any law, rule,
regulation, order, writ, judgment, award, injunction or decree applicable to,
binding on or affecting the Seller or its property, and (iii) do not result in
or require the creation of any Adverse Claim;
(d) This Sale Agreement has been, and each Sale Assignment executed and
delivered by the Seller will have been, when so executed and delivered, duly
executed and delivered on behalf of the Seller;
(e) No consent of, or other action by, and no notice to or filing with, any
Governmental Authority or any other party, is required for the due execution,
delivery and performance by the Seller of this Sale Agreement or for the
perfection of or the exercise by the Purchaser of any of its rights or remedies
hereunder, each of which has been obtained and complete copies of which have
been provided to the Purchaser;
(f) This Sale Agreement and each Sale Assignment delivered by the Seller is
(or will be if not executed and delivered as of the date hereof) the legal,
valid and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms;
(g) There is no pending or threatened action, suit or proceeding, against
or affecting the Seller, its Affiliates, its officers, or the property of the
Seller, in any court or tribunal, or before any arbitrator of any kind or before
or by any Governmental Authority (i) asserting the
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invalidity of this Sale Agreement, (ii) seeking to prevent the sale and
assignment of any Program Contract or the consummation of any of the
transactions contemplated thereby, (iii) seeking any determination or ruling
that might materially and adversely affect (A) the performance by the Seller of
this Sale Agreement, (B) the validity or enforceability of this Sale Agreement,
(C) any Program Contract or (4) the federal income tax attributes of the Sales.
(h) No injunction, writ, restraining order or other order of any material
nature adverse to the Seller or the conduct of its business or which is
inconsistent with the due consummation of the transactions contemplated by this
Sale Agreement has been issued by a Governmental Authority;
(i) No defaulted Debt exists under any instrument or agreement evidencing,
securing or providing for the issuance of Debt of the Seller;
(j) The principal place of business and chief executive office of the
Seller are located at the address of the Seller set forth in the designated
space beneath its signature line in this Sale Agreement and, there are now no,
and during the past four months there have not been, any other locations where
the Seller is located (as that term is used in the UCC in the state of such
location) except that, with respect to such changes occurring after the date of
this Sale Agreement, as shall have been specifically disclosed to the Purchaser
in writing;
(k) The legal name of the Seller is as set forth at the beginning of this
Sale Agreement and the Seller has not changed its name since February 1, 1997,
and during such period, the Seller did not use, nor does the Seller now use any
trade-names, fictitious names, assumed names or "doing business as" names other
than "Auto Credit Clearing House" or "ACCH," except with respect to such changes
occurring after the date of this Sale Agreement, as shall have been specifically
disclosed to the Purchaser in writing;
(l) The Seller is solvent and will not become insolvent after giving effect
to the transactions contemplated by this Sale Agreement; the Seller is paying
its debts as they mature; the Seller has not sold any Program Contract to the
Purchaser with intent to hinder, delay or defraud any entity to which the Seller
was, or may become, after the date that such transfer was made, indebted; the
Seller's sale of any Program Contract to the Purchaser has been and will be made
for reasonably equivalent value and fair consideration; the Seller has not
incurred debts beyond its ability to pay as they mature; and the Seller, after
giving effect to the transactions contemplated by this Sale Agreement, will have
adequate assets to conduct its business in the foreseeable future;
(m) For federal income tax, reporting and accounting purposes, the Seller
will treat the sale of each Sold Program Contract sold pursuant to this Sale
Agreement as a sale, or absolute assignment, of its full right, title and
ownership interest in such Sold Program Contract to the Purchaser, and the
Seller has not and will not account for or treat the transactions contemplated
by this Sale Agreement in any other manner;
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(n) The Seller has and maintains all permits, licenses, authorizations,
registrations, approvals and consents of Governmental Authorities (including,
without limitation, Sales Finance Company Licenses, if any, necessary for (i)
the activities and business of the Seller as currently conducted and as proposed
to be conducted, (ii) the ownership, use, operation and maintenance of its
properties, facilities and assets, (iii) the performance by the Seller of this
Sale Agreement, and (iv) the performance by the Seller of its duties,
responsibilities and obligations under the Servicing Agreement;
(o) The Seller has filed on a timely basis all tax returns (federal, state,
and local) required to be filed and has paid or made adequate provisions for the
payment of all taxes, assessments and other governmental charges due from the
Seller;
(p) To the best knowledge of the Seller, each pension plan or profit
sharing plan to which the Seller is a party has been fully funded in accordance
with the obligations of the Seller set forth in such plan;
(q) To the best knowledge of the Seller, there has not occurred any event
which has or is reasonably likely to have a material adverse effect on the
Seller's ability to perform its obligations under this Sale Agreement;
(r) The consolidated balance sheet of the Seller and its consolidated
Subsidiaries as of December 31, 1998, and the related statements of income and
shareholders' equity of the Seller and its consolidated Subsidiaries for the
fiscal year then ended, which have been certified by an independent certified
public accountant, together with all quarterly reports with respect to completed
fiscal quarters occurring after such fiscal year until September 30, 1999,
copies of which have been furnished to the Purchaser, fairly present the
consolidated financial condition, business and operations of the Seller and its
consolidated Subsidiaries as at such dates and the consolidated results of
operations of the Seller and its consolidated Subsidiaries for the periods ended
on such dates, all in accordance with generally accepted accounting principles
consistently applied, and since September 30, 1999, there has not occurred any
material adverse change in the financial condition, business or operations of
the Seller or any Subsidiary, except as specifically disclosed by the Seller to
the Purchaser in a writing delivered prior to or simultaneously with its
execution and delivery of this Agreement;
(s) The Seller has valid business reasons for selling its interests in the
Sold Program Contracts rather than obtaining a loan with the Sold Program
Contracts as collateral;
(t) The Seller has not disclosed and will not disclose to any Dealer or
Obligor under an Eligible Program Contract the existence of any insurance which
has been or may be purchased by the Purchaser to protect its interests under the
Eligible Program Contract;
(u) All information heretofore or hereafter furnished with respect to the
Seller to the Purchaser in connection with any transaction contemplated by this
Sale Agreement is and will be
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true and complete in all material respects and does not and will not omit to
state a material fact necessary to make the statements contained therein not
misleading.
4.2 REPRESENTATIONS AND WARRANTIES OF SELLER AS TO THE CONTRACTS.
With respect to each Program Contract sold pursuant to this Sale Agreement,
Seller represents and warrants to Purchaser as follows on such Sale Date:
(a) Each Program Contract (i) arises from the sale of an Automobile as to
which delivery and acceptance has been fully performed by the Obligor and the
Dealer party thereto, (ii) arises from the normal course of the Dealer's
business, (iii) the Obligor of which is a natural person residing in any state,
(iv) the Obligor of which is not a government or a governmental subdivision or
agency, (v) the Obligor of which is not a minor and has full power and capacity
to enter into such Program Contract, (vi) is denominated and payable in dollars
in the United States, (vii) is in full force and effect and constitutes the
legal, valid and binding obligation of the Obligor in accordance with its terms,
(viii) is not subject to any dispute, litigation, counterclaim or defense, or
any offset, right of offset, or any exercisable right of rescission, (ix) has an
original term to maturity of not less than 24 and not more than 72 months, (x)
provides for equal monthly payments that will cause the Program Contract to
fully amortize during its term, (xi) has an APR of not less than the lesser of
(A) the rate as determined in accordance with the Seller's Contract Finance
Program Guidelines or (B) the maximum interest rate permitted by law with
respect to such Program Contract, (xii) together with the contract applicable
thereto, does not contravene any requirements of law applicable thereto, (xiii)
is a Program Contract with respect to which all required consents, approvals and
authorizations have been obtained, (xiv) is a Program Contract secured by a
purchase money security interest in the Financed Vehicle that has been recorded
or applied for in the name of the Seller and assigned to the Purchaser, which
security interest is or is reasonably expected to be in full force and effect,
in each case, subject to no prior or equal liens, claims or encumbrances, (xv)
was purchased by the Seller using and conforming to the Seller's Contract
Finance Program Guidelines, (xvi) requires the Seller to be named as loss payee
or beneficiary (as applicable) under an insurance policy with respect to the
Financed Vehicle related to such Program Contract and entitles the Seller to the
benefits of such insurance policy, (xvii) requires no additional action by the
Seller before becoming a valid and binding obligation of the Obligor thereunder,
enforceable against such Obligor in accordance with its terms, (xviii) relates
to a Financed Vehicle with respect to which the Obligor made at least the
minimum down payment as specified in the Seller's Contract Finance Program
Guidelines and in the form and manner described in the Seller's Contract Finance
Program Guidelines, including, but not limited to a down payment that is made
with the Obligor's own cash money and that is not borrowed, deferred (except for
deferred payments that are allowed by law and disclosed as deferred in the
Contract) or obtained as a cash advance on a credit card or other open line of
credit, and (xix) complies in all respects with the requirements of the
Purchaser's Contract Requirements set forth in Exhibit C attached to this
Agreement.
(b) Each Program Contract was originated by a Dealer that had all necessary
licenses and permits to originate Program Contracts in the state where such
Dealer was located, was fully
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and properly executed by the parties thereto, was purchased by the Seller from
such Dealer under an existing Dealer Agreement with the Seller, and was validly
assigned by the Dealer to the Seller.
(c) Each Program Contract contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate for
realization against the collateral security.
(d) Each Program Contract was originated by a Dealer to an Obligor and was
sold by the Dealer to the Seller without any fraud or material misrepresentation
on the part of such Dealer.
(e) Each Program Contract complied at the time it was purchased by the
Seller, including the sale of any related physical damage, credit life and
credit accident and death insurance, Gap or debt cancellation coverage, and any
extended service contract at the time it was originated or made, and as of the
Sale Date in all material respects with all requirements of applicable federal,
state and local laws and regulations, including usury laws, the federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Rees-Levering Act, and state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, other consumer credit laws
and equal credit opportunity and disclosure laws and other applicable legal
requirements.
(f) The Program Contract has not been satisfied, subordinated or rescinded,
and the related Financed Vehicle has not been released from the lien granted by
such Program Contract, in whole or in part.
(g) No provision of any Program Contract has been waived, altered,
extended, revised or otherwise modified in any respect since its origination. No
Program Contract has been modified as a result of the Soldier's and Sailor's
Relief Act of 1940, as amended.
(h) The title certificate for each Financed Vehicle either (A) shows the
Purchaser or the Seller or their nominee named as the original secured party
under the applicable Program Contract, or (B) has been applied for in the name
of the Purchaser or Seller or their nominee. If the Program Contract was
originated in a state in which a filing or recording is required of the secured
party to perfect a security interest in motor vehicles, such filing or recording
has been duly made to show the Purchaser or Seller or their nominee named as the
original secured party under the related Program Contract. Immediately after the
sale, transfer and assignment thereof to the Purchaser, each Program Contract
will be secured by an enforceable and perfected security interest in the
Financed Vehicle in favor of the Purchaser or Seller as secured party, which
security interest is prior to all other liens and security interests in such
Financed Vehicle (except, as to priority, for any lien for taxes, labor or
materials affecting an Automobile that attach to the Financed Vehicle after the
sale of the Program Contract) and which lien is not a preference under Section
544 of the United States Bankruptcy Code. For purposes of this section, Seller
also represents and warrants that the lien, as applied for pursuant to the
requirements herein, will be
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obtained in a timely manner such as not to adversely affect the interests of
Purchaser in the Financed Vehicle.
(i) To the best of Seller's knowledge, no liens or claims have been
asserted or filed for taxes, work, labor or materials relating to the Financed
Vehicle that are liens prior to, or equal or coordinate with, the security
interest in the Financed Vehicle granted by the applicable Program Contract, and
the Obligor has good and marketable title to the Financed Vehicle subject to no
liens other than the security interest under the Program Contract.
(j) Upon sale hereunder, such Program Contract has not been sold,
transferred, assigned, offered for purchase, or pledged by the Seller to any
Person other than the Purchaser; the Seller has good and marketable title to
such Program Contract free and clear of all liens and rights of others claiming
by or through the Seller (other than the rights of the Obligor to the Financed
Vehicle thereunder) and, following the Sale Date, the Purchaser shall have good
and marketable title to such Program Contract, free and clear of all liens and
rights of others claiming by or through the Seller (other than the rights of the
Obligor to the Financed Vehicle thereunder).
(k) Such Program Contract has not been purchased by the Seller from a
Dealer in, nor is it subject to the laws of, any jurisdiction under which the
sale, transfer and assignment of such Program Contract pursuant to this Sale
Agreement is unlawful, void or voidable. No agreement has been entered into with
any Obligor that prohibits, restricts or conditions the assignment of any
portion of the Program Contract.
(l) There is only one originally executed contract for each Program
Contract.
(m) Such Program Contract constitutes "chattel paper" as defined in the
UCC.
(n) Such Program Contract has not been included in a "fleet sale" (i.e., a
sale to a single Obligor of more than five (5) vehicles).
(o) All amounts due and payable by the Seller to the Dealer under the
Dealer Agreement with respect to such Program Contract have been paid, and no
Dealer has any rights in, or claims against, the Program Contract.
(p) The Seller has indicated in its computer files that such Program
Contract has been sold to the Purchaser.
(q) The Seller has done nothing to convey any right to any Person that
would result in such Person having a right to payments due under such Program
Contract or otherwise to impair the rights of the Purchaser in any Program
Contract or the proceeds thereof.
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(r) No Program Contract is assumable by another Person in a manner that
would release the Obligor thereof from such obligor's obligations to the
Purchaser with respect to such Program Contract.
(s) No selection procedures adverse to the Purchaser have been utilized in
selecting such Program Contract from all other Program Contracts purchased
and/or owned by the Seller.
(t) To the best of Seller's knowledge, as of the Sale Date, no Obligor is
subject to a current bankruptcy proceeding. As of the Sale Date, the Program
Contract is current with regard to payment and is not otherwise in default
according to its terms and conditions.
(u) Each Program Contract is a fully amortizing simple interest receivable
that provides for level monthly payments which, if made when due, shall fully
amortize the Amount Financed over the original term.
4.3 SURVIVAL OF SELLER'S REPRESENTATIONS AND WARRANTIES
It is understood and agreed that the representations and warranties set
forth in this Article IV, measured as of the dates made, shall survive the sale
of the Sold Program Contracts to the Purchaser and any assignment of a Sold
Program Contract by the Purchaser to any subsequent assignee and shall continue
so long as any Sold Program Contract shall remain outstanding with regard to
payment thereunder and shall remain subject to any outstanding terms and
conditions. The Seller acknowledges that the Purchaser may assign all of its
right, title and interest in and to the Sold Program Contracts and its right to
exercise the remedies created by this Article IV hereof to a subsequent
assignee. The Seller agrees that, upon such assignment, any subsequent assignee
may enforce directly, without joinder of the Purchaser, the repurchase
obligations of the Seller set forth in Section 4.4 with respect to breaches of
the representations and warranties set forth in Sections 4.1 and 4.2 hereof.
4.4 REPURCHASE OBLIGATIONS OF SELLER.
(a) Upon discovery by Seller or Purchaser of (i) a breach of any
representation or warranty of Seller set forth in Section 4.1 or 4.2 hereof that
materially adversely affects the value of any Sold Program Contract, the
collectibility of payments or proceeds under or with respect to any Sold Program
Contract, the interest of Purchaser in any Sold Program Contract or the
properties or rights with respect to any Sold Program Contract conveyed by the
Seller to the Purchaser pursuant to this Agreement, (ii) a material breach of
any covenant or obligation of Seller with respect to any Sold Program Contract
set forth in Article II or Article V, or (iii) a material data error with
respect to a Sold Program Contract caused by or resulting from the boarding or
servicing of the Sold Program Contract prior to the Sale Date, the party
discovering such breach shall give prompt written notice to the other (the
Purchaser agrees to use reasonable efforts to provide the Seller any such
written notice within forty-five (45) days after the Purchaser shall have
learned of any such breach or circumstance), and Seller shall be obligated to
cure such
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breach in all material respects within thirty (30) days after its receipt of
such notice. If such breach is not cured by Seller within such period, then, in
such event, within five (5) days after Purchaser's delivery to Seller of written
demand, Seller shall repurchase the related Sold Program Contract by delivering
to or upon the order of Purchaser an amount equal to the Repurchase Price.
(b) Upon such repurchase and the payment of the Repurchase Price, the
Purchaser or any subsequent assignee shall execute and deliver an assignment and
the Purchaser or any subsequent assignee shall assign to Seller, all of the
Purchaser's or any subsequent assignee's right, title and interest in such
repurchased Sold Program Contract, without recourse, representation or warranty,
except as to the absence of liens, charges or encumbrances created by or arising
as a result of actions of the Purchaser or any subsequent assignee, other than
liens, charges or encumbrances created or arising out of this Sale Agreement.
The Purchaser and any subsequent assignee agree that it will promptly execute
and deliver and take all further action that may be necessary or appropriate, or
that the Seller may reasonably request, in order to perfect, protect or more
fully evidence the transfer of ownership of such Sold Program Contract to Seller
pursuant to Section 4.4(a). In the event Seller does not repurchase a Sold
Program Contract as required by subsection (a) above, any action taken by
Purchaser to sell or liquidate a Sold Program Contract or the related Financed
Vehicle in good faith and in a commercially reasonable manner shall be final and
conclusively binding upon Seller in determining the amount payable by Seller to
Purchaser under Section 4.4(a) hereof. If the Purchaser shall proceed, in good
faith, with the liquidation of a Sold Program Contract or the repossession
and/or liquidation of the related Financed Vehicle prior to the Seller's
repurchase of the Sold Program Contract as required by subsection (a) above,
then Seller shall reimburse the Purchaser for reasonable out-of-pocket expenses
incurred by the Purchaser in connection with such process, which, if not
included in the calculation of the Repurchase Price pursuant to its definition
as set forth in Section 1.1 hereof, shall be in addition to the Repurchase Price
payable by Seller.
ARTICLE V
SPECIAL COVENANTS OF THE SELLER
5.1 ADDITIONAL COVENANTS OF SELLER.
During the Term of this Sale Agreement, the Seller shall, unless the
Purchaser shall otherwise consent in writing:
(a) Comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties and all
Program Contracts;
(b) Preserve and maintain its existence, rights, franchises and privileges
in the jurisdiction of its organization and all necessary Sales Finance Company
Licenses;
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(c) Cause to be delivered to the Purchaser within fifteen (15) days after
any extension of the Scheduled Termination Date (i) an Officer's Certificate of
the Seller in the form of Exhibit E, dated the date of such delivery; (ii) a
Secretary's Certificate of Seller in the form required by Section 3.1(a)(v)
hereof, dated the date of such delivery; and (iii) an opinion of counsel, in
form and substance satisfactory to the Purchaser, reaffirming as of the date of
its delivery the opinion of counsel with respect to the Seller and delivered to
the Purchaser on the Closing Date pursuant to Section 3.1(a)(viii) hereof;
(d) Furnish, or cause to be furnished, to the Purchaser, as soon as
available the financial statements of Seller required to be delivered pursuant
to Section 3.1(b)(iii)(E) of this Agreement;
(e) Promptly after the occurrence thereof, provide written notice to the
Purchaser of any pending or threatened action, suit or proceeding of a type
described in Section 4.1(g);
(f) As soon as possible and in any event within five (5) days after the
occurrence of a Seller Termination Event (including, without limitation, a
material adverse change in the financial condition of the Seller) or each event
which, with the giving of notice or lapse of time or both, would constitute a
Seller Termination Event, the statement of an officer of the Seller setting
forth complete details of such Seller Termination Event and the action which the
Seller has taken, is taking and proposes to take with respect thereto;
(g) Promptly provide and verify the accuracy of any information concerning
the Seller required for any offering document with respect to the sale of
asset-backed securities backed by the Sold Program Contracts (the "Securities"),
which may include information relating to the Seller and its operations in
connection with the origination of Program Contracts, and such information may
be published in such offering documents and relied upon by the Purchaser and the
assignee of the Purchaser;
(h) Acquire, maintain, and provide to the Purchaser such information as the
Purchaser may reasonably require (at least semi-annually) from time to time
regarding any Dealer whose Automobile sales are financed or are to be financed
by Program Contracts which are sold or to be sold hereunder and shall represent
that such information is, to the best knowledge of the Seller, true and correct.
To the extent Seller has the right, by agreement or otherwise, to inspect or
audit the books and records of any Dealer, the Seller shall allow the Purchaser,
at its expense, to exercise such right on the Seller's behalf;
(i) Maintain, at its own expense, with responsible insurance companies such
insurance on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses. No provision of this Section
5.1(i) requiring insurance shall relieve the Seller from its duties and
obligations as set forth in this Sale Agreement. The Seller shall be deemed to
have complied with this provision, in whole or in applicable part, if one of its
Affiliates has such applicable policy or policies and, by the terms thereof, the
coverage afforded thereunder
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extends to the Seller. The Seller shall, upon the request of the Purchaser, file
with the Purchaser a list of the insurance then in effect, stating the names of
the insurance companies, the amounts of the insurance, the dates of the
expiration thereof, and the properties and risks covered thereby. Each policy
required by this Section 5.1(i) shall not be canceled or modified in a
materially adverse manner without ten (10) days' prior written notice to the
Purchaser;
(j) Promptly, deliver to the Purchaser, from time to time, such other
information, documents, records or reports respecting the Program Contracts or
the condition or operations, financial or otherwise, of the Seller or any of its
Subsidiaries, as the Purchaser may, from time to time, reasonably request
(including, but not limited to, such information, documents, records or reports
which the Purchaser is requested or required by applicable law to provide to a
third party, including any Governmental Authority).
5.2 RIGHT OF PURCHASER TO AUDIT SELLER'S OPERATION.
Upon receipt of seven (7) days' prior written notice, Seller shall permit
Purchaser to audit Seller's operations at Seller's locations. Such audit shall
be limited to a review of those items that relate to this Agreement. Such audit
shall be during Seller's normal business hours. All of Purchaser's costs for
such audit shall be borne by Purchaser, unless the results of such audit shall
indicate that a Seller Termination Event has occurred which at the time of such
audit was known by the Seller and with respect to which the Purchaser has not
received notice, in which event the Seller shall pay the Purchaser's costs of
such audit. In lieu of an audit at the Seller's location, Purchaser may, from
time to time, request that information, documents or records required pursuant
to such audit be sent to Purchaser.
5.3 OBLIGATION OF SELLER TO PRODUCE CONTRACT FORMS TO PURCHASER.
Seller shall provide Purchaser with copies of all contracts, agreements or
other forms that will be included in the Contract File or included in the
Purchased Assets. Purchaser shall have the right to approve all such forms
before its purchase of any Program Contracts under this Agreement.
5.4 DUTIES OF SELLER WHILE ACTING AS SERVICER; SELLER SHALL PROVIDE ASSISTANCE
WITH RESPECT TO CONVERSION OF DATA.
Seller shall be responsible, in its capacity as Servicer under the
Servicing Agreement, for retaining and maintaining, as custodian and bailee for
the Purchaser, the Electronic Contract Information and Contract Files with
respect to the Sold Program Contracts (not including the original Contract and
title certificate for each Sold Program Contract, which shall be delivered by
the Seller to the Purchaser pursuant to Section 2.1(b) of this Agreement).
Seller shall use its best efforts to cure all documentation exceptions and
deficiencies with respect to the Sold Program Contracts, including obtaining
missing title certificates and correcting lienholder and owner information on
title certificates, and further shall use its best efforts to (a) correct all
data errors
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with respect to the Sold Program Contracts caused by or resulting from its
receipt, transmission, maintenance, modification, updating, processing and use
of the Electronic Contract Information during such time as it has acted as the
Servicer of the Sold Program Contracts pursuant to the Servicing Agreement and
(b) correct all material errors and mistakes in the conversion of electronic
data with respect to the Sold Program Contracts to the Purchaser's, or its
designated servicer's, servicing system, if and when any such conversion shall
take place (Seller understands and agrees that its failure to have collection
agency licenses in all jurisdictions in which it purchases Contracts from
Dealers may prevent it from acting as the Servicer under the Servicing Agreement
for some Sold Program Contracts, in which event the Seller shall deliver the
entire Contract File and the Electronic Contract Information for such Sold
Program Contracts to the Purchaser or its designated servicer), except for
errors or mistakes caused by the negligence, recklessness, bad faith or
misconduct of the Purchaser or its designated servicer or any of their
representatives or employees. Purchaser may require Seller to repurchase at the
Repurchase Price, as more particularly described in Section 4.4 of this
Agreement, any Sold Program Contract that is subject to any material data error
caused by or resulting from any acts or omissions of the Seller. Except for the
specific obligations of Seller set forth in this Section 5.4, Seller shall have
no obligation to the Purchaser for the reimbursement of costs incurred by the
Purchaser in connection with the conversion of electronic data with respect to
the Sold Program Contracts to Purchaser's, or its designated servicer's,
servicing system.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
6.1 GENERAL REPRESENTATIONS AND WARRANTIES OF PURCHASER.
The Purchaser represents and warrants to the Seller as of the date hereof
and on each subsequent date on which a Sale is made, as follows:
(a) Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, with the power and authority to own its
properties and to conduct its business.
(b) Purchaser is duly qualified to do business, in good standing and
possesses all of the necessary licenses and approvals in all jurisdictions where
failure to do so would adversely affect its ability to perform its obligations
under this Sale Agreement or the enforceability or collectibility of the Sold
Program Contracts.
(c) Purchaser has the power, authority and legal right to execute and
deliver this Sale Agreement and to carry out its terms, and the execution,
delivery and performance of this Sale Agreement has been duly authorized by
Purchaser by all necessary corporate action.
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(d) This Sale Agreement constitutes a legal, valid and binding obligation
of Purchaser enforceable against Purchaser in accordance with its terms.
(e) The execution, delivery and performance of this Sale Agreement, the
consummation of the transactions contemplated hereby and the fulfillment of the
terms hereof will not conflict with, result in any breach of or constitute (with
or without notice or lapse of time) a default under the articles of
incorporation or bylaws of the Purchaser, or conflict with or breach any of the
terms or provisions of, or constitute (with or without notice or lapse of time)
a default under, any indenture, agreement, mortgage, deed of trust or other
instrument to which Purchaser is a party or by which Purchaser is bound or to
which any of its properties are subject, 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, or constitute
a violation of any law, order, rule or regulation applicable to Purchaser or its
properties of any Governmental Authority having jurisdiction over Purchaser or
any of its properties.
(f) There are no proceedings or investigations pending, or, to Purchaser's
knowledge, threatened, before any Governmental Authority having jurisdiction
over Purchaser or any of its properties: (i) asserting the invalidity of this
Sale Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Sale Agreement, or (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by Purchaser of its obligations under, or the validity or
enforceability of, this Sale Agreement.
SECTION VII
SELLER AND PURCHASER TERMINATION EVENTS
7.1 SELLER TERMINATION EVENTS.
For purposes of this Agreement, each of the following shall constitute a
Seller Termination Event (each, a "Seller Termination Event") hereunder:
(a) Any failure by the Seller to deliver to or upon the order of Purchaser
any proceeds or payment required to be so delivered under the terms of this
Agreement, which failure continues for a period of three (3) Business Days after
discovery by the Seller or written notice of such failure given to Seller by
Purchaser;
(b) Failure on the part of the Seller duly to observe or perform in any
material respect any other covenant or agreement of the Seller set forth in this
Agreement, which failure continues for a period of ten (10) Business Days after
discovery by the Seller or written notice of such failure given to the Seller by
Purchaser;
(c) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a trustee
in bankruptcy, conservator, receiver,
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or liquidator for the Seller in any bankruptcy, insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceeding or for the
winding up or liquidation of its affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days;
(d) The consent by the Seller to the appointment of a trustee in
bankruptcy, conservator, or receiver or liquidator in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceeding of or relating to any one or more Seller or relating to all
or substantially all of its property; or the Seller shall admit in writing its
inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations; or any judgment or order for the payment of money in excess of
$25,000 in the aggregate against the Seller shall remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of thirty (30) days
or more;
(e) Any representation, warranty, covenant or statement of the Seller 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 within ten (10) Business Days after the
Seller has learned of such circumstance or after written notice thereof shall
have been given to the Seller by Purchaser, the circumstance or condition in
respect of which such representation, warranty, covenant or statement was
incorrect shall not have been eliminated or otherwise cured to the satisfaction
of Purchaser;
(f) A material number of Sold Program Contracts (five percent (5%) or more)
purchased by the Purchaser from the Seller during any calendar month fail to
comply, in any material respect, with the Seller's Contract Finance Program
Guidelines or the Seller's representations and warranties with respect thereto
set forth in Section 4.2 of this Agreement (as determined by the Purchaser, in
its reasonable judgment, from a review of a random sample, consisting of a
statistically significant number, of Sold Program Contracts during such calendar
month), and within ten (10) days after the Seller has learned of such
circumstance or after written notice thereof shall have been given to the Seller
by Purchaser, the cause for such noncompliance shall not have been eliminated or
otherwise cured to the reasonable satisfaction of the Purchaser, or in the
alternative, if reasonably recommended by the Purchaser, the Seller shall have
refused to accept a reduction in the amount of the Fee to be paid by the
Purchaser for the future purchase of Eligible Program Contracts pursuant to this
Agreement;
(g) A deterioration has taken place in the quality of the Sold Program
Contracts purchased by the Purchaser from the Seller pursuant to this Agreement
or in the collectibility thereof, which the Purchaser, in its reasonable
judgment, determines to be material and the Seller is unwilling, within ten (10)
days after receipt of written notice thereof, to revise the Seller's Contract
Finance Program Guidelines and/or reduce the Purchase Price applicable to future
sales of Contracts pursuant to this Agreement to the extent recommended by the
Purchaser to cover the financial risk, exposure and/or loss reasonably
anticipated to be incurred by the Purchaser as a result of such deterioration;
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(h) The Purchaser shall reasonably determine that it will suffer material
economic or financial harm from its future purchase of Eligible Program
Contracts from the Seller pursuant to this Agreement, and the Seller is
unwilling, within fifteen (15) days after receipt of written notice thereof, to
revise the Seller's Contract Finance Program Guidelines and/or reduce the
Purchase Price applicable to future sales of Contracts pursuant to this
Agreement to the extent recommended by the Purchaser to eliminate the economic
or financial harm that will be realized by the Purchaser from its future
purchase of Contracts pursuant to this Agreement;
(i) The Purchaser and the Seller are unable to mutually agree upon the
terms and provisions of the Seller's Contract Finance Program Guidelines, and
the Purchaser shall have provided the Seller with at least ten (10) days' prior
written notice of its desire to terminate this Agreement because of such event
or circumstance; or
(j) Seller does not offer for sale to the Purchaser during any full
calendar month at least one hundred (100) Eligible Program Contracts.
7.2 PURCHASER TERMINATION EVENTS.
Any of the following acts or occurrences shall constitute a Purchaser
Termination Event (each, a "Purchaser Termination Event"):
(a) So long as no Seller Termination Event has occurred or no notice of the
termination of this Agreement shall have been given by the Purchaser to the
Seller pursuant to Section 7.3 of this Agreement, any failure by Purchaser to
purchase Eligible Program Contracts on each applicable Sale Date or to pay any
amounts due pursuant to this Agreement, which failure continues for a period of
three (3) Business Days after discovery by Purchaser or written notice of such
failure given to Purchaser by Seller;
(b) Failure on the part of Purchaser duly to observe or perform in any
material respect any other covenant or agreement of Purchaser set forth in this
Agreement, which failure continues for a period of ten (10) Business Days after
discovery by Purchaser or written notice of such failure given to Purchaser by
Seller.
(c) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a trustee
in bankruptcy, conservator, receiver, or liquidator for Purchaser in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceeding or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days;
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(d) The consent by Purchaser to the appointment of a trustee in bankruptcy,
conservator, or receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar proceeding
of or relating to Purchaser or relating to all or substantially all of its
property; or Purchaser shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations; or
any judgment or order for the payment of money in excess of $25,000 in the
aggregate against the Purchaser shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of thirty (30) days or more
(e) Any representation, warranty, covenant or statement of Purchaser 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 within ten (10) Business Days after Purchaser
shall have learned of such circumstance or after written notice thereof shall
have been given to Purchaser by a Seller, the circumstance or condition in
respect of which such representation, warranty, covenant or statement was
incorrect shall not have been eliminated or otherwise cured to the satisfaction
of Seller;
(f) The Seller and the Purchaser are unable to mutually agree upon the
terms and provisions of the Seller's Contract Finance Program Guidelines, and
with respect to any of such matters, the Seller shall have provided the
Purchaser with at least ten (10) days prior written notice of its desire to
terminate this Agreement because of such event or circumstance;
(g) Purchaser does not purchase from the Seller during a calendar month at
least ninety eight percent (98%) of the Eligible Program Contracts (which
satisfy the requirements for purchase by the Purchaser pursuant to this
Agreement) offered for sale during such month by the Seller pursuant to this
Agreement.
7.3 RIGHTS UPON SELLER TERMINATION EVENT OR PURCHASER TERMINATION EVENT;
LIMITATION OF DAMAGES.
(a) If a Seller Termination Event or Purchaser Termination Event shall
occur and be continuing, so long as such Termination Event has not been cured or
waived, after the expiration of any applicable cure period, the party having the
right to terminate this Agreement (the "Terminating Party") can, by notice given
in writing to the other party, immediately terminate this Agreement. Such right
to terminate this Agreement, together with all other rights and remedies from
time to time conferred upon or reserved by Seller or Purchaser, are cumulative,
and none is intended to be exclusive of another or any right or remedy which
Seller or Purchaser may have at law or in equity; provided, however, with
respect to any Sold Program Contract purchased by the Purchaser pursuant to this
Agreement, if there shall be a breach of any representation or warranty with
respect to such Sold Program Contract set forth in Section 4.1 or 4.2 of this
Agreement, or if Seller shall be in default of any covenant or obligation with
respect to such Sold Program Contract set forth in Article II of this Agreement,
then the sole remedy of
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the Purchaser with respect to such default or breach shall be to require Seller
to repurchase such Sold Program Contract pursuant to Section 4.4 of this
Agreement; provided, however, the preceding provision is not intended to
prohibit the Purchaser from terminating this Agreement because of a Seller
Termination Event described in Section 7.1 of this Agreement or seeking recourse
against Seller for indemnification pursuant to Section 8.1 of this Agreement. No
delay or omission in insisting upon the strict observance or performance of any
provision hereof or in exercising any right or remedy shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as often
as deemed expedient.
(b) If either party shall bring a claim, action, demand, suit or proceeding
against the other party because of a breach or default of any term or provision
of this Sale Agreement, not including a claim for indemnification pursuant to
Section 8.1 or 8.2 of this Sale Agreement, the nondefaulting party's measure of
damages shall be limited as follows:
(i) With respect to a claim by the Purchaser that there has occurred a
breach of a representation or warranty with respect to a Sold Program
Contract set forth in Section 4.1 or 4.2 of this Sale Agreement or a
default by the Seller of a covenant or obligation with respect to a Sold
Program Contract set forth in Article II of this Sale Agreement, the
Purchaser shall be allowed to recover from the Seller with respect to Sold
Program Contract the amounts set forth in Section 4.4 of this Sale
Agreement, plus reasonable attorneys' fees and disbursements and related
litigation expenses incurred by the Purchaser to enforce its rights and
remedies under this Sale Agreement;
(ii) With respect to any other claim by the Purchaser against the
Seller, the Purchaser shall be allowed to recover from the Seller its
actual monetary loss directly incurred as a result of such default or
breach by the Seller, not to exceed recissionary damages calculated in
accordance with Section 4.4 of this Sale Agreement, plus reasonable
attorneys' fees and disbursements and related litigation expenses incurred
by the Purchaser to enforce its rights and remedies under this Sale
Agreement;
(iii) With respect to a claim by the Seller against the Purchaser that
there has occurred a breach or default by the Purchaser of any covenant,
obligation, representation or warranty set forth in this Sale Agreement,
the Seller shall be allowed to recover from the Purchaser the additional
costs, expenses and financing costs (equal to (A) the difference between
the Fees payable by the Purchaser to the Seller pursuant to this Agreement
and similar fees payable by a third party to the Seller to purchase
Eligible Program Contracts pursuant to an agreement similar to this Sale
Agreement or (B) the difference between the Seller's actual cost of
financing the ownership of Eligible Program Contracts and Six and 50/100
Percent (6.50%) per annum) actually incurred by the Seller as the result of
such breach or default, plus reasonable attorneys' fees and disbursements
and related litigation expenses incurred by the Seller to enforce its
rights and remedies under this Sale Agreement. Additional costs, expenses
and financing costs actually
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incurred by the Seller shall be based upon the actual number of Eligible
Program Contracts purchased by the Seller from Dealers during the period
beginning on the date of the Purchaser's breach, after taking into account
all applicable cure periods, and ending on the Scheduled Termination Date;
and
(iv) Neither the Purchaser nor the Seller shall be liable to each
other for any lost profits or loss of business or any special, speculative,
punitive, indirect, exemplary, punitive, consequential or incidental
damages, however caused or however based upon any theory of liability.
7.4 WAIVER OF DEFAULTS AND TERMINATION EVENTS.
Following the occurrence of a Seller Termination Event or Purchaser
Termination Event, the Terminating Party may, by written notice to the other
party, waive such Termination Event. Upon any such waiver, such Termination
Event shall cease to exist, and any default arising therefrom shall be deemed to
have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other Termination Event or default or impair any
right consequent thereon except to the extent expressly so waived.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY SELLER.
Without limiting any other rights that an Indemnified Party may have
hereunder or under applicable law, and subject to Seller's right to cure as set
forth in this Agreement, the Seller hereby agrees to pay on demand to the
Purchaser and its parent, Subsidiaries and Affiliates and their directors,
officers, employees and authorized agents Indemnified Amounts which may be
imposed on, incurred by or asserted against an Indemnified Party as a result of
any claim, action, demand, proceeding or suit, whether or not groundless, that
in any way arises out of or results from:
(a) Use by the Seller of proceeds of any Sale or in respect of any Sold
Program Contract;
(b) Reliance by the Purchaser on any representation or warranty made or
deemed made by the Seller (or any of its officers) under or in connection with
this Sale Agreement;
(c) Any material breach by Seller of its representations and warranties,
covenants or obligations, or material failure by the Seller to comply with any
term, provision or covenant, contained in this Sale Agreement or any agreement
executed in connection with this Sale Agreement;
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(d) The failure to vest and maintain vested in the Purchaser, or to
transfer to the Purchaser, legal and equitable title to and ownership of the
Program Contracts that are, or are purported to be, Sold Program Contracts,
together with all proceeds in respect thereof, free and clear of any Adverse
Claim (except as permitted hereunder) whether existing at the time of the
proposed sale of such Program Contract or at any time thereafter, and without
limitation to the remedies set forth in Section 4.4; or
(e) Any act or omission by Seller or its agents, officers or employees
or controlled Affiliates or by any Dealer arising out of or relating to the
purchase by the Seller of any Contract, the sale by the Dealer of any Contract
or the sale by the Dealer of a Financed Vehicle or related product or service to
an Obligor, which results in a material loss by or claim against the Purchaser,
including any claim by an Obligor or Governmental Authority that the form, terms
or provisions of the Contract fail to comply with the requirements of applicable
federal and state laws.
If a claim for indemnification is tendered by an Indemnified Party to the
Seller, the Seller may, at its option, repurchase the Program Contracts involved
in such claim in accordance with the terms of Section 4.4 of this Agreement and
the Repurchase Price for such Program Contracts actually paid by the Seller to
the Purchaser shall be taken into account in determining the amount of the loss
that the Indemnified Party has incurred as a result of such claim. The Seller
acknowledges that the Purchaser may assign its rights of indemnity granted
hereunder to an assignee and upon such assignment, such assignee shall have all
rights of the Purchaser hereunder and may in turn assign such rights. The Seller
agrees that, upon such assignment, such assignee may enforce directly, without
joinder of the Purchaser, the indemnities set forth in this Section.
8.2 INDEMNIFICATION BY PURCHASER.
Purchaser shall indemnify and hold harmless Seller and its parent,
Subsidiaries, Affiliates and their directors, officers, employees and authorized
agents against any claim, action, demand, proceeding and suit brought by any
Person other than the Seller, whether or not groundless, and against every
liability, damage and cost (including reasonable legal fees and related costs),
arising out of, directly or indirectly, from any such claim, action, demand,
proceeding or suit, resulting from, arising out of or relating to: (i) any
material breach by Purchaser of its representations and warranties, covenants or
obligations contained in this Agreement, or (ii) any act or omission by
Purchaser or its agents, officers or employees or controlled Affiliates (not
including acts and omissions of the Seller while it is acting as servicer of the
Sold Program Contracts pursuant to the Servicing Agreement) with respect to the
collection, application or administration of payments under any Sold Program
Contract, the repossession of any Financed Vehicle that secures a Sold Program
Contract, or the exercise of any rights or pursuit of claims against any Obligor
under any Sold Program Contract, which results in a material loss by or claim
against the Seller.
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8.3 INDEMNIFICATION GENERALLY.
(a) A claim for indemnification pursuant to this Article shall be made, if
at all, within five (5) years after the applicable Sale Date notwithstanding any
statute of limitations that may specify a shorter period, the provisions of
which are hereby waived.
(b) As a condition of any claim for indemnification under this Article, the
indemnifying party shall be given timely notice of any claim or demand as to
which indemnification may be claimed and shall have the right, together with the
Indemnified Party, to participate in the defense, compromise or closing thereof
through the indemnifying party's own attorney and at the indemnifying party's
expense.
(c) If a party has received indemnity payments hereunder with respect to a
Contract and thereafter receives payments from third parties so as to fully
recoup its losses with respect to such Contract, the Indemnified Party shall
remit any excess payments to the indemnifying party to the extent of the
indemnification payments previously made by the indemnifying party and subject
to the rights of the Obligor.
ARTICLE IX
CONFIDENTIALITY; SELLER NOT TO SOLICIT OBLIGORS;
NO SOLICITATION OF OTHER PARTY'S EMPLOYEES
9.1 CONFIDENTIALITY COVENANT.
Except to the extent required by applicable law and upon satisfaction of
the procedures set forth in this Section 9.1 or unless the parties hereto shall
shall mutually agree otherwise, the parties (including their directors,
officers, employees and counsel) agree to keep confidential the existence and
terms of this Sale Agreement and all proprietary information relating to each
other's business, including, but not limited to, credit underwriting criteria,
products, customer lists, pricing policies, employment records and policies,
operational methods, marketing plans and strategies, product development
techniques and inventions and research programs, trade know-how, trade secrets,
specific software, algorithms, computer processing systems, object and source
codes, user manuals, systems documentation and other business and financial
affairs, and the parties agree not to disclose, deliver or otherwise make
available such materials or information to any third party (other than their own
directors, officers, employees, accountants and counsel who need such
information or materials). If a party is required by applicable law or legal
process to make disclosure to a third party of information or materials required
to be maintained as confidential pursuant to this Section 9.1, the disclosing
party shall give prior written notice to the other party (the "Protected Party")
of the information and materials it intends to disclose and the reasons why the
disclosing party believes it is required to disclose such information and
materials. The Protected Party may either consent to such disclosure, object to
such disclosure or seek a protective order or appropriate remedy to prohibit or
limit such disclosure. In the event that the Protected Party objects to such
disclosure but fails to obtain a protective order or other remedy, the
disclosing party shall disclose only such information and materials as counsel
for the disclosing
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party determines is required to be made. Notwithstanding the foregoing, no party
shall make a public announcement regarding the existence of this Agreement or
the terms hereof without the prior consent of the other party, and the parties
will cooperate with each other in preparing the contents and determining the
manner of distribution of any such announcement.
9.2 SELLER NOT TO SOLICIT OBLIGORS.
From and after each Sale Date as to any Contract and for so long as such
Contract is outstanding, neither Seller nor any officer or employee of Seller
shall knowingly solicit, and neither Seller nor its officers and employees shall
encourage or recommend any agent or representative of Seller to solicit, any
Obligor in respect of such Contract, either singly or as part of a group, on
behalf of Seller or any other entity in any manner that would encourage
prepayment of such Contract, except that Seller may continue to make general
solicitations to the public and to any of Seller's customers and may advertise,
sell and provide all financial services offered by Seller.
9.3 NO SOLICITATION OF OTHER PARTY'S EMPLOYEES.
During the term of this Agreement and for one year after its termination,
both Seller and Purchaser agree not to solicit or cause to be solicited the
employment of any person who is employed by the other party. Notwithstanding
anything to the contrary in this section, the employment by Seller or Purchaser
of officers and employees of the other party who contact the hiring party on
their own initiative without any direct solicitation or encouragement from the
hiring party or who are solicited by advertising or notices in newspapers or
periodicals of general circulation shall not constitute a breach of this Section
9.3.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 NOTICES.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing and mailed or telecommunicated, or
delivered as to each party hereto, at its address set forth under its name on
the signature page hereof or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall not be effective until received by the party to whom such
notice or communication is addressed.
10.2 NO WAIVER; REMEDIES.
No failure on the part of the Seller or the Purchaser to exercise, and no
delay in exercising, any right hereunder or under any Sale Assignment shall
operate as a waiver thereof;
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nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any other remedies
provided by law.
10.3 BINDING EFFECT; ASSIGNABILITY.
This Sale Agreement shall be binding upon and inure to the benefit of the
Seller and the Purchaser, and their respective successors and permitted assigns.
The Seller may not assign any of its rights and obligations hereunder or any
interest herein without the prior written consent of the Purchaser, which
consent will not be unreasonably withheld. The Purchaser may assign all of its
rights hereunder to one or more Persons. This Sale Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until its termination;
provided, that the obligations of the Seller set forth in Sections 2.3, 2.4, and
5.4, the obligations of both parties set forth in Article IX, the rights and
remedies granted to the Purchaser pursuant to Section 4.4 and the
indemnification and payment provisions of Article VIII shall be continuing and
shall survive any termination of this Sale Agreement.
10.4 AMENDMENTS; CONSENTS AND WAIVERS; ENTIRE AGREEMENT.
No modification, amendment or waiver of, or with respect to, any provision
of this Sale Agreement, and all other agreements, instruments and documents
delivered hereto, and no consent to any departure by the Seller or by the
Purchaser from any of the terms or conditions hereof shall be effective unless
it shall be in writing and signed by each of the parties hereto. Any waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No consent to or demand by the Seller or the Purchaser in any case
shall, in itself, entitle such party to any other consent or further notice or
demand in similar or other circumstances. This Sale Agreement and the documents
referred to herein embody the entire agreement of the Seller and the Purchaser
with respect to the Sold Program Contracts and supersede all prior agreements
and understandings relating to the subject hereof.
10.5 SEVERABILITY.
In case any provision in or obligation under this Sale Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provision or obligations, or of such
provision or obligation, shall not in any way be affected or impaired thereby in
any other jurisdiction.
10.6 PURCHASER TO PROVIDE SELLER DATA WITH RESPECT TO SOLD PROGRAM CONTRACTS.
Purchaser shall provide Seller (no more often than once per calendar
month) data relating to the performance of all Sold Program Contracts. Such data
will be of the type and level of detail considered necessary by the Seller, in
its reasonable discretion, to allow Seller to perform
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<PAGE> 37
static pool and other analyses on such Sold Program Contracts. It is understood
that this condition becomes effective once the volume of Sold Program Contracts
reaches a level where such analyses would be considered by the Seller to be
meaningful. It is also understood that, once effective, this provision shall
apply to all Sold Program Contracts since the date of this Sale Agreement and
for the life of all such Sold Program Contracts.
10.7 COSTS, FEES AND EXPENSES.
If any legal proceeding is instituted by either party against the other
under this Agreement or with respect to any Sold Program Contract, upon the
entry of a final order or judgment, the non-prevailing party shall be required
to pay the prevailing party's costs and expenses of such litigation, including
reasonable attorneys' fees. The Seller shall be solely responsible for paying
any and all brokers' fees and expenses that may be payable to any broker,
advisor or agent who has provided services to the Seller with respect to this
Agreement and the transactions contemplated hereby. Except as otherwise provided
in this Agreement, each party agrees to pay all costs, fees and expenses which
it has incurred in connection with or incidental to the matters contained in
this Agreement, including any fees and disbursements to its accountants and
counsel.
10.8 RIGHT OF OFFSET AND DEDUCTION.
Any party (the "Offsetting Party") may offset and deduct from any amount
payable by the Offsetting Party to the other party (the "Debtor Party") under
this Agreement or the Servicing Agreement any amount which is, at the time of
exercise of the right of offset and deduction, presently due and payable by the
Debtor Party to the Offsetting Party pursuant to this Agreement or the Servicing
Agreement.
10.9 GOVERNING LAW.
THIS SALE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF FLORIDA.
10.10 CONSENT TO JURISDICTION AND VENUE.
Each of the Seller and the Purchaser hereby irrevocably and unconditionally
submits, for itself and its property, to the non-exclusive jurisdiction of any
Arkansas state court, Florida State Court, federal court of the United States of
America for the Eastern District of Arkansas, or federal court of the United
States of America for the Northern District of Florida, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and the parties
agree that all claims in respect of any such action or proceeding may be heard
and determined in such Arkansas or Florida state or, to the extent permitted by
law, federal court.
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<PAGE> 38
10.11 EXECUTION IN COUNTERPARTS.
This Sale Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same agreement
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<PAGE> 39
IN WITNESS WHEREOF, the parties have cause this Sale Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ WILLIAM MAGRO
--------------------------------------------
Name: William Magro
Title: President and Chief Operating Officer
Address: National Auto Finance Company, Inc.
10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32255-0970
Telephone: 904-996-2500
Telecopy: 904-996-2539
With a copy to:
Stephen R. Veth, Esq.
Vice President, Secretary and General Counsel
Telephone: 904-486-1151
Telecopy: 904-996-2557
NUVELL CREDIT CORPORATION
By: /s/ TOMMY E. PRITCHARD
----------------------------------------------
Tommy E. Pritchard
President
Address:
17500 Chenal Parkway, Suite 201
Little Rock, Arkansas 72223-9131
Telephone: 501-821-5200
Telecopy: 501-821-5208
Attn.: Tommy E. Pritchard
President
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<PAGE> 40
With a copy to:
Thomas N. Rose
Executive Vice President
17500 Chenal Parkway, Suite 201
Little Rock, Arkansas 72223-9131
Telephone: 501-821-9400
Telecopy: 501-821-5208
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<PAGE> 41
EXHIBIT LIST
A Assignment
B Fee Schedule
C Purchaser's Contract Requirements
D Power of Attorney
E Officer's Certificate
F Legal Opinion of Seller's Counsel
G List of Independent Automobile Dealers From Whom Seller Purchases Contracts
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<PAGE> 42
EXHIBIT A
ASSIGNMENT
ASSIGNMENT dated _______________, ______, from NATIONAL AUTO FINANCE
COMPANY, INC. ("Seller") to NUVELL CREDIT CORPORATION ("Purchaser").
FOR VALUE RECEIVED, pursuant to the Contract Sale Agreement dated as of
February 4, 2000, by and between Seller and Purchaser (the "Agreement"), Seller
does hereby sell, transfer, assign and convey unto Purchaser, its successors and
assigns, all of its right, title and interest in, to and under the Motor Vehicle
Retail Installment Sales Contract (the "Contract") attached hereto, which has
the following characteristics:
Origination Date: Description of Financed Vehicle:
------------------
Amount Funded: Year:
------------------ ------------------
Name of Obligor(s): Make:
----------------- -----------------
Model:
-----------------
VIN:
-----------------
together with all of its right, title and interest in, to and under all
documents, payments, recoveries, proceeds and obligations arising therefrom or
in connection therewith.
And Seller hereby represents, warrants and confirms to Purchaser, subject
to the terms and provisions of the Agreement, that the Contract is an "Eligible
Program Contract," as defined in the Agreement, all of Seller's representations
and warranties regarding the Seller and the Contract made in or pursuant to the
Agreement are true and correct in all material respects as of the date hereof,
the Seller is in compliance, as of the date hereof, with each of it covenants
set forth in the Agreement, the "Scheduled Termination Date," as defined in the
Agreement, has not occurred, and no event has occurred which, with notice or the
passage of time, would constitute a "Seller Termination Event," as defined in
the Agreement, or a breach by Seller of its representations, warranties or
obligations under the Agreement.
And Seller hereby grants to Purchaser a power of attorney, with full power
of substitution, to execute in Seller's name and on Seller's behalf such
notices, endorsements (including, without limitation, endorsement of the
Contract and any related promissory notes or other instruments), consents, and
other instruments and documents which may be reasonably necessary in Purchaser's
judgment to evidence the sale and assignment of the Contract to Purchaser or to
record or otherwise perfect Purchaser's interest therein or in the collateral
securing the Contract, or which may be otherwise consistent with the sale and
assignment of the Contract effected by this Assignment and pursuant to the
Agreement. This power of attorney is coupled with an interest and is
irrevocable.
All terms used herein and not otherwise defined shall have the meaning set
forth in the Agreement. This Assignment is made WITHOUT RECOURSE AGAINST THE
SELLER OR WARRANTY TO THE PURCHASER, except to the extent specifically provided
for in the Agreement.
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<PAGE> 43
IN WITNESS WHEREOF, Seller has caused this Assignment to be executed by its
duly authorized officer effective as of the date first set forth above.
Seller: NATIONAL AUTO FINANCE COMPANY, INC.
By:
--------------------------------
Name:
Title:
------------------------------
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<PAGE> 44
EXHIBIT B
Fee Schedule
The Purchase Price for each Sold Program Contract purchased by the
Purchaser from the Seller pursuant to the Contract Sale Agreement shall equal
the following:
1. The Amount Financed, plus
2. Dealer participation in the amount actually paid to the Dealer, but
not exceeding such amount as is payable pursuant to the Seller's Contract
Finance Program Guidelines, minus
3. The applicable discount and/or acquisition fee, minus
4. The applicable overadvance warranty fee and the overadvance fee,
the total of the above to be paid by the Purchaser to the Purchaser's Control
Account; plus
5. The referral fee payable by the Seller to a third-party, if and to the
extent that the payment of such fee has not resulted in an applicable discount
in the amount paid to the Dealer for such Contract in excess of the amount
allowed by the Purchaser's Contract Requirements attached as Exhibit C to the
Contract Sale Agreement, plus
6. The amount payable to the applicable Governmental Authority in the
State of Florida for documentary stamps, plus
7. The amount of cash payable by the Seller to any Dealer pursuant to its
Contract Finance Program Guidelines as compensation for the volume of Contracts
sold by the Dealer to the Seller, if and to the extent that such cash amounts
relate to Sold Program Contracts previously purchased by the Purchaser from the
Seller, plus
8. An acquisition fee of $465.00,
the total of Items 5 through 8 to be paid by the Purchaser directly to the
Seller to such account as may be designated by the Seller in writing to the
Purchaser, as set forth in Section 2.1(c) of the Contract Sale Agreement.
- --------------------------
<PAGE> 45
EXHIBIT C
Purchaser's Contract Requirements
Nuvell will purchase only Eligible Program Contracts that comply with
Seller's Contract Finance Program Guidelines and satisfy, as of the closing
date, all of the criteria set forth in the Contract Sale Agreement. In addition,
each Eligible Program Contract must satisfy the following criteria:
(1) has a NAFI credit score of at least one hundred and fifty-two
(152), unless the amount financed is 100% or less of the wholesale value of
the financed vehicle, as determined by reference to a reputable, nationally
distributed used car guide;
(2) does not involve the financing of any of the following makes or
models:
Alfa Romeo
Daewoo
Daihatsu
Peugeot
Kia
Hyundais
Suzuki
Mitsubishi Mirage -
unless the Amount Financed (a) for any new such vehicle is less than ninety
percent (90%) of invoice and (b) for any used such vehicle is less than
ninety percent (90%) of the NADA "Trade-In Value" of such vehicle, with
reference to the NADA Used Car Guide for the region of the United States in
which such vehicle is sold to the Obligor, except the States of Arizona,
California, Nevada, Utah and Washington, in which reference will be made to
Kelley Blue Book for the region of the United States in which such vehicle
is sold to the Obligor;
(3) has an original principal balance of at least $7,000 and not more
than $30,000;
(4) has a stated APR of at least 12.95% and not more than 25.95%;
(5) does not involve the financing of or sale to the Obligor of GAP
insurance, a deficiency waiver or debt cancellation agreement, except
pursuant to such form of agreement as has been approved by the Purchaser
and in such states as approved by the Purchaser;
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<PAGE> 46
(6) does not involve a purchase discount (being the difference between
the original principal balance of the Contract and the amount paid to the
dealer for the purchase of the Contract) of greater than 10% of the
original principal balance, unless the original principal balance of the
Contract is less than $10,000;
(7) does not involve any prepaid finance charge;
(8) does not involve the sale of a Financed Vehicle at a sales price
(not including sales tax) greater than 115% of the wholesale value of the
Financed Vehicle, as determined by reference to a reputable, nationally
distributed used car guide;
(9) does not involve a difference between the buy rate and the
Contract rate resulting in greater than two (2) percentage points of
reserve, dealer participation or dealer finance income;
(10) does not involve the payment to the dealer of dealer
participation or dealer finance income that is refundable by or chargeable
back to the dealer;
(11) does not involve the sale of any of the following: (a) a vehicle
having a salvage, branded or flood title, (b) a vehicle subject to state or
federal lemon laws, ( c) a vehicle for which the true mileage is unknown,
(d) a vehicle which has been altered by a conversion package, or (e) a
vehicle that is considered a truck with one (1) ton or greater capacity;
and
(12) does not involve the payment by the Seller of any referral fee to
a third-party, except pursuant to a referral program that has been
specifically approved by the Purchaser.
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<PAGE> 47
EXHIBIT D
IRREVOCABLE POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, NATIONAL AUTO FINANCE
COMPANY, INC. (the "Company") does hereby make, constitute and appoint NUVELL
CREDIT CORPORATION and NUVELL FINANCIAL SERVICES CORP., which are hereby
authorized to act together or separately, as its true and lawful
attorney-in-fact, with full power of substitution with respect to those certain
retail installment sales contracts sold by the Company to Nuvell Credit
Corporation pursuant to a Contract Sale Agreement by and between the Company, as
"Seller," and Nuvell Credit Corporation, as "Purchaser," dated as of
______________________, and as such may be amended from time to time and which
is incorporated by reference herein, the collateral securing such contracts, and
all security documents related thereto (collectively, the "Property"), to sign,
acknowledge and file, in the name, place and stead of the Company, all such
certificates, documents and instruments, including, but not limited to, any
instrument of assignment, certificate of title, notice of lien, assignment of
lien, application for a certificate of title or duplicate of such certificate,
application to register or transfer title, document to effect the notation of a
lien upon a certificate of title or the assignment of such a lien, notice of any
such assignment, and application to register or transfer the rights as secured
party under any policy of insurance; affidavits of repossession, bills of sale,
notices of sale, lien releases and odometer statements; to authorize the sale
and disposition of Property and transact as necessary to sell or re-market such
Property; and to sell the Property and receive proceeds thereon through any
authorized party or auction; and further as said attorney-in-fact may deem fit
and proper to perfect the right, title and interest of Nuvell Credit Corporation
and/or its successors and assigns in the Property.
The undersigned further hereby gives and grants unto said attorney-in-fact
full power and authority to do and perform every act necessary and proper to be
done in the exercise of any of the foregoing powers with respect to the Property
as fully as the undersigned might or could do if personally present.
This Power of Attorney is coupled with an interest and is irrevocable by
the undersigned. Anyone to whom this Power of Attorney is presented may rely
upon it without further inquiry of the undersigned. A photocopy of this Power of
Attorney shall have the same effect as an original, manually signed and
acknowledged counterpart of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this ___
day of _________________, _________.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
--------------------------------
Title:
-----------------------------
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<PAGE> 48
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On this ________ day of _________________, ______, before me
_____________________ personally appeared _____________________________________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission expires:
--------------
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<PAGE> 49
EXHIBIT E
Form of Officer's Certificate to Be Delivered by Seller
The undersigned, an officer of NATIONAL AUTO FINANCE COMPANY, INC. (the
"Company"), having the title and position set forth below his signature, hereby
certifies to Nuvell Credit Corporation (the "Purchaser") as follows:
(1) The undersigned officer delivers this certificate on behalf of the
Company pursuant to section 3.1(a)(vi) of the Contract Sale Agreement by and
between the Company and Purchaser dated as of _____________________ (the
"Agreement").
(2) Each of the representations and warranties of the Company contained in
the Agreement are true and correct in all respects on and as of the date hereof.
(3) No event has occurred which constitutes a Seller Termination Event
under the Agreement.
(4) The Company is in compliance with each of its covenants set forth in
the Agreement.
(5) There has not occurred any material adverse change in the business,
operations, financial condition or prospects of the Company since the date of
the Agreement.
(6) To the best of the undersigned's knowledge, all of the conditions
precedent to the obligations of the Purchaser to purchase Eligible Program
Contracts from the Seller, as set forth in Section 3.1(a) of the Agreement, have
been satisfactorily completed, and upon the Company's receipt of written notice
from the Purchaser stating that such conditions precedent have been completed,
to the satisfaction of the Purchaser, the Company will begin to offer Eligible
Program Contracts for sale to the Purchaser in accordance with the provisions of
Section 2.1 of the Agreement.
IN WITNESS WHEREOF, the undersigned officer of the Company has executed and
delivered this Officer's Certificate effective as of the ____ day of
__________________________, ___________.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
--------------------------------
Title:
-----------------------------
<PAGE> 50
EXHIBIT F
Form of Opinion Required by Section 3.1(a)(viii)
[Closing Date]
Nuvell Credit Corporation
17500 Chenal Parkway, Suite 201
Little Rock, Arkansas 72223-9131
Re: Contract Sale Agreement Dated as of ____________________, 2000,
Between National Auto Finance Company, Inc., as Seller, and Nuvell
Credit Corporation, as Purchaser
Ladies and Gentlemen:
You have requested my opinion, as counsel to National Auto Finance Company,
Inc. (the "Seller"), with respect to certain matters in connection with the sale
by Seller of motor vehicle receivables (the "Contracts") pursuant to that
certain Contract Sale Agreement, dated as of ____________________, 2000 (the
"Sale Agreement"), between Seller and Nuvell Credit Corporation (the
"Purchaser").
I have reviewed the Sale Agreement and such other documents as I deemed
necessary or advisable for purposes of this opinion. In rendering this opinion,
I have examined and relied upon originals or copies, certified or otherwise, of
all such corporate records, documents, agreements or other instruments of
Seller, have made such investigations of law and have discussed with officers of
Seller such questions of fact as I have deemed necessary or appropriate. In
rendering this opinion, I have relied upon certificates and statements of
officers and directors of Seller as to factual matters and assumed the
genuineness of all documents submitted as copies and the legal capacity of
natural persons.
I assume for purposes of this opinion that the Sale Agreement has been duly
authorized by the Purchaser and will be duly executed and delivered by the
Purchaser in accordance with such authorization. [Include other reasonable
assumptions and qualifications consistent with the Legal Opinion Accord of the
ABA Section of Business Law (1991)]
Relying on the matters stated above, and based upon and subject to the
foregoing, I am of the opinion that:
<PAGE> 51
Nuvell Credit Corporation
[Closing Date]
Page 2
1. Seller is a duly organized and a validly existing corporation in good
standing under the laws of the State of Delaware, and it is properly qualified
and in good standing in each other jurisdiction where the character of its
properties or the nature of its activities makes such qualification necessary
and wherein the failure to be so qualified would materially and adversely affect
its business or properties, the enforceability of the Sale Agreement or the
enforceability of any Contract.
2. Seller has the power to engage in the transactions contemplated by the
Sale Agreement and all requisite power, authority and legal right to execute and
deliver the Sale Agreement and the form of Assignment (the "Assignment")
attached as Exhibit A to the Sale Agreement, and to perform and observe the
terms and conditions of such agreement and instruments.
3. The Sale Agreement has been duly authorized, executed and delivered by
Seller and is a legal, valid and binding agreement of Seller enforceable against
Seller in accordance with its terms, subject to bankruptcy laws and other
similar laws of general application affecting rights of creditors and subject to
the application of the rules of equity, including those respecting the
availability of specific performance. [Include other exceptions and/or
qualifications to enforceability opinion as may be reasonably acceptable to the
Purchaser]
4. Seller's execution and delivery of an Assignment to the Purchaser and
its delivery of the Contract described in any such Assignment to the Purchaser
are sufficient to transfer all of Seller's right, title and interest in such
Contract to the Purchaser. [Include explanation of Florida law on how to perfect
a security interest in a Financed Vehicle] The Purchaser will receive title to
such Contracts free and clear of any liens, encumbrances and security interests
of any other person, except as set forth below: [set forth exceptions to
priority opinion which are reasonably acceptable to the Purchaser]
5. No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution and delivery by Seller
of, and performance by Seller of its obligations under, the Sale Agreement and
any Assignment or the Seller's consummation of the transactions contemplated by
the Sale Agreement, or if such consent, approval, authorization or order is
required, it has been disclosed to the Purchaser and has been obtained.
6. Neither the sale nor delivery of any Contract to the Purchaser, nor
the consummation of the transactions contemplated by the Sale Agreement, nor the
fulfillment of the obligations of Seller under the terms of the Sale Agreement
materially conflicts with or will materially conflict with or results or will
result in a material breach of or constitutes or will
<PAGE> 52
Nuvell Credit Corporation
[Closing Date]
Page 3
constitute a material default under the Articles of Incorporation or Bylaws of
Seller, the terms of any indenture or other agreement or instrument known to me
to which Seller are a party or by which it is bound or to which it is subject,
or any statute, order, rule, regulation, writ, injunction or decree of any
court, governmental authority or regulatory body to which any Seller is subject
or by which it is bound.
7. There is no material litigation or administrative proceeding pending
or, to the best of my knowledge, threatened against Seller which, in my
judgment, either in any one instance or in the aggregate, would draw into
question the validity of the Sale Agreement or of any action taken or to be
taken in connection with the transactions contemplated thereby, or which would
be likely to impair materially the ability of Seller to perform its obligations
under the terms of the Sale Agreement.
Whenever my opinion herein with respect to the existence or absence of
facts is indicated to be "to the best of my knowledge, information and belief"
or "known to me" or similar words, it is intended to signify that during the
course of my representation of Seller no information has come to my attention
that would give me actual knowledge of the existence of facts or circumstances
contrary to the opinions as qualified.
My opinions herein are limited in all respects to the substantive laws of
the State of _______________ and the federal laws of the United States.
This opinion letter is provided for the purposes of complying with
requirements of the Sale Agreement referred to herein. This opinion may not be
relied upon by any person, firm or entity whatsoever, other than the addressee
hereof, without my prior written consent.
This opinion is rendered as of the date hereof, and I undertake no, and
hereby disclaim any, obligation to advise you of any changes in or developments
that might affect any matters or opinions set forth herein.
Very truly yours,
------------------------------
Name of Counsel
<PAGE> 53
EXHIBIT G
List of Independent Automobile Dealers From Whom Seller Purchases Contracts
<PAGE> 1
EXHIBIT 10.126
SERVICING AGREEMENT
This SERVICING AGREEMENT, dated as of February 4, 2000, is by and
between NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation, as Servicer
("Servicer" or "NAFI"), and NUVELL CREDIT CORPORATION, a Delaware corporation
("Owner"), as owner of certain retail installment sales contracts related to the
sale of automobiles and/or light trucks (collectively, "Automobiles"), which
have been purchased by the Owner from NAFI.
WHEREAS, Owner is engaged in the business of purchasing retail
installment sales contracts related to the sale of Automobiles from automobile
dealers and finance companies;
WHEREAS, NAFI is engaged in the business of, among other things, making
and extending credit on Automobiles, purchasing retail installment sales
contracts from automobile dealers and servicing the contracts arising with
respect thereto;
WHEREAS, NAFI, as the "Seller," and the Owner, as the "Purchaser," have
entered into that certain Contract Sale Agreement dated as of the date of this
Servicing Agreement, pursuant to which NAFI has agreed to sell, and the Owner
has agreed to purchase, "Eligible Program Contracts" purchased by NAFI from
automobile dealers; and
WHEREAS, the Owner desires to engage NAFI to provide certain collection
and administration services with respect to the "Sold Program Contracts"
purchased by the Owner from NAFI pursuant to said Contract Sale Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties intending to be
legally bound, mutually agree with each other as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
"ADVERSE CLAIM" means a claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, either legal or
in equity, or other type of preferential arrangement having the effect of a lien
or security interest upon or with respect to the
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<PAGE> 2
Sold Program Contracts or the Financed Vehicles other than in favor of the Owner
with respect to the Sale Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGREEMENT" means this Servicing Agreement, including any exhibits or
schedules hereto and all amendments hereof and hereto.
"AUTOMOBILE" means any new or used automobile or light-duty truck, the
purchase of which an Obligor financed pursuant to a Contract.
"BUSINESS COMBINATION" means any one or more of the following events or
actions or any event or action with substantially similar effects:
(1) The sale, exchange, lease, transfer or other disposition
to or with any Person and/or any of its Affiliates by the Servicer (in
a single transaction or in a series of related transactions) of all or
substantially all, or any substantial part, of its or their assets or
businesses or a change in control of the Servicer;
(2) Any merger, consolidation or purchase and/or assumption
("P&A") of assets and/or liabilities of the Servicer into or with
another Person and/or any of its Affiliates, where the Servicer is not
the surviving entity in such merger or consolidation or a change in
control of the Servicer; and
(3) The adoption of any plan or proposal of partial or
complete liquidation, dissolution, spinoff, splitoff or splitup of the
Servicer.
As used in this definition, a "series of related transactions" shall be deemed
to include a series of transactions with the same Person considered together
with all Affiliates of such Person.
"BUSINESS DAY" means any day other than a Saturday or a Sunday, or
another day on which banks in the States of Arkansas, Florida or Tennessee are
required, or authorized by law, to close.
"CERTIFICATE OF TITLE" means the actual motor vehicle title in question
or the application therefor pending issuance of the actual title; alternatively,
in those certain states whose law requires or contemplates that the original of
the actual motor vehicle title be possessed by the Obligor, then, in lieu of the
actual title, "Certificate of Title" shall mean such duplicate titles,
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<PAGE> 3
certificates or other documents as are permitted, required and/or contemplated
to be possessed by the secured party under such state's laws and/or procedures
or applications therefor pending issuance of the appropriate document.
"CLOSING DATE" means the first date on which the Owner shall purchase
Sold Program Contracts from NAFI pursuant to the Sale Agreement.
"COLLECTIONS ACCOUNT" means a separate interest-bearing account
established in the name of the Owner at a federally-insured depository
institution (the Lockbox Bank), into which shall be deposited all payments of
principal and interest made by Obligors on the Contracts and all proceeds
received with respect to the Financed Vehicles and other collateral securing the
Contracts.
"CONTRACT FILE" means, as to each Contract, (a) a copy of the executed
original of the Contract, (b) the original credit application fully executed by
each Obligor, (c) the credit information and reports relating to the Obligor
(including verifications of income, employment and residence), (d) a copy of the
original Certificate of Title (or application therefor), or other legal evidence
of title, (e) evidence of the insurance policies required to be obtained by the
Servicer from the Obligor pursuant to Section 6.6 of this Agreement, (f) all
applicable service contracts and credit life or credit accident and disability
insurance policies and agreements, (g) the odometer statement fully completed
and signed or other evidence of mileage of the Financed Vehicle, (h) all
applicable assignments relating to the Contract, and (i) any and all other
documents and records that Servicer shall receive, create or keep on file or in
computer media, in accordance with its customary procedures, relating to the
origination, administration, collection and servicing of such Contract or the
related Obligor or Financed Vehicle.
"CONTRACTS" means Sold Program Contracts that are serviced by the
Servicer pursuant to this Agreement.
"DEALER" means a franchise automobile dealer, an independent automobile
dealer described in the Sale Agreement, or an Affiliate of any such automobile
dealer.
"DEBOARD" means, whether with respect to an individual Contract, group
of Contracts or all Contracts being serviced pursuant to this Agreement,
deactivation of all electronic records related to such Contracts on the
Servicer's System.
"DEBOARDING DATE" means the date specified by the Owner in the
Deboarding Notice, by which date all Contracts so designated by the Owner are to
be Deboarded, or with respect to Contracts that are subject to a Total Reduction
Event, the date on which such Contracts are required to be Deboarded pursuant to
Section 6.10(a) of this Agreement.
"DEBOARDING NOTICE" means the written notice provided by the Owner to
the Servicer stating that the Servicer must Deboard the Contracts so designated
in the notice or in a schedule accompanying such notice.
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"DEBOARDING PROCESS" means the process defined in Section 6.10(b) of
this Agreement.
"DEBT" of a party means (a) indebtedness for borrowed money, (b)
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) obligations to pay the deferred purchase price of property or services, (d)
obligations as lessee under leases which have been or should be, in accordance
with generally accepted accounting principles, recorded as capital leases, (e)
obligations secured by any lien or security interest granted by a party, even
though such party has not assumed or become liable for the payment of such
obligations, (f) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire or
otherwise to ensure a creditor against loss in respect of indebtedness or
obligations of others of the kinds referred to in clause (a) through (e) above,
and (g) liabilities in respect of unfunded vested benefits under plans covered
by the ERISA, as amended, and regulations promulgated thereunder.
"DEFAULT RATIO" means, as of any date of determination and for any
portfolio of Contracts for which such is being determined, a fraction (a) the
numerator of which is equal to the aggregate unpaid principal balance of all
Defaulted Contracts included in such portfolio, and (b) the denominator of which
is equal to the aggregate original principal balance of all Contracts included
in such portfolio.
"DEFAULTED CONTRACT" means a Contract (i) for which all or any part of
any Scheduled Payment is due and unpaid for one hundred twenty (120) days or
more after the due date of such Scheduled Payment; (ii) for which, the Financed
Vehicle securing such Contract is subject to surrender or repossession; (iii)
which has been liquidated by Servicer through the sale of the Financed Vehicle;
(iv) the Obligor of which is in default of any of the contractual requirements
(not including the installment payment requirements and obligations) of such
Contract, including, but not limited to, the requirement to provide insurance to
cover the Financed Vehicle; (v) neither the Obligor nor the Financed Vehicle can
be located by the Servicer, after using reasonable efforts to learn the
whereabouts of the Obligor and the Financed Vehicle; or (vi) the Obligor of
which is known by Owner or Servicer to have died or is a party to a proceeding
under any bankruptcy, insolvency or other debtor relief laws, other than as a
creditor or claimant.
"DEFICIENCY BALANCE RECEIVABLE" means a Contract for which the Servicer
has determined a deficiency balance, or which is classified as a Deficiency
Balance Receivable pursuant to the request of the Owner, and which shall be
collected by the Servicer pursuant to Section 6.15 of this Agreement.
"DELINQUENCY RATIO" means, as of any date of determination and for any
portfolio of Contracts for which such is being determined, a fraction (a) the
numerator of which is equal to the aggregate unpaid principal balance of all
Contracts included in such portfolio, not including Defaulted Contracts, that
involve a Delinquent Obligor, and (b) the denominator of which is equal to
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the aggregate unpaid principal balance of all Contracts, not including Defaulted
Contracts, included in such portfolio.
"DELINQUENT OBLIGOR" means with respect to any Contract, the Obligor of
such Contract that is delinquent at least thirty-one (31) days with respect to
any Scheduled Payment, or part thereof, such delinquency to be determined
without giving effect to (i) any payments made other than by the Obligor or (ii)
any grace period permitted by the related Contract.
"ELECTRONIC CONTRACT INFORMATION" means, as to each Contract, the
applicant information provided by the applicant and retained on electronic
medium, all electronically transmitted documents and information provided by an
applicant to a Dealer, all of which may be retained and transmitted by
electronic means to Servicer, and the following information with respect to each
such Contract: (a) the original Amount Financed, (b) the unpaid principal
balance, (c) the amount of each monthly payment due from the Obligor, (d) the
APR (calculated in accordance with the Contract), (e) the Contract's origination
date, (f) the date on which in each month the Scheduled Payment is due, (g) the
Contract's original term in months, (h) the next payment due date, (i) the
number of days delinquent, if applicable, (j) the accrued and unpaid interest or
finance charge of such Contract, (k) Dealer participation, if any, paid or to be
paid to a Dealer, (l) the late payment fee and NSF fee applicable to such
Contract, (m) the effective Buy Rate applicable to such Contract, (n) the credit
quality and/or classification of such Contract, in accordance with NAFI's
Contract Finance Program Guidelines as defined in the Sale Agreement, (o) the
number of times the due date for any Scheduled Payment has been extended or
deferred by the Servicer, (p) the delinquency history of the Contract, (q) the
Servicer's collectors' comments relating to the Contract, (r) the collection
status of the Contract, established by the Servicer in accordance with the terms
of this Agreement, and (s) such other information as is generally maintained by
the Servicer pursuant to its Servicing Policies and Procedures or as may be
reasonably requested by Owner to be transmitted to Owner by Servicer with
respect to each such Contract.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"EVENTS OF DEFAULT" means any event set forth in Article X of this
Servicing Agreement.
"FINANCED VEHICLE" means, with respect to a Contract, the Automobile,
together with all accessions thereto, securing the related Obligor's
indebtedness under such Contract.
"GOVERNMENTAL AUTHORITY" means the United States of America, any
federal, state, local or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions thereof or pertaining thereto.
"INDEMNIFIED PERSONS" means any Person entitled to indemnification by
NAFI or by Owner pursuant to this Servicing Agreement.
"INITIAL PERIOD" has the meaning set forth in Section 11.1 of this
Servicing Agreement.
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"INSURANCE POLICIES" means all comprehensive and collision, fire and
theft insurance policies maintained by the Obligors with respect to the Financed
Vehicles and any credit (including credit life and credit disability), warranty
or similar insurance maintained by the Obligors and benefitting the holder of
the Contracts.
"INSURANCE PROCEEDS" means all amounts recovered pursuant to the
Insurance Policies with respect to any Contract, all of which shall be promptly
deposited by the Servicer into the Collections Account.
"LAW" means with respect to any Person, property or matter, any
judgment, order, decree, writ, injunction, award, statute, rule, law,
regulation, published Government Authority or agency interpretation, ordinance,
code or other requirements applicable to such Person, property or matter.
"LIQUIDATION PROCEEDS" means net cash amounts recovered in connection
with the liquidation of a Financed Vehicle after payment of the reasonable costs
incurred in connection with the repossession, sale and liquidation of the
Financed Vehicle, including, without limitation, taxes owed to state or other
Governmental Authorities, repossession charges, transportation fees and charges,
storage fees, refurbishing expenses and auction or sales fees.
"LOCKBOX" means the lockbox established in the name of the Owner at the
Lockbox Bank, at which Obligors will be instructed by the Servicer to deliver
Scheduled Payments.
"LOCKBOX BANK" means the federally-insured depository institution
jointly determined by the Servicer and the Owner that will be responsible for
receiving and processing Scheduled Payments delivered to the Lockbox and at
which the Collections Account will be maintained.
"LOSS RATIO" means, as of any date of determination and for any
portfolio of Contracts for which such is being determined, a fraction (a) the
numerator of which is equal to the aggregate unpaid principal balance of all
Deficiency Balance Receivables included in such portfolio, and (b) the
denominator of which is equal to the aggregate original principal balance of all
Contracts included in such portfolio.
"MATERIAL ADVERSE EFFECT" means, with respect to a Person or Contract,
an event, change or occurrence which, individually or together with any other
event, change or occurrence, has a material adverse effect on (i) the financial
position, business, or results of operations of such Person and its
Subsidiaries, taken as a whole; (ii) the ability of such Person to perform its
obligations under this Servicing Agreement or to consummate the other
transactions contemplated hereby; or (iii) the value, enforceability or
marketability of any Contract or any Financed Vehicle. The foregoing
notwithstanding, "Material Adverse Effect" shall not be deemed to include the
effect of compliance with the provisions of this Servicing Agreement on the
results of operations of the parties hereto.
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"NONACCRUAL CONTRACT" means a Contract that for investor accounting
purposes is no longer deemed to accrue interest or a finance charge. A Contract
shall be classified as "Nonaccrual" by the Servicer pursuant to the nonaccrual
policy of the Owner, as such may be amended by the Owner from time to time.
"OBLIGOR" means, with respect to any Contract, the Owner and
co-purchaser or guarantor of the related Financed Vehicle or any other Person
who owes or may be liable for payments under such Contract, whether as a
guarantor, endorser or otherwise.
"OFFICER'S CERTIFICATE" means, with respect to any Person, a
certificate signed by the Chairman of the Board, the Chief Executive Officer,
the President, a Vice President, the Treasurer, the Secretary or any other duly
authorized officer of such Person.
"OWNER" means the Person identified on the first page of this Agreement
as Owner of the Contracts to be serviced under this Servicing Agreement.
"PERMIT" means any federal, state, local and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, assets or
business.
"REPOSSESSION FEE" means with respect to any Contract and subject to
all applicable Laws for the jurisdiction where such Contract is located, a fee
payable to Servicer by Owner in the amount of Two Hundred Fifteen and 00/100
Dollars ($215.00) per successful repossession and liquidation of a Financed
Vehicle.
"SALE AGREEMENT" means the Contract Sale Agreement executed by NAFI, as
"Seller," and Owner, as "Purchaser," of even date with this Agreement.
"SCHEDULED PAYMENT" means with respect to any Contract, the amount
indicated in such Contract as required to be paid by the Obligor during each
calendar month by the due date specified in such Contract, after giving effect
to any rescheduling or reduction of payments in any insolvency, bankruptcy or
similar proceeding.
"SCHEDULED TERMINATION DATE" means the date on which this Servicing
Agreement is scheduled to terminate, as set forth in Section 11.1 of this
Agreement.
"SERVICER" means National Auto Finance Company, Inc., and its
successors and assigns.
"SERVICER'S SYSTEM" means the Servicer's proprietary computer loan
servicing system, including, but not limited to, the hardware, software, the
source code for the software and all field and layout descriptions.
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"SERVICING COMPENSATION" means the Servicing Fee, and the other amounts
to which Servicer is entitled pursuant to Article VII of this Agreement.
"SERVICING EXPENSES" means any and all expenses incurred by Servicer in
performance of its obligations and duties pursuant to this Servicing Agreement
and which are reimbursable by Owner pursuant to Section 7.1(d) of this
Agreement.
"SERVICING FEE" means with respect to each Contract that is not a
Deficiency Balance Receivable, an amount equal to Eighteen and 85/100 Dollars
($18.85) per Contract per calendar month or part of a calendar month for which
the Servicer shall provide services pursuant to this Agreement, payable monthly,
as adjusted from time to time as set forth in Section 7.1 of this Agreement.
"SERVICING POLICIES AND PROCEDURES" means the Servicer's existing
standard servicing policies and procedures for nonprime automobile receivables,
a copy of which has been previously provided to the Owner, together with the
NAFI/Nuvell Credit Corporation Servicing Standards attached as Exhibit B to this
Servicing Agreement. If and to the extent that the Servicer's existing standard
servicing policies and procedures for nonprime automobile receivables conflict
with or are inconsistent with the NAFI/Nuvell Credit Corporation Servicing
Standards attached hereto as Exhibit B, then the NAFI/Nuvell Credit Corporation
Servicing Standards shall prevail. The Servicer's Servicing Policies and
Procedures may be amended by the Servicer from time to time as set forth in
Section 6.2(d) of this Agreement.
"SOLD PROGRAM CONTRACT" means an "Eligible Program Contract," as
defined in the Sale Agreement, sold by NAFI to Owner pursuant to the Sale
Agreement.
"SUBSIDIARY" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"TERM" means the term of this Servicing Agreement, as set forth in
Section 11.1 of this Servicing Agreement.
"TOTAL REDUCTION EVENT" means, as to any Contract, the earlier of: (a)
the date of payment or pre-payment in full by or on behalf of the related
Obligor of the outstanding balance of the Contract, together with any unpaid
finance charges and other amounts payable in respect thereof, or (b) the date on
which the Servicer, in accordance with its Servicing Policies and Procedures, or
the Owner determines that no further proceeds (including in connection with any
litigation for a deficiency judgment) are expected to be received with respect
to the Contract or that the Contract is uncollectible.
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"UCC" means the Uniform Commercial Code as in effect in the state where
the Contract was originated.
"VSI POLICY" means the Interstate Indemnity Company insurance policy,
or any replacement policy, which has been purchased by the Servicer for the
purpose of providing VSI insurance coverages for automobile receivables owned
and/or serviced by the Servicer.
1.2 USAGE OF TERMS.
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
genders; references to "writing" include printing, typing, lithography and other
means of reproducing words in a visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including," means "including without
limitation." All section and article references shall be to sections and
articles in this Agreement. Any capitalized term herein that is not specifically
defined herein shall have the meaning ascribed to it set forth in the Sale
Agreement.
ARTICLE II
CONDITIONS PRECEDENT TO EFFECTIVENESS
OF SERVICING AGREEMENT
2.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF OWNER.
The obligation of Owner to tender Sold Program Contracts to the
Servicer pursuant to this Servicing Agreement is subject to the conditions
precedent that Owner shall have satisfactorily completed its due diligence
review of the Servicer and its operations and that Owner shall have received the
following, in form and substance satisfactory to Owner, by the Closing Date, or
such other date as may be specified for the receipt of such document or
instrument by the Owner.
(a) The articles of incorporation of the Servicer certified, as of a
date no more than ten (10) days prior to the Closing Date, by the Secretary of
State of Delaware;
(b) A good standing certificate from the State of Delaware, dated no
later than ten (10) days prior to the Closing Date, and within twenty (20) days
after the Closing Date, from each state in which the Servicer is required to
qualify to do business as a foreign corporation, each of which shall be dated no
later than thirty (30) days prior to the actual delivery date;
(c) A list of states in which the Servicer is qualified to engage in
business and, if necessary, has obtained a collection agency license or like or
similar license and a copy of each such collection agency license or other
authority to transact such business;
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(d) A certificate of the Secretary or Assistant Secretary of the
Servicer (on which certificate the Owner may conclusively rely until such time
as it shall receive from the Servicer a revised certificate meeting the
requirements of this subsection) certifying as of the Closing Date: (i) the
names and true signatures of the officers authorized on its behalf to sign this
Servicing Agreement, (ii) a copy of the Servicer's articles of incorporation and
bylaws, and (iii) a copy of the resolutions of the board of directors of the
Servicer approving this Agreement and the transactions contemplated hereby;
(e) An Officer's Certificate in the form of Exhibit E attached to the
Sale Agreement;
(f) The favorable Opinion of Servicer's outside counsel satisfactory to
Owner, in substantially the form of Exhibit F attached to the Sale Agreement;
(g) The Servicer's Servicing Policies and Procedures;
(h) A list and detailed description of material pending and threatened
litigation to which the Servicer or any of its Affiliates or assets may be
subject;
(i) The financial statements of Servicer required to be delivered by
the Servicer to the Owner pursuant to Section 3.1(a) of the Sale Agreement; and
(j) Such other approvals, consents, opinions, documents and
instruments, as Owner may reasonably request.
Upon the receipt by the Owner of the items referred to in Paragraphs (a) through
(j) of this Section 2.1, the Owner shall notify the Servicer in writing that the
conditions precedent to the effectiveness of this Servicing Agreement have been
satisfied and that this Servicing Agreement is effective as of the date and time
specified in such notice.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SERVICER
3.1 GENERAL REPRESENTATIONS AND WARRANTIES OF SERVICER.
The Servicer represents and warrants to Owner, as of the date hereof
and as of each day that this Agreement is in effect, as follows:
(a) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of Delaware, is duly qualified to do business
and is in good standing in every jurisdiction in which the nature of its
business requires it to be so qualified and which failure to qualify could have
a Material Adverse Effect on Servicer.
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(b) The Servicer has the power and authority to execute and deliver
this Servicing Agreement and to perform the transactions contemplated hereby.
(c) The execution, delivery and performance by the Servicer of this
Servicing Agreement and the transactions contemplated hereby, (i) have been duly
authorized by all necessary action on the part of the Servicer, (ii) do not
contravene or cause the Servicer to be in default under (A) the Servicer's
articles of incorporation or bylaws, (B) any contractual restriction with
respect to any Debt of the Servicer or contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note or other
agreement or instrument binding on or affecting the Servicer or its property, or
(C) any law, rule, regulation, order, writ, judgment, award, injunction or
decree applicable to, binding on or affecting the Servicer or its property, and
(iii) do not result in or require the creation of any Adverse Claim.
(d) This Servicing Agreement has been duly executed and delivered by
the Servicer.
(e) No consent of, or other action by, and no notice to or filing with,
any Governmental Authority or any other party is required for the due execution,
delivery and performance by the Servicer of this Servicing Agreement or for the
perfection of or the exercise by Owner of any of its rights or remedies
hereunder, each of which has been obtained and complete copies of which have
been provided to Owner.
(f) This Servicing Agreement constitutes the legal, valid and binding
obligation of the Servicer enforceable against the Servicer in accordance with
its terms, subject to bankruptcy laws and other similar laws of general
application affecting rights of creditors and subject to the application of the
rules of equity, including those respecting the availability of specific
performance.
(g) To the best knowledge of Servicer, there is no pending or
threatened action, suit or proceeding against or affecting the Servicer, its
Affiliates, its officers or the property of the Servicer in any court or
tribunal, or before any arbitrator of any kind or before or by any Governmental
Authority (i) asserting the invalidity of this Servicing Agreement, (ii) seeking
to prevent the consummation of any of the transactions contemplated hereby,
(iii) seeking any determination or ruling that might materially and adversely
affect (A) the performance of this Servicing Agreement, or (B) the validity or
enforceability of this Servicing Agreement.
(h) No injunction, writ, restraining order or other order of any
material nature adverse to the Servicer or the conduct of its business or which
is inconsistent with the due performance by the Servicer of its duties,
responsibilities and obligations contemplated by this Servicing Agreement has
been issued by a Governmental Authority.
(i) No defaulted Debt exists under any instrument or agreement
evidencing, securing or providing for the issuance of Debt of the Servicer.
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(j) The Servicer is solvent and will not become insolvent after giving
effect to the transactions contemplated by this Servicing Agreement; the
Servicer is paying its debts as they mature; the Servicer has not incurred debts
beyond its ability to pay as they mature; and the Servicer, after giving effect
to the transactions contemplated by this Servicing Agreement, will have adequate
assets to conduct its business in the foreseeable future.
(k) The Servicer has and maintains all permits, licenses,
authorizations, registrations, approvals and consents of Governmental
Authorities (including, without limitation, collection agency licenses, if any)
necessary for (i) the activities and business of the Servicer as currently
conducted and as proposed to be conducted, (ii) the ownership, use, operation
and maintenance of its properties, facilities and assets and (iii) the
performance by the Servicer of its duties, responsibilities and obligations
under this Servicing Agreement.
(l) The Servicer has filed on a timely basis all tax returns (federal,
state, and local) required to be filed and has paid or made adequate provisions
for the payment of all taxes, assessments and other governmental charges due
from the Servicer.
(m) To the best knowledge of Servicer, each pension plan or profit
sharing plan to which the Servicer is a party has been fully funded in
accordance with the obligations of the Servicer set forth in such plan.
(n) With respect to the Servicer, there has not occurred any event
which has or is reasonably likely to have a Material Adverse Effect on its
ability to perform its obligations under this Servicing Agreement.
(o) The financial statements of the Servicer delivered to the Owner
pursuant to Section 2.1(i) of this Agreement fairly present the consolidated
financial condition, business and operations of the Servicer as of the dates
indicated in such financial statements and the consolidated results of
operations of the Servicer for the periods ended on such dates all in accordance
with generally accepted accounting principles consistently applied, and since
September 30, 1999, there has not occurred any material adverse change in any
such condition.
(p) All information heretofore or hereafter furnished with respect to
the Servicer to Owner in connection with any matter contemplated by this
Agreement is and will be true and complete in all material respects and does not
and will not omit to state a material fact necessary to make the statements
contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF OWNER
4.1 GENERAL REPRESENTATIONS AND WARRANTIES OF OWNER.
Owner represents and warrants to the Servicer as of the date hereof and
as of each day that this Agreement is in effect, as follows:
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(a) The Owner is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, is duly qualified to do business and
is in good standing in every jurisdiction in which the nature of its business
requires it to be so qualified and which failure to qualify could have a
Material Adverse Effect on Owner.
(b) The Owner has the power and authority to execute and deliver this
Servicing Agreement and to perform the transactions contemplated hereby.
(c) The execution, delivery and performance by the Owner of this
Servicing Agreement and the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Owner, and this Servicing
Agreement has been duly executed and delivered by the Owner.
(d) No consent of, or other action by, and no notice to or filing with,
any Governmental Authority or any other party is required for the due execution,
delivery and performance by the Owner of this Servicing Agreement or for the
perfection of or the exercise by Servicer of any of its rights or remedies
hereunder, each of which has been obtained and complete copies of which have
been provided to Servicer.
(e) This Servicing Agreement constitutes the legal, valid and binding
obligation of the Owner enforceable against the Owner in accordance with its
terms, subject to bankruptcy laws and other similar laws of general application
affecting rights of creditors and subject to the application of rules of equity,
including those respecting the availability of specific performance.
(f) The execution, delivery and performance of this Servicing
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not conflict with, result in any breach of
or constitute (with or without notice or lapse of time) a default under the
articles of incorporation or bylaws of Owner, or conflict with or resulting in a
breach of any of the terms or provisions of, or constitute (with or without
notice or lapse of time) a default under, any indenture, agreement, mortgage,
deed of trust or other instrument to which Owner is a party or by which Owner is
bound or to which any of its properties are subject, 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, or
constitute a violation of any law, order, rule or regulation applicable to Owner
or its properties of any Governmental Authority having jurisdiction over Owner
or any of its properties.
(g) There are no proceedings or investigations pending, or, to Owner's
knowledge, threatened, before any Governmental Authority having jurisdiction
over Owner or any of its properties: (i) asserting the invalidity of this
Agreement, (ii) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement, or (iii) seeking any determination or
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ruling that might materially and adversely affect the performance by Owner of
its obligations under, or the validity or enforceability of, this Agreement.
ARTICLE V
BREACH OF REPRESENTATIONS AND WARRANTIES
SECTION 5.1 BREACH OF REPRESENTATIONS AND WARRANTIES.
It is understood and agreed that the representations and warranties set
forth in Article III and Article IV shall last until such time as this Servicing
Agreement is terminated. Upon discovery by Servicer or Owner, as the case may
be, of a breach of any of the foregoing representations or warranties, the
Person discovering such breach shall give prompt written notice to the other
party. The breaching party shall cure such breach in all material respects
within the time required by Section 10.1 of this Servicing Agreement, or with
the prior written consent of an officer of the non-breaching party, such longer
period as is specified in such consent.
ARTICLE VI
ADMINISTRATION AND SERVICING OF CONTRACTS
SECTION 6.1 SERVICER'S EXCLUSIVE RIGHT TO ADMINISTER AND SERVICE CONTRACTS.
Owner grants unto Servicer, pursuant to the terms and provisions of and
for the Term of this Servicing Agreement, the exclusive right to administer and
service all Sold Program Contracts for which the Servicer is qualified to
provide all of the services described in this Servicing Agreement and the
servicing of which by the Servicer will not result in any breach by the Servicer
of any covenant, obligation, representation or warranty set forth in this
Servicing Agreement.
SECTION 6.2 GENERAL DUTIES OF SERVICER.
(a) Servicer shall service, administer and make collections on the
Contracts in accordance with all applicable Laws, with the applicable provisions
of the applicable Contracts and with reasonable care, using that degree of skill
and attention customary and usual for institutions which service nonprime
Automobile receivables similar to the Contracts and that Servicer exercises with
respect to similar Automobile receivables that it services for itself or others.
(b) Servicer's duties shall include collection and posting of all
payments, responding to inquiries of Obligors or of Governmental Authorities
with respect to such Contracts, contacting Delinquent Obligors, sending payment
statements to Obligors, accounting for collections, and furnishing monthly and
annual statements to Owner in a mutually acceptable format with respect to
Contracts. Without limiting the generality of the foregoing, and subject to the
servicing standards set forth in this Servicing Agreement, Servicer is
authorized and empowered by Owner
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to execute and deliver any and all instruments of satisfaction or cancellation,
or partial or full release or discharge, and all other comparable instruments
with respect to such Contracts or to the Financed Vehicles securing such
Contracts and/or the Certificates of Title with respect to such Financed
Vehicles. If Servicer shall commence a legal proceeding in its own name to
enforce a Contract, which Servicer shall do only with the prior consent of
Owner, Owner shall thereupon be deemed to have automatically assigned, solely
for the purpose of collection, such Contract to Servicer. Servicer shall prepare
and furnish, and Owner shall execute, any powers of attorney and other documents
reasonably necessary or appropriate to enable Servicer to carry out its
servicing and administrative duties hereunder.
(c) Servicer may retain third parties, including agents and independent
contractors, pursuant to its Servicing Policies and Procedures to perform
certain of its duties and services under this Servicing Agreement without prior
written notice to Owner.
(d) The Servicer may, upon giving reasonable prior notice to the Owner,
at its discretion, change its Servicing Policies and Procedures, not including
the NAFI/Nuvell Credit Corporation Servicing Standards attached hereto as
Exhibit B, which may be amended only upon agreement of both the Servicer and the
Owner; provided, however, any material amendment or change by the Servicer of
its Servicing Policies and Procedures with respect to the Contracts shall be
made only with the prior written consent of the Owner.
SECTION 6.3 COLLECTION AND ALLOCATION OF CONTRACT PAYMENTS, INSURANCE PROCEEDS
AND LIQUIDATION PROCEEDS.
(a) Consistent with the terms of this Servicing Agreement, Servicer
shall make reasonable efforts to timely collect all payments lawfully called for
under the terms and provisions of the Contracts as and when the same shall
become due, and shall follow such collection procedures as it follows with
respect to all comparable Automobile receivables that it services for itself.
Servicer, at its expense, shall notify each Obligor to make payments either in
person to the Servicer or by mail or other appropriate means to the Lockbox. All
payments received at the Lockbox shall be processed by the Lockbox Bank and
deposited in the Collections Account, unless a payment cannot be processed
because of a stop processing instruction given to the Lockbox Bank by the
Servicer, pursuant to is Servicing Policies and Procedures, or the Lockbox Bank
is unable to identify the account for which the payment was made. If the
Servicer receives any payment for a Contract directly, or when the Servicer
receives any Insurance Proceeds or Liquidation Proceeds, the Servicer shall
promptly, no later than one (1) Business Day after receipt thereof, deposit such
amounts into the Collections Account, and at all times the Servicer shall hold
such payments and proceeds in trust for the benefit of Owner, segregated from
the assets of Servicer. Servicer shall allocate Scheduled Payments, Insurance
Proceeds, Liquidation Proceeds and other collections with respect to the
Contracts between principal and interest in accordance with the terms of the
related Contracts and applicable Law.
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(b) Except as otherwise provided in this Servicing Agreement, Servicer
may grant due date extensions or payment deferments to an Obligor only in
accordance with its Servicing Policies and Procedures.
(c) The Servicer shall determine when a Contract has been paid in full,
and the Servicer shall notify the Owner of all such determinations in the
monthly reports provided by the Servicer to the Owner pursuant to Section 6.7 of
this Servicing Agreement. If the Servicer requires possession of the original of
the Contract or the Certificate of Title in order to perform its duties and
obligations hereunder, prior to taking possession of such documents, the
Servicer will deliver to the Owner a trust receipt in a form approved by the
Owner. The Servicer agrees to promptly return any such documents, possession of
which the Servicer has taken in accordance with this Section 6.3(c), after its
need for possession thereof ceases.
(d) The Servicer will refund to Obligors any overpayments of which the
Servicer is aware. All dishonored checks written by Obligors will be charged to
the Collections Account. Reconciliations for checks dishonored during a calendar
month will appear in the reports delivered by the Servicer to the Owner for such
calendar month. Whenever the Servicer receives an unidentified check or
unidentified remittance which the Servicer believes may relate to a Contract,
the Servicer will deposit the remittance in the Collections Account, and for a
period of thirty (30) days thereafter will use reasonable efforts to ascertain
the proper allocation of the amount. At the end of the 30-day period, the
Servicer shall request reimbursement of such amount from the Owner and shall
issue a refund check to the payor, or if such is not possible, the Servicer will
hold and maintain the reimbursement received from the Owner in accordance with
applicable escheat laws, if any such laws apply.
(e) When an Obligor no longer has a legal interest in the Financed
Vehicle, and when an extended warranty contract, credit life or disability
policy or other service payable in a lump sum premium was financed, the Servicer
will apply for a refund of the premium in accordance with the terms of the
agreement for the given service. The Owner will provide the Servicer such
authorizations as may be required to perform such function. Any amounts received
by the Servicer shall be held in trust by the Servicer for the benefit of the
Owner and shall be deposited into the Collections Account within one (1)
Business Day after receipt by the Servicer and credited as proceeds on the
appropriate Contract.
SECTION 6.4 CERTIFICATES OF TITLE.
(a) If the Servicer learns that a Contract has no evidence of an
original Certificate of Title, the Servicer shall notify the Owner in writing
and use reasonable efforts to follow up with the applicable Governmental
Authority to obtain receipt of such Certificate of Title. These efforts may
require that the Servicer reconstruct the chain of title in appropriate cases.
Upon receipt of any original Certificate of Title, the Servicer shall promptly
verify that the information contained on the Certificate of Title is correct,
that the appropriate Person is named as the lienholder and owner, as applicable,
of the Financed Vehicle covered thereby, and shall arrange for the
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immediate delivery of the Certificate of Title to the Owner, at such address and
to such person's attention as designated by the Owner in writing to the
Servicer. The Servicer shall provide periodic reports, in such form as it may
reasonably select, to the Owner as to the status of the Servicer's efforts under
this Section 6.4(a).
(b) The Servicer will, on behalf of the Owner, retitle a Financed
Vehicle which has been permanently moved or transported to a different state.
(c) The Servicer will request the Owner to deliver to the Servicer the
Certificate of Title for a Financed Vehicle for which the Servicer intends to
release the lien thereon pursuant to Section 6.8 of this Agreement. The Servicer
shall be responsible for delivering the Certificate of Title to the appropriate
Person to accomplish the release of lien. At all times that a Certificate of
Title is in the possession of the Servicer, it shall be held in trust by the
Servicer for the benefit of the Owner.
SECTION 6.5 REALIZATION UPON DEFAULTED CONTRACTS.
(a) Servicer shall use all commercially reasonable efforts consistent
with the servicing procedures set forth herein, to lawfully repossess or
otherwise convert the ownership of the Financed Vehicle securing any Contract as
to which Servicer shall have determined eventual payment in full is unlikely,
and where permitted by the express terms of the Contract and applicable Law.
Servicer shall commence efforts to repossess or otherwise convert the ownership
of a Financed Vehicle for any Defaulted Contract as determined by Servicer's
reasonable judgment after considering the current status of such Contract;
provided, however, that Servicer may elect not to commence such efforts within
such time period if, in good faith and reasonable judgment, it determines either
that such action would violate the terms of the related Contract, it would be
impracticable to do so or that the proceeds ultimately recoverable with respect
to such Contract would be increased by forbearance, in which case, such Contract
shall constitute a Defaulted Contract.
(b) Servicer shall use all commercially reasonable efforts to timely
make all collections on Contracts, which may include reasonable efforts
consistent with the terms hereof and applicable Law to recover under any
recourse provisions from Dealers, originators or transferors, and selling the
Financed Vehicle at public or private sale. If Servicer determines in its
reasonable judgment that it should retain the services of an attorney to
exercise Owner's rights pursuant to such recourse provisions by commencing
litigation or taking such other action, Servicer shall so advise Owner in
writing of such recommended course of action, and if such recommended course of
action is agreed to by Owner, Owner will pay all reasonable attorney's fees,
court costs and related litigation expenses relating to such proceeding or
action. Upon obtaining such approval from the Owner, Servicer will select the
attorney(s) to commence litigation and/or take such other action necessary or
appropriate to protect the interests of Owner. Servicer shall sell all
repossessed Financed Vehicles at auction, unless it determines in its good faith
and reasonable judgment either that it would be impractical to do so or that the
proceeds ultimately recoverable with respect to such Contracts would be
increased by an alternative sale procedure. The foregoing
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shall be subject to the provision that, in any case in which the Financed
Vehicle shall have suffered damage, Servicer shall not expend funds in
connection with the repair or the repossession of such Financed Vehicle unless
it shall determine in its good faith and reasonable discretion that such repair
and/or repossession will increase the net proceeds ultimately recoverable with
respect to such Contracts by an amount greater than the amount of such expenses.
All amounts received upon sale of a Financed Vehicle shall be remitted directly
by Servicer to the Collections Account within one (1) Business Day after receipt
by the Servicer.
(c) If Servicer receives a notice that an Obligor has died or has filed
for relief under the United States Bankruptcy Code, Servicer shall notify Owner
of the death or file a proof of claim and notify Owner of the bankruptcy filing.
In the event that activities outside the scope of routine consumer bankruptcy
proceedings, and follow-up are necessary, Owner may, at its option, instruct
Servicer to retain counsel to represent Owner and Servicer in the Obligor's
bankruptcy at the expense of Owner. If Owner determines that Servicer should
retain the services of an attorney to represent the interests of the Owner,
Servicer will select the attorney, and Owner will pay all reasonable attorney's
fees and costs, including all filing fees, relating to such proceeding.
SECTION 6.6 PHYSICAL DAMAGE INSURANCE; OTHER INSURANCE.
If proper insurance verification forms are not contained in a Contract
File, the Servicer will, for a period of ninety (90) days after making such
determination, take all reasonable steps to obtain a copy of the required
Insurance Policy. If evidence of the required Insurance Policy is not obtained
within this ninety (90)-day period, the Servicer will notify the Owner of this
deficiency in the monthly reports provided by the Servicer to the Owner. Upon
the Servicer's learning of any cancellation or reduction of insurance, the
Servicer will send a written notice to the Obligor in an attempt to secure or
verify the proper Insurance Policy. If the Servicer is unable to verify that the
Obligor has in place the proper Insurance Policy within the time required by the
Servicer's Servicing Policies and Procedures, then the Servicer may proceed to
repossess the Financed Vehicle.
SECTION 6.7 SERVICER'S RECORDKEEPING AND REPORTING REQUIREMENTS.
(a) Servicer shall maintain borrower and investor accounting records
for each Contract, which records shall be updated at least every Business Day,
which records shall include the original principal balance of the Contract, the
amount of the original purchase discount, acquisition fee or purchase premium
applicable to the purchase of the Contract by the Owner, the amount of dealer
reserve, participation and/or dealer finance income paid or to be paid to a
dealer with respect to the Contract, the amount of dealer reserve, participation
and/or dealer finance income to be refunded by a dealer to the Owner with
respect to the Contract, the amount of each payment and other proceeds applied
to either principal, interest, the finance charge or other charges with respect
to the Contract, the date of receipt of each payment and other proceeds, the
interest rate or periodic finance charge applicable to the Contract, the amount
of interest or finance charge that has been accrued on the Contract but not paid
by the Obligor, the amount of unearned
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interest or finance charge applicable to the Contract, the current outstanding
principal balance (for both borrower purposes and investor accounting purposes),
the amount of purchase discount and acquisition fee accretion and purchase
premium amortization applicable to the Contract, and such other Electronic
Contract Information required to be maintained by the Servicer. Servicer's
obligation to perform its servicing duties and maintain accurate records
hereunder is subject to and limited by the accuracy, completeness and
availability of the information Servicer receives initially and from time to
time from Owner.
(b) The Servicer shall provide to Owner, within the time requested by
Owner, monthly, quarterly and/or annual reports with respect to the Contracts,
the Financed Vehicles and the cash accounts maintained by the Servicer with
respect to the Contracts and the Financed Vehicles, which shall include a
general Servicer's report, a bank reconciliation report for each cash account
maintained by the Servicer, a trial balance (for both borrower purposes and
investor accounting purposes), a delinquency report, a repossession report, a
legal and bankruptcy report, a Contract payoff report, a Contract chargeoff
report, a Defaulted Contract report, a Nonaccrual Contract report, an interest
earned past stop accrual report, a Contracts boarded by Servicer report, a
Contracts Deboarded by Servicer report, a Deficiency Balance Contracts
collection report, a Contract File exception report, a Contracts by state
report, an income by state report, and such other reports generally produced by
the Servicer for itself for similar type motor vehicle receivables owned or
serviced by the Servicer. All reports setting forth income, expense and
outstanding balance data with respect to the Contracts and the Financed Vehicles
shall be prepared in accordance with Generally Accepted Accounting Principles,
unless otherwise agreed by Owner.
(c) In addition to the reports required to be provided pursuant to
subsections (a) and (b) above, Servicer will provide to Owner such monthly,
quarterly and annual reports and information as Owner may reasonably request and
which Servicer is reasonably capable of providing, which reports shall be in a
mutually agreeable format. At the request of Owner, Servicer will provide a copy
of any report which Servicer receives from any outside service vendor for which
Servicer is not required to pay a fee.
SECTION 6.8 ADDITIONAL COVENANTS OF SERVICER.
Servicer shall not release the Financed Vehicle securing a Contract
from the security interest granted by such Contract in whole or in part except
in the event of payment in full by the Obligor thereunder or repossession, nor
shall Servicer take any action to impair the rights of Owner in such Contracts;
provided however, Servicer may release Owner's security interest in such
Financed Vehicle in its reasonable judgment if the balance owing on such
Contract is One Hundred and 00/100 Dollars ($100.00) or less.
SECTION 6.9 PURCHASE OF CONTRACTS UPON BREACH.
Servicer or Owner shall inform the other party, in writing, upon the
discovery of any breach of this Article VI; provided, however, that the failure
to give such notice shall not affect
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any obligation of either party hereunder. In the event of a breach by Servicer
and unless such breach shall have been cured by the last day of the calendar
month following the month in which such breach was discovered, Servicer shall
purchase any Contract materially and adversely affected by such breach or any
Contract relating to a breach the nature of which materially and adversely
affects the interest of Owner in such Contract. In consideration of the purchase
of such Contract, Servicer shall remit to Owner the amount for such Contract
which, under the terms of such Contract, would be required by the Obligor to
prepay in full such Contract, including the total principal balance and interest
up to, but excluding, the date of purchase. The sole and exclusive remedy of
Owner with respect to a breach of this Article shall be to require Servicer to
purchase Contracts pursuant to this Section; provided, however, that Servicer
shall indemnify Owner against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by Owner as a result of third-party claims arising
out of the events or facts giving rise to such breach.
SECTION 6.10 DEBOARDING OF CONTRACTS.
(a) The Servicer shall Deboard any Contract that becomes subject to a
Total Reduction Event within thirty (30) days after the end of the calendar
month in which the Total Reduction Event occurs. In addition, the Owner may
deliver to the Servicer, not less than fifteen (15) days' prior to the requested
Deboarding Date, a Deboarding Notice requesting that the Servicer Deboard any or
all Deficiency Balance Receivables being serviced hereunder. In such event, the
Owner shall provide to the Servicer with the Deboarding Notice a schedule of the
Deficiency Balance Receivables it desires to be Deboarded.
(b) Except as otherwise provided in this Section 6.10, upon receipt of
a Deboarding Notice, the Servicer shall take the steps necessary to transfer to
the Owner (or such other Person in accordance with the Owner's written
instructions) the serviced property related to each Contract identified on the
Deboarding Notice by the Deboarding Date, including the electronic records
(Electronic Contract Information) in such electronic form as may be reasonably
provided by the Servicer, and all money collected and held by the Servicer. The
Servicer shall continue to provide the services contemplated by this Agreement
up to the Deboarding Date on all such Contracts to be Deboarded. The Servicer
may, at its option, after completion of the Deboarding Process, retain the
electronic records related to such Contracts on the Servicer's System. Any
documents or moneys received by the Servicer on or after the Deboarding Date
shall be mailed (or, if so requested by the Owner, wire-transferred) to the
Owner within two (2) Business Days after receipt. The Servicer shall have no
obligation, on or after the Deboarding Date, to provide the services described
in this Article VI with respect to any Contract for which the Deboarding Process
has been completed, except as specifically set forth in Sections 6.9 and 6.11 of
this Agreement. In connection with any Deboarding of all Contracts pursuant to
this Section 6.10, the Servicer shall comply with Section 11.2 of this
Agreement.
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SECTION 6.11 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
CONTRACTS.
Servicer and Owner, and their respective representatives, shall be
permitted, following reasonable notice to the other and during regular business
hours, to inspect, audit and make copies of and abstracts from the other's
records regarding any Contracts or related Obligors.
SECTION 6.12 RIGHT OF OWNER TO AUDIT SERVICER'S OPERATION.
Upon receipt of seven (7) days prior written notice, Servicer shall
permit Owner to audit Servicer's operations at Servicer's location. Such audit
shall be limited to a review of those items that relate to this Servicing
Agreement. Such audit shall be during Servicer's normal business hours. All of
Owner's costs for such audit shall be borne by Owner, unless the results of such
audit shall indicate that a Servicer Default has occurred, which at the time of
such audit was known by the Servicer and with respect to which the Owner has not
received notice, in which event the Servicer shall pay the Owner's costs of such
audit. In lieu of an audit at the Servicer's location, Owner may, from time to
time, request that information, documents or records required pursuant to such
audit be sent to Owner.
SECTION 6.13 CRIME INSURANCE; CONTINGENT DISASTER RELIEF PROTECTION; ERRORS AND
OMISSIONS INSURANCE.
(a) Servicer shall maintain, at its own expense, a crime insurance
policy or a bond with responsible companies on all officers, employees or other
Persons acting on behalf of Servicer in any capacity with regard to the
Contracts to handle funds, money, documents and papers relating to the
Contracts. Any such insurance shall protect and insure Servicer against losses
for dishonest acts of such Persons and shall be maintained in a form that would
meet the requirements of prudent institutional servicers of Automobile
receivables similar to the Contracts and in an amount of not less than
Twenty-Five Thousand Dollars ($25,000) per occurrence. In addition, the Servicer
will maintain at all times during the Term of this Agreement errors and
omissions insurance in a reasonable amount, as determined jointly by the
Servicer and the Owner. The Servicer shall provide the Owner, within ten (10)
days after receipt of a written request from the Owner, a certificate of
insurance reflecting the amount of coverages, deductible amounts and expiration
dates of the policies providing the aforementioned coverages. No provision of
this Section 6.13 requiring such insurance shall diminish or relieve Servicer
from its duties and obligations as set forth in this Servicing Agreement.
(b) Servicer shall maintain, at its own expense, a computer disaster
recovery plan and computer disaster recovery procedures in forms consistent with
industry standards of prudent institutional receivables servicers. No provision
of this Section 6.13(b) requiring such a plan and such procedures shall diminish
or relieve Servicer from its duties and obligations as set forth in this
Servicing Agreement. Upon written request, Servicer shall cause to be delivered
to Owner a certification as to the existence of such a plan and such procedures.
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(c) Servicer shall maintain, at its own expense, backup data tapes of
all Electronic Contract Information, and Servicer shall deliver to the Owner
within two (2) Business Days after the end of each calendar month a backup data
tape containing all Electronic Contract Information for the Contracts as of the
last day of such month.
SECTION 6.14 POSSESSION OF CONTRACT FILES.
Owner shall, upon the execution and delivery of this Servicing
Agreement, authorize the delivery to Servicer the original of the documents in
each Contract File, not including the original Certificate of Title or the
original retail installment sales contract, which will be held by the Owner.
Servicer shall hold the contents of each Contract File in trust for the benefit
of Owner. Servicer's possession of the Contract Files is for the sole purpose of
servicing the related Contracts. In the event of termination of this Agreement,
Servicer shall promptly return all Contract Files to Owner, or to such other
Person as Owner may direct, as soon as is practicable after such termination.
6.15 COLLECTION OF DEFICIENCY BALANCE RECEIVABLES.
Upon liquidation of a Financed Vehicle, the Servicer will calculate the
Obligor's deficiency balance in accordance with the Contract and applicable Law,
taking into consideration all Liquidation Proceeds and Insurance Proceeds
received by the Servicer. Any such Deficiency Balance Receivable collected by
the Servicer shall be deposited in the Collections Account within one (1)
Business Day after received by the Servicer. The Servicer shall have the power
and authority to take all reasonable and customary steps necessary to collect a
Deficiency Balance Receivable (in conformity, at all times, with all applicable
Laws) and to do all things that the Owner could do to collect such amounts,
including, with the prior written consent of the Owner, the initiation of legal
proceedings against the Obligor.
ARTICLE VII
FEES AND EXPENSES PAYABLE TO SERVICER
7.1 SERVICING COMPENSATION AND SERVICING EXPENSES.
(a) As compensation for its services hereunder, Servicer shall be
entitled to charge Owner once each calendar month a Servicing Fee as of the last
day of each calendar month.
(b) With respect to any Deficiency Balance Receivable, in lieu of the
Servicing Fee set forth in subparagraph (a) above, the Servicer shall receive a
Deficiency Balance Receivable collection fee equal to One Third (1/3) of the net
amount collected by the Servicer with respect to such Deficiency Balance
Receivable (gross amount collected less reasonable out-of-pocket expenses
incurred by the Servicer in connection with the collection of the Deficiency
Balance Receivable).
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(c) In addition, Servicer shall be entitled to receive and retain for
its own account, late charges, deferment/extension fees, assignment/transfer or
assumption fees, insufficient funds check charges (to the extent permitted by
the Contract and applicable state law and to the extent not charged by and
payable to other Persons), amortization schedule fees and optional insurance
with respect to Contracts. In addition, Servicer shall be entitled to a fee of
Thirty-Five Dollars ($35.00) for each proof of claim prepared and filed by the
Servicer on behalf of the Owner with respect to a Contract subject to a claim in
bankruptcy, and Servicer shall be entitled to a fee of Five Dollars ($5.00) for
each Contract, not including any Deficiency Balance Receivable, for which the
Deboarding Process has been completed in accordance with Section 6.10(b), unless
the Deboarding Process is required because of a Servicer Event of Default, in
which event the Servicer shall not be entitled to receive such fee for any of
the Contracts Deboarded by the Servicer (the fees payable to the Servicer
pursuant to Sections 7.1(b) and (c) together with the Servicing Fee are
hereinafter referred to as the "Servicing Compensation"). Servicer shall be
required to pay all expenses incurred by Servicer hereunder and shall not be
entitled to reimbursement therefor, except as expressly provided herein.
(d) Without limiting the generality of the foregoing, Servicer shall be
entitled to be reimbursed from the Owner for certain Servicing Expenses,
consisting of reasonable fees and expenses of third parties incurred by Servicer
for (i) fees and expenses related to financing statements, continuation
statements and other documents and instruments necessary to maintain the
perfection and priority of the lien on a Financed Vehicle, (ii) the reasonable
fees and charges of legal counsel not salaried employees of Servicer, a
subservicer, or any Affiliate of either and others who shall have been retained
by Servicer subject to the limitations provided herein and in accordance with
the servicing standards set forth herein in connection with the enforcement,
collection, and foreclosure, of the related Contracts, (iii) fees and expenses
(including reasonable legal fees and expenses) incurred in prosecuting and
defending any litigation or adverse claims against such assets, to the extent
Servicer determines in its reasonable judgment that such advances will be
recoverable, and (iv) certain other third party fees and expenses described in
Exhibit A attached hereto.
(e) Owner shall be required to pay a Repossession Fee and all
reasonable third party expenses incurred by Servicer in connection with the
repossession and disposition of a Financed Vehicle.
(f) As soon as practicable after the last day of each calendar month,
Servicer shall tender to Owner an invoice for all Servicer Compensation computed
as of the last day of such month, plus any and all Servicing Expenses incurred
by or invoiced to Servicer during such calendar month, all of which shall be due
and payable by Owner within ten (10) days after receipt. Owner shall remit
payment of such invoice by electronic funds transfer to a depository account(s)
designated by Servicer.
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ARTICLE VIII
OWNER
SECTION 8.1 LIABILITY OF OWNER.
Owner shall be liable in accordance herewith only to the extent of the
obligations specifically imposed by this Servicing Agreement.
SECTION 8.2 INDEMNIFICATION OF OWNER.
Servicer shall indemnify and hold harmless Owner and its respective
directors, officers, employees, agents, representatives and controlling Persons
(collectively, the "Indemnified Persons") with respect to, and from and against,
any and all claims, demands, actions, losses, damages, penalties, fines,
forfeitures, (including reasonable legal fees and charges), judgments, arbitral
awards and any other costs, fees, charges and expenses that Owner and the
Indemnified Persons may sustain in connection with any investigations,
proceedings or actions or that are in any way related to or arise out of the
Servicer's failure to perform its duties hereunder or service the Contracts in
compliance with the terms of this Servicing Agreement. Servicer shall
immediately notify Owner if a claim, demand or action (each a "Claim") is made,
asserted or threatened by a third party with respect to this Servicing Agreement
or any Contract, and to the extent such Claim relates to allegations which, if
true, would involve or would have arisen because of a failure of the Servicer to
perform its duties hereunder or service the Contracts in compliance with the
terms of this Servicing Agreement, Servicer shall assume (with the prior written
consent of Owner) the defense of any such Claim and pay (without reimbursement
hereunder) all charges, fees and expenses in connection therewith, including
reasonable counsel fees and charges, as incurred, and promptly pay, discharge
and satisfy any judgment, decree, awards, damages, penalties, fines,
forfeitures, and costs (including legal fees and charges) which may be entered
against Servicer or Owner in respect of such Claim. Servicer will not compromise
or settle any matters described in this Section 8.2 without the prior written
consent of Owner; provided, however, such consent is not required as long as all
other Indemnified Persons are released and held harmless with respect to all
matters by all Persons having any interest in such matters. Servicer may, in its
sole discretion, select counsel in defense of such claim which is reasonably
acceptable to Owner.
ARTICLE IX
SERVICER
SECTION 9.1 LIMITATION ON LIABILITY OF SERVICER AND OTHERS.
Neither Servicer nor any of its directors, officers, employees, agents
or representatives shall be under any liability to the Owner or any third
parties for any action taken or not taken in good faith pursuant to this
Servicing Agreement; provided, however, this provision shall not
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protect Servicer or any other such Person against any breach of warranties or
representations made herein, or against any specific liability imposed pursuant
hereto, or against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder or by reason of reckless disregard of obligations or duties
hereunder. Owner, Servicer and any director, officer, employee or agent of Owner
or Servicer, may rely in good faith on any document of any kind which, prima
facie, is properly executed and submitted by any appropriate Person respecting
any matters arising hereunder. Servicer shall not be under any obligation to
appear in, prosecute or defend any action, claim or other proceeding (other than
customary collection activities with respect to Defaulted Contracts) that in the
Servicer's opinion may involve expense or liability to the Servicer.
SECTION 9.2 MERGER OR CONSOLIDATION OF SERVICER.
(a) Servicer will keep and maintain in full force and effect (i) its
existence, rights and franchises as a corporation, (ii) its qualification to do
business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Servicing Agreement, the Contracts or the Contract Files,
(iii) all its Permits necessary to its services as Servicer hereunder, and (iv)
otherwise conduct its business so as to maintain as true and correct all of the
Servicer's representations, warranties and covenants hereunder.
(b) Any Person resulting from any Business Combination where the
Servicer is a party, or any Person succeeding to the business of the Servicer,
shall be the successor of the Servicer hereunder and succeed to all of the
Servicer's duties, obligations and liabilities hereunder, subject to the Owner's
prior written consent, which consent shall not be unreasonably withheld;
provided, however, that the proposed successor or surviving Person to the
Servicer must, prior to the closing of any such Business Combination, deliver an
Officers' Certificate and other appropriate instruments in form and substance
acceptable to the Owner (i) establishing to the Owner's satisfaction the
qualification of the successor or surviving Person and making all the
representations and warranties of the Servicer, (ii) expressly assuming the due
and punctual performance of the Servicer's covenants, conditions and
obligations, and (iii) otherwise taking all actions and satisfying all
requirements of this Servicing Agreement.
SECTION 9.3 SUCCESSOR TO SERVICER.
(a) Subject to the prior written consent of Owner, which consent shall
not be unreasonably withheld, Servicer may assign all or substantially all of
its rights and delegate all or substantially all of its duties and obligations
under this Servicing Agreement; provided that the Person accepting such
assignment or delegation shall be a Person which (i) is qualified to service
Contracts and (ii) is willing to service the Contracts and executes and delivers
to the Owner an agreement, in form and substance satisfactory to Owner, which
makes and affirms all the representations, warranties and covenants on behalf of
the proposed successor servicer contained herein and contains an express
assumption by such Person of the due and punctual performance
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and observance of all covenants, conditions and obligations to be performed or
observed by the Servicer under this Servicing Agreement. In the case of any
permitted assignment and delegation hereunder, the Servicer shall be released
from future obligations under this Servicing Agreement only upon the completion
of all actions required to be taken under this Section 9.3; provided the
Servicer shall remain liable for all liabilities and obligations theretofore
incurred by it as Servicer hereunder and hereby indemnifies and agrees to hold
harmless and defend such successor servicer and its directors, officers,
employees, agents, representatives and controlling Persons from and against all
claims, demands, actions, losses, damages, penalties, fines, forfeitures,
judgments, arbitral awards and any other costs, fees, charges and expenses that
in any way relate to or arise out of the Servicer's performed services
hereunder.
(b) Any successor servicer appointed as provided herein shall execute,
acknowledge and deliver to Owner and Servicer an instrument accepting such
appointment, and confirming the representations, warranties and covenants of the
Servicer as to itself as successor servicer and agreeing to perform all of the
duties and assuming all of the obligations of the Servicer provided herein, and
upon the Owner's written acceptance thereof, the successor servicer shall become
fully vested with all the rights, powers, duties, responsibilities, obligations
and liabilities of the Servicer hereunder which are required to be performed or
shall first arise after the effective date of the appointment of such successor
servicer, with like effect as if originally named as the Servicer hereunder, and
shall become a party to this Servicing Agreement. Any termination or resignation
of the Servicer pursuant to this Servicing Agreement shall not affect or impair
any of the obligations and liabilities of such Servicer incurred or arising
prior to the successor servicer becoming Servicer hereunder, or any claims that
Owner may have against the Servicer arising before such successor servicer
effectively becomes the Servicer hereunder, all of which, together with the
indemnification provided in Section 9.3(a), shall survive and remain in full
force and effect any such termination and the appointment of a successor
servicer.
(c) If the Servicer is terminated and a successor servicer is appointed
by Owner, Servicer shall promptly deliver to such successor servicer, all funds
in the Servicing Account and any other monies or assets otherwise held as a
result hereof for the benefit of the Owner or any Obligor, and any portion of
the Contract Files and related documents and statements held by the Servicer
hereunder, and Servicer shall account for all funds and shall execute and
deliver such documents, instruments and agreements, and do such other and
further things as may reasonably be required to more fully and definitely vest
and confirm in the successor servicer all such rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer, and in
furtherance thereof Servicer shall execute and deliver an instrument naming the
successor servicer as attorney-in-fact for the Servicer for purposes of acting
in such capacity hereunder.
SECTION 9.4 NOTICE OF BUSINESS COMBINATION; CHANGE IN CONTROL OF SERVICER.
In the event a Business Combination involving the Servicer or a change
in control of the Servicer are proposed or any event occurs where it is
reasonably likely that a Business Combination involving, or a change in control
of, the Servicer may result, Servicer shall give
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Owner written notice of such event as soon as practicable and in no event later
than the first public disclosure of such event, proposal, arrangement or
understanding.
SECTION 9.5 INDEMNIFICATION OF SERVICER.
Owner shall indemnify and hold harmless Servicer and its directors,
officers, employees, agents, representatives and controlling Persons
(collectively, the "Indemnified Persons") against any and all claims, demands,
actions, losses, damages, penalties, fines, forfeitures, including reasonable
legal fees and charges, judgments, arbitral awards and any other costs, fees,
charges and expenses ("Claims") that the Servicer or the Indemnified Persons may
sustain as a result of third party claims, actions, investigations or
proceedings brought against the Servicer or the Indemnified Persons, which are
related to the Owner's acts or omissions hereunder or the breach of any of
Owner's representations, warranties and covenants hereunder, except for Claims
for which the Servicer is required to indemnify any Person pursuant to Section
8.2, or which result from an act or omission caused by Servicer or the failure
of Servicer to service and administer the Contracts in strict compliance with
the terms of this Servicing Agreement. Servicer shall give Owner prompt written
notice of any such Claim within three (3) Business Days of the Servicer's
receipt of notice thereof (or such longer reasonable time if the rights of the
Owner are not prejudiced thereby), and shall not settle or compromise such Claim
without the Owner's prior written consent. Owner may, in its sole discretion,
assume Servicer's defense of any such Claim with counsel reasonably acceptable
to Servicer.
ARTICLE X
DEFAULT
SECTION 10.1 EVENTS OF DEFAULT.
The following events by Servicer or Owner shall be Events of Default
under this Servicing Agreement:
(a) Any failure by Servicer to remit to Owner or to the Collections
Account any payment required to be made under the terms of this Servicing
Agreement, which continues unremedied for three (3) Business Days, unless such
failure is caused by the act or omission of an unrelated third party, in which
event an Event of Default shall be deemed to have occurred if the failure is not
cured within four (4) Business Days after the Servicer has notice of such
failure; or
(b) Failure on the part of Servicer or Owner duly to observe or
perform, in any material respect any of the covenants, obligations or agreements
set forth in this Servicing Agreement, which failure is not cured within thirty
(30) days after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to Servicer or Owner, as the case may
be, or, if such failure cannot reasonably be cured within thirty (30) days,
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such party has not commenced and diligently pursued the cure of such failure
within thirty (30) days after the date of such notice; or
(c) A decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against Servicer or Owner and such decree or
order shall have remained in force, undischarged or unstayed for a period of
forty-five (45) days; or
(d) Servicer or Owner shall consent to the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to Servicer or
Owner, as the case may be, or of or relating to all or substantially of
Servicer's or Owner's property, as the case may be; or
(e) Servicer or Owner shall admit in writing its inability to pay its
Debts as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations; or
(f) Any representation or warranty of Owner in this Servicing Agreement
is false, incorrect or misleading in any material respect, or if any
representation or warranty contained in any reports, documents, certificates or
other papers delivered to Servicer from time to time, is false, incorrect or
misleading in any material respect, and is not cured within thirty (30) days of
written notice thereof to Owner; or
(g) Any representation or warranty of Servicer in this Servicing
Agreement is false, incorrect or misleading in any material respect, or if any
representation or warranty contained in any reports, documents, certificates or
other papers delivered to Owner from time to time is false, incorrect or
misleading in any material respect and is not cured within thirty (30) days of
written notice thereof to Servicer.
SECTION 10.2 NOTICE OF DEFAULT AND/OR TERMINATION.
Upon the happening of an Event of Default as provided in Section 10.1
above, the non-defaulting party shall give written notice of such Event of
Default to the defaulting party. After the expiration of any applicable period
for curing such default, if the default is still not cured, then the
non-defaulting party may commence termination of all the rights and obligations
of both parties under this Servicing Agreement in accordance with Section 11.1
of this Agreement.
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SECTION 10.3 WAIVER OF DEFAULT.
Following an Event of Default, as provided in Section 10.1, the
non-defaulting party may, by written notice to the other party, waive such
Default and any attendant right of Termination. Upon any such waiver, such Event
of Default shall cease to exist, and shall deemed to have been remedied for
every purpose of this Servicing Agreement. No such waiver shall extend to any
subsequent or other Event of Default, or impair any right consequent thereon to
the extent expressly so waived.
ARTICLE XI
TERMINATION OF THE SERVICING AGREEMENT
SECTION 11.1. TERM AND TERMINATION.
This Servicing Agreement shall be effective commencing as of the date
hereof. The Term of this Servicing Agreement shall be for an initial period (the
"Initial Period") commencing on the date hereof and ending on the last day of
the third full calendar month following the "Closing Date," as such term is
defined in the Sale Agreement (such date, as such may be extended pursuant
hereto, is hereinafter referred to as the "Scheduled Termination Date"). The
Term of this Servicing Agreement shall be extended for an additional three (3)
calendar months, unless the Owner shall give written notice to the Servicer of
its desire to terminate this Agreement at least fifteen (15) days prior to a
Scheduled Termination Date. Notwithstanding the foregoing, the Term of this
Servicing Agreement shall be terminated upon the happening of any of the
following events: (a) the later of the collection by Servicer and transfer to
Owner of final payment or liquidation with respect to the last Contract and the
remittance of all funds due hereunder; (b) the mutual written consent of
Servicer and Owner; (c) Servicer or Owner has an uncured Default under Article X
hereof, and the non-defaulting party has given the defaulting party notice of
termination as provided in Article X, which Event of Default has not been waived
by the non-defaulting party pursuant to Section 10.3 hereof, or (d) the last day
of the calendar month in which the Sale Agreement shall be terminated, pursuant
to its terms or otherwise.
SECTION 11.2 SERVICER'S DUTIES ON TERMINATION.
By not later than the effective date of any termination of this
Agreement, the Servicer shall effect the orderly, efficient and expeditious
transfer of servicing to the Owner (or such successor servicer as may be
designated in writing by the Owner to the Servicer), which shall include:
(a) To the extent it has not already done so in accordance with the
provisions of this Article XI, pay or cause to be paid over to the Owner or its
designee all money collected and held by it relating to the Contracts,
including, but not limited to, any funds in its possession or in any account
held by or for its benefit;
(b) Deliver to the Owner a full accounting, including a statement
showing the monthly payments collected by it since the most recent reports
delivered by the Servicer to the Owner, and
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a statement of money held by it in trust, and final reports as of the date of
completion of the Deboarding Process for all of the Contracts, as required by
Section 6.7;
(c) Deliver to the Owner (i) all Contract Files which are then in the
Servicer's possession, (ii) the electronic records (Electronic Contract
Information) relating to the Contracts, in such electronic form as may be
reasonably requested, and (iii) an administrative status report detailing the
location of each Financed Vehicle repossessed or otherwise held by the Servicer
on the Owner's behalf;
(d) Complete the Deboarding Process for each and every Contract in
accordance with Section 6.10(b) of this Agreement;
(e) Deliver to the Obligors a written notice, containing such
disclosures and in such form as are reasonably acceptable to the Owner,
notifying them of the existence of a new servicer for the Contracts; and
(f) Provide its best efforts to correct, or assist the Owner in
correcting, any material errors, inaccuracies and omissions in the Electronic
Contract Information relating to the Contracts that is transferred to the Owner
as part of the Deboarding Process.
ARTICLE XII
CONFIDENTIALITY; OWNER NOT TO SOLICIT OBLIGORS;
NO SOLICITATION OF OTHER PARTY'S EMPLOYEES
12.1 CONFIDENTIALITY COVENANT.
Except to the extent required by applicable law and upon satisfaction
of the procedures set forth in this Section 12.1 or unless the parties hereto
shall mutually agree otherwise, the parties (including their directors,
officers, employees and counsel) agree to keep confidential the existence and
terms of this Servicing Agreement and all proprietary information relating to
each other's business, including, but not limited to, credit underwriting
criteria, products, customer lists, pricing policies, employment records and
policies, operational methods, marketing plans and strategies, product
development techniques and inventions and research programs, trade know-how,
trade secrets, specific software, algorithms, computer processing systems,
object and source codes, user manuals, systems documentation and other business
and financial affairs, and the parties agree not to disclose, deliver or
otherwise make available such materials or information to any third party (other
than their own directors, officers, employees, accountants and counsel who need
such information or materials). If a party is required by applicable law or
legal process to make disclosure to a third party of information or materials
required to be maintained as confidential pursuant to this Section 12.1, the
disclosing party shall give prior written notice to the other party (the
"Protected Party") of the information and materials it intends to disclose and
the reasons why the disclosing party believes it is required to disclose such
information and
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<PAGE> 31
materials. The Protected Party may either consent to such disclosure, object to
such disclosure or seek a protective order or appropriate remedy to prohibit or
limit such disclosure. In the event that the Protected Party objects to such
disclosure but fails to obtain a protective order or other remedy, the
disclosing party shall disclose only such information and materials as counsel
for the disclosing party determines is required to be made. Notwithstanding the
foregoing, no party shall make a public announcement regarding the existence of
this Agreement or the terms hereof without the prior consent of the other party,
and the parties will cooperate with each other in preparing the contents and
determining the manner of distribution of any such announcement.
12.2 OWNER NOT TO SOLICIT OBLIGORS.
From and after each Sale Date, as defined in the Sale Agreement, as to
any Contract and for so long as such Contract is outstanding, neither Servicer
nor any officer or employee of Servicer shall knowingly solicit, and neither
Servicer nor its officers and employees shall encourage or recommend any agent
or representative of Servicer to solicit, any Obligor in respect of such
Contract, either singly or as part of a group, on behalf of Servicer or any
other entity in any manner that would encourage prepayment of such Contract,
except that Servicer may continue to make general solicitations to the public
and to any of Servicer's customers and may advertise, sell and provide all
financial services offered by Servicer.
12.3 NO SOLICITATION OF OTHER PARTY'S EMPLOYEES.
During the term of this Servicing Agreement and for one year after its
termination, both Servicer and Owner agree not to solicit or cause to be
solicited the employment of any person who is employed by the other party.
Notwithstanding anything to the contrary in this section, the employment by
Servicer or Owner of officers and employees of the other party who contact the
hiring party on their own initiative without any direct solicitation or
encouragement from the hiring party or who are solicited by advertising or
notices in newspapers or periodicals of general circulation shall not constitute
a breach of this Section 12.3.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 NOTICES.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing and mailed or telecommunicated, or
delivered as to each party hereto, at its address set forth under its name on
the signature page hereof or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall not be effective until received by the party to whom such
notice or communication is addressed.
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13.2 NO WAIVER; REMEDIES.
No failure on the part of Servicer or Owner to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any other remedies provided by law.
13.3 BINDING EFFECT; ASSIGNABILITY.
This Servicing Agreement shall be binding upon and inure to the benefit
of Servicer and Owner, and their respective successors and permitted assigns.
The Servicer may not assign any of its rights and obligations hereunder or any
interest herein without the prior written consent of the Owner, which consent
should not be unreasonably withheld. Owner may assign all of its rights
hereunder to one or more Persons. This Servicing Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until its termination;
provided, that the obligations of both parties set forth in Article XII, the
rights and remedies granted to the Owner pursuant to Section 6.9, the
indemnification and payment provisions of Sections 8.2 and 9.5, and the
obligations of Servicer set forth in Section 11.2 shall be continuing and shall
survive any termination of this Servicing Agreement.
13.4 AMENDMENTS; CONSENTS AND WAIVERS; ENTIRE AGREEMENT.
No modification, amendment or waiver of, or with respect to, any
provision of this Servicing Agreement, and all other agreements, instruments and
documents delivered hereto, and no consent to any departure by the Servicer or
by the Owner from any of the terms or conditions hereof shall be effective
unless it shall be in writing and signed by each of the parties hereto. Any
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No consent to or demand by Servicer or Owner in any
case shall, in itself, entitle such party to any other consent or further notice
or demand in similar or other circumstances. This Servicing Agreement and the
documents referred to herein embody the entire agreement of Servicer and Owner
with respect to servicing and administering the Contracts and supersede all
prior agreements and understandings relating to the subject hereof. This
Servicing Agreement and the Sale Agreement are independent and mutually
exclusive of each other.
13.5 SEVERABILITY.
In case any provision in or obligation under this Servicing Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provision or obligations, or of
such provision or obligation, shall not in any way be affected or impaired
thereby in any other jurisdiction.
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13.6 COSTS, FEES AND EXPENSES.
If any legal proceeding is instituted by either party against the other
under this Servicing Agreement or in respect to any Contract, the non-prevailing
party shall also be required to pay the prevailing party's costs and expenses of
such litigation, including reasonable attorneys fees. Except as otherwise
provided in this Servicing Agreement, each party agrees to pay all costs, fees
and expenses which it has incurred in connection with or incidental to the
matters contained in this Servicing Agreement, including any fees and
disbursements to its accountants and counsel.
13.7 RIGHT OF OFFSET AND DEDUCTION.
Any party (the "Offsetting Party") may offset and deduct from any
amount payable by the Offsetting Party to the other party (the "Debtor Party")
under this Agreement or the Sale Agreement any amount which is, at the time of
exercise of the right of offset and deduction, presently due and payable by the
Debtor Party to the Offsetting Party pursuant to this Agreement or the Sale
Agreement.
13.8 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
FLORIDA.
13.9 CONSENT TO JURISDICTION AND VENUE.
Each of the Servicer and the Owner hereby irrevocably and
unconditionally submits, for itself and its property, to the non-exclusive
jurisdiction of any Arkansas state court, Florida state court, federal court of
the United States of America for the Eastern District of Arkansas, or federal
court of the United States of America for the Northern District of Florida, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and the parties agree that all claims in respect of any such action or
proceeding may be heard and determined in such Arkansas or Florida state or, to
the extent permitted by law, federal court
13.10 EXECUTION IN COUNTERPARTS.
This Servicing Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement
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IN WITNESS WHEREOF, the parties have cause this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By:
------------------------------------------
William Magro
President and Chief Operating Officer
Address: National Auto Finance Company, Inc.
10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32255-0970
Telephone: 904-996-2500
Telecopy: 904-996-2539
With a copy to:
Stephen R. Veth, Esq.
Vice President, Secretary and
General Counsel
Telephone: 904-486-1151
Telecopy: 904-996-2557
NUVELL CREDIT CORPORATION
By:
------------------------------------------
Tommy E. Pritchard
President
Address: 17500 Chenal Parkway, Suite 201
Little Rock, Arkansas 72223-9131
Telephone: 501-821-5200
Telecopy: 501-821-5208
With a copy to:
Thomas N. Rose, Esq.
Executive Vice President
Telephone: 501-821-8105
Telecopy: 501-821-5208
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EXHIBIT LIST
A List of Third Party Fees and Expenses Reimbursable by the Owner to the
Servicer
B NAFI/Nuvell Credit Corporation Servicing Standards
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<PAGE> 36
EXHIBIT A
List of Third Party Fees and Expenses Reimbursable by the Owner to the Servicer
This Exhibit A lists fees and expenses paid by the Servicer to third
parties that must be reimbursed by the Owner to the Servicer pursuant to Section
7.1(d)(iv) of the Servicing Agreement.
(1) Vehicle appraisal fees
(2) Special investigation and skip tracing fees incurred by the
Servicer, not to exceed $100 for any one Contract without the
Owner's prior consent
(3) Reasonable fees and out-of-pocket expenses paid to
repossession agents
(4) Auction fees and expenses
(5) Reasonable fees and expenses incurred with respect to the
transfer of repossessed vehicles
(6) Vehicle storage fees and impound fees
(7) Fees paid to departments of motor vehicles to obtain duplicate
and repo titles
(8) Costs incurred to recondition repossessed vehicles, not to
exceed $675 for any one vehicle without the Owner's prior
consent
(9) Costs incurred to obtain new or duplicate keys for repossessed
vehicles
(10) Reasonable fees and expenses of outside counsel engaged by the
Servicer in accordance with the terms of the Servicing
Agreement
(11) Overnight courier expenses, except for overnight courier
expenses incurred to transmit items to and from the Lockbox
Bank or to and from the Owner
(12) Reasonable out-of-pocket costs and expenses incurred to ship
Contract Files to the Owner
<PAGE> 1
EXHIBIT 10.127
AMENDMENT NUMBER 4 TO THE AMENDED AND RESTATED
POOLING AND ADMINISTRATION AGREEMENT
THIS AMENDMENT NUMBER 4, dated as of February 22, 2000 (the
"Amendment"), to the AMENDED AND RESTATED POOLING AND ADMINISTRATION AGREEMENT,
dated as of December 8, 1994 (as amended, restated and otherwise modified from
time to time, the "Agreement"), among NATIONAL FINANCIAL AUTO FUNDING TRUST II
(successor to National Financial Auto Funding Trust, f/k/a NAFCO Funding Trust),
a Delaware business trust ("NAFCO"), as transferor, NATIONAL AUTO FINANCE
COMPANY, INC. (f/k/a National Auto Finance Company L.P.), a Delaware corporation
("National Auto"), as initial Administrator, and BANKERS TRUST COMPANY, a New
York banking corporation, as Trustee.
W I T N E S S E T H:
WHEREAS, NAFCO, National Auto and the Trustee have previously entered
into the Agreement whereby NAFCO and Trustee formed National Financial Auto
Receivables Master Trust (the "Trust") of which First Union National Bank is the
sole Class B Certificateholder (the "Class B Certificateholder") and NAFCO is
the holder of 99% of the Class C Certificates;
WHEREAS, National Auto has stated that an Unmatured Amortization Event
will occur on February 21, 2000 under the Agreement by reason of the
insufficiency of amounts available on such date to pay the entire
Overcollateralization Deficit resulting from the increase in the Minimum
Required Overcollateralization Level on February 21, 2000 (the "Expected
Liquidation Event");
WHEREAS, as a result of such Expected Liquidation Event, an
Administrator Default will occur automatically under Section 10.01(h) of the
Agreement; and
WHEREAS, the parties desire to amend certain terms of the Agreement, as
amended, and agree to additional terms and conditions regarding, inter alia, the
Expected Liquidation Event and limited waiver of the Administrator Default
resulting solely therefrom.
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of this
Amendment, terms used in this Amendment shall have the meanings assigned in
Appendix A to the Agreement.
SECTION 2. Amendments to Agreement. Effective upon the execution and
delivery of this Amendment:
(a) The definition of "Trust Documents" in Appendix A to the Agreement
shall be amended and restated in its entirety to read:
"`Trust Documents' means any agreements, certificates, or other
documents executed
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in connection with any of the National Auto Finance 1995-1 Trust, the National
Auto Finance 1996-1 Trust, the National Auto Finance 1997-1 Trust, the National
Auto Finance 1998-1 Trust, the National Auto Finance 1999-1 Trust or the
Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 1999,
by and among NAFCO, National Auto and First Union National Bank."
(b) Paragraphs (viii) and (x) of Section 4.03(a) shall be amended and
restated in their entirety to read:
"(viii) to the Class B Certificateholders, an amount equal to
the sum of the Class B Principal Distributable Amount and any outstanding Class
B Principal Carryover Shortfall as of the close of business on the preceding
Distribution Date, provided that for the February 21, 2000 Distribution Date
only, payment of the Overcollateralization Deficit component of the Class B
Principal Distributable Amount, consisting of amounts attributable to clause (c)
of the definition of the Minimum Required Overcollateralization Level (the
amount calculated pursuant to such proviso, the "Clause 8 Deferred Amount"),
shall be (1) deferred until March 21, 2000, but, to avoid double counting, shall
not be included in the calculation of the Overcollateralization Deficit
otherwise payable on March 21, 2000, and (2) disregarded, with respect to
calculation of the amounts payable pursuant to clause (xv) of this Section;"
"(x) on any Distribution Date occurring prior to the
Amortization Commencement Date, an amount equal to any Overcollateralization
Deficit remaining after giving effect to the distributions pursuant to clause
(vii) above and clause (viii) above, either (as specified in the Distribution
Date Statement) (a) to the Excess Funding Account or (b) pro rata to the Class A
Certificateholders and Class B Certificateholders in reduction of the respective
outstanding principal amounts thereof, provided that for the February 21, 2000
Distribution Date only, payment of the amount provided for in clause (c) of the
definition of the Minimum Required Overcollateralization Level component of the
Overcollateralization Deficit distribution pursuant to this clause (x) shall be
(1) deferred until March 21, 2000 (the amount calculated pursuant to such
proviso, the "Clause 10 Deferred Amount"), but, to avoid double counting, shall
not be included in the calculation of the Overcollateralization Deficit
otherwise payable on March 21, 2000, and (2) disregarded, with respect to
calculation of the amounts payable pursuant to clause (xv) of this Section;"
(c) Section 4.03(b) shall be amended and restated in its entirety to
read as follows:
"(b) Notwithstanding anything to the contrary in this Agreement,
payment of the Clause 8 Deferred Amount and the Clause 10 Deferred Amount will
be deferred until March 21, 2000 and distributions on the February 21, 2000
Distribution Date shall be made as if an Overcollateralization Deficit shall not
exist.
(d) The last sentence of Section 4.03(d)(2) shall be amended and
restated in its entirety to read:
<PAGE> 3
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"If a Late Fee Trigger Event shall have occurred and be continuing,
Late Fees shall not be available to pay amounts set forth in Section 4.03(a)(i)
hereof but shall be available for application to pay all amounts owing pursuant
to Section 4.03(a)(ii) through Section 4.03(a)(xv) hereof; provided, further,
that any Late Fees not necessary for application pursuant to Section 4.03(a)
(ii) through Section 4.03(a)(xii) hereof shall be paid to Loan Servicing
Enterprise, for so long as it shall continue to be Servicer of the Receivables
(whether as Administrator hereunder or as Servicer under the Portfolio Servicing
Agreement or any agreement of similar import), as additional compensation,
payable pursuant to the priority set forth in Section 4.03(a)(xiii) hereof."
(e) Section 4.06(a) shall be amended and restated in its entirety to
read:
"(a) If amounts distributed on any Distribution Date pursuant to
Section 4.03 are not sufficient to make the entire distributions required on
such Distribution Date by Section 4.03(a) (iv), (v), (vii) and (viii), the
Administrator shall cause the Trustee to withdraw funds from the Reserve Fund to
the extent available therein, and apply such funds to complete the distributions
pursuant to Section 4.03(a)(iv), (v), (vii) and (viii) in the priority therein
provided."
(f) Section 10.01(g) shall be amended and restated in its entirety to
read:
"(g) any Servicer Default, Servicer Termination Event (as each such
term is defined in the applicable Trust Document or transaction document) or any
other breach of servicing or administration obligations (which has not been duly
waived or cured) under any of the Trust Documents or under any securitization or
warehouse transaction or any other transaction to which First Union National
Bank, or any of its affiliates or subsidiaries is a party, shall occur;"
SECTION 3. Excess Funding Account. Except with respect to funding
requests submitted to the Class B Certificateholders no later than February 22,
2000, notwithstanding anything in the Agreement to the contrary, National Auto
agrees that it shall not withdraw any amounts on deposit in the Excess Funding
Account except for the payment of interest and principal on the Class B
Certificates.
SECTION 4. Limited Waivers.
(a) In consideration of the execution and delivery of this Amendment,
the Class B Certificateholders hereby waive, for the limited period up to and
including the earliest to occur of the events in clauses (a), (b) or (c) below
or the April 21, 2000 Distribution Date, the Administrator Default that would be
triggered solely as a result of the Expected Liquidation Event; provided that
if: (a) any Administrator Default (other than the Administrator Default
resulting from the Expected Liquidation Event) has occurred, (b) National Auto
ceases to act as servicer under any servicing agreement to any Trust Document
except for the Servicing Agreement (the "Nuvell Facility"), dated as of February
4, 2000, by and between Nuvell Credit Corporation and National Auto (provided
that, if Financial Security Assurance Inc. terminates any servicing agreement
with National Auto, then, notwithstanding the foregoing exception for the Nuvell
Facility, such Administrator Default shall be deemed to have occurred) or (c)
any Material Adverse Effect occurs prior to April 21, 2000 and
<PAGE> 4
-4-
continues unremedied until the lesser of 30 calendar days and April 21, 2000,
then such Administrator Default shall be deemed to have occurred as of the
earliest date that any of (a), (b) or (c) shall have occurred. The limited
waiver in this Section 4(a) is effective only in this particular instance, only
for the specific purpose for which it is given and only for the limited period
set forth above.
(b) In consideration of the execution and delivery of this Amendment,
Non-Dealer Originations originated by a Non-Dealer shall be deemed Eligible
Receivables to the extent that the Non-Dealer Originations originated by such
Non-Dealer Originator do not exceed (i) until the last day of the March, 2000
Calculation Period, five percent 5% of the Eligible Pool Balance and (ii)
thereafter, three percent (3%) of the Eligible Pool Balance.
SECTION 5. Liquidation of Collateral. The parties hereto acknowledge
and agree that the Class B Certificateholders shall have the right, by notice in
writing delivered to the Trustee, to direct the Trustee to foreclose, seize,
sell or otherwise dispose of all or any part of the Trust Assets at anytime
after the occurrence of a Liquidation Event, provided, however that such right
shall not be exercisable solely by reason of the occurrence of the Expected
Liquidation Event, until April 21, 2000.
SECTION 6. Representations and Warranties.
(a) NAFCO hereby confirms that (i) each of the representations and
warranties set forth in Section 7.01 of the Agreement are true and correct as of
the date first written above with the same effect as though each had been made
as of such date, except to the extent that any of such representations and
warranties expressly relate to earlier dates and (ii) on February 29, 2000, a
Liquidation Event shall occur, by reason of the Expected Liquidation Event.
(b) National Auto hereby confirms that (i) each of the representations
and warranties set forth in Section 8.01 of the Agreement are true and correct
as of the date first written above with the same effect as though each had been
made as of such date, except to the extent that any of such representations and
warranties expressly relate to earlier dates and (ii) on February 29, 2000, a
Liquidation Event shall occur, by reason of the Expected Liquidation Event.
SECTION 7. Cooperation.
(a) National Auto, NAFCO, the Trust and their respective affiliates,
and each of their employees, officers and directors shall cooperate, in good
faith, with the Class B Certificateholders (i) in giving the Class B
Certificateholders' representatives access to all credit files relating to the
Receivables for the purpose of making copies therefrom and conducting and
underwriting and documentation review thereof, (ii) in connection with servicing
operations and/or delinquencies, including cooperating, in good faith, with the
Backup Servicer to obtain any and all records requested, including, but not
limited to, all data files and (iii) in ensuring a proper chain of title from
National Auto to NAFCO and from NAFCO to the Trust.
(b) National Auto shall forthwith provide the Class B
Certificateholders with notice of any (1) suspension or cessation of funding
and/or purchases, for a period more than five (5)
<PAGE> 5
-5-
consecutive Business Days, under the Contract Sale Agreement, dated as of
February 4, 2000, by and between National Auto and Nuvell Credit Corporation or
(2) termination of such agreement.
SECTION 8. Further Assurances. NAFCO and National Auto agree to do and
perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the Class B Certificateholders
to more fully effect the purposes of this Amendment.
SECTION 9. Conditions Precedent. As a condition precedent to the
limited waiver contained in Section 4 of this Amendment each of the following
shall have been executed and delivered: (a) Amendment Number 1, dated as of
February 22, 2000, to the Certificate Purchase Agreement, dated as of December
8, 1994, among NAFCO, National Auto and the Class B Certificateholders, (b)
Second Amendment, dated as of February 22, 1999, to that certain Revolving
Credit, Term Loan and Security Agreement, dated as of March 31, 1999, by and
between National Financial Auto Funding Trust , National Auto Finance Company,
Inc. and First Union National Bank, (c) [the Release, dated February 22, 2000,
by the NAFI Parties (as defined therein)], (d) an opinion of Morrison &
Foerster, in a form and substance satisfactory to the Class B
Certificateholders, to the effect that each of the items referred to in clauses
(a), (b) and (c) as well as this Amendment and the Agreement, as amended by this
Amendment, has been duly authorized, executed and delivered by the parties to
such agreements and is the legal, valid, and binding obligation of the parties
to such agreement, enforceable against such parties in accordance with its
terms, (e) the delivery to the Class B Certificateholders of a certified copy of
each agreement between Nuvell Credit Corporation and National Auto, and (f)
payment of, or reimbursement for, its reasonable out-of-pocket costs and
expenses, including legal fees and disbursements, incurred in connection with
the negotiation, development, preparation and attention to the execution of the
amendments and other certificates, letters and documents.
SECTION 10. Effectiveness of Agreement. Except as expressly amended by
the terms of this Amendment, all terms and conditions of the Agreement, as
amended by Amendments No. 1, Amendment No. 2, and Amendment No. 3 shall remain
in full force and effect.
SECTION 11. Counterparts. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be executed by the NAFCO,
National Auto and the Trustee and be deemed to be an original and all of which
shall constitute together but one and the same agreement.
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICT
OF LAW PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 13. Limitation of Liability.
<PAGE> 6
-6-
(a) It is expressly understood and agreed by the parties hereto that
(a) this Amendment is executed and delivered by Chase Manhattan Bank Delaware
(as successor to Chase Manhattan Bank USA, N.A.), not individually or personally
but solely as trustee of National Financial Auto Funding Trust II, 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 National
Financial Auto Funding Trust II is made and intended not as a personal
representation, undertaking and agreement by Chase Manhattan Bank Delaware (as
successor to Chase Manhattan Bank USA, N.A.) but is made and intended for the
purpose of binding only National Financial Auto Funding Trust II and (c) under
no circumstances shall Chase Manhattan Bank Delaware (as successor to Chase
Manhattan Bank USA, N.A.) be personally liable for the payment of any
indebtedness or expenses of National Financial Auto Funding Trust II or be
liable for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by National Financial Auto Funding Trust II under
this Amendment or the Agreement.
(b) National Auto and NAFCO confirm the terms and conditions of Section
11.03 of the Agreement as if set forth herein in their entirety.
SECTION 14. No Duress, Etc. Each of National Auto and NAFCO has
reviewed this Amendment and the Agreement with its counsel and understand and
agree to all of the terms and conditions of the agreements contained herein and
therein (which agreements are the product of arms length negotiations between
the parties hereto) and agree to execute and deliver this Amendment as its own
free act and deed, with the benefit of legal counsel and without duress.
[signatures follow]
<PAGE> 7
IN WITNESS WHEREOF, NAFCO, the Administrator and the Trustee have
caused this Amendment to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
NATIONAL FINANCIAL AUTO FUNDING TRUST II (as
successor to National Financial Auto Funding
Trust, f/k/a NAFCO Funding Trust) as the
transferor
By: Chase Manhattan Bank Delaware (as successor to
Chase Manhattan Bank USA, N.A.), not in its
individual capacity but solely as Owner Trustee
of the National Financial Auto Funding Trust II)
By: /s/ DENIS KELLY
------------------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
Address: 1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 428-3375
Facsimile: (302) 984-4903
NATIONAL AUTO FINANCE COMPANY, INC. (f/k/a
National Auto Finance Company L.P.) as Administrator
By: /s/ STEPHEN R. VETH
------------------------------------------------
Name: Stephen R. Veth
Title: Vice President, Secretary & General
Counsel
Address: 10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32256
Attention: General Counsel
Telephone: (904) 996-2551
Facsimile: (904) 996-2557
<PAGE> 8
BANKERS TRUST COMPANY,
not in its individual capacity but solely as Trustee
of National Financial Auto Master Trust (f/k/a NAFCO
Auto Receivables Master Trust)
By: /s/ PATRICIA M.F. RUSSO
------------------------------------------------
Name: Patricia M.F. Russo
Title: Vice President
Address: Four Albany Street
New York, New York 10006
Attention: Corporate Trust and Agency Group
Telephone: (212) 250-8360
Facsimile: (212) 250-6439
<PAGE> 9
ACKNOWLEDGED AND AGREED:
FIRST UNION NATIONAL BANK,
as the Class B Certificateholder
By: /s/ TERENCE P. BEGLEY
----------------------------------------------
Name: Terence P. Begley
Title: Senior Vice President
Address: One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attention: Terence P. Begley
Telephone: (704) 383-6913
Facsimile: (704) 383-6162
NATIONAL FINANCIAL AUTO FUNDING
TRUST II (as successor to National Financial
Auto Funding Trust, f/k/a NAFCO Funding
Trust) as a Class C Certificateholder
By: Chase Manhattan Bank Delaware (as
successor to Chase Manhattan Bank USA,
N.A.), not in its individual capacity but
solely as Owner Trustee of the National
Financial Auto Funding Trust II)
By: /s/ DENIS KELLY
----------------------------------------------
Name: Denis Kelly
Title: Assistant Vice President
Address: 1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 428-3375
Facsimile: (302) 984-4903
<PAGE> 1
EXHIBIT 10.128
SECOND AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT, dated as of February 22, 2000 ("Amendment"), to
that certain Revolving Credit, Term Loan and Security Agreement, dated as of
March 31, 1999, by and among National Financial Auto Funding Trust (the
"Borrower" or "NFAFT"), National Auto Finance Company, Inc. ("NAFI") and First
Union National Bank ("FUNB" or the "Lender") (as amended from time to time, the
"Revolving Credit Agreement" or the "Agreement").
W I T N E S S E T H:
WHEREAS, the parties have previously entered into the Revolving Credit
Agreement pursuant to which FUNB agreed to make a revolving loan (the "Loan") to
the Borrower, secured by certain residual cash flows from the Original
Underlying Trusts (as defined in the Revolving Credit Agreement) and other
Collateral (as defined in the Revolving Credit Agreement) in the initial maximum
principal amount of eight million dollars ($8,000,000.00);
WHEREAS, the parties wish to confirm the timing of the Conversion Date as
well as the Conversion Date Borrowing Base Ratio; and
WHEREAS, the Lender and the Borrower now wish to amend the Revolving
Credit Agreement to confirm the foregoing and implement other changes;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise amended by the terms of this
Amendment terms used in this Amendment shall have the meanings assigned to them
in the Revolving Credit Agreement.
SECTION 2. Amendments to Agreement. Effective upon the execution and
delivery of this Amendment by all parties hereto, the Agreement shall be amended
as follows:
(a) the definition of the "Conversion Date Borrowing Base Ratio" shall be
replaced in its entirety with the following:
"CONVERSION DATE BORROWING BASE RATIO" means seventy-five and five hundred
sixty-one thousandths percent (75.561%).
(b) the definition of the "Swap Counterparty" shall be replaced in its entirety
with the following:
"SWAP COUNTERPARTY" means the party entering into the Swap Agreement with the
Borrower, provided that the Lender shall have given its prior written consent to
any such party and such consent shall not be unreasonably withheld.
<PAGE> 2
(c) a new sentence shall be added to the definition of "Term Loan Monthly
Principal" which shall read:
"An example of the calculation of the post-Early Amortization Event calculation
of Term Loan Monthly Principal is set forth on Exhibit H hereto."
(d) a new Exhibit H "Example of Calculation of Term Loan Monthly Principal"
shall be added to the Agreement which shall be in the form of Schedule 1 to this
Amendment.
(e) Section 3.2(c) shall be replaced in its entirety with the following:
(c) Borrower may arrange for and enter into the Swap Agreement with the
Swap Counterparty; provided, that no Swap Agreement shall be entered into
by the Borrower before the Final Insurance Termination Date without the
consent of FSA, which consent shall not be unreasonably withheld so long
as FSA is satisfied that the Swap Agreement does not impair the
special-purpose or bankruptcy-remote characteristics of the Borrower,
cannot under any reasonably foreseeable circumstances cause the Borrower
to be not Solvent, and cannot materially impair the rights and remedies of
FSA or any securityholder that has the benefit of any FSA financial
guaranty insurance policy or any fiduciary or agent of either of them
under the Underlying Transaction Documents. Borrower shall deliver the
related payment schedule at the times FSA may so indicate in its consent.
If FSA consents as set forth above, Borrower shall deliver a copy of the
executed Swap Agreement as soon as practicable, but in no event later than
two days after such Swap Agreement has been executed.
(f) a new Section 7.20 shall be added which shall read as follows:
7.20 CONVERSION DATE. The Conversion Date occurred on January 18, 2000 by
reason of the occurrence of an Early Amortization Event.
(g) a new Section 7.21 shall be added which shall read as follows:
7.21 NO DURESS. Each of Borrower and NAFI has reviewed this Agreement, the
First Amendment to Revolving Credit, Term Loan and Security Agreement, dated as
of September 23, 1999 (the "First Amendment") and the Second Amendment to the
Revolving Credit, Term Loan and Security Agreement, dated as of February 18,
2000 (the "Second Amendment") with its counsel and understands all of the terms
and conditions of the agreements contained herein and therein and agrees to
execute and deliver this Agreement, the First Amendment and the Second Amendment
as its own free act and deed and without duress.
SECTION 3. Representations and Warranties; Agreements.
(a) Borrower hereby confirms that each of its representations and
warranties set forth in Section 7 of the Agreement, as amended hereby, are true
and correct as of the date first
2
<PAGE> 3
written above with the same effect as though each had been made as of such date,
except to the extent that any of such representations and warranties expressly
relate to earlier dates.
(b) NAFI hereby confirms that each of its representations and
warranties set forth in Section 7 of the Agreement, as amended hereby, are true
and correct as of the date first written above with the same effect as though
each had been made as of such date, except to the extent that any of such
representations and warranties expressly relate to earlier dates.
(c) The parties hereto agree that the aggregate amount payable as
Term Loan Monthly Principal on February 21, 2000 shall be $ , which includes
$183,658 which was payable on January 21, 2000 and deferred therefrom prior to
the letter by FUNB dated January [27], 2000. The amounts payable on February 21,
2000 and subsequently shall be calculated pursuant to the Agreement, as amended
herein.
SECTION 4. Conditions Precedent. The Borrower represents and warrants that
all conditions precedent to the effectiveness of this Amendment have been met.
In addition, it shall be a condition precedent to the effectiveness of this
Amendment that the Borrower shall have delivered to the Lender an opinion of
Morrison & Foerster LLP to the effect that this Amendment is duly authorized,
executed and delivered by the Borrower and NAFI and is the legal, valid, and
binding obligation of the Borrower and NAFI, enforceable against the Borrower
and NAFI in accordance with its terms.
SECTION 5. Effectiveness of Agreement. Except as expressly amended by the
terms of this Amendment, all terms and conditions of the Revolving Credit
Agreement, as amended by the First Amendment, shall remain in full force and
effect.
SECTION 6. Execution in Counterparts, Effectiveness. This Amendment may be
executed by the parties hereto in several counterparts, each of which shall be
executed by the Borrower and the Lender and be deemed to be an original and all
of which shall constitute together but one and the same agreement.
SECTION 7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO CONFLICT OF LAW PRINCIPLES.
3
<PAGE> 4
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 hereof.
NATIONAL FINANCIAL AUTO FUNDING TRUST,
as Borrower
By: CHASE MANHATTAN BANK DELAWARE
not in its individual capacity but
solely as Owner Trustee for National
Financial Auto Funding Trust
By: /s/ DENIS KELLY
----------------------------------------
Name: Denis Kelly
--------------------------------------
Title: Assistant Vice President
--------------------------------------
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ STEPHEN R. VETH
----------------------------------------
Name: Stephen R. Veth
--------------------------------------
Title: Vice President, Secretary and
General Counsel
-------------------------------------
FIRST UNION NATIONAL BANK,
as Lender
By: /s/ TERENCE P. BEGLEY
----------------------------------------
Name: Terence P. Begley
--------------------------------------
Title: Senior Vice President
-------------------------------------
<PAGE> 5
SCHEDULE 1
See Exhibit H attached hereto.
5
<PAGE> 1
EXHIBIT 10.129
[First Union letterhead]
February 22, 2000
National Auto Finance Company Inc.
1032 Deerwood Park Boulevard, Suite 100
Jacksonville, Florida 32256
Attention: Keith B. Stein
Re: Letter Agreement (the "B Note Commitment Letter"), dated March 8,
1999, between First Union National Bank and National Auto Finance
Company, Inc.
Dear Keith:
Reference is made to the B Note Commitment Letter relating to the
commitment of First Union National Bank ("First Union") to purchase up to
$20,000,000 aggregate principal amount of Subordinated Asset-Backed Notes
("Subordinated Notes") to be issued in connection with securitization
transactions of vehicle finance contracts originated by National Auto Finance
Company, Inc. ("National Auto"). Capitalized terms used and not otherwise
defined herein have the meanings given to such terms in the B Note Commitment
Letter.
First Union hereby notifies National Auto that, upon the occurrence of
the Liquidation Event referred to Amendment Number 4 to the Amended and
Restated Pooling and Administration Agreement, dated as of February 22, 2000,
among First Union, National Auto, National Financial Auto Funding Trust II, and
Bankers Trust Company as Trustee, it shall have no further obligation to
purchase Subordinated Notes pursuant to such B Note Commitment Letter. National
Auto, by its signature hereto, acknowledges and agrees to all of the foregoing.
This letter agreement shall be governed by the laws of the State of New
York and may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same letter agreement. Delivery of an executed counterpart of a signature
page to this letter agreement by telecopier shall be effective as delivery of a
manually executed counterpart of this letter agreement.
[Remainder of page intentionally left blank]
<PAGE> 2
Please acknowledge your acceptance and agreement to the foregoing by
signing and returning the enclosed copy of this letter to First Union National
Bank, 301 South College Street TW-9, Charlotte, NC 28288-0610. Attention:
Terence P. Begley.
FIRST UNION NATIONAL BANK
By: /s/ AUTHORIZED SIGNATURE
--------------------------
Name:
Title:
Accepted and Agreed:
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ AUTHORIZED SIGNATURE
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.130
WAIVER
THIS WAIVER, effective as of December 31, 1999, by 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"), Manufacturers Life Insurance Company
(U.S.A.), a Michigan corporation ("ML"), and The Structured Finance High Yield
Fund, LLC, a Delaware limited liability company ("SFHY"), for the benefit of
National Auto Finance Company, Inc., a Delaware corporation (the "Company"). The
Fund, PCI, ML and SFHY are sometimes collectively referred to herein as the
"Noteholders," and the Fund and Progressive are sometimes collectively referred
to herein as the "Equityholders."
PRELIMINARY STATEMENT
Pursuant to a Securities Purchase Agreement, dated as of December 22,
1997 (the "December Agreement"), (i) the Fund, PCI and ML purchased from the
Company $40,000,000 aggregate principal amount of the Company's Senior
Subordinated Promissory Notes due December 22, 2004 (the "Notes"), and 1,038,924
detachable warrants to purchase initially 1,038,924 shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock"), and (ii) the Fund
and Progressive purchased 1,904,762 shares of the Company's Common Stock.
Pursuant to a Securities Purchase Agreement, dated as of March 27, 1998
(the "March Agreement"; the December Agreement and the March Agreement are
sometimes collectively
<PAGE> 2
referred to herein as the "Agreements"), SFHY purchased from the Company,
$20,000,000 aggregate principal amount of the Company's Notes and 593,671
detachable warrants to purchase initially 593,671 shares of the Company's Common
Stock.
Pursuant to a Restructuring Agreement dated as of April 7, 1999 (the
"Restructuring Agreement"), among other things, the Company, the Noteholders and
the Equityholders amended Article 10 of each of the Agreements to add a new
Section 10.15, providing for a Return on Assets covenant (as defined in the
Restructuring Agreement).
In conformity with applicable provisions of the Agreements and the
Restructuring Agreement (in particular, Section Eleven (11) Miscellaneous.
Subsection (e)(ii) Amendment and Waiver, the Company has requested the
Noteholders and Equityholders to waive the required Return on Assets covenant
for the Measurement Period ended on December 31, 1999.
1. Waiver. For valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, each of the Noteholders and Equityholders, by and
through its authorized officers, does hereby waive compliance by the Company
with the Return on Assets covenant for the Measurement Period ended on the
Measurement Date of December 31, 1999, as such terms are defined in Section
10.15 of each of the Agreements and the Restructuring Agreement.
2
<PAGE> 3
2. Ratification. Except as expressly set forth herein, this Waiver
shall not alter, waive, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Agreements,
the Restructuring Agreement, or any other agreement executed in connection
therewith, all of which are hereby ratified and affirmed in all respects by the
Noteholders, Equityholders and the Company, and shall continue in full force and
effect. This Waiver shall apply solely to the waiver of the Company's compliance
requirements with respect to attaining the designated Return on Assets covenant
for the Measurement Period ended on the Measurement Date of December 31, 1999,
and shall not be construed as waiving the Company's compliance requirements with
respect to such Return on Assets covenant for any future Measurement Period.
3. Counterparts. This Waiver may be executed in any number of
counterparts and by the parties hereto in separate counterparts of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Waiver.
4. Notice of Waiver. In conformity and in accordance with Section
Eleven (11) Miscellaneous. Subsection (b) Notices, this Waiver is hereby
delivered by telecopier to the following:
<TABLE>
<CAPTION>
<S> <C>
to the Fund: with a copy to:
The 1818 Mezzanine Fund, L.P. Cadwalader, Wickersham & Taft
c/o Brown Brothers Harriman & Co. 100 Maiden Lane
59 Wall Street New York, New York 10038
New York, New York 10005 Attention: David C. L. Frauman, Esq.
Attention: Joseph P. Donlan Telecopier No.: (212) 504-6666
Telecopier No.: 212-493-8429
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
to PCI or Progressive: with a copy to
3 Parklands Drive, 2nd Floor Cadwalader, Wickersham & Taft
Darien, Connecticut 06820 100 Maiden Lane
Attention: Evelyn Erb New York, New York 10038
Telecopier No.: (203) 655-1200 Attention: David C. L. Frauman, Esq.
Telecopier No.: (212) 504-6666
to ML: with a copy to:
c/o MF Private Capital, Inc. Manufacturers Life Insurance Company
45 Milk Street, Suite 600 Corporate Law Department
Boston, Massachusetts 02109-5105 200 Bloor Street East
Attention: Raymond L. Bitt, Jr. Toronto, Ontario M4W 1ES, Canada
Telecopier No.: (617) 451-5601 Attention: William Dawson, Esq.
Telecopier No.: (416) 926-5657
to SFHY: with a copy to:
The Structured Finance High Cadwalader, Wickersham & Taft
Yield Fund, LLC 100 Maiden Lane
c/o Prudential Investments -- Structured New York, New York 10038
Finance Group Attention: David C. L. Frauman, Esq.
One Gateway Center, 11th Floor Telecopier No.: (212) 504-6666
Newark, New Jersey 07106-5311
Attention: Steven M. Tompson
Telecopier No.: (973) 802-2147
to the Company: with a copy to:
National Auto Finance Company, Inc. Weil, Gotshal & Manges LLP
10302 Deerwood Park Blvd., Suite 100 767 Fifth Avenue
Jacksonville, Florida 32256 New York, New York 10153-0119
Attention:Stephen R. Veth Attention: Howard Chatzinoff, Esq.
Telecopier No.: (904) 996-2557 Telecopier No.: (212) 310-8007
</TABLE>
4
<PAGE> 5
IN WITNESS WHEREOF, each of the Noteholders and Equityholders has duly
executed this Waiver this 13th day of March, 2000.
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman and Co.,
its General Partner
By: /s/ JOSEPH P. DONLAN
----------------------------------
Name: Joseph P. Donlan
Title: Senior Manager
PC INVESTMENT COMPANY
By: /s/ EVELYN ERB
----------------------------------
Name: Evelyn Erb
Title: Portfolio Manager
PROGRESSIVE INVESTMENT
COMPANY, INC.
By: /s/ EVELYN ERB
----------------------------------
Name: Evelyn Erb
Title: Portfolio Manager
MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
By: /s/ RAYMOND L. BRITT
----------------------------------
Name: Raymond L. Britt
Title: Senior Managing Director
THE STRUCTURED FINANCE HIGH YIELD
FUND, LLC
By: /s/ STEVEN TOMPSON
----------------------------------
Name: Steven Tompson
Title: Managing Director
5
<PAGE> 1
EXHIBIT 10.131
FIRST AMENDMENT TO CONTRACT SALE AGREEMENT
This First Amendment to Contract Sale Agreement ("First Amendment") is
entered into by and between NATIONAL AUTO FINANCE COMPANY, INC. (the "Seller")
and NUVELL CREDIT CORPORATION (the "Purchaser") effective as of February 25,
2000.
RECITALS
WHEREAS, the Seller and the Purchaser have entered into that certain
Contract Sale Agreement dated as of February 4, 2000; and
WHEREAS, the Seller and the Purchaser desire to amend and restate
Section 10.6 of the Contract Sale Agreement, entitled "Purchaser to Provide
Seller Data With Respect to Sold Program Contracts; and
WHEREAS, the Seller and the Purchaser desire to amend and restate the
Fee Schedule attached as Exhibit B to the Contract Sale Agreement; and
WHEREAS, the Seller and the Purchaser desire to approve the Seller's
revised rate/product cards constituting part of the Seller's Contract Finance
Program Guidelines;
NOW, THEREFORE, the Purchaser and the Seller hereby agree as follows:
1. Amendment and Restatement of Section 10.6. The Seller and the
Purchaser agree that Section 10.6 of the Contract Sale Agreement should be
amended and restated as follows:
10.6 PURCHASER TO PROVIDE SELLER DATA WITH RESPECT TO SOLD PROGRAM
CONTRACTS.
During such time as the Seller shall act as the Servicer of
the Sold Program Contracts pursuant to the Servicing Agreement, the
Seller shall be entitled to have access to the data relating to the
Sold Program Contracts maintained by the Seller as Servicer for the
purpose of preparing static pool, performance and other analyses with
respect to the Sold Program Contracts. If the Seller shall be
terminated as the Servicer of the Sold Program Contracts, the Purchaser
shall provide the Seller (no more often than once per calendar quarter)
delinquency, default and loss data relating to all Sold Program
Contracts. Such data will be of the type and level of detail considered
necessary by the Seller and acceptable for disclosure by the Purchaser,
in their reasonable judgment, to allow Seller to prepare its own
performance, static pool and other analyses with respect to the Sold
- 1 -
<PAGE> 2
Program Contracts. All such analyses prepared by the Seller shall be
deemed confidential information of the Purchaser subject to the
provisions of Section 9.1 of this Sale Agreement. This provision does
not obligate the Purchaser to provide the Seller with its own static
pool, performance and other analyses with respect to the Sold Program
Contracts. It is understood that this provision shall apply to all Sold
Program Contracts since the date of this Sale Agreement and for the
life of all such Sold Program Contracts.
2. Adoption of Amended and Restated Fee Schedule. The Seller and the
Purchaser agree that the Amended and Restated Fee Schedule attached to this
First Amendment shall become effective as of February 4, 2000, and shall replace
in its entirety the Fee Schedule attached as Exhibit B to the Contract Sale
Agreement.
3. Approval of Seller's Rate/Product Cards. The Seller and the
Purchaser hereby approve the Seller's revised rate/product cards attached hereto
and agree that (a) such rate/product cards shall constitute part of the Seller's
Contract Finance Program Guidelines, (b) Seller shall deliver, as soon as
practicable, such rate/product cards to Dealers from whom the Seller will
purchase Eligible Program Contracts, (c) the terms and provisions of the
rate/product cards shall apply to all Eligible Program Contracts dated as of
February 28, 2000, or later, and (d) the Seller reserves the right to amend
and/or revise the terms and provisions of the rate/product cards, subject to
applicable terms and provisions of the Contract Sale Agreement.
4. Defined Terms. Each capitalized term in this First Amendment shall
have the meaning ascribed to it set forth in the Contract Sale Agreement, unless
otherwise stated in this First Amendment.
5. Counterparts. This First Amendment may be executed by the parties in
one or more counterparts, each of which shall be deemed an original and all of
which taken together shall constitute one and the same agreement.
6. Headings. The various headings of this First Amendment are inserted
for convenience only and shall not affect the meaning or interpretation of this
First Amendment or the Contract Sale Agreement or any provisions hereof or
thereof.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused this First
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
NATIONAL AUTO FINANCE COMPANY, INC.
By: /s/ WILLIAM MAGRO
-------------------------------------
William Magro
President and Chief Operating Officer
NUVELL CREDIT CORPORATION
By: /s/ TOMMY E. PRITCHARD
-------------------------------------
Tommy E. Pritchard
President
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<PAGE> 4
EXHIBIT B
TO CONTRACT SALE AGREEMENT
Amended and Restated Fee Schedule
The Purchase Price for each Sold Program Contract purchased by the
Purchaser from the Seller pursuant to the Contract Sale Agreement shall equal
the following:
1. The Amount Financed, plus
2. Dealer participation in the amount actually paid to the Dealer, but
not exceeding such amount as is payable pursuant to the Seller"s Contract
Finance Program Guidelines, minus
3. The applicable discount and/or acquisition fee, minus
4. The applicable overadvance warranty fee, the applicable overadvance
fee and the amount payable to the applicable Governmental Authority in the State
of Florida for documentary stamps (see Item 6 below),
the total of the above to be paid by the Purchaser to the Purchaser"s
Control Account; plus
5. The referral fee payable by the Seller to a third-party, if and to
the extent that the referral program has been approved by the Purchaser and the
payment of such fee has not resulted in an applicable discount in the amount
paid to the Dealer for such Contract in excess of the amount allowed by the
Purchaser"s Contract Requirements attached as Exhibit C to the Contract Sale
Agreement, plus
6. The amount payable to the applicable Governmental Authority in the
State of Florida for documentary stamps, plus
7. The amount of cash payable by the Seller to any Dealer pursuant to
its Contract Finance Program Guidelines as compensation for the volume of
Contracts sold by the Dealer to the Seller, if and to the extent that such cash
amounts relate to Sold Program Contracts previously purchased by the Purchaser
from the Seller, plus
8. An acquisition fee of $465.00,
the total of Items 5 through 8 to be paid by the Purchaser directly to the
Seller to such account as may be designated by the Seller in writing to the
Purchaser, as set forth in Section 2.1(c) of the Contract Sale Agreement.
<PAGE> 1
EXHIBIT 10.132
SALE AND PURCHASE AGREEMENT
THIS SALE AND PURCHASE AGREEMENT is made as of March 30, 2000 (the
"Agreement"), by and between NUVELL CREDIT CORPORATION, a Delaware corporation
(the "Purchaser"), and NATIONAL FINANCIAL AUTO FUNDING TRUST II, a Delaware
business trust (the "Seller"), and NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation ("NAFI" or the "Guarantor").
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain motor vehicle retail installment sales contracts
satisfying the requirements of this Agreement, and which shall be delivered as
provided herein; and
WHEREAS, the Guarantor desires to enter into this Agreement for the
purpose of guaranteeing the obligations of the Seller and providing further
assurances to the Purchaser; and
WHEREAS, the Guarantor and the Purchaser have entered into that certain
Contract Sale Agreement dated as of February 4, 2000, which was amended by a
First Amendment to Contract Sale Agreement by and between the Guarantor and the
Purchaser dated as of February 29, 2000 (such Contract Sale Agreement, as
amended, is hereinafter referred to as the "Contract Sale Agreement"), pursuant
to which the Guarantor has agreed to sell, and the Purchaser has agreed to
purchase, "Eligible Program "Contracts," as defined in the Contract Sale
Agreement; and
WHEREAS, the Seller, the Guarantor and the Purchaser desire that the
transaction described in this Agreement be governed, to the extent so stated
herein, by the terms and provisions of the Contract Sale Agreement and that the
terms and provisions of the Contract Sale Agreement referred to herein be
incorporated in this Agreement as if fully set forth herein, except as otherwise
stated herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
1.1 DEFINITIONS.
Each capitalized term in this Agreement shall have the meaning ascribed
to it set forth in the Contract Sale Agreement, unless otherwise stated in this
Agreement:
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AGREEMENT: This Sale and Purchase Agreement and all amendments and
supplements thereto.
ASSIGNMENT: An assignment by Seller to Purchaser, substantially in the
form of Exhibit A hereto, which shall have attached thereto as of the Closing
Date the Closing Date Contract Schedule setting forth the Contracts that
Purchaser shall purchase from Seller on the Closing Date.
CATEGORY I CONTRACTS: Contracts identified on the Master Contract
Schedule and any Closing Date Contract Schedule as "Category I Contracts," which
categorization shall determine the amount of the Purchase Price to be paid by
the Purchaser for the purchase of such Contracts pursuant to Section 2.1 of this
Agreement. Contracts identified on the Master Contract Schedule as Category I
Contracts that are thirty (30) or more days delinquent as of the applicable
Cutoff Date shall be classified as Category II Contracts on the applicable
Closing Date Contract Schedule.
CATEGORY II CONTRACTS: Contracts identified on the Master Contract
Schedule and any Closing Date Contract Schedule as "Category II Contracts,"
which categorization shall determine the amount of the Purchase Price to be paid
by the Purchaser for the purchase of such Contracts pursuant to Section 2.1 of
this Agreement. Contracts identified on the Master Contract Schedule as Category
II Contracts shall always be classified as Category II Contracts on any
applicable Closing Date Contract Schedule, notwithstanding that any such
Contract is less than thirty (30) days delinquent as of the applicable Cutoff
Date.
CATEGORY III CONTRACTS: Contracts identified on the Master Contract
Schedule and any Closing Date Contract Schedule as "Category III Contracts,"
which categorization shall determine the amount of the Purchase Price to be paid
by the Purchaser for the purchase of such Contracts pursuant to Section 2.1 of
this Agreement. All of such Contracts are pre-computed Contracts. Contracts
identified on the Master Contract Schedule as Category III Contracts shall
always be classified as Category III Contracts on any applicable Closing Date
Contract Schedule.
CLOSING DATE: The date specified in the Assignment on which Seller
shall sell to Purchaser, pursuant to this Agreement, Contracts specified in the
Closing Date Contract Schedule attached to such Assignment. The Seller and the
Purchaser understand and agree that there may be multiple Closing Dates under
this Agreement. Each Closing Date shall occur on such date as mutually agreed
upon by the Seller and the Purchaser; provided, however, if all conditions
precedent to the obligations of the Purchaser to purchase Contracts from the
Seller shall have been fulfilled, to the reasonable satisfaction of the
Purchaser, the first Closing Date shall occur no later than May 1, 2000, time
being of the essence.
CLOSING DATE CONTRACT SCHEDULE: The schedule identifying each Contract
sold to Purchaser on a Closing Date, which list shall be attached to the
Assignment as Schedule A.
CONTRACT: Any retail installment sale or conditional sale contract
executed by an Obligor in respect of a Financed Vehicle, and all proceeds
thereof and payments thereunder, that shall be
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<PAGE> 3
identified on the Master Contract Schedule or which shall be sold and
transferred by the Seller to the Purchaser pursuant to Section 2.1 of this
Agreement. The Contracts identified on the Master Contract Schedule and any
Closing Date Contract Schedule shall be classified as either "Category I
Contracts," "Category II Contracts" or "Category III Contracts."
CUTOFF DATE: The date as of which the Net Principal Balance of each
Contract shall be determined for purposes of calculating the cash Purchase Price
to be paid by the Purchaser on a Closing Date. The Cutoff Date for each Closing
Date shall be a date mutually agreed upon by the Seller and the Purchaser.
DEFAULT: A Seller Default or a Purchaser Default.
MASTER CONTRACT SCHEDULE: As of the effective date of this Agreement,
the schedule identifying each Contract that may be sold to Purchaser on a
Closing Date, which is attached as Exhibit D to this Agreement, and which (a)
identifies each Contract by contract number and name of the Obligor and (b) sets
forth as to each Contract (I) the Amount Financed, (ii) the amount of each
monthly payment due from the Obligor, (iii) the APR (calculated in accordance
with the Contract), (iv) the Contract's Origination Date, (v) the date on which
in each month the scheduled payment is due, (vi) the Contract's original term in
months, (vii) the vehicle identification number of the related Financed Vehicle,
(viii) the outstanding principal/payoff balance of such Contract, (ix) the Net
Principal Balance of such Contract, determined in accordance with Section 2.1 of
this Agreement, (x) the next payment due date, (xi) the accrued and unpaid
interest of such Contract (xii) the number of days delinquent, if applicable,
(xiii) the number of times the Contract has been thirty (30) or more days
delinquent during the preceding twelve (12) months prior to the Closing Date,
and (xiv) the number of times the Contract has been sixty (60) or more days
delinquent during the preceding twelve (12) months prior to the Closing Date
(The parties agree that the foregoing information may be contained on a tape or
disk delivered by the Seller to the Purchaser, and accordingly, all such
information may not be included in the written Master Contract Schedule that is
attached as Exhibit D to this Agreement or in the Closing Date Contract Schedule
that is attached to the Assignment.).
NET PRINCIPAL BALANCE: The amount set forth as such on the Master
Contract Schedule determined in accordance with Section 2.1 of this Agreement.
ORIGINATION DATE: With respect to any Contract, the date on which such
Contract was executed by the related Obligor and the Dealer.
PURCHASE PRICE: The cash amount to be paid by the Purchaser to the
Seller on a Closing Date for the purchase of Contracts, determined in accordance
with Section 2.1 of this Agreement.
PURCHASER: Has the meaning set forth in the preamble herein.
PURCHASER DEFAULT: See Section 4.2.
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<PAGE> 4
SELLER: Has the meaning set forth in the preamble herein.
SELLER DEFAULT: See Section 4.1.
SOLD PROGRAM CONTRACT: Means a Program Contract sold by the Guarantor
to the Purchaser pursuant to Section 2.1 of the Contract Sale Agreement and a
Contract sold by the Seller to the Purchaser pursuant to Section 2.1 of this
Agreement.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
1.2 USAGE OF TERMS.
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
genders; references to "writing" include printing, typing, lithography and other
means of reproducing words in a visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including," means "including without
limitation." All section and article references shall be to sections and
articles in this Agreement.
2. SALE OF CONTRACTS
2.1 SALE OF CONTRACTS.
(a) Subject to the terms and conditions of this Agreement, Seller
agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, on a
Closing Date the Contracts specified in the Master Contract Schedule for which
all conditions precedent to the Purchaser's obligation to purchase such
Contracts, as set forth in Section 2.6 of this Agreement, have been satisfied
for a Purchase Price equal to (a)(I) 99.50% of the Net Principal Balance of each
such Contract identified as a Category I Contract as of the Cutoff Date, (ii)
66.00% of the Net Principal Balance each such Contract identified as a Category
II Contract as of the Cutoff Date, and (iii) 91.00% of the Net Principal Balance
of each such Contract identified as a Category III Contract as of the Cutoff
Date, plus (b) accrued and unpaid interest on each such simple interest Contract
as of the Cutoff Date, up to a maximum of forty-five (45) days of accrued and
unpaid interest, plus (c) interest on the aggregate sum of the foregoing at the
rate of 4.5% per annum from the Cutoff Date through the day preceding the
Closing Date. For purposes of determining the Purchase Price, the Net Principal
Balance of each Contract shall not include administrative charges, late payment
fees, NSF fees, accrued interest or other charges that are not considered part
of the original principal balance. The Net Principal Balance of pre-computed
Contracts shall equal the payoff balance of such Contracts less unearned finance
charges as of the Cutoff Date. The Seller and the Purchaser agree that the sale
and purchase of the Category I Contracts and the
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<PAGE> 5
Category II Contracts shall occur on the same Closing Date, which may be a date
preceding the Closing Date for the sale and purchase of the Category III
Contracts. The Seller and the Purchaser agree that the Closing Date for the sale
and purchase of the Category III Contracts shall occur as soon as practicable
after the Purchaser has completed a data conversion program that allows the
Purchaser to transfer and convert to its servicing system all of the relevant
electronic information relating to the Category III Contracts maintained by the
Guarantor on its servicing system. The Conveyance of Contracts on a Closing Date
shall be made by the Seller to the Purchaser by an Assignment in the form of
Exhibit A attached to this Agreement and in accordance with the remaining
sections of this Section 2. During the period from the effective date of this
Agreement through the termination of this Agreement, neither the Seller nor the
Guarantor shall engage in any conduct, act or transaction that will interfere
with the Purchaser's right to purchase the Contracts pursuant to this Agreement
or otherwise prevent or prohibit the Purchaser from exercising its rights with
respect to the Contracts pursuant to this Agreement.
(b) The sale by the Seller of each Contract shall be without recourse
by the Purchaser and its successors and assigns against Seller or the Guarantor,
except to the extent specifically provided for in this Agreement.
2.2 PURCHASER'S ACCESS TO AND REVIEW OF CONTRACT FILES.
(a) Prior to the Closing Date, Purchaser shall have the continuing
right to review the Contract Files for each Contract proposed to be sold by
Seller. Purchaser may reject any Contract that in Purchaser's judgment does not
materially conform to any representation or warranty contained in Article 3.
Each such unacceptable Contract shall be deleted from the Master Contract
Schedule before the applicable Closing Date, and if not so deleted, shall be
deemed approved by the Purchaser for purchase pursuant to this Agreement.
(b) For purposes of Purchaser's review of the Contract Files, Seller
shall afford Purchaser, its counsel, accountants, and other representatives full
access to Contract Files, Electronic Contract Information and books and records
of Seller relating to the Contracts, and to the extent necessary to evaluate the
purchase of the Contracts, the Seller shall cause its officers and employees to
provide such assistance and to furnish such reasonable available information in
respect to the Contracts as Purchaser may from time to time request.
(c) It is understood and agreed that the representations and warranties
of Seller and the Guarantor set forth in Article 3 shall survive any
investigation or review of the Contracts made by Purchaser before or after the
Closing Date.
2.3 CONVEYANCE OF CONTRACTS BY SELLER.
(a) The terms and provisions of Sections 2.3(a), (b) and (c) of the
Contract Sale Agreement are incorporated herein as if fully set forth herein;
provided, however, all references
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<PAGE> 6
in such Sections 2.3(a), (b) and (c) to the term "Seller" shall be deemed to
mean the Seller under this Agreement.
(b) In connection with the sale and conveyance made hereunder, Seller
agrees to record and file, at its own expense, if so requested in writing by the
Purchaser prior to the Closing Date, a financing statement with respect to the
Contracts listed on the Closing Date Contract Schedule, prepared by Seller, and
relating to the Assignment, for the sale of chattel paper (as defined in Section
9-105 of the UCC as in effect in the State of Florida) meeting the requirements
of applicable state law in such manner as is necessary to perfect the
Purchaser's ownership interest in the Contracts, and the proceeds thereof (and
to file any continuation statements as are required by applicable state law) and
to deliver to Purchaser a file-stamped copy of such financing statement or other
evidence of such filing, as soon as practicable after receipt thereof by Seller.
2.4 PAYMENT OF PURCHASE PRICE.
On each Closing Date, Purchaser shall pay to Seller, by wire transfer
of immediately available funds to an account specified by Seller, an amount
equal to the aggregate Purchase Price for the Contracts purchased by the
Purchaser on such Closing Date.
2.5 INTENDED CHARACTERIZATION OF THE TRANSACTION; GRANT OF SECURITY
INTEREST IN FAVOR OF PURCHASER.
The terms and provisions of Section 2.4 of the Contract Sale Agreement
are incorporated herein as if fully set forth herein; provided, however, all
references in such Section 2.4 to the term "Seller" shall be deemed to mean the
Seller under this Agreement.
2.6 CONDITIONS TO OBLIGATION OF PURCHASER TO PURCHASE THE CONTRACTS.
The obligation of Purchaser to purchase the Contracts from Seller is
subject to the accuracy of the representations and warranties of Seller
contained herein, to the performance by Seller of its obligations hereunder and
to the satisfactory completion of the following acts and events:
(a) The Seller shall have delivered to the Purchaser on the applicable
Closing Date an executed Assignment, in substantially the form of Exhibit A to
this Agreement, with the Closing Date Contract Schedule setting forth the
Contracts conveyed and sold by the Seller to the Purchaser on such date
attached;
(b) With respect to the Category I Contracts and the Category II
Contracts, the Contract Files for each and every Contract shall have been
delivered to the Servicer pursuant to the Servicing Agreement, and the Servicer
shall have delivered to the Purchaser a written acknowledgment, in such form as
may be reasonably acceptable to the Purchaser, stating that upon Purchaser's
payment in full of the Purchase Price, Servicer is holding the Contract File for
each
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<PAGE> 7
Contract identified on the Closing Date Contract Schedule as agent for the
Purchaser, and with respect to the Category III Contracts, the Contract Files
for each and every such Contract shall have been delivered to the Purchaser;
(c) The Seller shall have delivered to the Purchaser on or before the
applicable Closing Date (i) the executed original of each Contract identified on
the Closing Date Contract Schedule, (ii) the original of the certificate of
title, evidence of the filing of an application for a certificate of title with
the appropriate state agency or other evidence of title acceptable to the
Purchaser relating to each Financed Vehicle identified on the Closing Date
Contract Schedule, and (iii) a copy of Seller's internally prepared checklist
for each Contract identified on the Closing Date Contract Schedule indicating
that all required documentation and procedures with respect to the Seller's
purchase of each such Contract form a Dealer have been completed in accordance
with the Seller's credit and purchasing policies and procedures;
(d) The Seller and the Guarantor shall deliver to the Purchaser on or
before the applicable Closing Date a UCC-1 financing statement pursuant to
Section 2.3(b) above covering the Contracts identified on the Closing Date
Contract Schedule, if such has been requested in writing by the Purchaser prior
to the Closing Date;
(e) The Seller and the Guarantor shall deliver to the Purchaser on the
first Closing Date a certificate of each such entity's corporate secretary
confirming or certifying, as of such Closing Date, (I) the due organization and
good standing of the Seller and the due incorporation and good standing of
Guarantor under the laws of the State of Delaware (including a certificate of
good standing, dated as of a recent date, from the applicable governmental
authority in the State of Delaware that governs the corporate existence of the
Seller and the Guarantor), (ii) that the Seller's and the Guarantor's execution,
delivery and performance of this Agreement have been duly authorized by all
requisite action of the Seller and the Guarantor, and (iii) a copy of the
resolutions of the trustees of the Seller and the resolutions of the Board of
Directors of the Guarantor approving this Agreement and the transactions
contemplated hereby;
(f) The Seller and the Guarantor shall deliver to the Purchaser on the
Closing Date an Officer's Certificate in substantially the form of the Officer's
Certificate delivered by the Guarantor to the Purchaser pursuant to Section
3.1(a)(vi) of the Contract Sale Agreement, except all references therein to the
Contract Sale Agreement should be changed to this Agreement;
(g) The Seller and the Guarantor shall deliver to the Purchaser on the
Closing Date a favorable opinion of Seller's and Guarantor's counsel in
substantially the form of the opinion of counsel delivered by the Guarantor to
the Purchaser pursuant to Section 3.1(a)(viii) of the Contract Sale Agreement,
except all references therein to the Contract Sale Agreement should be changed
to this Agreement and such opinion should cover matters relevant to both the
Seller and the Guarantor;
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<PAGE> 8
(h) The Seller shall deliver to the Purchaser on or before the Closing
Date a power of attorney from each named lienholder on any Financed Vehicle,
which power shall entitle the Seller, with full right of substitution, certain
irrevocable rights to effect the transfer of the Financed Vehicle or any lien on
the Financed Vehicle;
(i) The Seller shall deliver to the Purchaser on or before the Closing
Date a power of attorney from the Seller, which power shall entitle the
Purchaser and Nuvell Financial Services Corp. certain irrevocable rights to
effect the transfer of the Contracts, the Financed Vehicles, any lien on a
Financed Vehicle, the right to recover proceeds under any Insurance Policy and
other property rights transferred by the Seller to the Purchaser with respect to
each Sold Program Contract pursuant to this Agreement, substantially in the form
of Exhibit B hereto;
(j) If there shall exist any lien on the Contracts in favor of a lender
or other third party at any time prior to the Closing Date, a written release of
lien executed by such lienholder in such form as may be reasonably acceptable to
the Purchaser and copies of the UCC Termination Statements filed by such
lienholder in the appropriate jurisdictions or duplicate originals thereof for
each jurisdiction in which UCC Termination Statements must be filed, if such is
to be filed following the consummation of the acquisition of the Contracts by
the Purchaser;
(k) A list and detailed description of material pending and threatened
litigation to which the Seller, the Guarantor or any of their Affiliates or
assets may be subject (If there has been no change to the information provided
by the Guarantor to the Purchaser pursuant to Section 3.1(a)(xi) of the Contract
Sale Agreement, the Seller and the Guarantor may deliver to the Purchaser a
letter stating such, in lieu of the list required by this Section; and
(l) The Seller and the Guarantor shall have taken such other actions,
including delivery to the Purchaser of such approvals, consents, opinions,
additional information with respect to the Seller and the Guarantor, documents
and instruments as the Purchaser may reasonably request in writing prior to the
Closing Date.
2.7 TITLE TO CONTRACTS AND CONTRACT DOCUMENTS.
Upon payment of the Purchase Price on the Closing Date, the Purchaser
shall be deemed to own the Contracts identified on the Closing Date Contract
Schedule and all related documents, and all rights, benefits, collateral,
payments, recoveries, proceeds and obligations arising therefrom or in
connection therewith after the Cutoff Date. All rights arising out of the
Contracts, including, but not limited to, all funds received on or in connection
with the Contracts after the Cutoff Date and all records or documents with
respect to the Contracts prepared by or which come into the possession of Seller
or the Guarantor on or after the Cutoff Date, shall be received and held by
Seller and/or Guarantor in trust for the benefit of Purchaser, and such shall
promptly be paid and/or delivered by Seller and/or Guarantor, whichever may be
applicable, to Purchaser. In addition, any payments on or in respect of the
Contracts received prior to the related Cutoff
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<PAGE> 9
Date which have not been applied to the amount due on the Contracts as of the
Cutoff Date shall be the property of Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF SELLER, GUARANTOR AND PURCHASER; REPURCHASE
OF CONTRACTS; INDEMNIFICATION; MISCELLANEOUS OTHER OBLIGATIONS OF SELLER
3.1 GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER AND GUARANTOR.
Seller and Guarantor make the representations and warranties set forth
in Section 4.1 of the Contract Sale Agreement, as of the date of this Agreement
and as of each Closing Date, on which Purchaser relies in consummating the
transactions contemplated by this Agreement, except all references therein to
the Contract Sale Agreement shall also include this Agreement and all references
in Section 4.1 to Seller shall be deemed to mean both the Seller and the
Guarantor under this Agreement.
3.2 REPRESENTATIONS AND WARRANTIES OF SELLER AS TO THE CONTRACTS.
As to each Contract (and, to the extent applicable, the related
Financed Vehicle) that is conveyed by the Seller to Purchaser pursuant to this
Agreement, Seller makes all of the representations and warranties with respect
thereto set forth in Section 4.2 of the Contract Sale Agreement, except (a)
references therein to Program Contracts, Eligible Program Contracts and Sold
Program Contracts shall also include Contracts conveyed by the Seller to the
Purchaser pursuant to this Agreement, (b) the Contracts conveyed by the Seller
to the Purchaser pursuant to this Agreement shall not be required to comply with
the Purchaser's Contract Requirements set forth in Exhibit C to the Contract
Sale Agreement, and (c) all references therein to the Seller's Contract Finance
Program Guidelines shall be deemed to mean the Seller's and/or the Guarantor's,
whichever is applicable, credit and purchasing policies and procedures existing
at the time the Contract was purchased by the Seller, and the following
representations and warranties, all of which shall be deemed made as of the
Closing Date, unless otherwise noted:
(a) Contract Schedule. The information set forth in the Master Contract
Schedule and the Closing Date Contract Schedule as to each Contract is true and
correct in all material respects; and the Net Principal Balance of each Contract
has been accurately and correctly determined. The last payment received on the
Contract was accurately recorded and is not subject to reversal because of a
failure to collect good and collected funds with respect to such payment.
(b) Timely Payments; Classification. With respect to Category I
Contracts and Category III Contracts, as of the applicable Cutoff Date, no
scheduled payment, or part thereof, is thirty (30) or more days past its
scheduled due date. With respect to Category I Contracts and Category III
Contracts, as of the applicable Cutoff Date, the Contract has not been sixty
(60) or
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more days delinquent at any time during the twelve (12) months preceding the
Cutoff Date. With respect to Category II Contracts, as of the applicable Cutoff
Date, no scheduled payment, or party thereof, is sixty (60) or more days past
its scheduled due date. No Contract involves a Financed Vehicle that has been
repossessed or sold or which is out for repossession or involves an Obligor or
Financed Vehicle the whereabouts are not known by the Seller or the Guarantor.
No Contract has had a check returned for insufficient funds since the last
scheduled payment was received on such Contract.
(c) No Government or Bankrupt or Employee Obligors. The Obligor is not
an employee of Seller or any affiliate thereof. The Obligor is not an agency of
the United States or any state thereof. The Obligor has not filed or had filed
against it since the Origination Date any petition for relief under any state or
federal bankruptcy, insolvency, receivership or similar law.
(d) Insurance. The related Financed Vehicle was, as of the Contract's
Origination Date, covered by a comprehensive and collision insurance policy on
the Financed Vehicle, providing for coverage against loss or damage by reason of
fire, theft, confiscation, transportation, collision and such other risks as are
generally included in comprehensive insurance policies for motor vehicles and
naming Seller or Guarantor, as the case may be, and its successors and assigns
as loss payees, and the Contract requires maintaining such a policy. Neither the
Seller nor Guarantor has information or knowledge that the Financed Vehicle for
any Contract has suffered any damage or loss that should be covered by any such
insurance, except as specifically disclosed in writing by the Seller and the
Guarantor to the Purchaser. If and to the extent that any Financed Vehicle has
ever been covered by insurance forced placed by the Seller or the Guarantor, as
the case may be, or any predecessor in interest (I) all such insurance has been
placed, implemented and administered in compliance with all applicable laws and
the terms and provisions of the Contract, (ii) all premiums due and payable to
the insurer have been paid by the Seller or the Guarantor, as the case may be,
or its predecessor in interest in accordance with the terms of the applicable
policy, (iii) the insurer has no rights or claims to or against the related
Contract, the Obligor or the Financed Vehicle as a result of such coverage, (iv)
there has been no misrepresentation of any material fact to the Obligor with
respect to such coverage, by either the insurer, the Seller, the Guarantor or
any predecessor in interest, and (v) all such coverages have been terminated
prior to the Closing Date by the Seller or the Guarantor, as the case may be,
and the insurer in compliance with all applicable laws and the terms and
provisions of the Contract. If an Obligor shall file or threaten to file a claim
or right of rescission, set-off, counterclaim or defense against the Seller or
the Guarantor or the Purchaser as a result of the force placing of insurance by
the Seller, the Guarantor or any predecessor in interest, then the Seller and
the Guarantor must, if so requested in writing by the Purchaser, repurchase the
applicable Contract pursuant to Section 3.5 of this Agreement.
(e) Guarantied Auto Protection Insurance, Loan Deficiency Waiver
Agreement or Debt Cancellation. If and to the extent that an Obligor has
purchased any loan deficiency waiver agreement, guarantied auto protection
insurance or debt cancellation agreement, such has been placed, sold,
implemented and administered in compliance with all applicable laws and the
terms
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<PAGE> 11
and provisions of the Contract and the applicable instruments governing such
product, all premiums due and payable to the insurer or provider of such product
have been paid, and there has been no misrepresentation or omission of any
material fact to the Obligor with respect to such product.
(f) Good Title. Immediately prior to the sale herein contemplated,
Seller had good and marketable title or other evidence of title to the Contract,
and the Contract shall be transferred by Seller to Purchaser free and clear of
all liens, encumbrances, security interests, and rights of others.
(g) Lawful Assignment. The Contract was not originated in, nor is
subject to the laws of, any jurisdiction under which the sale, transfer, or
assignment of such Contract under this Agreement is unlawful, void, or voidable.
Neither Seller nor Dealer has entered into any agreement with any Obligor that
prohibits, restricts or conditions the assignment of any portion of the
Contract.
(h) One Original of Contract; Delivery of Contract File. There is only
one original executed Contract. The Contract File for each Contract contains all
of the documents identified as being contained therein by the definition of
"Contract File" set forth in Section 1.1 of this Agreement, and the Contract
File has been, or will be on or prior to the Closing Date, delivered to either
the Servicer or the Purchaser, as required by Section 2.6(b) of this Agreement.
3.3 REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser makes the representations and warranties set forth in Section
6.1 of the Contract Sale Agreement, as of the date of this Agreement and as of
the Closing Date, on which Seller and Guarantor rely in consummating the
transactions contemplated by this Agreement, except all references therein to
the Contract Sale Agreement shall also include this Agreement.
3.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
It is understood and agreed that the representations and warranties set
forth in this Article 3, measured of the dates made, shall survive the sale of
the Contracts to the Purchaser and any assignment of a Contract to any
subsequent assignee and shall continue so long as any Contract shall remain
outstanding with regard to payment thereunder and shall remain subject to any
outstanding terms and conditions. The Seller and the Guarantor acknowledge that
the Purchaser may assign all of its right, title and interest in and to the
Contracts sold to the Purchaser pursuant to this Agreement and its right to
exercise the remedies created by this Article 3 to a subsequent assignee. The
Seller and the Guarantor agree that upon such assignment, any subsequent
assignee may enforce directly, with joinder of the Purchaser, the repurchase
obligations of the Seller set forth in Section 3.5 with respect to breaches of
the representations and warranties set forth in this Article 3.
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<PAGE> 12
3.5 REPURCHASE OBLIGATION.
(a) Upon discovery by Seller or Purchaser of (I) a breach of any
representation or warranty of Seller or Guarantor set forth in Section 3.1 or
3.2 hereof that materially adversely affects the value of any Contract, the
collectibility of payments or proceeds under or with respect to any Contract,
the interest of Purchaser in any Contract or the properties or rights with
respect to any Contract conveyed by the Seller to the Purchaser pursuant to this
Agreement, (ii) a material breach of any covenant or obligation of Seller with
respect to any Contract set forth in Article 2, or (iii) a material data error
with respect to a Contract caused by or resulting from the boarding or servicing
of the Contract prior to the applicable Closing Date, the party discovering such
breach shall give prompt written notice to the other (the Purchaser agrees to
use reasonable efforts to provide the Seller any such written notice within
forty-five (45) days after the Purchaser shall have learned of any such breach
or circumstance), and Seller shall be obligated to cure such breach in all
material respects within thirty (30) days after its receipt of such notice. If
such breach is not cured by Seller within such period, then, in such event,
within five (5) days after Purchaser's delivery to Seller of written demand,
Seller and/or Guarantor shall repurchase the related Contract by delivering to
or upon the order of Purchaser an amount equal to the Repurchase Price. In
addition, within five (5) days after Purchaser's delivery to Seller of written
demand, the Seller and/or the Guarantor shall repurchase, by delivering to or
upon the order of Purchaser an amount equal to the Repurchase Price for the
applicable Contract, any Contract involving an Obligor who has failed to pay
since the Contract's Origination Date at least three (3) scheduled monthly
payments prior to the time such Contract becomes forty-five (45) or more days
delinquent. Seller and Purchaser will use their best efforts to identify and
note on the applicable Closing Date Contract Schedule each Contract that may
become subject to repurchase by the Seller and/or the Guarantor pursuant to the
preceding sentence.
(b) Upon such repurchase and the payment of the Repurchase Price, the
Purchaser or any subsequent assignee shall execute and deliver an assignment and
the Purchaser or any subsequent assignee shall assign to Seller, all of the
Purchaser's or any subsequent assignee's right, title and interest in such
repurchased Contract, without recourse, representation or warranty, except as to
the absence of liens, charges or encumbrances created by or arising as a result
of actions of the Purchaser or any subsequent assignee, other than liens,
charges or encumbrances created or arising out of this Sale Agreement. The
Purchaser and any subsequent assignee agree that it will promptly execute and
deliver and take all further action that may be necessary or appropriate, or
that the Seller may reasonably request, in order to perfect, protect or more
fully evidence the transfer of ownership of such Sold Program Contract to Seller
pursuant to Section 3.5(a). In the event Seller and Guarantor do not repurchase
a Contract as required by subsection (a) above, any action taken by Purchaser to
sell or liquidate the Contract or the related Financed Vehicle in good faith and
in a commercially reasonable manner shall be final and conclusively binding upon
Seller in determining the amount payable by Seller to Purchaser under Section
3.5(a) hereof. If the Purchaser shall proceed, in good faith, with the
liquidation of a Contract or the repossession and/or liquidation of the related
Financed Vehicle prior to the Seller's repurchase of the Contract as required by
subsection (a) above, then Seller shall reimburse the Purchaser for reasonable
out-of-pocket expenses incurred by the Purchaser in connection with such
process,
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<PAGE> 13
which, if not included in the calculation of the Repurchase Price pursuant to
its definition as set forth in Section 1.1 hereof, shall be in addition to the
Repurchase Price payable by Seller.
3.6 INDEMNIFICATION BY SELLER AND GUARANTOR.
The indemnification obligations of the Seller and the Guarantor with
respect to Contracts sold by the Seller to the Purchaser pursuant to this
Agreement and with respect to the other matters addressed by this Agreement
shall be identical to the indemnification obligations of the Guarantor pursuant
to Section 8.1 of the Contract Sale Agreement. Accordingly, Section 8.1 of the
Contract Sale Agreement is hereby incorporated herein, except that references
therein to "Sold Program Contracts" shall be deemed to mean Contracts sold by
the Seller to the Purchaser pursuant to this Agreement, references therein to
"Seller" shall be deemed to mean both the Seller and the Guarantor under this
Agreement, and references therein to representations, warranties and covenants
of the "Seller" shall be deemed to mean representations, warranties and
covenants of the Seller and the Guarantor under this Agreement.
3.7 INDEMNIFICATION BY PURCHASER.
Purchaser shall indemnify and hold harmless Seller and Guarantor and
each such entity"s parent, Subsidiaries, Affiliates and their directors,
officers, employees and authorized agents against any claim, action, demand,
proceeding and suit brought by any Person other than the Seller or the
Guarantor, whether or not groundless, and against every liability, damage and
cost (including reasonable legal fees and related costs), arising out of,
directly or indirectly, from any such claim, action, demand, proceeding or suit,
resulting from, arising out of or relating to: (I) any material breach by
Purchaser of its representations and warranties, covenants or obligations
contained in this Agreement, or (ii) any act or omission by Purchaser or its
agents, officers or employees or controlled Affiliates (not including acts and
omissions of the Guarantor while it is acting as servicer of the Contracts
pursuant to the Servicing Agreement) with respect to the collection, application
or administration of payments under any Contract sold by the Seller to the
Purchaser pursuant to this Agreement, the repossession of any Financed Vehicle
that secures a such Contract, or the exercise of any rights or pursuit of claims
against any Obligor under any such Contract, which results in a material loss by
or claim against the Seller or the Guarantor.
3.8 INDEMNIFICATION GENERALLY
(a) A claim for indemnification pursuant to this Article shall be made,
if at all, within five (5) years after the Closing Date, notwithstanding any
statute of limitations that may specify a shorter period, the provisions of
which are hereby waived. The Purchaser, the Seller or the Guarantor, as the case
may be, may make a demand for indemnification pursuant to this Article only if
the amount of all claims for indemnification exceeds, or is reasonably expected
to exceed, $25,000 in the aggregate.
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<PAGE> 14
(b) As a condition of any claim for indemnification under this Article,
the indemnifying party shall be given timely notice of any claim or demand as to
which indemnification may be claimed and shall have the right, together with the
indemnified party, to participate in the defense, compromise or closing thereof
through the indemnifying party"s own attorney and at the indemnifying party's
expense.
(c) If a party has received indemnity payments hereunder with respect
to a Contract and thereafter receives payments from third parties so as to fully
recoup its losses with respect to such Contract, the indemnified party shall
remit any excess payments to the indemnifying party to the extent of the
indemnification payments previously made by the indemnifying party and subject
to the rights of the Obligor.
3.9 NON-SOLICITATION OF OBLIGORS.
From and after the Closing Date as to any Contract and for so long as a
Contract is outstanding, neither Seller nor Guarantor nor any officer or
employee of Seller or Guarantor shall knowingly solicit, and the Seller and
Guarantor and their officers and employees shall not encourage or recommend any
agent or representative of Seller or Guarantor to solicit, any Obligor in
respect of a Contract, either singly or as part of a group, on behalf of Seller
or Guarantor or any other entity in any manner that would encourage prepayment
of such Contract, except that Seller and Guarantor may continue to make general
solicitations to the public and the Seller's and the Guarantor's customers and
may advertise, sell and provide all financial services offered by Seller and/or
Guarantor.
3.10 OBLIGATIONS OF GUARANTOR.
The Guarantor hereby unconditionally, absolutely and irrevocably
guarantees to Purchaser and its successors and assigns full, prompt and
unconditional performance of every obligation to be performed by the Seller
under this Agreement, as if it were to be performed by the Guarantor. This
guaranty is a continuing one and shall apply to all amendments and modifications
of this Agreement until the termination of Seller's obligations. A release of
Seller by Purchaser shall not be construed or deemed a release by Guarantor
unless such release specifically names the Guarantor as a released party.
3.11 DUTIES OF SELLER WHILE ACTING AS SERVICER; SELLER SHALL PROVIDE
ASSISTANCE WITH RESPECT TO CONVERSION OF DATA.
Purchaser and Seller agree that the Category I Contracts and Category
II Contracts sold by the Seller and purchased by the Purchaser pursuant to this
Agreement shall be serviced by the Seller pursuant to the terms and provisions
of the Servicing Agreement. Purchaser and Seller agree that the Category III
Contracts shall be sold by the Seller to the Purchaser servicing released to the
Seller, or its designated servicer, as of the applicable Closing Date.
Accordingly, the terms and provisions of Section 5.4, including the repurchase
obligation of the "Seller" thereunder
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<PAGE> 15
(which applies to the Seller and the Guarantor under this Agreement), of the
Contract Sale Agreement are incorporated herein and made a part hereof.
4. EVENTS OF DEFAULT
4.1 SELLER DEFAULTS.
For purposes of this Agreement, each of the following shall constitute
an event of default by Seller (each, a "Seller Default") hereunder:
(a) Any failure by Seller to deliver to or upon the order of Purchaser
any proceeds or payment required to be so delivered under the terms of this
Agreement, which failure continues for a period of five (5) Business Days after
discovery by Seller or written notice of such failure given to Seller by
Purchaser;
(b) Failure on the part of Seller duly to observe or perform in any
material respect any other covenant or agreement of Seller set forth in this
Agreement, which failure continues for a period of ten (10) Business Days after
discovery by Seller or written notice of such failure given to Seller by
Purchaser;
(c) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a trustee
in bankruptcy, conservator, receiver, or liquidator for Seller in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceeding or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days;
(d) The consent by Seller to the appointment of a trustee in
bankruptcy, conservator, or receiver or liquidator in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceeding of or relating to Seller or relating to all or substantially
all of its property; or Seller shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations; or
(e) Any representation, warranty, covenant or statement of Seller 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 within ten (10) Business Days after written
notice thereof shall have been given to Seller by Purchaser, the circumstance or
condition in respect of which such representation, warranty, covenant or
statement was incorrect shall not have been eliminated or otherwise cured to the
satisfaction of Purchaser.
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<PAGE> 16
4.2 PURCHASER DEFAULTS.
Any of the following acts or occurrences shall constitute an event of
default by Purchaser (each, a "Purchaser Default"):
(a) So long as no Seller Default has occurred or no notice of the
termination of this Agreement shall have been given pursuant to Section 4.3, any
failure by Purchaser to purchase the Contracts on the Closing Date or to pay any
amounts due pursuant to this Agreement, which failure continues for a period of
five (5) Business Days after discovery by Purchaser or written notice of such
failure given to Purchaser by Seller;
(b) Failure on the part of Purchaser duly to observe or perform in any
material respect any other covenant or agreement of Purchaser set forth in this
Agreement, which failure continues for a period of ten (10) Business Days after
discovery by Purchaser or written notice of such failure given to Purchaser by
Seller;
(c) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a trustee
in bankruptcy, conservator, receiver, or liquidator for Purchaser in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceeding or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days;
(d) The consent by Purchaser to the appointment of a trustee in
bankruptcy, conservator, or receiver or liquidator in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceeding of or relating to Purchaser or relating to all or
substantially all of its property; or Purchaser shall admit in writing its
inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations; or
(e) Any representation, warranty, covenant or statement of Purchaser
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 within ten (10) Business Days after
written notice thereof shall have been given to Purchaser by Purchaser, the
circumstance or condition in respect of which such representation, warranty,
covenant or statement was incorrect shall not have been eliminated or otherwise
cured to the satisfaction of Seller.
4.3 RIGHTS UPON DEFAULT OR BREACH.
(a) If a Seller Default or Purchaser Default shall occur and be
continuing prior to the transactions contemplated by this Agreement having been
consummated, so long as such Default has not been cured or waived, after the
expiration of any applicable cure period, the party not in default (the
"Non-Defaulting Party") can, by notice given in writing to the other party,
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<PAGE> 17
immediately terminate this Agreement. Such right to terminate this Agreement,
together with all other rights and remedies from time to time conferred upon or
reserved by Seller or Purchaser, are cumulative, and none is intended to be
exclusive of another or any right or remedy which Seller or Purchaser may have
at law or in equity; provided, however, with respect to any Contract purchased
by the Purchaser pursuant to this Agreement, if there shall be a breach of any
representation or warranty with respect to such Contract set forth in Section
3.2 of this Agreement, or if the Seller shall be in default of any covenant or
obligation with respect to such Contract set forth in Article 2 of this
Agreement, then the sole remedy of the Purchaser with respect to such default or
breach shall be to require the Seller to repurchase such Contract pursuant to
Section 3.5 of this Agreement; provided, however, the preceding provision is not
intended to prohibit the Purchaser from seeking recourse against the Seller for
indemnification pursuant to Section 3.6 of this Agreement. No delay or omission
in insisting upon the strict observance or performance of any provision hereof
or in exercising any right or remedy shall be construed as a waiver or
relinquishment of such provision, nor shall it impair such right or remedy.
Every right and remedy may be exercised from time to time and as often as deemed
expedient.
(b) If either party shall bring a claim, action, demand, suit or
proceeding against the other party because of a breach or default of any term or
provision of this Agreement, not including a claim for indemnification pursuant
to Section 3.6 or 3.7 of this Agreement, the nondefaulting party's measure of
damages shall be limited as follows:
(i) With respect to a claim by the Purchaser that there has
occurred a breach of a representation or warranty set forth in Section
3.1 or 3.2 of this Agreement with respect to a Contract sold by the
Seller to the Purchaser pursuant to this Agreement or a default by the
Seller of a covenant or obligation set forth in Article 2 of this
Agreement with respect to a Contract sold by the Seller to the
Purchaser pursuant to this Agreement, the Purchaser shall be allowed to
recover from the Seller with respect to the Contract the amounts set
forth in Section 3.5 of this Agreement, plus reasonable attorneys' fees
and disbursements and related litigation expenses incurred by the
Purchaser to enforce its rights and remedies under this Agreement;
(ii) With respect to any other claim by the Purchaser against
the Seller, the Purchaser shall be allowed to recover from the Seller
its actual monetary loss directly incurred as a result of such default
or breach by the Seller, not to exceed recissionary damages calculated
in accordance with Section 3.5 of this Agreement, plus reasonable
attorneys' fees and disbursements and related litigation expenses
incurred by the Purchaser to enforce its rights and remedies under this
Agreement;
(iii) With respect to a claim by the Seller against the
Purchaser that there has occurred a breach or default by the Purchaser
of any covenant, obligation, representation or warranty set forth in
this Agreement, the Seller shall be allowed to recover from the
Purchaser the additional costs, expenses and financing costs (equal to
the difference between the Seller's actual cost of financing the
ownership of Eligible Program Contracts
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<PAGE> 18
and Seven and 50/100 Percent (7.50%) per annum) actually incurred by
the Seller as the result of such breach or default, plus reasonable
attorneys' fees and disbursements and related litigation expenses
incurred by the Seller to enforce its rights and remedies under this
Agreement. Additional costs, expenses and financing costs actually
incurred by the Seller shall be based upon the Contracts identified on
the Master Contract Schedule which are not purchased by the Purchaser
pursuant to this Agreement, not including Contracts that are not
purchased for good cause; and
(iv) Neither the Purchaser nor the Seller shall be liable to
each other for any lost profits or loss of business or any special,
speculative, punitive, indirect, exemplary, punitive, consequential or
incidental damages, however caused or however based upon any theory of
liability.
4.4 WAIVER OF DEFAULTS.
Following the occurrence of a Seller Default or Purchaser Default, the
Non-Defaulting Party may, by written notice to the defaulting party, waive such
Default. Upon any such waiver, such Default shall cease to exist, and any Seller
Default or Purchaser Default, as the case may be, arising therefrom shall be
deemed to have been remedied for every purpose of this Agreement. No such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon except to the extent expressly so waived.
5. MISCELLANEOUS PROVISIONS
5.1 INCORPORATION OF CERTAIN PROVISIONS OF CONTRACT SALE AGREEMENT; ENTIRE
AGREEMENT.
This Agreement incorporates certain terms and provisions of the
Contract Sale Agreement by reference herein. If and to the extend that the terms
and provisions of the Contract Sale Agreement incorporated in this Agreement
conflict with the terms and provisions of this Agreement, the terms and
provisions of this Agreement in conflict therewith shall govern. This Agreement
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral (not including the Contract Sale Agreement
and the Servicing Agreement), between Purchaser and Seller and Guarantor with
respect to the subject matter hereof.
5.2 HEADINGS.
The headings and subheading of Articles and Sections contained in this
Agreement, except the terms identified for definition in Article 1 and elsewhere
in this Agreement, are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or any provision thereof.
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<PAGE> 19
5.3 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida without regard to principles of conflicts of
law.
5.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon Seller
and Purchaser and their respective successors and assigns.
5.5 MODIFICATION.
No amendment or other modification of this Agreement shall be effective
except pursuant to a written agreement executed by the duly authorized
representatives of Purchaser and Seller.
5.6 NOTICES.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed by first class mail,
postage prepaid, to:
Seller or Guarantor: National Auto Finance Company, Inc.
10302 Deerwood Park Boulevard
Suite 100
Jacksonville, Florida 32255-0970
Attention: William Magro, President
Or such other address as may hereafter be furnished to Purchaser in writing by
Seller or Guarantor,
Purchaser: Nuvell Credit Corporation
17500 Chenal Parkway, Suite 201
Little Rock, Arkansas 72223
Attention: Daniel E. Staub,
Executive Vice President
Or such other address as may hereafter be furnished to Seller and Guarantor in
writing by Purchaser.
All such notices and other communications shall be deemed given on the
date received by the addressee.
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<PAGE> 20
5.7 SEVERABILITY OF PROVISIONS.
If any provision of this Agreement is invalid or unenforceable, then,
to the extent such invalidity or unenforceability shall not deprive either party
of any material benefit intended to be provided by this Agreement, all of the
remaining provisions of this Agreement shall remain in full force and effect and
shall be binding upon the parties hereto.
5.8 COSTS, FEES AND EXPENSES.
If any legal proceeding is instituted by either party against the other
under this Agreement or in respect to any Contract, the non-prevailing party
shall also be required to pay the prevailing party's costs and expenses of such
litigation, including reasonable attorney fees. Each party agrees to pay all
costs, fees and expenses which it has incurred in connection with or incidental
to the matters contained in this Agreement, including, without limitation, any
fees and disbursements to its accountants and counsel.
5.9 JURISDICTIONS
Each of the Seller, the Guarantor and the Purchaser hereby irrevocably
and unconditionally submits, for itself and its property, to the non-exclusive
jurisdiction of any Arkansas state court, Florida state court, federal court of
the United States of America for the Eastern District of Arkansas, or federal
court of the United States of America for the Northern District of Florida, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and the parties agree that all claims in respect of any such action or
proceeding may be heard and determined in such Arkansas or Florida state or, to
the extent permitted by law, federal court.
5.10 WAIVER OF TRAIL BY JURY.
PURCHASER AND SELLER AND GUARANTOR EACH HEREBY EXPRESSLY WAIVES (TO THE
EXTENT THAT IT MAY LAWFULLY DO SO) ANY RIGHT TO A TRIAL BY JURY TO WHICH IT MAY
BE ENTITLED IN ANY PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
5.11 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
5.12 REMEDIES.
Subject to the provisions of Section 4.3 of this Agreement, the parties
agree that immediate and irreparable damage would occur in the event any of the
provisions of this Agreement were
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<PAGE> 21
not performed in accordance with the terms hereof and the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 22
IN WITNESS WHEREOF, Seller, Guarantor and Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as of the day and year first above written.
NUVELL CREDIT CORPORATION,
as Purchaser
By: /s/ DANIEL E. STAUB
------------------------------------------
Daniel E. Staub
Title: Executive Vice President
NATIONAL FINANCIAL AUTO FUNDING TRUST II
as Seller
By: /s/ AUTHORIZED SIGNATURE
------------------------------------------
Title:
---------------------------------------
NATIONAL AUTO FINANCE COMPANY, INC.,
as Guarantor
By: /s/ AUTHORIZED SIGNATURE
------------------------------------------
Title:
---------------------------------------
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<PAGE> 23
EXHIBITS
EXHIBIT A - ASSIGNMENT
EXHIBIT B - POWER OF ATTORNEY
EXHIBIT C - MASTER CONTRACT SCHEDULE
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<PAGE> 24
EXHIBIT A
ASSIGNMENT
ASSIGNMENT dated _______________, 2000, from NATIONAL FINANCIAL AUTO
FUNDING TRUST II ("Seller") to NUVELL CREDIT CORPORATION ("Purchaser").
FOR VALUE RECEIVED, pursuant to the Sale and Purchase Agreement dated
as of _______________, 2000, by and between Seller, National Auto Finance
Company, Inc., as "Guarantor," and Purchaser (the "Agreement"), Seller does
hereby sell, transfer, assign and convey unto Purchaser, its successors and
assigns, all of its right, title and interest in, to and under each and every
Motor Vehicle Receivable (the "Contracts") identified on the Contract Schedule
appended hereto (identified as Exhibit A to this Assignment), together with all
of its right, title and interest in, to and under all collateral, documents,
payments, recoveries, proceeds and obligations arising therefrom or in
connection therewith.
And Seller hereby represents, warrants and confirms to Purchaser,
subject to the terms and provisions of the Agreement, that all of Seller's
representations and warranties regarding the Seller and the Contracts made in or
pursuant to the Agreement are true and correct in all material respects as of
the date hereof and no event has occurred which, with notice or the passage of
time, would constitute a breach by Seller of its representations, warranties or
obligations under the Agreement.
And Seller hereby grants to Purchaser a power of attorney, with full
power of substitution, to execute in Seller's name and on Seller's behalf such
notices, endorsements (including, without limitation, endorsement of the
Contracts and any related promissory notes or other instruments), consents, and
other instruments and documents which may be reasonably necessary in Purchaser's
judgment to evidence the sale and assignment of the Contracts to Purchaser or to
record or otherwise perfect Purchaser's interest therein or in the collateral
securing the Contracts, or which may be otherwise consistent with the sale and
assignment of the Contracts effected by this Assignment and pursuant to the
Agreement. This power of attorney is coupled with an interest and is
irrevocable.
All terms used herein and not otherwise defined shall have the meaning
set forth in the Agreement. This Assignment is made WITHOUT RECOURSE AGAINST THE
SELLER OR THE GUARANTOR OR WARRANTY TO THE PURCHASER, except to the extent
specifically provided for in the Agreement.
IN WITNESS WHEREOF, Seller has caused this Assignment and Power of
Attorney to be executed by its duly authorized officer effective as of the date
first set forth above.
Seller: NATIONAL FINANCIAL AUTO FUNDING
TRUST II
By:
-----------------------------------
Name:
Title:
--------------------------------
- 1 -
<PAGE> 25
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On this __________ day of ___________________, 2000, before me
_____________________________ personally appeared
________________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission expires: ______________
- 2 -
<PAGE> 26
EXHIBIT B
IRREVOCABLE POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, NATIONAL
FINANCIAL AUTO FUNDING TRUST II (the "Company") does hereby make, constitute and
appoint NUVELL CREDIT CORPORATION and NUVELL FINANCIAL SERVICES CORP., which are
hereby authorized to act together or separately, as its true and lawful
attorney-in-fact, with full power of substitution with respect to those certain
contracts described in an Assignment dated _______________, 2000, executed and
delivered by the undersigned for the benefit of Nuvell Credit Corporation, and
as such may be amended from time to time, the collateral securing such
contracts, and all security documents related thereto (collectively, the
"Property"), to (i) sign, acknowledge and file, in the name, place and stead of
the Company, all such certificates, documents and instruments, including, but
not limited to, any instrument of assignment, certificate of title, notice of
lien, assignment of lien, application for a certificate of title or duplicate of
such certificate, application to register or transfer title, document to effect
the notation of a lien upon a certificate of title or the assignment of such a
lien, notice of any such assignment, application to register or transfer the
rights as secured party under any policy of insurance, affidavits of
repossession, bills of sale, notices of sale, lien releases and odometer
statements, (ii) authorize the sale and disposition of Property and transact as
necessary to sell or re-market such Property, and (iii) sell the Property and
receive proceeds thereon through any authorized party or auction; and further as
said attorney-in-fact may deem fit and proper to perfect the right, title and
interest of Nuvell Credit Corporation and/or its successors and assigns in the
Property.
The undersigned further hereby gives and grants unto said
attorney-in-fact full power and authority to do and perform every act necessary
and proper to be done in the exercise of any of the foregoing powers with
respect to the Property as fully as the undersigned might or could do if
personally present.
This Power of Attorney is coupled with an interest and is irrevocable
by the undersigned. Anyone to whom this Power of Attorney is presented may rely
upon it without further inquiry of the undersigned. A photocopy of this Power of
Attorney shall have the same effect as an original, manually signed and
acknowledged counterpart of this Power of Attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
___ day of _______________, 2000.
NATIONAL FINANCIAL AUTO FUNDING TRUST II
By:
-----------------------------------------
Title:
--------------------------------------
- 1 -
<PAGE> 27
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On this __________ day of ___________________, 2000, before me
_____________________________ personally appeared
________________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission expires:
---------------
- 2 -
<PAGE> 28
EXHIBIT C
MASTER CONTRACT SCHEDULE
<PAGE> 1
EXHIBIT 10.133
AMENDMENT NO. 1 TO SALE AND PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO SALE AND PURCHASE AGREEMENT (the "Amendment")
is made as of April 5, 2000 (the "Agreement"), by and between NUVELL CREDIT
CORPORATION, a Delaware corporation (the "Purchaser"), and NATIONAL FINANCIAL
AUTO FUNDING TRUST II, a Delaware business trust (the "Seller"), and NATIONAL
AUTO FINANCE COMPANY, INC., a Delaware corporation ("NAFI").
WHEREAS, the Seller and the Purchaser have entered into that certain
Sale and Purchase Agreement dated as of March 30, 2000 (the "Sale Agreement"),
pursuant to which the Seller has agreed to sell, and the Purchaser has agreed to
purchase, the Contracts, as defined in the Sale Agreement; and
WHEREAS, the Seller and the Purchaser now desire to amend the Sale
Agreement, in the manner and to the extent stated herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions.
Each capitalized term in this Agreement shall have the meaning ascribed
to it set forth in the Sale Agreement, unless otherwise stated in this
Amendment:
Section 2. Amendments to Agreement.
(a) Section 2.4 of the Sale Agreement is hereby amended by inserting
the following paragraph as subsection (a) of Section 2.4 and designating the
paragraph in Section 2.4 of the Sale Agreement as executed and delivered on
March 30, 2000 as subsection (b):
On April 5, 2000, the initial Closing Date, Purchaser shall
pay the aggregate Purchase Price of $_________ to: (i) First Union
National Bank, by wire transfer of immediately available funds to First
Union National Bank, ABA No: 053-000-219, Acct No: 145916-0000192 Acct
Type: General Ledger, Acct Name: Asset Securitization Division
Attention: Sherry McInturf, Re: NAFCO, Inc., an amount equal to
$44,239,706.14 and (ii) the remainder of $___________ to Seller or the
Seller's designee, by wire transfer of immediately available funds to
an account specified by Seller.
(b) Subsection (b) of Section 2.4 is hereby amended in its entirety to
read as follows:
<PAGE> 2
On each Closing Date subsequent to the initial Closing Date,
Purchaser shall pay to Seller, by wire transfer of immediately
available funds to an account specified by Seller, an amount equal to
the aggregate Purchase Price for the Contracts purchased by the
Purchaser on such Closing Date.
(c) The Sale Agreement is hereby further amended by inserting the
following paragraph as Section 5.13:
NO PETITION. Notwithstanding any prior termination of this
Agreement, the Purchaser agrees that it shall not, for a period of one
year and one day following the initial Closing Date, acquiesce,
petition or otherwise 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 or appointing a receiver, liquidator, 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. First Union National Bank shall be a third party
beneficiary of this Section 5.13.
Section 3. Governing Law.
This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida without regard to principles of conflicts of
law.
Section 4. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
Section 5. Effectiveness of Agreement.
Except as expressly amended by the terms of this Amendment, all terms
and conditions of the Sale Agreement shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, Seller, Guarantor and Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as of the day and year first above written.
NUVELL CREDIT CORPORATION,
as Purchaser
By: /s/ DANIEL E. STAUB
-------------------------------------
Daniel E. Staub
Title: Executive Vice President
NATIONAL FINANCIAL AUTO FUNDING
TRUST II
as Seller
By: /s/ AUTHORIZED SIGNATURE
-------------------------------------
Title:
----------------------------------
NATIONAL AUTO FINANCE COMPANY, INC.,
as Guarantor
By: /s/ AUTHORIZED SIGNATURE
-------------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.134
AMENDMENT NO. 2 TO CONTRACT SALE AGREEMENT
AND
AMENDMENT NO. 1 TO SERVICING AGREEMENT
THIS AMENDMENT NO. 2 TO CONTRACT SALE AGREEMENT and AMENDMENT NO. 1 TO
SERVICING AGREEMENT (the "Amendment") is made as of April 7, 2000, by and
between NUVELL CREDIT CORPORATION, a Delaware corporation (the "Purchaser" or
the "Owner"), and NATIONAL AUTO FINANCE COMPANY, INC., a Delaware corporation
(the "Seller" or the "Servicer").
WHEREAS, the Seller and the Purchaser have entered into that certain
Contract Sale Agreement dated as of February 4, 2000, which was amended by a
First Amendment to Contract Sale Agreement dated effective as of February 29,
2000 (the "Contract Sale Agreement"), pursuant to which the Seller has agreed to
sell, and the Purchaser has agreed to purchase, Eligible Program Contracts, as
defined in the Contract Sale Agreement; and
WHEREAS, the Seller, as the "Servicer," and the Purchaser, as the
"Owner," have entered into that certain Servicing Agreement dated as of February
4, 2000 (the "Servicing Agreement"), pursuant to which the Seller has agreed to
provide collection and administrative services with respect to Sold Program
Contracts purchased by the Purchaser from the Seller pursuant to the Contract
Sale Agreement and that certain Sale and Purchase Agreement by and between the
Seller, National Financial Auto Funding Trust II and the Purchaser dated as of
March 30, 2000, as amended;
WHEREAS, the Seller and the Purchaser now desire to amend the Contract
Sale Agreement and the Servicing Agreement, in the manner and to the extent
stated herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions.
Each capitalized term in this Amendment shall have the meaning ascribed
to it set forth in the Contract Sale Agreement, unless otherwise stated in this
Amendment:
Section 2. Amendments to Contract Sale Agreement.
(a) Section 2.5 of the Contract Sale Agreement is hereby amended and
restated in its entirety as follows:
- 1 -
<PAGE> 2
The Term of this Agreement shall be for an initial period (the
"Initial Period") commencing on the date hereof and ending on May 31,
2000 (such date, as such is and may be extended pursuant hereto, is
hereinafter referred to as the "Scheduled Termination Date"). The
Seller and the Purchaser hereby agree that the Term of this Agreement
shall be extended beyond the Initial Period until December 31, 2000.
The Term of this Agreement shall be extended for an additional three
(3) calendar months beyond a Scheduled Termination Date, unless the
Purchaser or the Seller shall give written notice to the other party of
its desire to terminate this Agreement at least fifteen (15) days prior
to the Scheduled Termination Date. Either the Purchaser or the Seller
shall be allowed to terminate this Agreement and its respective
obligations under this Agreement (not including its indemnification
obligations and such other obligations as shall survive termination of
this Agreement, as specifically set forth herein) upon the earlier of
(i) the Scheduled Termination Date, (ii) the passage of any applicable
period of remedy and notice pursuant to Article VII, or (iii) after the
Initial Period, the giving to the other party of at least thirty (30)
days advance written notice of its desire to terminate this Agreement.
(b) Section 5.1(c) of the Contract Sale Agreement is hereby amended and
restated in its entirety as follows:
(c) Cause to be delivered to the Purchaser within fifteen (15)
days after May 31, 2000, and after any other extension of the Scheduled
Termination Date (i) an Officer's Certificate of the Seller in the form
of Exhibit E, dated the date of such delivery; (ii) a Secretary's
Certificate of Seller in the form required by Section 3.1(a)(v) hereof,
dated the date of such delivery; and (iii) an opinion of counsel, in
form and substance satisfactory to the Purchaser, reaffirming as of the
date of its delivery the opinion of counsel with respect to the Seller
and delivered to the Purchaser on the Closing Date pursuant to Section
3.1(a)(viii) hereof.
(c) Section 7.3(b)(iii), subpart (B), of the Contract Sale Agreement is
hereby amended by replacing the reference to "Six and 50/100 Percent (6.50%) per
annum" with "Seven and 50/100 Percent (7.50%) per annum," so that such provision
reads, "or (B) the difference between the Seller's actual cost of financing the
ownership of Eligible Program Contracts and Seven and 50/100 Percent (7.50%) per
annum. . . ."
Section 3. Amendments to Servicing Agreement.
Section 11.1 of the Servicing Agreement is hereby amended and restated
in its entirety as follows:
- 2 -
<PAGE> 3
This Servicing Agreement shall be effective commencing as of
the date hereof. The Term of this Servicing Agreement shall be for an
initial period (the "Initial Period") commencing on the date hereof and
ending on May 31, 2000 (such date, as such is and may be extended
pursuant hereto, is hereinafter referred to as the "Scheduled
Termination Date"). The Servicer and the Owner hereby agree that the
Term of this Servicing Agreement shall be extended beyond the Initial
Period until December 31, 2000. The Term of this Servicing Agreement
shall be extended for an additional three (3) calendar months beyond a
Scheduled Termination Date, unless the Owner shall give written notice
to the Servicer of its desire to terminate this Agreement at least
fifteen (15) days prior to the Scheduled Termination Date.
Notwithstanding the foregoing, the Term of this Servicing Agreement
shall be terminated upon the happening of any of the following events:
(a) the later of the collection by Servicer and transfer to Owner of
final payment or liquidation with respect to the last Contract and the
remittance of all funds due hereunder; (b) the mutual written consent
of Servicer and Owner; (c) Servicer or Owner has an uncured Default
under Article X hereof, and the non-defaulting party has given the
defaulting party notice of termination as provided in Article X, which
Event of Default has not been waived by the non-defaulting party
pursuant to Section 10.3 hereof, or (d) the earlier of the last day of
the calendar month in which the Sale Agreement shall be terminated,
pursuant to its terms or otherwise, or the fifteenth (15th) day after
which either the Servicer or the Owner shall have given written notice
to the other party of its desire to terminate the Sale Agreement
pursuant to subprovision (iii) of the last sentence of Section 2.5 of
the Sale Agreement.
Section 4. Governing Law.
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
Section 5. Counterparts.
This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
Section 6. Effectiveness of Contract Sale Agreement.
Except as expressly amended by the terms of this Amendment, all terms
and conditions of the Contract Sale Agreement and the Servicing Agreement shall
remain in full force and effect.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, Seller and Purchaser have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
NUVELL CREDIT CORPORATION,
as Purchaser and Owner
By: /s/ TOMMY E. PRITCHARD
------------------------------------
Tommy E. Pritchard
Title: President
NATIONAL AUTO FINANCE COMPANY, INC.,
as Seller and Servicer
By: /s/ WILLIAM MAGRO
------------------------------------
William Magro
Title: President and Chief Operating Officer
- 4 -
<PAGE> 1
EXHIBIT 11.1
NATIONAL AUTO FINANCE COMPANY, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended
December 31
----------------------
1999 1998
-------- --------
<S> <C> <C>
Average number of common shares outstanding ................ 15,111 9,031
Common equivalent shares outstanding:
Stock options (1) .......................................... -- --
-------- --------
Total common and common equivalent shares outstanding ...... 15,111 9,031
======== ========
Net income (loss) attributed to common shareholders ........ $ (9,730) $(33,741)
======== ========
Loss per common share (basic and diluted) .................. $ (.64) $ (3.73)
======== ========
</TABLE>
- ----------------
(1) Stock options are excluded from the computation of diluted loss per common
share as the effect of such options would be anti-dilutive.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement (No. 33-23649) on Form S-8 relating to the registration
of 500,000 shares of Common Stock, par value $.01 per share, of National Auto
Finance Company, Inc. ("Registrant") of our report dated April 7, 2000 relating
to the financial statements of the Registrant for the year ended December 31,
1999, included in the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, which are incorporated by reference in this
Registration Statement.
West Palm Beach, Florida BDO Seidman, LLP
April 14, 2000
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
National Auto Finance Company, Inc.:
We consent to the use of our report included herein in the Annual Report on Form
10-K of National Auto Finance Company, Inc. (formerly National Auto Finance
Company, L.P. and subsidiaires) of our report dated April 15, 1998, relating to
the consolidated statements of operations, stockholders' equity, and cash flows
for the year ended December 31, 1997, which report appears in the December 31,
1999, annual report on Form 10-K of National Auto Finance Company, Inc.
KPMG
April 14, 2000
<PAGE> 1
EXHIBIT 23.3
The Board of Directors
National Auto Finance Company, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-23649) on Form S-8 of National Auto Finance Company, Inc. (formerly National
Auto Finance Company, L.P. and subsidiaires) of our report dated April 15, 1998,
relating to the consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1997, which report appears in the
December 31, 1999, annual report on Form 10-K of National Auto Finance Company,
Inc.
KPMG
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR AND AS OF THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,576
<SECURITIES> 0
<RECEIVABLES> 35,058
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,634
<PP&E> 3,377
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,776
<CURRENT-LIABILITIES> 2,343
<BONDS> 62,138
2,576
0
<COMMON> 90
<OTHER-SE> (18,371)
<TOTAL-LIABILITY-AND-EQUITY> 48,776
<SALES> 0
<TOTAL-REVENUES> (15,508)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,489
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,570)
<EPS-BASIC> (.64)
<EPS-DILUTED> (.64)
</TABLE>
